Northwest Bancshares, Inc. Announces Second Quarter 2016 Results and Quarterly Dividend

WARREN, Pa., July 25, 2016

The Company also announced that its Board of Directors declared a quarterly cash dividend of $0.15 per share payable on August 18, 2016, to shareholders of record as of August 4, 2016. This is the 87th consecutive quarter in which the Company has paid a cash dividend. Based on the current market value of the Company's stock, this represents an annualized dividend yield of approximately 4.0%.

Earnings for the current quarter include a $37.0 million penalty for the prepayment of $715.0 million of Federal Home Loan Bank ("FHLB") term borrowings which were replaced with lower-cost short-term advances. The refinancing of FHLB advances was done in anticipation of the purchase of 18 offices from First Niagara Bank, which is expected to close during the third quarter of 2016 and contribute deposits of approximately $1.7 billion. Upon closing the First Niagara transaction, the total impact of replacing long-term borrowings with low-cost deposits will create annual interest expense savings of $24.0 million. Also negatively impacting quarterly earnings were restructuring costs of $2.9 million related to the consolidation of 24 offices, and acquisition expenses of $467,000 related to the First Niagara transaction.  Excluding the after-tax impact of these expenses, non-GAAP net operating income for the quarter was $19.6 million, or $0.20 per diluted share, compared to non-GAAP net operating income of $15.6 million, or $0.17 per diluted share in the same quarter last year.  The non-GAAP annualized returns on average shareholders' equity and average assets for the quarter ended June 30, 2016 were 6.82% and 0.89% compared to 5.89% and 0.80% in the previous year.

In making this announcement, William J. Wagner, President and CEO, noted, "2016 is proving to be a transformational year for our company.  We were able to drive greater efficiency by consolidating 24 of our offices which decreased our total office count by 13%. Although this consolidation required $3.5 million in restructuring charges, annual savings going forward will be approximately $5.0 million."

"We also announced an agreement to purchase 18 First Niagara Bank offices in the greater Buffalo market with deposits of $1.7 billion and loans of $511.0 million. We anticipate closing this transaction before the end of the third quarter, and we look forward to the favorable impact it will have on our operating metrics. Given the large size of these offices, with deposits that average approximately $95.0 million, our efficiency ratio will improve and our presence in the Buffalo market will be greatly enhanced. We also anticipate that this acquisition will provide a favorable impact to our net interest margin, net income, return on assets and earnings per share. Most importantly, we are extremely excited to welcome the 70,000 new customers of these offices and the 185 employees who serve them."

Net interest income increased by $14.5 million, or 23.3%, to $76.7 million for the quarter ended June 30, 2016, from $62.2 million for the quarter ended June 30, 2015. This increase is due primarily to an $11.7 million, or 16.4%, increase in interest income on loans as a result of a $1.170 billion increase in the Company's loan portfolio from June 30 of last year. Contributing significantly to this increase was the acquisition of Lorain National Bank ("LNB") on August 14, 2015, which added loans of $928.0 million.  Also contributing to the increase in net interest income was a $4.0 million decrease in interest expense on borrowed funds due primarily to the previously mentioned FHLB advance restructuring. Partially offsetting these improvements was a $752,000 decrease in interest income on investment securities as the cash flow from these securities was used to fund loan growth. The interest paid on deposits increased by $174,000 for the quarter as deposit balances were $941.5 million, or 16.5%, higher than they were in the previous year, primarily due to the LNB acquisition. As a result of these changes, the Company's interest rate spread increased to 3.71% for the quarter ended June 30, 2016 from 3.25% for the comparable period last year while the net interest margin increased to 3.82% for the quarter ended June 30, 2016 from 3.45% for the same quarter last year.

The provision for loan losses increased by $3.1 million, or 299.9%, to $4.2 million for the quarter ended June 30, 2016, from $1.1 million for the quarter ended June 30, 2015. This increase is due primarily to the downgrade of three commercial banking relationships requiring an additional $1.7 million of combined reserves. However, overall credit quality continued to improve as classified loans to total loans decreased to 2.73% at June 30, 2016 from 3.12% at June 30, 2015 and annualized net charge-offs to average loans decreased to 0.31% for the quarter ended June 30, 2016 from 0.61% for the quarter ended June 30, 2015.