NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB+, a subordinated debt rating of BBB, and a short-term debt rating of K2 for Warren, Pennsylvania-based Northwest Bancshares, Inc. (NASDAQ: “NWBI”) (“the company”). In addition, KBRA assigns deposit and senior unsecured debt ratings of A-, a 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 the company’s rather diverse revenue sources, which include investment management and trust services as well as insurance, contributing toward the roughly 20% of revenues in fee income. NWBI’s comparatively lower-risk balance sheet has correlated to below-average loan yields (4.39% for 2Q20), largely due its rather large residential mortgage loan portfolio, which comprised over 40% of total loans at period-end. The company’s low cost of funding (0.35% average deposit cost for 2Q20), largely offsets its lower loan yields, maintaining NIM at or above peer levels in recent periods. NWBI’s lower deposit costs are, in part, due to an expansive branch network that serves both rural and metropolitan markets. While important to maintaining the company’s core, low-cost deposit franchise, NWBI’s large branch network has led to slightly above average, albeit, declining in recent periods, operating costs (2.6% of average assets through 1H20), a key driver in the company’s below-peer earnings (ROA has generally hovered near 1% in recent years). Moreover, the company has experienced moderately elevated credit costs in recent years (provision expenses have trended above 0.20% of average assets since 2017), though, KBRA notes the company’s below average phase 1 COVID-19 exposure (defined as hospitality, retail, energy, agriculture, shipping, and aviation) of roughly $939 million, or just 61% of total capital.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus disease (COVID-19) on the banking and other sectors. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank and Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
Jason Szelc, Senior Director (Lead Analyst)
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Brian Ropp, Senior Director
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Joe Scott, Managing Director (Rating Committee Chair)
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Nish Kumar, Senior Director
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