Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Northwest Bancshares Inc (NWBI, Financial) reported net income of $5 million or $0.04 per diluted share for the second quarter of 2024.
- The company successfully restructured its securities portfolio, resulting in a yield pickup of over 420 basis points.
- Commercial and industrial loans grew by 3.2% since last quarter and 33.4% since the same quarter last year.
- Deposits grew by 1.6% since the last quarter and 5.8% since the same period last year.
- Net interest margin improved to 320 basis points, a 10-basis-point improvement from the first quarter.
Negative Points
- Loan growth was muted this quarter as the company focused on improving new loan yield rather than seeking aggressive loan growth.
- The company incurred a loss of $39.4 million pretax from the sale of $314 million or 15% of its portfolio during the securities restructuring.
- Non-performing assets saw a slight increase, indicating some stress in the portfolio.
- The cost of deposits grew by 15 basis points, although it was the lowest increase in the past five quarters.
- The company experienced higher levels of runoff in its loan portfolio than expected, which put downward pressure on overall balance growth.
Q & A Highlights
Q: My first question is on the timing and impact of the securities restructuring. Could you provide some details on the timing of it over the course of the quarter? And what's the impact we should expect in Q3?
A: We started the restructuring in the middle towards the end of the quarter. Most of the sales were late May and early June. We finished all of the selling activity towards the end of June. We have a little bit more about $20 million to redeploy into some asset classes. We will get a full quarter's benefit next year, and we would expect that to be incremental 4 to 5 basis points in Q3. (Douglas Schosser, CFO)
Q: Can you talk about if the commercial loan growth reflects a change in competitive dynamics or potential entrants in the markets? And how do current pipelines compare to the last few quarters?
A: It is due to both credit discipline and pricing discipline. We had some higher levels of runoff in our portfolio than expected, which put downward pressure on balance growth. We wouldn't expect that level of payoffs to continue. Our pipelines are similar this quarter to last quarter, and we don't expect continued reductions in loan balances. (Douglas Schosser, CFO)
Q: On the non-interest income and expense side, you're guiding to low single-digit growth off of the adjusted base per quarter. Is it low single-digit growth in Q3 relative to Q2 and then low single-digit growth in Q4 relative to Q3?
A: It's low single-digit growth on the adjusted Q2 numbers over the course of the year, not necessarily 2% per quarter. (Douglas Schosser, CFO)
Q: Just wondering your thoughts if your appetite has changed at all for M&A, and your updated thoughts on opportunities in the near term.
A: Conversations are picking up, whether that means expanding our geography into higher-growth markets, acquiring an institution that brings businesses we don't have, or a deposit play. We are actively having conversations and are interested in growing both organically and inorganically. (Louis Torchio, CEO)
Q: What kind of rate cut assumptions are baked into your margin guidance?
A: We were looking at about three cuts over the course of the year for the final year as part of our margin guidance. We are well-positioned to handle if it comes out to be two cuts. (Douglas Schosser, CFO)
Q: What was your CRE concentration ratio at quarter-end?
A: The CRE concentration is 168%. (Douglas Schosser, CFO)
Q: Is the branch rationalization exercise pretty much done, or could we expect to see a few more branch closures in the second half of the year?
A: We don't anticipate any further branch closures. We are looking at a multiyear plan for consumer, both investing in the franchise and some consolidation, but nothing meaningful. (Louis Torchio, CEO)
Q: What percent of the loan book is pure floating rate and will reprice within three months?
A: On the commercial book, 53% is floating. The overall book is 27% floating. (Douglas Schosser, CFO)
Q: What are your expectations on where you think PDAs will settle out? Are you being more selective and looking at running off higher-cost deposits?
A: We plan to keep CD maturities short to reprice as rates decline. We continue to look at our money market book and business deposits, which have a high beta on the way down. We aim to maintain and potentially grow our overall deposit levels. (Douglas Schosser, CFO)
Q: Any insight on new loan yields in the pipeline on the commercial side?
A: We've been targeting $7.5 million and better. Each deal is unique and priced individually, but generally, $7.5 million is a decent level to count on. (Douglas Schosser, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
