KBRA Affirms Ratings for Northwest Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Columbus, OH-based Northwest Bancshares, Inc. (NASDAQ: NWBI) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 for the subsidiary bank, Northwest Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by NWBI’s durable, low-cost and granular deposit franchise that has greatly benefitted the company during this period of rising interest rates and partially mitigates the interest rate risk stemming from its concentration in conventional residential mortgage loans. NWBI’s total cost of deposits has continued to track near the lowest of all KBRA publicly rated financial institutions at 0.77% for 2Q23. Further supporting the ratings are the company’s considerably lower concentrations in both C&D and investor CRE (19% and 118%, respectively at 2Q23). Given the weaknesses arising within CRE, namely office CRE, we consider NWBI to be favorably positioned to manage through a potential credit down cycle. With its more consumer-oriented loan portfolio, NWBI has reported rather stable credit quality metrics dating back to the GFC, when the company largely outperformed peers with a peak NCO ratio of 0.7% in 2011.

NWBI has historically managed capital rather conservatively, with capital ratios generally tracking above peers, including a CET1 ratio that has run over 100 bps above rated peer averages in recent periods. As previously noted, NWBI’s loan portfolio is highly concentrated in fixed-rate conventional residential mortgage loans, limiting its ability to reprice the loan book as interest rates rapidly increased (the residential mortgage loan portfolio had an average yield of 3.73% for 2Q23) and creating a drag on NIM, and subsequently earnings, as funding costs began to increase (after peaking in 4Q22, NIM has decreased 27 bps to 3.42% at 2Q23). Additionally, NWBI has reported decreased noninterest income, largely due to the unfavorable mortgage banking operating environment. However, NWBI's fee income is relatively diverse with a mix of account service fees, trust and brokerage fees and ATM and interechange fees, generating an above average level of noninterest income (NWBI has reported total noninterest income of 0.8% of average assets for 1H23).

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