Companies: 10,761     total market cap: โ‚ฌ113.326 T
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Northwest Bancshares
NWBI
#4795
Rank
โ‚ฌ1.60 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
10,97ย โ‚ฌ
Share price
1.29%
Change (1 day)
2.08%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Northwest Bancshares
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q3

Northwest Bancshares - 10-Q quarterly report FY2021 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
 
☒    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2021
 OR
☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                   to                   

Commission File Number 001-34582
 
NORTHWEST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Maryland 27-0950358
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
100 Liberty StreetWarren,Pennsylvania 16365
(Address of Principal Executive Offices) (Zip Code)
 
(814) 726-2140
(Registrant’s telephone number, including area code)

Not applicable
  (Former name, former address and former fiscal year, if changed since last report)
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, 0.01 Par ValueNWBINASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
    ☒    Large accelerated filer     ☐    Accelerated filer
    ☐    Non-accelerated filer     ☐    Smaller reporting company
            ☐    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
    Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock ($0.01 par value), 126,562,556 shares outstanding as of October 31, 2021.
NORTHWEST BANCSHARES, INC.
Table of Contents
 
    
PART I FINANCIAL INFORMATION 
    
   
     
   
1
     
   
2
     
   
3
     
   
4
     
   
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63
     
   


Item 1.        FINANCIAL STATEMENTS
 
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands, except share data)
September 30, 2021December 31, 2020
Assets  
Cash and cash equivalents $1,090,485 736,277 
Marketable securities available-for-sale (amortized cost of $1,587,105 and $1,375,685, respectively)
1,583,715 1,398,941 
Marketable securities held-to-maturity (fair value of $609,777 and $179,666, respectively)
618,395 178,887 
Total cash and cash equivalents and marketable securities3,292,595 2,314,105 
Loans held-for-sale27,411 58,786 
Loans held for investment10,171,557 10,522,063 
Allowance for credit losses(109,767)(134,427)
Loans receivable, net10,089,201 10,446,422 
FHLB stock, at cost14,567 21,748 
Accrued interest receivable26,995 35,554 
Real estate owned, net809 2,232 
Premises and equipment, net155,740 161,538 
Bank-owned life insurance254,871 253,951 
Goodwill380,997 382,279 
Other intangible assets, net14,041 19,936 
Other assets159,419 168,503 
Total assets$14,389,235 13,806,268 
Liabilities and shareholders’ equity  
Liabilities:  
Noninterest-bearing demand deposits$3,052,115 2,716,224 
Interest-bearing demand deposits2,926,351 2,755,950 
Money market deposit accounts2,584,424 2,437,539 
Savings deposits2,271,496 2,047,424 
Time deposits1,387,827 1,642,096 
Total deposits12,222,213 11,599,233 
Borrowed funds126,496 159,715 
Subordinated debt123,486 123,329 
Junior subordinated debentures 128,989 128,794 
Advances by borrowers for taxes and insurance26,951 45,230 
Accrued interest payable589 2,054 
Other liabilities198,743 209,210 
Total liabilities12,827,467 12,267,565 
Shareholders’ equity:  
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued
— — 
Common stock, $0.01 par value: 500,000,000 shares authorized, 126,521,344 and 127,019,452 shares issued and outstanding, respectively
1,265 1,270 
Additional paid-in capital1,008,099 1,015,502 
Retained earnings604,787 555,480 
Accumulated other comprehensive loss(52,383)(33,549)
Total shareholders’ equity1,561,768 1,538,703 
Total liabilities and shareholders’ equity$14,389,235 13,806,268 
See accompanying notes to unaudited Consolidated Financial Statements.
1
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except share data) 
Quarter ended September 30,Nine months ended September 30,
 2021202020212020
Interest income:    
Loans receivable$97,475 107,241 295,048 305,226 
Mortgage-backed securities5,840 4,652 15,720 12,865 
Taxable investment securities649 427 1,976 1,514 
Tax-free investment securities628 655 1,797 1,404 
FHLB stock dividends71 218 325 789 
Interest-earning deposits352 221 727 541 
Total interest income
105,015 113,414 315,593 322,339 
Interest expense:    
Deposits4,540 8,443 14,827 29,182 
Borrowed funds2,056 1,437 6,160 4,317 
Total interest expense
6,596 9,880 20,987 33,499 
Net interest income
98,419 103,534 294,606 288,840 
Provision for credit losses(4,354)6,818 (9,974)86,205 
Net interest income after provision for credit losses
102,773 96,716 304,580 202,635 
Noninterest income:    
Gain/(loss) on sale of investments(46)(12)(172)161 
Gain on sale of loans
— — — 1,302 
Service charges and fees13,199 14,354 38,337 42,539 
Trust and other financial services income7,182 5,376 21,101 15,200 
Insurance commission income44 2,331 3,633 7,098 
Gain/(loss) on real estate owned, net247 (32)371 (220)
Income from bank-owned life insurance1,332 1,576 4,707 3,860 
Mortgage banking income3,941 11,055 13,772 24,271 
Gain on sale of insurance business— — 25,327 — 
Other operating income3,287 2,022 8,771 5,931 
Total noninterest income
29,186 36,670 115,847 100,142 
Noninterest expense:    
Compensation and employee benefits49,063 47,371 145,196 130,166 
Premises and occupancy costs7,745 8,342 23,969 23,008 
Office operations4,143 4,626 10,625 11,719 
Collections expense411 1,264 1,330 2,382 
Processing expenses13,517 15,042 42,124 37,864 
Marketing expenses2,102 2,147 6,183 5,701 
Federal deposit insurance premiums1,184 1,498 3,844 3,116 
Professional services4,295 3,246 13,108 8,883 
Amortization of intangible assets1,321 1,781 4,348 5,192 
Real estate owned expense94 111 254 295 
Merger, asset disposition and restructuring expense— 1,414 641 13,551 
Other expenses2,227 27 7,003 12,766 
Total noninterest expense
86,102 86,869 258,625 254,643 
Income before income taxes45,857 46,517 161,802 48,134 
Federal and state income taxes expense10,794 8,467 37,535 8,345 
Net income$35,063 38,050 124,267 39,789 
Basic earnings per share$0.28 0.30 0.98 0.34 
Diluted earnings per share$0.27 0.30 0.97 0.34 
See accompanying notes to unaudited Consolidated Financial Statements.
2
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
Quarter ended September 30,Nine months ended September 30,
 2021202020212020
Net income$35,063 38,050 124,267 39,789 
Other comprehensive income net of tax:    
Net unrealized holding gains/(losses) on marketable securities:    
Unrealized holding gains/(losses), net of tax of $2,076, ($107), $6,812, and ($5,286), respectively
(6,455)676 (19,554)13,623 
Reclassification adjustment for (gains)/losses included in net income, net of tax of $24, $1, $89, and $0, respectively
(69)(1)(280)1 
Net unrealized holding gains/(losses) on marketable securities(6,524)675 (19,834)13,624 
Change in fair value of interest rate swaps
Unrealized holding losses on interest rate swaps, net of tax of $0, $0, $0, and $209, respectively
— — — (946)
Reclassification adjustment for losses included in net income, net of tax of $0, ($375), $0, and ($375), respectively
— 946 — 946 
Net change in fair value of interest rate swaps— 946 — — 
Defined benefit plan:    
Actuarial reclassification adjustments for prior period service costs and actuarial losses included in net income, net of tax of ($128), ($99), ($386), and ($297) respectively
333 250 1,000 748 
Other comprehensive income/(loss)(6,191)1,871 (18,834)14,372 
Total comprehensive income$28,872 39,921 105,433 54,161 
See accompanying notes to unaudited Consolidated Financial Statements.

3
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in thousands, expect share data) 
Additional paid-in capitalRetained earningsAccumulated
other comprehensive loss		Total shareholders’ equity
 Common stock
Quarter ended September 30, 2021SharesAmount
Beginning balance at June 30, 2021127,907,885 $1,279 1,025,174 595,100 (46,192)1,575,361 
Comprehensive income:      
Net income— — — 35,063 — 35,063 
Other comprehensive loss, net of tax of $1,972
— — — — (6,191)(6,191)
Total comprehensive income/(loss)— — — 35,063 (6,191)28,872 
Exercise of stock options57,142 — 688 — — 688 
Stock-based compensation expense1,139 — 1,046 — — 1,046 
Share repurchases(1,425,120)(14)(18,809)— — (18,823)
Stock-based compensation forfeited(19,702)— — — — — 
Dividends paid ($0.20 per share)
— — — (25,376)— (25,376)
Ending balance at September 30, 2021126,521,344 $1,265 1,008,099 604,787 (52,383)1,561,768 


Additional paid-in capitalRetained earningsAccumulated
other comprehensive income/(loss)		Total shareholders’ equity
 Common stock
Quarter ended September 30, 2020SharesAmount
Beginning balance at June 30, 2020127,838,400 $1,278 1,023,083 530,928 (24,440)1,530,849 
Comprehensive income:      
Net income— — — 38,050 — 38,050 
Other comprehensive income, net of tax of ($581)
— — — — 1,871 1,871 
Total comprehensive income— — — 38,050 1,871 39,921 
Stock-based compensation expense— — 743 — — 743 
Stock-based compensation forfeited (37,103)— 1 — — 1 
Dividends paid ($0.19 per share)
— — — (24,283)— (24,283)
Ending balance at September 30, 2020127,801,297 $1,278 1,023,827 544,695 (22,569)1,547,231 
See accompanying notes to unaudited Consolidated Financial Statements.

4
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in thousands, expect share data)
Additional paid-in capitalRetained earningsAccumulated
other comprehensive loss		Total shareholders’ equity
 Common stock
Nine months ended September 30, 2021SharesAmount
Beginning balance at December 31, 2020127,019,452 $1,270 1,015,502 555,480 (33,549)1,538,703 
Comprehensive income:      
Net income— — — 124,267 — 124,267 
Other comprehensive loss, net of tax of $6,515
— — — — (18,834)(18,834)
Total comprehensive income/(loss)— — — 124,267 (18,834)105,433 
Exercise of stock options1,043,487 10 12,711 — — 12,721 
Stock-based compensation expense323,824 3 3,722 — — 3,725 
Share repurchases(1,813,132)(18)(23,836)— — (23,854)
Stock-based compensation forfeited(52,287)— — — — — 
Dividends paid ($0.59 per share)
— — — (74,960)— (74,960)
Ending balance at September 30, 2021126,521,344 $1,265 1,008,099 604,787 (52,383)1,561,768 


Additional paid-in capitalRetained earningsAccumulated
other comprehensive income/(loss)		Total shareholders’ equity
 Common stock
Nine months ended September 30, 2020SharesAmount
Beginning balance at December 31, 2019106,859,088 $1,069 805,750 583,407 (36,941)1,353,285 
Comprehensive income:      
Net income— — — 39,789 — 39,789 
Other comprehensive income, net of tax of ($5,749)
— — — — 14,372 14,372 
Total comprehensive income— — — 39,789 14,372 54,161 
Acquisition of MutualBank20,658,957 206 213,200 — — 213,406 
Reclassification due to adoption of ASU No. 2016-13— — — (9,649)— (9,649)
Exercise of stock options87,305 1 1,005 — — 1,006 
Stock-based compensation expense282,691 3 3,766 — — 3,769 
Stock-based compensation forfeited(86,744)(1)1 — — — 
Other— — 105 — — 105 
Dividends paid ($0.57 per share)
— — — (68,852)— (68,852)
Ending balance at September 30, 2020127,801,297 $1,278 1,023,827 544,695 (22,569)1,547,231 
See accompanying notes to unaudited Consolidated Financial Statements.

5
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine months ended September 30,
 20212020
Operating activities:  
Net income$124,267 39,789 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for credit losses(9,974)86,205 
Net gain on sale of assets(970)(2,322)
Mortgage banking activity(17,321)(16,676)
Gain on sale of insurance business(25,327)— 
Net depreciation, amortization and accretion(271)6,625 
(Increase)/decrease in other assets19,248 (28,825)
Increase/(decrease) in other liabilities(10,545)79,299 
Net amortization on marketable securities5,830 2,240 
Noncash compensation expense related to stock benefit plans3,725 3,769 
Noncash write-down of real estate owned173 272 
Deferred income tax (benefit)/expense1,889 (15,812)
Origination of loans held-for-sale(605,947)(472,121)
Proceeds from sale of loans held-for-sale652,770 471,367 
Net cash provided by operating activities137,547 153,810 
Investing activities:  
Purchase of marketable securities held-to-maturity(479,165)— 
Purchase of marketable securities available-for-sale(619,987)(730,096)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity38,974 2,694 
Proceeds from maturities and principal reductions of marketable securities available-for-sale341,121 284,532 
Proceeds from sale of marketable securities available-for-sale62,127 8 
Proceeds from bank-owned life insurance3,984 596 
Loan originations(3,063,998)(3,640,293)
Proceeds from loan maturities and principal reductions3,413,907 3,132,329 
Proceeds from sale of loans held for investment— 50,791 
Net proceeds of FHLB stock7,181 4,684 
Proceeds from sale of real estate owned2,440 1,062 
Proceeds from sale of real estate owned for investment, net229 455 
Purchase of premises and equipment(3,728)(10,808)
Proceeds from the sale of insurance business28,238 — 
Acquisitions, net of cash received— 261,712 
Net cash used in investing activities(268,677)(642,334)
6
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
(in thousands) 
Nine months ended September 30,
 20212020
Financing activities:  
Net increase in deposits$622,980 1,247,573 
Proceeds from long-term borrowings— 123,247 
Repayments of long-term borrowings(22,105)(112,253)
Net decrease in short-term borrowings(11,165)(89,504)
Increase in advances by borrowers for taxes and insurance(18,279)(16,790)
Cash dividends paid on common stock(74,960)(68,852)
Purchase of common stock for retirement(23,854)— 
Proceeds from stock options exercised12,721 1,006 
Net cash provided by financing activities485,338 1,084,427 
Net increase in cash and cash equivalents$354,208 595,903 
Cash and cash equivalents at beginning of period$736,277 60,846 
Net increase in cash and cash equivalents354,208 595,903 
Cash and cash equivalents at end of period$1,090,485 656,749 
Cash paid during the period for:  
Interest on deposits and borrowings (including interest credited to deposit accounts of $14,631 and $27,668, respectively)
$22,452 33,639 
Income taxes28,961 21,800 
Business acquisitions:  
Fair value of assets acquired$— 2,090,599 
Northwest Bancshares, Inc. common stock issued— (213,406)
Net cash paid— — 
Liabilities assumed$— 1,877,193 
Non-cash activities:  
Loan foreclosures and repossessions$3,848 4,216 
Sale of real estate owned financed by the Company54 — 
See accompanying notes to unaudited Consolidated Financial Statements.

7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
(1)    Basis of Presentation and Informational Disclosures
 
Northwest Bancshares, Inc. (the “Company” or “NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a bank holding company regulated by the Board of Governors of the Federal Reserve System ("FRB"). The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”).  Northwest is regulated by the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking. Northwest operates 170 community-banking offices throughout Pennsylvania, Western New York, Eastern Ohio, and Indiana.
 
The accompanying unaudited Consolidated Financial Statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Capital Group, Inc., Allegheny Services, Inc., Great Northwest Corporation, The Bert Company (doing business as Northwest Insurance Services, which was sold April 30, 2021) and MutualFirst Investment Company, Inc. The unaudited Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information or footnotes required for complete annual financial statements.  In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included.  The Consolidated Financial Statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 updated, as required, for any new pronouncements or changes.
 
    Certain items previously reported have been reclassified to conform to the current year's reporting format.

    The results of operations for the quarter and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period.
 
Stock-Based Compensation
 
On May 25, 2021, the Company awarded employees 621,972 stock options and directors 72,000 stock options with an exercise price of $13.68 and grant date fair value of $0.64 per stock option, and the Company awarded employees 293,755 restricted common shares and directors 27,000 restricted common shares with a grant date fair value of $13.68. Awarded stock options and common shares vest over a five-year period with the first vesting occurring on the grant date. Stock-based compensation expense of $1.0 million and $743,000 for the quarters ended September 30, 2021 and 2020, respectively, was recognized in compensation expense relating to our stock benefit plans. At September 30, 2021, there was compensation expense of $1.9 million to be recognized for awarded but unvested stock options and $10.7 million for unvested restricted common shares.

 Income Taxes-Uncertain Tax Positions
 
Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits.  The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. At September 30, 2021, we had $336,000 of liability for unrecognized tax benefits.
 
We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income.  We recognize penalties (if any) in other expenses. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2020, 2019, 2018 and 2017.

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued the accounting standard update ("ASU") 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” This guidance removes and adds disclosure requirements for defined benefit pension or other post-retirement plans. On January 1, 2021, the Company adopted ASU 2018-14 on a retrospective basis for disclosures impacted. The adoption of this standard did not have a material effect on our results of operations or financial position. Refer to Note 8, "Pension and Other Post-Retirement Benefits".

8
    In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." This guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption of this standard did not have a material effect on our results of operations or financial position.

(2)    Marketable Securities
 
The following table shows the portfolio of marketable securities available-for-sale at September 30, 2021 (in thousands):
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by the U.S government and agencies:
Due after ten years$58,537 — (1,545)56,992 
Debt issued by government-sponsored enterprises:
Due in less than one year191 1 — 192 
Due in five years through ten years47,516 87 (1,133)46,470 
Municipal securities:
Due in less than one year1,151 18 — 1,169 
Due in one year through five years1,647 31 — 1,678 
Due in five years through ten years21,722 583 (93)22,212 
Due after ten years99,832 2,385 (747)101,470 
Residential mortgage-backed securities:
Fixed rate pass-through283,015 3,278 (2,325)283,968 
Variable rate pass-through12,115 356 (15)12,456 
Fixed rate agency CMOs1,017,472 4,800 (9,335)1,012,937 
Variable rate agency CMOs43,907 294 (30)44,171 
Total residential mortgage-backed securities1,356,509 8,728 (11,705)1,353,532 
Total marketable securities available-for-sale$1,587,105 11,833 (15,223)1,583,715 


9
The following table shows the portfolio of marketable securities available-for-sale at December 31, 2020 (in thousands): 
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by the U.S. government and agencies:    
Due after ten years$40,761 211 (55)40,917 
Debt issued by government-sponsored enterprises:    
Due in less than one year24,976 159 — 25,135 
Due in one year through five years238 3 — 241 
Due in five years through ten years68,973 238 (80)69,131 
Municipal securities:    
Due in less than one year4,008 14 — 4,022 
Due in one year through five years2,803 63 (2)2,864 
Due in five years through ten years16,045 429 (5)16,469 
Due after ten years89,778 3,752 (72)93,458 
Residential mortgage-backed securities:    
Fixed rate pass-through339,406 7,125 (86)346,445 
Variable rate pass-through14,778 431 (20)15,189 
Fixed rate agency CMOs723,586 11,758 (1,093)734,251 
Variable rate agency CMOs50,333 519 (33)50,819 
Total residential mortgage-backed securities1,128,103 19,833 (1,232)1,146,704 
Total marketable securities available-for-sale$1,375,685 24,702 (1,446)1,398,941 
 
The following table shows the portfolio of marketable securities held-to-maturity at September 30, 2021 (in thousands):
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by government-sponsored enterprises:    
Due in one year through five years$16,478 — (49)16,429 
Due in five years through ten years107,972 — (3,636)104,336 
Residential mortgage-backed securities:    
Fixed rate pass-through192,976 248 (1,104)192,120 
Variable rate pass-through716 24 — 740 
Fixed rate agency CMOs299,650 476 (4,595)295,531 
Variable rate agency CMOs603 18 — 621 
Total residential mortgage-backed securities493,945 766 (5,699)489,012 
Total marketable securities held-to-maturity$618,395 766 (9,384)609,777 


10
The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2020 (in thousands): 
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by government-sponsored enterprises:    
Due in five years through ten years$67,990 12 (123)67,879 
Residential mortgage-backed securities:    
Fixed rate pass-through1,723 131 — 1,854 
Variable rate pass-through919 30 — 949 
Fixed rate agency CMOs107,651 716 (2)108,365 
Variable rate agency CMOs604 15 — 619 
Total residential mortgage-backed securities110,897 892 (2)111,787 
Total marketable securities held-to-maturity$178,887 904 (125)179,666 

The following table shows the contractual maturity of our residential mortgage-backed securities available-for-sale at September 30, 2021 (in thousands):
Amortized
cost		Fair
value
Residential mortgage-backed securities:  
Due in less than one year$453 455 
Due in one year through five years39,580 40,067 
Due after five years through ten years230,932 232,244 
Due after ten years1,085,544 1,080,766 
Total residential mortgage-backed securities$1,356,509 1,353,532 

The following table shows the contractual maturity of our residential mortgage-backed securities held-to-maturity at September 30, 2021 (in thousands):
Amortized
cost		Fair
value
Residential mortgage-backed securities:  
Due in one year through five years$890 948 
Due after five years through ten years212,525 210,946 
Due after ten years280,530 277,118 
Total residential mortgage-backed securities$493,945 489,012 

The following table shows the fair value of and gross unrealized losses on marketable securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2021 (in thousands):
 Less than 12 months12 months or moreTotal
Fair 
value		Unrealized
loss		Fair 
value		Unrealized
loss		Fair 
value		Unrealized
loss
U.S. government-sponsored enterprises$216,233 (6,055)6,916 (308)223,149 (6,363)
Municipal securities34,492 (840)— — 34,492 (840)
Residential mortgage-backed securities - agency1,106,779 (14,455)103,690 (2,949)1,210,469 (17,404)
Total $1,357,504 (21,350)110,606 (3,257)1,468,110 (24,607)

11
The following table shows the fair value of and gross unrealized losses on marketable securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2020 (in thousands):
 Less than 12 months12 months or moreTotal
Fair 
value		Unrealized
loss		Fair 
value		Unrealized
loss		Fair 
value		Unrealized
loss
U.S. government-sponsored enterprises$67,809 (179)1,923 (80)69,732 (259)
Municipal securities4,257 (79)— — 4,257 (79)
Residential mortgage-backed securities - agency300,767 (1,202)5,533 (31)306,300 (1,233)
Total $372,833 (1,460)7,456 (111)380,289 (1,571)
 
The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2021, which were comprised of 216 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies or U.S. government-sponsored enterprises. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company does not have the intent to sell these investment securities and it is likely that we will not be required to sell these securities before their anticipated recovery, which may be at maturity.

All of the Company's held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2021.

The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of September 30, 2021 (in thousands). The credit ratings are sourced from nationally recognized rating agencies, which include Moody's and S&P, or when credit ratings cannot be sourced from the agencies, they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of September 30, 2021.
AA+Total
Held-to-maturity securities (at amortized cost):
  Debt issued by government-sponsored enterprises$124,450 124,450 
  Residential mortgage-backed securities493,945 493,945 
Total marketable securities held-to-maturity$618,395 618,395 

12
(3)    Loans Receivable

    The following table shows a summary of our loans receivable at amortized cost basis at September 30, 2021 and December 31, 2020 (in thousands): 
September 30, 2021December 31, 2020
 OriginatedAcquiredTotalOriginatedAcquiredTotal
Personal Banking:    
Residential mortgage loans (1)$2,756,383 233,138 2,989,521 2,753,593 314,528 3,068,121 
Home equity loans1,122,611 227,737 1,350,348 1,175,703 292,033 1,467,736 
Vehicle loans1,350,278 110,912 1,461,190 995,040 157,633 1,152,673 
Consumer loans305,549 50,097 355,646 288,066 67,254 355,320 
Total Personal Banking5,534,821 621,884 6,156,705 5,212,402 831,448 6,043,850 
Commercial Banking:      
Commercial real estate loans2,258,953 477,531 2,736,484 2,223,108 624,873 2,847,981 
Commercial real estate loans - owner occupied335,461 90,606 426,067 344,016 153,892 497,908 
Commercial loans786,111 93,601 879,712 1,019,482 171,628 1,191,110 
Total Commercial Banking3,380,525 661,738 4,042,263 3,586,606 950,393 4,536,999 
Total loans receivable, gross8,915,346 1,283,622 10,198,968 8,799,008 1,781,841 10,580,849 
Allowance for credit losses(87,222)(22,545)(109,767)(102,874)(31,553)(134,427)
Total loans receivable, net (2)$8,828,124 1,261,077 10,089,201 8,696,134 1,750,288 10,446,422 
(1)     Includes fair value of $27.4 million and $58.8 million of loans held-for-sale at September 30, 2021 and December 31, 2020, respectively.
(2)    Includes $57.6 million and $40.9 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at September 30, 2021 and December 31, 2020, respectively.

13
    The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended September 30, 2021 (in thousands):
Balance as of September 30, 2021Current period provisionCharge-offsRecoveriesBalance as of June 30, 2021
Allowance for Credit Losses
Personal Banking:     
Residential mortgage loans$7,987 1,939 (1,263)64 7,247 
Home equity loans6,293 291 (1,474)237 7,239 
Vehicle loans12,457 82 (1,112)599 12,888 
Consumer loans3,074 949 (1,036)360 2,801 
Total Personal Banking29,811 3,261 (4,885)1,260 30,175 
Commercial Banking:     
Commercial real estate loans58,451 (5,103)(1,581)555 64,580 
Commercial real estate loans - owner occupied3,246 (1,487)— 4 4,729 
Commercial loans18,259 (1,025)(412)1,850 17,846 
Total Commercial Banking79,956 (7,615)(1,993)2,409 87,155 
Total$109,767 (4,354)(6,878)3,669 117,330 
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans$2 — — — 2 
Home equity loans40 (2)— — 42 
Total Personal Banking42 (2)— — 44 
Commercial Banking:     
Commercial real estate loans2,647 715 — — 1,932 
Commercial real estate loans - owner occupied 140 (41)— — 181 
Commercial loans1,333 101 — — 1,232 
Total Commercial Banking4,120 775 — — 3,345 
Total off-balance sheet exposure$4,162 773 — — 3,389 
























14
The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended September 30, 2020, and includes the cumulative effect of adopting ASU 2016-13 (in thousands):
Balance as of September 30, 2020Current period provisionCharge-offsRecoveriesBalance as of June 30, 2020
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans$12,036 268 (129)189 11,708 
Home equity loans9,585 183 (88)127 9,363 
Vehicle loans16,713 4,111 (1,763)530 13,835 
Consumer loans3,147 1,871 (1,593)363 2,506 
Total Personal Banking41,481 6,433 (3,573)1,209 37,412 
Commercial Banking:
Commercial real estate loans73,410 780 (470)267 72,833 
Commercial real estate loans - owner occupied13,570 (1,205)(62)10 14,827 
Commercial loans11,748 810 (4,892)316 15,514 
Total Commercial Banking98,728 385 (5,424)593 103,174 
Total$140,209 6,818 (8,997)1,802 140,586 
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans$3 3 — — — 
Home equity loans40 2 — — 38 
Total Personal Banking43 5 — — 38 
Commercial Banking:
Commercial real estate loans2,423 (2,712)— — 5,135 
Commercial real estate loans - owner occupied469 (157)— — 626 
Commercial loans3,312 (1,072)— — 4,384 
Total Commercial Banking6,204 (3,941)— — 10,145 
Total off-balance sheet exposure$6,247 (3,936)— — 10,183 
























15
The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the nine months ended September 30, 2021 (in thousands):
 Balance as of September 30, 2021Current period provisionCharge-offsRecoveriesBalance as of December 31, 2020
Allowance for Credit Losses
Personal Banking: 
Residential mortgage loans$7,987 3,269 (2,888)340 7,266 
Home equity loans6,293 1,892 (2,081)490 5,992 
Vehicle loans12,457 (341)(4,017)1,990 14,825 
Consumer loans3,074 2,291 (3,135)1,047 2,871 
Total Personal Banking29,811 7,111 (12,121)3,867 30,954 
Commercial Banking:
Commercial real estate loans58,451 (12,859)(9,281)1,210 79,381 
Commercial real estate loans - owner occupied3,246 (6,392)(890)9 10,518 
Commercial loans18,259 2,166 (1,627)4,147 13,574 
Total Commercial Banking79,956 (17,085)(11,798)5,366 103,473 
Total$109,767 (9,974)(23,919)9,233 134,427 
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans$2 — — — 2 
Home equity loans40 5 — — 35 
Total Personal Banking42 5 — — 37 
Commercial Banking:
Commercial real estate loans2,647 (802)— — 3,449 
Commercial real estate loans - owner occupied140 (186)— — 326 
Commercial loans1,333 (1,218)— — 2,551 
Total Commercial Banking4,120 (2,206)— — 6,326 
Total off-balance sheet exposure$4,162 (2,201)— — 6,363 

16
The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the nine months ended September 30, 2020 and includes the cumulative effect of adopting ASU 2016-13 (in thousands):
Balance as of September 30, 2020Current
period provision		Charge-offsRecoveriesInitial ACL on loans purchased with credit deteriorationCumulative effect of ASU 2016-13*Balance as of December 31, 2019
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans$12,036 1,132 (510)304 1,095 7,441 2,574 
Home equity loans9,585 536 (550)408 216 5,786 3,189 
Vehicle loans16,713 12,419 (5,369)1,294 235 842 7,292 
Consumer loans3,147 3,600 (4,666)1,179 157 (2,424)5,301 
Total Personal Banking41,481 17,687 (11,095)3,185 1,703 11,645 18,356 
Commercial Banking:
Commercial real estate loans73,410 50,018 (1,470)1,011 5,720 2,288 15,843 
Commercial real estate loans - owner occupied13,570 5,642 (83)25 963 1,278 5,745 
Commercial loans11,748 12,858 (16,056)909 459 (4,419)17,997 
Total Commercial Banking98,728 68,518 (17,609)1,945 7,142 (853)39,585 
Total$140,209 86,205 (28,704)5,130 8,845 10,792 57,941 
Allowance for Credit Losses -
off-balance sheet exposure
Personal Banking:
Residential mortgage loans$3 3 — — — — — 
Home equity loans40 10 — — — (293)323 
Consumer loans— — — — — (402)402 
Total Personal Banking4313— — — (695)725
Commercial Banking:
Commercial real estate loans2,423 412 — — — 1,934 77 
Commercial real estate loans - owner occupied469 378 — — — 88 3 
Commercial loans3,312 2,220 — — — 923 169 
Total Commercial Banking6,204 3,010 — — — 2,945 249 
Total off-balance sheet exposure$6,247 3,023 — — — 2,250 974 
* Includes the impact of the initial allowance on PCD loans of $517,000.    

During the nine months ended September 30, 2021, there were no loans sold that were classified as held for investment. During the nine months ended September 30, 2020, we sold $50.0 million of loans that were classified as held for investment, for a gain of $1.3 million, which is reported in gain on sale of loans on the Consolidated Statements of Income. No loans were sold during the three months ended September 30, 2021 or September 30, 2020.





    
 

17
    The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at September 30, 2021 (in thousands):
 Total loans
receivable		Allowance for
credit losses		Nonaccrual
loans (1)		Loans 90 days past due and accruingTDRsAllowance
related to
TDRs		Additional
commitments
to customers
with loans
classified as
TDRs
Personal Banking:       
Residential mortgage loans$2,989,521 7,987 10,710 — 7,007 1,792 — 
Home equity loans1,350,348 6,293 6,482 — 1,821 709 — 
Vehicle loans1,461,190 12,457 2,977 — — — — 
Consumer loans355,646 3,074 1,115 386 — — — 
Total Personal Banking6,156,705 29,811 21,284 386 8,828 2,501 — 
Commercial Banking:       
Commercial real estate loans2,736,484 58,451 135,902 — 14,032 845 499 
Commercial real estate loans - owner occupied426,067 3,246 1,359 — 326 55 — 
Commercial loans879,712 18,259 18,397 — 3,336 187 296 
Total Commercial Banking4,042,263 79,956 155,658 — 17,694 1,087 795 
Total$10,198,968 109,767 176,942 386 26,522 3,588 795 
(1)Includes $12.9 million of nonaccrual TDRs.

    The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2020 (in thousands): 
 Total loans
receivable		Allowance for
credit losses		Nonaccrual
loans (1)		Loans 90 days past due and accruingTDRsAllowance
related to
TDRs		Additional
commitments
to customers
with loans
classified as
TDRs
Personal Banking:       
Residential mortgage loans$3,068,121 7,266 15,924 — 8,431 560 — 
Home equity loans1,467,736 5,992 9,123 — 2,058 381 26 
Vehicle loans1,152,673 14,825 5,533 1 — — — 
Consumer loans355,320 2,871 1,031 584 1 — — 
Total Personal Banking6,043,850 30,954 31,611 585 10,490 941 26 
Commercial Banking:       
Commercial real estate loans2,847,981 79,381 44,092 — 18,430 787 471 
Commercial real estate loans - owner occupied497,908 10,518 3,642 — 761 123 — 
Commercial loans1,191,110 13,574 23,487 — 2,454 165 362 
Total Commercial Banking4,536,999 103,473 71,221 — 21,645 1,075 833 
Total$10,580,849 134,427 102,832 585 32,135 2,016 859 
(1)Includes $10.7 million of nonaccrual TDRs.
18
We present the amortized cost of our loans on nonaccrual status including such loans with no allowance. The following table presents the amortized cost of our loans on nonaccrual status as of September 30, 2021 and December 31, 2020 (in thousands): 
 Nonaccrual loans at December 31, 2020Nonaccrual loans at September 30, 2021 with an allowanceNonaccrual loans at September 30, 2021 with no allowanceLoans at September 30, 2021 90 days past due and accruing
Personal Banking:    
Residential mortgage loans$15,924 10,710 — — 
Home equity loans9,123 6,270 212 — 
Vehicle loans5,533 2,964 13 — 
Consumer loans1,031 1,114 1 386 
Total Personal Banking31,611 21,058 226 386 
Commercial Banking:    
Commercial real estate loans44,092 80,831 55,071 — 
Commercial real estate loans - owner occupied3,642 1,359 — — 
Commercial loans23,487 14,726 3,671 — 
Total Commercial Banking71,221 96,916 58,742 — 
Total$102,832 117,974 58,968 386 
 
During the three and nine months ended September 30, 2021, we recognized $138,000 and $664,000 of interest income on nonaccrual and troubled debt restructuring loans.

The following table presents the amortized cost of our loans on nonaccrual status as of the year ended December 31, 2020 and December 21, 2019 (in thousands): 
 Nonaccrual loans at December 31, 2019
Nonaccrual loans at December 31, 2020
with an allowance
Nonaccrual loans at December 31, 2020 with no allowance
Loans at December 31, 2020 90 days past due and accruing
Personal Banking:    
Residential mortgage loans$14,476 15,923 — — 
Home equity loans6,745 8,872 252 — 
Vehicle loans3,147 5,377 156 1 
Consumer loans1,079 1,030 1 584 
Total Personal Banking25,447 31,202 409 585 
Commercial Banking:
Commercial real estate loans18,832 27,079 17,013 — 
Commercial real estate loans - owner occupied16,032 3,642 — — 
Commercial loans8,559 18,069 5,418 — 
Total Commercial Banking43,423 48,790 22,431 — 
Total$68,870 79,992 22,840 585 
 
During the year ended December 31, 2020, we recognized $842,000 of interest income on nonaccrual and troubled debt restructuring loans.

19
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021 (in thousands):
 Real estateEquipmentOtherTotal
Personal Banking:    
Residential mortgage loans$— — 583 583 
Home equity loans— — 99 99 
Total Personal Banking— — 682 682 
Commercial Banking:    
Commercial real estate loans123,975 1,778 — 125,753 
Commercial loans4,301 9,576 1,211 15,088 
Total Commercial Banking128,276 11,354 1,211 140,841 
Total$128,276 11,354 1,893 141,523 
 
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020 (in thousands):
 Real estateEquipmentOtherTotal
Personal Banking:    
Residential mortgage loans$1,269 — — 1,269 
Home equity loans99 — — 99 
Total Personal Banking1,368 — — 1,368 
Commercial Banking:    
Commercial real estate loans79,392 1,997 1,703 83,092 
Commercial loans3,313 197 11,069 14,579 
Total Commercial Banking82,705 2,194 12,772 97,671 
Total$84,073 2,194 12,772 99,039 
 
     

20
    Our loan portfolios include loans that have been modified in a TDR, where concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include: extending the note’s maturity date, permitting interest only payments, reducing the interest rate to a rate lower than current market rates for new debt with similar risk, reducing the principal payment, principal forbearance or other actions.  These concessions are applicable to all loan segments and classes. Certain TDRs are classified as nonperforming at the time of restructuring and may be returned to performing status after considering the borrower’s sustained repayment performance for a period of at least six months.
 
When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, the loan’s observable market price or the current fair value of the collateral, less selling costs, for collateral dependent loans.  If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premiums or discounts), impairment is recognized through an allowance estimate or a charge-off to the allowance.  In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment in accordance with ASC 310-10. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan.
 
Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a TDR subsequently default, we evaluate the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, partial charge-offs may be taken to further write-down the carrying value of the loan, or the loan may be charged-off completely.

In March 2020 and August 2020, joint statements were issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification. For borrowers who are 30 days or more past due when enrolling in a loan modification program related to the COVID-19 pandemic, we evaluate the loan modifications under our existing TDR framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. This TDR relief under the CARES Act was extended by the Consolidated Appropriations Act, 2021 ("CAA"), signed into law on December 27, 2020. Under the CAA, such relief will continue until the earlier of 60 days after the date the COVID-19 national emergency comes to an end or January 1, 2022. Certain loan modifications made during the year were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as TDRs.


21

The following table provides a roll forward of troubled debt restructurings for the periods indicated (dollars in thousands):

 For the quarter ended September 30,
 20212020
 Number of
contracts		AmountNumber of
contracts		Amount
Beginning TDR balance:158 $27,431 167 $35,450 
New TDRs3 345 7 803 
Re-modified TDRs3 4,490 3 6,679 
Net paydowns— (4,702)— (8,127)
Charge-offs:  
Home equity loans1 (29)— — 
Commercial real estate loans2 (53)— — 
Commercial real estate loans - owner occupied1 (105)— — 
Commercial loans5 (139)— — 
Paid-off loans:
Residential mortgage loans5 (307)— — 
Home equity loans4 (122)— — 
Commercial real estate loans4 (287)— — 
Commercial loans— — 1 (1)
Ending TDR balance:139 $26,522 173 $34,804 
Accruing TDRs $13,664 $17,684 
Nonaccrual TDRs 12,858 17,120 

 For the nine months ended September 30,
 20212020
 Number of
contracts		Amount Number of
contracts		Amount
Beginning TDR balance:170 $32,135 176 $31,999 
New TDRs5 2,608 10 889 
Re-modified TDRs8 5,701 5 9,720 
Net paydowns— (8,713)— (7,192)
Charge-offs:
Home equity loans1 (29)1 (10)
Commercial real estate loans2 (53)— — 
Commercial real estate loans - owner occupied1 (105)— — 
Commercial loans5 (139)— — 
Paid-off loans:
Residential mortgage loans9 (1,033)2 (330)
Home equity loans5 (133)2 (3)
Commercial real estate loans9 (2,973)1 (26)
Commercial real estate loans - owner occupied1 (47)1 (25)
Commercial loans3 (697)6 (218)
Ending TDR balance:139 $26,522 173 $34,804 
Accruing TDRs$13,664 $17,684 
Nonaccrual TDRs12,858 17,120 
22
    The following table provides information related to TDRs (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (in thousands):
 For the quarter ended September 30, 2021For the nine months ended September 30, 2021
 Number of
contracts		Recorded
investment
at the time of
modification		Current
recorded
investment		Current
allowance		Number of
contracts		Recorded
investment
at the time of
modification		Current
recorded
investment		Current
allowance
        
Personal Banking:        
Residential mortgage loans— $— — — 1 $125 115 16 
Home equity loans2 153 36 17 3 156 36 17 
Total Personal Banking2 153 36 17 4 281 151 33 
Commercial Banking:        
Commercial real estate loans3 4,840 4,490 65 6 6,723 5,586 207 
Commercial loans1 330 309 — 3 2,726 2,572 — 
Total Commercial Banking4 5,170 4,799 65 9 9,449 8,158 207 
Total6 $5,323 4,835 82 13 $9,730 8,309 240 

 For the quarter ended September 30, 2020For the nine months ended September 30, 2020
 Number of contractsRecorded
investment
at the time of
modification		Current
recorded
investment		Current
allowance		Number of
contracts		Recorded
investment
at the time of
modification		Current
recorded
investment		Current
allowance
Personal Banking:        
Residential mortgage loans1 $90 89 1 1 $90 89 1 
Home equity loans— — — — 2 86 81 14 
Total Personal Banking1 90 89 1 3 176 170 15 
Commercial Banking:
Commercial real estate loans5 7,096 7,040 816 5 7,096 7,040 816 
Commercial real estate loans - owner occupied— — — — 1 58 51 10 
Commercial loans4 444 353 — 5 2,944 2,354 2 
Total Commercial Banking9 7,540 7,393 816 11 10,098 9,445 828 
Total10 $7,630 7,482 817 14 $10,274 9,615 843 














23
The following table provides information as of September 30, 2021 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended September 30, 2021 (in thousands):
Type of modification
Number of contractsRatePaymentMaturity dateOtherTotal
Personal Banking:
Home equity loans2 $— 30 6 — 36 
Total Personal Banking2 — 30 6 — 36 
Commercial Banking:
Commercial real estate loans3 378 — 4,112 — 4,490 
Commercial loans1 — — 309 — 309 
Total Commercial Banking4 378 — 4,421 — 4,799 
Total6 $378 30 4,427 — 4,835 

The following table provides information as of September 30, 2020 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended September 30, 2020 (in thousands):
Type of modification
Number of contractsRatePaymentMaturity dateOtherTotal
Personal Banking:
Residential mortgage loans1 $— — 89 — 89 
Total Personal Banking1 — — 89 — 89 
Commercial Banking:
Commercial real estate loans5 — — 6,755 285 7,040 
Commercial loans4 — 114 239 — 353 
Total Commercial Banking9 — 114 6,994 285 7,393 
Total10 $— 114 7,083 285 7,482 
























24
The following table provides information as of September 30, 2021 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the nine months ended September 30, 2021 (in thousands):
Type of modification
Number of contractsRatePaymentMaturity dateOtherTotal
Personal Banking:
Residential mortgage loans1 $115 — — — 115 
Home equity loans3 — 30 6 — 36 
Total Personal Banking4 115 30 6 — 151 
Commercial Banking:
Commercial real estate loans6 378 — 5,136 72 5,586 
Commercial loans3 — — 2,572 — 2,572 
Total Commercial Banking9 378 — 7,708 72 8,158 
Total13 $493 30 7,714 72 8,309 

The following table provides information as of September 30, 2020 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the nine months ended September 30, 2020 (in thousands):
Type of modification
Number of contractsRatePaymentMaturity dateOtherTotal
Personal Banking:
Residential mortgage loans1 $— — 89 — 89 
Home equity loans2 66 — 15 — 81 
Total Personal Banking3 66 — 104 — 170 
Commercial Banking:
Commercial real estate loans5 — — 6,755 285 7,040 
Commercial real estate loans - owner occupied1 — — 51 — 51 
Commercial loans5 — 114 239 2,001 2,354 
Total Commercial Banking11 — 114 7,045 2,286 9,445 
Total14 $66 114 7,149 2,286 9,615 





















25
The following table provides information related to troubled debt restructurings modified within the previous twelve months
of September 30, 2021 that subsequently defaulted:
 Number of contractsRecorded
investment
at the time of
modification		Current
recorded
investment		Current
allowance
Commercial Banking:
Commercial real estate loans3 4,167 3,951 2 
Total Commercial Banking3 $4,167 3,951 2 
Total3 $4,167 3,951 2 

No TDRs modified within the previous twelve months of September 30, 2020 subsequently defaulted.

The following table provides information related to the amortized cost basis of loan payment delinquencies at September 30, 2021 (in thousands):
 30-59 days
delinquent		60-89 days
delinquent		90 days or
greater
delinquent		Total
delinquency		CurrentTotal loans
receivable		90 Days or
greater
delinquent
and accruing
Personal Banking:     
Residential mortgage loans$765 4,907 8,069 13,741 2,975,780 2,989,521 — 
Home equity loans3,351 1,024 4,745 9,120 1,341,228 1,350,348 — 
Vehicle loans4,795 1,345 1,198 7,338 1,453,852 1,461,190 — 
Consumer loans1,351 412 1,370 3,133 352,513 355,646 386 
Total Personal Banking10,262 7,688 15,382 33,332 6,123,373 6,156,705 386 
Commercial Banking:     
Commercial real estate loans1,743 1,170 25,420 28,333 2,708,151 2,736,484 — 
Commercial real estate loans - owner occupied261 — 142 403 425,664 426,067 — 
Commercial loans692 170 1,104 1,966 877,746 879,712 — 
Total Commercial Banking2,696 1,340 26,666 30,702 4,011,561 4,042,263 — 
Total loans$12,958 9,028 42,048 64,034 10,134,934 10,198,968 386 

The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2020 (in thousands): 
 30-59 days
delinquent		60-89 days
delinquent		90 days or
greater
delinquent		Total
delinquency		CurrentTotal loans
receivable		90 days or
greater
delinquent
and accruing
Personal Banking:      
Residential mortgage loans
$28,797 5,083 14,489 48,369 3,019,752 3,068,121 — 
Home equity loans
4,763 1,656 8,441 14,860 1,452,876 1,467,736 — 
Vehicle loans7,707 1,776 4,599 14,082 1,138,592 1,152,674 1 
Consumer loans
2,867 966 1,459 5,292 350,027 355,319 584 
Total Personal Banking44,134 9,481 28,988 82,603 5,961,247 6,043,850 585 
Commercial Banking:       
Commercial real estate loans
6,692 1,615 23,307 31,614 2,816,366 2,847,980 — 
Commercial real estate loans - owner occupied4,231 — 1,980 6,211 491,698 497,909 — 
Commercial loans
6,405 864 7,325 14,594 1,176,516 1,191,110 — 
Total Commercial Banking17,328 2,479 32,612 52,419 4,484,580 4,536,999 — 
Total originated loans$61,462 11,960 61,600 135,022 10,445,827 10,580,849 585 



26
Credit Quality Indicators: For Commercial Banking loans we categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass:
 
Special Mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics.  A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations.  Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring.
 
Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, those weaknesses make collection or liquidation in full highly questionable and improbable. A loan classified as doubtful exhibits discernible loss potential, but a complete loss seems very unlikely. The possibility of a loss on a doubtful loan is high, but because of certain important and reasonably specific pending factors that may strengthen the loan, its classification as an estimated loss is deferred until a more exact status can be determined.
 
Loss — Loans classified as loss are considered uncollectible and of such value that the continuance as a loan is not warranted. A loss classification does not mean that the loan has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off all or a portion of a basically worthless loan even though partial recovery may be possible in the future.

For Personal Banking loans a pass risk rating is maintained until they are greater than 90 days past due, and risk rating reclassification is based primarily on past due status of the loan. The risk rating categories can generally be described by the following groupings:

Pass — Loans classified as pass are homogeneous loans that are less than 90 days past due from the required payment date at month-end.

Substandard — Loans classified as substandard are homogeneous loans that are greater than 90 days past due from the required payment date at month-end, loans classified as TDRs, PCD loans, or homogenous retail loans that are greater than 180 days past due from the required payment date at month-end that has been written down to the value of underlying collateral, less costs to sell.

Doubtful — Loans classified as doubtful are homogeneous loans that are greater than 180 days past due from the required payment date at month-end and not written down to the value of underlying collateral. These loans are generally charged-off in the month in which the 180 day period elapses.


 
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The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator for each portfolio segment as of September 30, 2021 (in thousands): 
YTD September 30, 20212020201920182017PriorRevolving loansRevolving loans converted to term loansTotal loans
receivable
Personal Banking:    
Residential mortgage loans
Pass$487,627 627,031 327,054 169,600 186,866 1,174,311 — — 2,972,489 
Substandard— 495 205 565 946 14,821 — — 17,032 
Total residential mortgage loans487,627 627,526 327,259 170,165 187,812 1,189,132 — — 2,989,521 
Home equity loans
Pass122,912 225,366 150,967 69,938 67,057 228,689 437,098 40,452 1,342,479 
Substandard— 66 539 65 361 4,116 1,440 1,282 7,869 
Total home equity loans122,912 225,432 151,506 70,003 67,418 232,805 438,538 41,734 1,350,348 
Vehicle loans
Pass679,196 330,014 235,766 139,654 41,199 32,385 — — 1,458,214 
Substandard196 233 1,056 885 405 201 — — 2,976 
Total vehicle loans679,392 330,247 236,822 140,539 41,604 32,586 — — 1,461,190 
Consumer loans
Pass97,143 91,731 54,194 23,280 11,168 13,248 61,703 1,679 354,146 
Substandard145 151 328 180 132 144 410 10 1,500 
Total consumer loans97,288 91,882 54,522 23,460 11,300 13,392 62,113 1,689 355,646 
Total Personal Banking1,387,219 1,275,087 770,109 404,167 308,134 1,467,915 500,651 43,423 6,156,705 
Business Banking:     
Commercial real estate loans
Pass231,278 449,316 415,206 280,005 238,909 757,071 29,551 10,509 2,411,845 
Special Mention811 2,653 34,758 1,177 4,149 10,891 708 25 55,172 
Substandard— 33,671 27,741 49,665 59,169 92,974 1,233 5,014 269,467 
Total commercial real estate loans232,089 485,640 477,705 330,847 302,227 860,936 31,492 15,548 2,736,484 
Commercial real estate loans - owner occupied
Pass65,945 24,876 56,170 69,834 59,792 105,531 2,851 2,748 387,747 
Special Mention— — 1,729 784 2,963 1,770 616 — 7,862 
Substandard— — 2,783 1,195 9,072 16,542 98 768 30,458 
Total commercial real estate loans - owner occupied65,945 24,876 60,682 71,813 71,827 123,843 3,565 3,516 426,067 
Commercial loans
Pass245,021 111,415 79,383 32,820 37,961 80,850 215,455 10,760 813,665 
Special Mention108 5,578 806 1,384 52 646 2,402 — 10,976 
Substandard401 5,215 5,852 5,840 3,828 3,717 15,032 15,186 55,071 
Total commercial loans245,530 122,208 86,041 40,044 41,841 85,213 232,889 25,946 879,712 
Total Business Banking543,564 632,724 624,428 442,704 415,895 1,069,992 267,946 45,010 4,042,263 
Total loans$1,930,783 1,907,811 1,394,537 846,871 724,029 2,537,907 768,597 88,433 10,198,968 
    For the nine months ended September 30, 2021, $23.0 million of revolving loans were converted to term loans.


28
The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator for each portfolio segment as of December 31, 2020 (in thousands): 
20202019201820172016PriorRevolving loansRevolving loans converted to term loansTotal loans
receivable
Personal Banking:     
Residential mortgage loans
Pass$641,963 418,057 229,477 247,426 215,893 1,289,728 — — 3,042,544 
Substandard— 68 1,293 1,674 1,091 21,451 — — 25,577 
Total residential mortgage loans641,963 418,125 230,770 249,100 216,984 1,311,179 — — 3,068,121 
Home equity loans
Pass273,076 193,439 94,757 87,717 81,212 219,061 465,453 40,759 1,455,474 
Substandard— 210 318 281 876 5,158 3,509 1,910 12,262 
Total home equity loans273,076 193,649 95,075 87,998 82,088 224,219 468,962 42,669 1,467,736 
Vehicle loans
Pass448,746 352,661 218,372 70,122 31,197 24,791 — — 1,145,889 
Substandard343 1,958 2,087 1,210 667 519 — — 6,784 
Total vehicle loans449,089 354,619 220,459 71,332 31,864 25,310 — — 1,152,673 
Consumer loans
Pass128,809 83,419 35,183 17,439 7,848 11,757 66,965 1,695 353,115 
Substandard133 399 139 192 36 619 686 1 2,205 
Total consumer loans128,942 83,818 35,322 17,631 7,884 12,376 67,651 1,696 355,320 
Total Personal Banking1,493,070 1,050,211 581,626 426,061 338,820 1,573,084 536,613 44,365 6,043,850 
Business Banking:      
Commercial real estate loans
Pass417,390 473,115 316,045 264,702 195,168 709,459 36,980 29,755 2,442,614 
Special Mention584 3,381 20,180 24,675 15,424 15,817 597 3,048 83,706 
Substandard7,426 4,007 57,694 56,991 24,056 140,147 2,240 29,100 321,661 
Total commercial real estate loans425,400 480,503 393,919 346,368 234,648 865,423 39,817 61,903 2,847,981 
Commercial real estate loans - owner occupied
Pass24,895 67,162 87,497 71,626 46,760 100,081 4,422 7,648 410,091 
Special Mention— 4,371 4,514 3,643 4,276 3,689 3,822 — 24,315 
Substandard— 21,627 1,903 12,898 4,013 21,777 874 410 63,502 
Total commercial real estate loans - owner occupied24,895 93,160 93,914 88,167 55,049 125,547 9,118 8,058 497,908 
Commercial loans
Pass479,436 99,877 50,915 51,858 58,597 49,178 286,467 16,170 1,092,498 
Special Mention5,828 2,751 5,579 4,588 162 190 16,512 5,668 41,278 
Substandard1,660 3,343 2,932 2,016 2,266 3,003 27,988 14,126 57,334 
Total commercial loans486,924 105,971 59,426 58,462 61,025 52,371 330,967 35,964 1,191,110 
Total Business Banking937,219 679,634 547,259 492,997 350,722 1,043,341 379,902 105,925 4,536,999 
Total loans$2,430,289 1,729,845 1,128,885 919,058 689,542 2,616,425 916,515 150,290 10,580,849 
    For the year ended December 31, 2020, $23.1 million of revolving loans were converted to term loans.
29
(4)    Goodwill and Other Intangible Assets
 
The following table provides information for intangible assets subject to amortization at the dates indicated (in thousands):
September 30, 2021December 31, 2020
Amortizable intangible assets:  
Core deposit intangibles - gross$74,899 71,182 
Acquisitions— 3,717 
Less: accumulated amortization(60,974)(56,896)
Core deposit intangibles - net$13,925 18,003 
Customer and Contract intangible assets - gross$12,775 12,775 
Customer list intangible assets disposed of due to sale of insurance business(1,591)— 
Less: accumulated amortization(11,068)(10,842)
Customer and Contract intangible assets - net116 1,933 
Total intangible assets - net$14,041 19,936 

The following table shows the actual aggregate amortization expense for the quarters ended September 30, 2021 and 2020, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):
For the quarter ended September 30, 2021$1,321 
For the quarter ended September 30, 20201,781 
For the nine months ended September 30, 20214,348 
For the nine months ended September 30, 20205,192 
For the year ending December 31, 20215,509 
For the year ending December 31, 20224,277 
For the year ending December 31, 20233,270 
For the year ending December 31, 20242,452 
For the year ending December 31, 20251,662 
For the year ending December 31, 2026871 
 
    The following table provides information for the changes in the carrying amount of goodwill (in thousands):
Total
Balance at December 31, 2019$346,103 
Goodwill acquired36,176 
Balance at December 31, 2020382,279 
Purchase accounting adjustment77 
Goodwill disposed of due to sale of insurance business(1,359)
Balance at September 30, 2021$380,997 
 
We performed our annual goodwill impairment test as of June 30, 2021 in accordance with ASC 350, as updated by ASU 2017-04 ("Step 0"), and concluded that goodwill was not impaired. As of September 30, 2021, there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment of goodwill.











30
(5)    Borrowed Funds

    (a)    Borrowings
September 30, 2021
AmountAverage rate
Collateralized borrowings, due within one year$126,496 0.19 %
      Total borrowed funds$126,496 
    
Borrowings from the Federal Home Loan Banks ("FHLB") of Pittsburgh and Indianapolis, if any, are secured by our residential first mortgage and other qualifying loans. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment. During the year ended September 30, 2021, $2.0 million of term notes payable to the FHLB of Indianapolis matured.

    The revolving line of credit with the FHLB of Pittsburgh carries a commitment of $250.0 million. The rate is adjusted daily by the FHLB of Pittsburgh, and any borrowings on this line may be repaid at any time without penalty. The revolving line of credit had no balance as of September 30, 2021 and December 31, 2020.

    At September 30, 2021 and December 31, 2020, collateralized borrowings due within one year were $126.5 million and $137.7 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB.

On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity date of September 15, 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 4.00%, payable semi-annually in arrears commencing on March 15, 2021, and a floating rate of interest equivalent to the 3-month Secured Overnight Financing Rate ("SOFR") plus 3.89% payable quarterly in arrears commencing on December 15, 2025. The subordinated debt issuance costs of approximately $1.8 million are being amortized over five years on a straight-line basis into interest expense. At September 30, 2021 and December 31, 2020, subordinated debentures, net of issuance costs, were $123.5 million and $123.3 million, respectively.

(b)    Trust Preferred Securities

The Company has seven statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust, LNB Trust II, a Delaware statutory business trust, Union National Capital Trust I ("UNCT I"), a Delaware statutory business trust, Union National Capital Trust II ("UNCT II"), a Delaware statutory business trust, MFBC Statutory Trust I, a Delaware statutory trust, and Universal Preferred Trust, a Delaware statutory trust (the "Trusts"). The Trusts exist solely to issue preferred securities to third parties for cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed. 

The Trusts have invested the proceeds of the offerings in junior subordinated deferrable interest debentures issued by the Company. The structure of these debentures mirrors the structure of the trust-preferred securities. These subordinated debentures are the sole assets of the Trusts. As the shareholders of the trust preferred securities are the primary beneficiaries of the Trusts, the Trusts are not consolidated in our financial statements.

The following table sets forth a summary of the cumulative trust preferred securities and the junior subordinated debt held by the Trust as of September 30, 2021.
Maturity dateInterest rateCapital debt securitiesSeptember 30, 2021
Northwest Bancorp Capital Trust IIIDecember 30, 2035
3-month LIBOR plus 1.38%
$50,000 $51,547 
Northwest Bancorp Statutory Trust IVDecember 15, 2035
3-month LIBOR plus 1.38%
50,000 51,547 
LNB Trust IIJune 15, 2037
3-month LIBOR plus 1.48%
7,875 8,119 
UNCT I (1)January 23, 2034
3-month LIBOR plus 2.85%
8,000 7,944 
UNCT II (1)November 23, 2034
3-month LIBOR plus 2.00%
3,000 2,734 
MFBC Statutory Trust I (1)September 15, 2035
3-month LIBOR plus 1.70%
5,000 3,554 
Universal Preferred Trust (1)October 7, 2035
3-month LIBOR plus 1.69%
5,000 3,544 
$128,989 
(1) Net of discounts due to the fair value adjustment made at the time of acquisition.

31
Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts.  We have the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust securities also are deferred. To date there have been no interest deferrals. Interest on the subordinated debentures and distributions on the trust securities is cumulative. Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.
 
The Trusts must redeem the preferred securities when the debentures are paid at maturity or upon an earlier redemption of the debentures to the extent the debentures are redeemed. All or part of the debentures may be redeemed at any time. Also, the debentures may be redeemed at any time if existing laws or regulations, or the interpretation or application of these laws or regulations, change causing:
 
•the interest on the debentures to no longer be deductible by the Company for federal income tax purposes;
•the trusts to become subject to federal income tax or to certain other taxes or governmental charges;
•the trusts to register as an investment company; or
•the preferred securities to no longer qualify as Tier I capital. 

We may, at any time, dissolve any of the Trusts and distribute the debentures to the trust security holders, subject to receipt of any required regulatory approvals.

(6)    Guarantees
 
We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At September 30, 2021, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was $47.8 million, of which $38.4 million is fully collateralized. At September 30, 2021, we had a liability which represents deferred income of $481,000 related to the standby letters of credit. 

(7)    Earnings Per Share

     Basic earnings per common share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The following table sets forth the computation of basic and diluted EPS (in thousands, except share data and per share amounts): 
Quarter ended September 30,Nine months ended September 30,
 2021202020212020
Net income$35,063 38,050 124,267 39,789 
Less: Dividends and undistributed earnings allocated to participating securities237 — 841 — 
Net income available to common shareholders$34,826 38,050 123,426 39,789 
Weighted average common shares outstanding126,111,774 126,855,810 126,333,290 118,088,122 
Add: Participating shares outstanding856,206 — 856,206 — 
Total weighted average common shares and dilutive potential shares126,967,980 126,855,810 127,189,496 118,088,122 
Basic earnings per share$0.28 0.30 0.98 0.34 
Diluted earnings per share$0.27 0.30 0.97 0.34 


32
(8)    Pension and Other Post-Retirement Benefits
 
The following table sets forth the net periodic costs for the defined benefit pension plans and post-retirement healthcare plans for the periods indicated (in thousands):
 Quarter ended September 30,
 Pension benefitsOther post-retirement benefits
 2021202020212020
Service cost$2,860 2,097 — — 
Interest cost1,517 1,713 4 7 
Expected return on plan assets(3,464)(3,090)— — 
Amortization of prior service cost(580)(580)— — 
Amortization of the net loss1,038 925 3 4 
Net periodic cost$1,371 1,065 7 11 

Nine months ended September 30,
Pension benefitsOther post-retirement benefits
2021202020212020
Service cost$8,580 6,293 — — 
Interest cost4,552 5,141 13 20 
Expected return on plan assets(10,394)(9,272)— — 
Amortization of prior service cost(1,741)(1,742)— — 
Amortization of the net loss3,117 2,773 10 13 
Net periodic cost$4,114 3,193 23 33 

    We anticipate making a contribution to our defined benefit pension plan between $4.0 million and $8.0 million during the year ending December 31, 2021.

(9)    Disclosures About Fair Value of Financial Instruments
 
    We are required to disclose fair value information about financial instruments whether or not recognized in the Consolidated Statement of Financial Condition. Fair value information of certain financial instruments and all nonfinancial instruments is not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

    Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for using a three-level hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. This hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used.

    Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:

•    Level 1 - Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.

•    Level 2 - Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing.

•     Level 3 - Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:

◦Quotes from brokers or other external sources that are not considered binding;
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◦Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price;
◦Quotes and other information from brokers or other external sources where the inputs are not deemed observable.

    We are responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. We perform due diligence to understand the inputs used or how the data was calculated or derived. We also corroborate the reasonableness of external inputs in the valuation process.

    The carrying amounts reported in the Consolidated Statement of Financial Condition approximate fair value for the following financial instruments: cash and cash equivalents, marketable securities available-for-sale, accrued interest receivable, interest rate lock commitments, forward commitments, interest rate swaps, savings and checking deposits, risk participation agreements and accrued interest payable.

Marketable Securities
 
Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.
 
Debt Securities — available-for-sale - Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and U.S. government obligations. Certain debt securities which were AAA rated at purchase do not have an active market and as such we have used an alternative method to determine the fair value of these securities. The fair value has been determined using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. As such, securities which otherwise would have been classified as Level 2 securities if an active market for those assets or similar assets existed are included herein as Level 3 assets.

Debt Securities — held-to-maturity - The fair value of debt securities held-to-maturity is determined in the same manner as debt securities available-for-sale.
 
Loans Receivable

    Loans with comparable characteristics including collateral and re-pricing structures are segregated for valuation purposes. Each loan pool is separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows are discounted to present value using a market rate for comparable loans, which is not considered an exit price. Characteristics of comparable loans include remaining term, coupon interest, and estimated prepayment speeds. Delinquent loans are separately evaluated given the impact delinquency has on the projected future cash flow of the loan including the approximate discount or market rate, which is not considered an exit price.

Loans Held-for-Sale

    The estimated fair value of loans held-for-sale is based on market bids obtained from potential buyers.

Loans Held for Investment

    The fair value of loans held for investment is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk.
    
FHLB Stock
 
Due to the restrictions placed on transferability of FHLB stock, it is not practical to determine the fair value.

Deposit Liabilities

    The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these
34
deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity.

 Borrowed Funds
 
Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost.  The carrying amount of collateralized borrowings approximates the fair value.

Subordinated Debentures

The fair value of our subordinated debentures is calculated using the discounted cash flows at rates observable for other similarly traded liabilities.
 
Junior Subordinated Debentures
 
The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest.
 
Interest Rate Lock Commitments and Forward Commitments

The fair value of interest rate lock commitments is based on the value of underlying loans held-for-sale which is based on quoted prices for similar loans in the secondary market.  This value is then adjusted based on the probability of the loan closing (i.e., the “pull-through” amount, a significant unobservable input).  The fair value of forward sale commitments is based on quoted prices from the secondary market based on the settlement date of the contracts.  

Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements
 
    The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using LIBOR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable. The fair value of the foreign exchange swap is derived from proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions we believe to be reasonable. Risk participation agreements are entered into when Northwest purchases a portion of a commercial loan that has an interest rate swap. Northwest assumes credit risk on its portion of the interest rate swap should the borrower fail to pay as agreed. The value of risk participation agreements is determined based on the value of the swap after considering the credit quality, probability of default, and loss given default of the borrower.

Off-Balance Sheet Financial Instruments
 
These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At September 30, 2021 and December 31, 2020, there was no significant unrealized appreciation or depreciation on these financial instruments.


35
The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at September 30, 2021 (in thousands): 
Carrying
amount		Estimated
fair value		Level 1Level 2Level 3
Financial assets:     
Cash and cash equivalents$1,090,485 1,090,485 1,090,485 — — 
Securities available-for-sale1,583,715 1,583,715 — 1,583,715 — 
Securities held-to-maturity618,395 609,777 — 609,777 — 
Loans receivable, net10,061,790 10,012,659 — — 10,012,659 
Residential mortgage loans held-for-sale27,411 27,411 — — 27,411 
Accrued interest receivable26,995 26,995 26,995 — — 
Interest rate lock commitments3,137 3,137 — — 3,137 
Forward commitments518 518 — 518 — 
Foreign exchange swaps1,399 1,399 — 1,399 — 
Interest rate swaps not designated as hedging instruments34,983 34,983 — 34,983 — 
FHLB stock14,567 14,567 — — — 
Total financial assets$13,463,395 13,405,646 1,117,480 2,230,392 10,043,207 
Financial liabilities:     
Savings and checking deposits$10,834,386 10,834,386 10,834,386 — — 
Time deposits1,387,827 1,402,858 — — 1,402,858 
Borrowed funds126,496 126,496 126,496 — — 
Subordinated debt123,486 129,421 — 129,421 — 
Junior subordinated debentures128,989 121,571 — — 121,571 
Foreign exchange swaps 961961 — 961 — 
Interest rate swaps not designated as hedging instruments35,152 35,152 — 35,152 — 
Risk participation agreements71 71 — 71 — 
Accrued interest payable589 589 589 — — 
Total financial liabilities$12,637,957 12,651,505 10,961,471 165,605 1,524,429 
 
36
The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2020 (in thousands): 
Carrying
amount		Estimated
fair value		Level 1Level 2Level 3
Financial assets:     
Cash and cash equivalents$736,277 736,277 736,277 — — 
Securities available-for-sale1,398,941 1,398,941 — 1,398,941 — 
Securities held-to-maturity178,887 179,666 — 179,666 — 
Loans receivable, net10,387,636 10,334,521 — — 10,334,521 
Residential mortgage loans held-for-sale58,786 58,786 — — 58,786 
Accrued interest receivable 35,554 35,554 35,554 — — 
Interest rate lock commitments6,465 6,465 — — 6,465 
Forward commitments1,105 1,105 — 1,105 — 
Interest rate swaps not designated as hedging instruments53,863 53,863 — 53,863 — 
FHLB stock21,748 21,748 — — — 
Total financial assets$12,879,262 12,826,926 771,831 1,633,575 10,399,772 
Financial liabilities:     
Savings and checking accounts$9,957,137 9,957,137 9,957,137 — — 
Time deposits1,642,096 1,669,546 — — 1,669,546 
Borrowed funds159,715 159,745 159,745 — — 
Subordinated debt123,329 123,329 — 123,329 — 
Junior subordinated debentures128,794 121,106 — — 121,106 
Interest rate swaps not designated as hedging instruments54,579 54,579 — 54,579 — 
Risk participation agreements 86 86 — 86 — 
Accrued interest payable2,054 2,054 2,054 — — 
Total financial liabilities$12,067,790 12,087,582 10,118,936 177,994 1,790,652 

Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both September 30, 2021 and December 31, 2020. 
     
37
    The following table represents assets and liabilities measured at fair value on a recurring basis at September 30, 2021 (in thousands): 
Level 1Level 2Level 3Total assets 
at fair value
Debt securities:    
U.S. government and agencies$— 56,992 — 56,992 
Government-sponsored enterprises— 46,662 — 46,662 
States and political subdivisions— 126,529 — 126,529 
Total debt securities— 230,183 — 230,183 
Residential mortgage-backed securities:    
GNMA— 18,029 — 18,029 
FNMA— 171,926 — 171,926 
FHLMC— 106,027 — 106,027 
Non-agency— 442 — 442 
Collateralized mortgage obligations:    
GNMA— 490,548 — 490,548 
FNMA— 277,829 — 277,829 
FHLMC— 288,731 — 288,731 
Total mortgage-backed securities— 1,353,532 — 1,353,532 
Interest rate lock commitments— — 3,137 3,137 
Forward commitments— 518 — 518 
Foreign exchange swaps— 1,399 — 1,399 
Interest rate swaps not designated as hedging instruments— 34,983 — 34,983 
Total assets$— 1,620,615 3,137 1,623,752 
Foreign exchange swaps $— 961 — 961 
Interest rate swaps not designated as hedging instruments— 35,152 — 35,152 
Risk participation agreements— 71 — 71 
Total liabilities $— 36,184 — 36,184 
38
    The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2020 (in thousands):
Level 1Level 2Level 3Total assets 
at fair value
Debt securities:    
U.S. government and agencies$— 40,917 — 40,917 
Government-sponsored enterprises— 94,507 — 94,507 
States and political subdivisions— 116,813 — 116,813 
Total debt securities— 252,237 — 252,237 
Residential mortgage-backed securities:    
GNMA— 23,026 — 23,026 
FNMA— 203,571 — 203,571 
FHLMC— 134,572 — 134,572 
Non-agency— 465 — 465 
Collateralized mortgage obligations:    
GNMA— 343,409 — 343,409 
FNMA— 262,109 — 262,109 
FHLMC— 179,552 — 179,552 
Total mortgage-backed securities— 1,146,704 — 1,146,704 
Interest rate lock commitments— — 6,465 6,465 
Forward commitments— 1,105 — 1,105 
Interest rate swaps not designated as hedging instruments— 53,863 — 53,863 
Total assets$— 1,453,909 6,465 1,460,374 
Interest rate swaps not designated as hedging instruments$— 54,579 — 54,579 
Risk participation agreements— 86 — 86 
Total liabilities $— 54,665 — 54,665 

    The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):
For the quarter ended September 30,For the nine months ended September 30,
2021202020212020
Beginning balance$3,608 7,416 6,465 559 
Total gains or losses:
Included in net income— — — — 
Included in other comprehensive income— — — — 
Interest rate lock commitments:
Net activity(471)792 (3,328)7,649 
Transfers from Level 3— — — — 
Transfers into Level 3— — — — 
Ending balance$3,137 8,208 3,137 8,208 

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held-for-sale, loans individually assessed, real estate owned, and mortgage servicing rights. 
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    The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of September 30, 2021 (in thousands):
Level 1Level 2Level 3Total assets 
at fair value
Loans individually assessed$— — 65,835 65,835 
Mortgage servicing rights— — 2,333 2,333 
Real estate owned, net— — 809 809 
Total assets$— — 68,977 68,977 

    The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2020 (in thousands): 
Level 1Level 2Level 3Total assets 
at fair value
Loans individually assessed$— — 95,303 95,303 
Real estate owned, net— — 2,232 2,232 
Total assets$— — 97,535 97,535 

    Individually Assessed Loans - A loan is considered to be individually assessed as described in Note 1(f) of the Notes to the Consolidated Financial Statements in Item 8 of Part II of our 2020 Annual Report on Form 10-K. We classify loans individually assessed as nonrecurring Level 3.

    Real Estate Owned - Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify real estate owned as nonrecurring Level 3. 
The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 2021 (in thousands): 
 Fair 
value		Valuation
techniques		Significant
unobservable inputs		Range 
(weighted average)
Loans individually assessed$65,835 Appraisal value (1) Estimated cost to sell10.0%
  Discounted cash flowDiscount rate
10.92% to 15.4% (13.26%)
Mortgage servicing rights2,333 Discounted cash flowAnnual service cost$84
Prepayment rates
7.0% to 24.6% (11.2%)
Expected life (months)
40.1 to 103.9 (73.2)
Option adjusted spread
750 basis points
Forward yield curve
0.09% to 1.32%
Real estate owned, net809 Appraisal value (1)Estimated cost to sell10.0%
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

(10)    Derivative Financial Instruments
 
    We are a party to derivative financial instruments in the normal course of business to manage our own exposure to fluctuations in interest rates and to meet the needs of our customers. The primary derivatives that we use are interest rate swaps and caps and foreign exchange contracts, which are entered into with counterparties that meet established credit standards. We believe that the credit risk inherent in all of our derivative contracts is minimal based on our credit standards and the netting and collateral provisions of the interest rate swap agreements.

Derivatives Designated as Hedging Instruments

    During March 2020, the Company entered into four separate pay-fixed interest rate swaps in order to synthetically convert short-term three month FHLB advances to fixed-rate term funding with an aggregate value of $100 million with maturities ranging
40
from three to five years. Our risk management objective and strategy for these interest rate swaps at such time was to reduce our exposure to variability in interest-related cash outflows attributable to changes in the USD-LIBOR swap rate, the designated benchmark interest rate being hedged.  Based upon our contemporaneous quantitative analysis at the inception of each interest rate swap, we have determined these interest rate swaps to qualify for hedge accounting in accordance with ASC 815, Derivatives and Hedging.

    The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the quarter ended September 30, 2020, the Company discontinued these cash flow hedges and, as a result, reclassified a $1.3 million loss into earnings. As of September 30, 2021, the Company had no cash flow hedges.

Derivatives Not Designated as Hedging Instruments

    We act as an interest rate or foreign exchange swap counterparty for certain commercial borrowers in the normal course of servicing our customers, which are accounted for at fair value. We manage our exposure to such interest rate or foreign exchange swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the swaps we have with the commercial borrowers. These positions (referred to as “customer swaps”) directly offset each other and our exposure is the fair value of the derivatives due to changes in credit risk of our commercial borrowers and third parties. Customer swaps are recorded within other assets or other liabilities on the consolidated statement of financial condition at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the Consolidated Statement of Income.
    
    We enter into interest rate lock commitments for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative financial instruments under applicable accounting guidance. Interest rate lock commitments on loans held-for-sale are carried at fair value in other assets on the consolidated statement of financial condition. Northwest sells loans to the secondary market on a mandatory or best efforts basis.  The loans sold on a mandatory basis commit us to deliver a specific principal amount of mortgage loans to an investor at a specified price, by a specified date, or the commitment must be paired off. These forward commitments entered into on a mandatory delivery basis meet the definition of a derivative financial instrument. All closed loans to be sold on a mandatory delivery basis are classified as held-for-sale on the Consolidated Statement of Financial Condition. Changes to the fair value of the interest rate lock commitments and the forward commitments are recorded in mortgage banking income in the Consolidated Statements of Income.

    We enter into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution.

    






















41
The following table presents information regarding our derivative financial instruments for the periods indicated (in thousands):
Asset derivativesLiability derivatives
Notional amountFair valueNotional amountFair value
At September 30, 2021
Derivatives not designated as hedging instruments:
Interest rate swap agreements $632,709 34,983 632,709 35,152 
Foreign exchange swap agreements20,027 1,399 2,824 961 
Interest rate lock commitments100,695 3,137 — — 
Forward commitments17,135 518 — — 
Risk participation agreements— — 81,888 71 
Total derivatives $770,566 40,037 717,421 36,184 
At December 31, 2020
Derivatives not designated as hedging instruments:
   Interest rate swap agreements $599,300 53,863 599,300 54,579 
   Interest rate lock commitments171,357 6,465 — — 
Forward commitments25,474 1,105 — — 
Risk participation agreements— — 77,532 86 
Total derivatives $796,131 61,433 676,832 54,665 
The following table presents income or expense recognized on derivatives for the periods indicated (in thousands):
For the quarter ended September 30,For the nine months ended September 30,
2021202020212020
Hedging derivatives:
Decrease in interest expense$— 67 — (35)
Non-hedging swap derivatives:
Increase/(decrease) in other income590 (353)1,087 (875)
Increase in mortgage banking income345 315 3,915 8,563 

(11)    Legal Proceedings

We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of September 30, 2021, we do not anticipate that the aggregate ultimate liability arising out of any pending or threatened legal proceedings will be material to our Consolidated Financial Statements.  Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings.

    During the year-ended December 31, 2018, Northwest and our subsidiary, The Bert Company (doing business as Northwest Insurance Services) (“NWIS”), were involved in a lawsuit against, among others, First National Bank of Pennsylvania (“FNB”) and their insurance subsidiary, First National Insurance Agency, LLC (“FNIA”). All counterclaims against Northwest were discontinued and, in December 2018, a verdict was rendered in favor of NWIS on several of its claims. Post-trial proceedings have continued throughout the current year and, due to the inherent uncertainties with respect to these proceedings, we have not accrued any awards associated with this verdict within our Consolidated Financial Statements as of September 30, 2021.

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(12)    Changes in Accumulated Other Comprehensive Income
 
The following tables show the changes in accumulated other comprehensive income by component for the periods indicated (in thousands): 
 For the quarter ended September 30, 2021
 Unrealized 
gains/(losses) 
on securities 
available-for-sale		Change in 
fair value 
of interest 
rate swaps		Change in 
defined benefit 
pension plans		Total
Balance as of June 30, 2021$3,533 — (49,725)(46,192)
Other comprehensive loss before reclassification adjustments (1)(6,455)— — (6,455)
Amounts reclassified from accumulated other comprehensive income (2) (3)(69)— 333 264 
Net other comprehensive income/(loss)(6,524)— 333 (6,191)
Balance as of September 30, 2021$(2,991)— (49,392)(52,383)
 

 For the quarter ended September 30, 2020
 Unrealized 
gains/(losses) 
on securities 
available-for-sale		Change in 
fair value 
of interest 
rate swaps		Change in 
defined benefit 
pension plans		Total
Balance as of June 30, 2020$16,096 (946)(39,590)(24,440)
Other comprehensive income before reclassification adjustments (4)676 — — 676 
Amounts reclassified from accumulated other comprehensive income (5) (6) (7)(1)946 250 1,195 
Net other comprehensive income675 946 250 1,871 
Balance as of September 30, 2020$16,771 — (39,340)(22,569)
(1)Consists of unrealized holding losses, net of tax of ($2,076).
(2)Consists of realized losses, net of tax of ($24).
(3)Consists of realized gains, net of tax of $128.
(4)Consists of unrealized holding gains, net of tax $107.
(5)Consists of realized gains on securities, net of tax ($1).
(6)Consists of realized losses, net of tax of $375.
(7)Consists of realized gains, net of tax of $99.


 For the nine months ended September 30, 2021
 Unrealized 
gains/(losses) 
on securities 
available-for-sale		Change in 
fair value 
of interest 
rate swaps		Change in 
defined benefit 
pension plans		Total
Balance as of December 31, 2020$16,843 — (50,392)(33,549)
Other comprehensive loss before reclassification adjustments (1)(19,554)— — (19,554)
Amounts reclassified from accumulated other comprehensive income (2) (3)(280)— 1,000 720 
Net other comprehensive income/(loss)(19,834)— 1,000 (18,834)
Balance as of September 30, 2021$(2,991)— (49,392)(52,383)

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 For the nine months ended September 30, 2020
 Unrealized 
gains 
on securities 
available-for-sale		Change in 
fair value 
of interest 
rate swaps		Change in 
defined benefit 
pension plans		Total
Balance as of December 31, 2019$3,147 — (40,088)(36,941)
Other comprehensive income/(loss) before reclassification adjustments (4) (5)13,623 (946)— 12,677 
Amounts reclassified from accumulated other comprehensive income (6) (7) (8)1 946 748 1,695 
Net other comprehensive income13,624 — 748 14,372 
Balance as of September 30, 2020$16,771 — (39,340)(22,569)
(1)Consists of unrealized holding losses, net of tax of ($6,812).
(2)Consists of realized losses, net of tax of ($89).
(3)Consists of realized gains, net of tax of $386.
(4)Consists of unrealized holding gains, net of tax $5,286.
(5)Consists of realized holding losses, net of tax ($209).
(6)Consists of realized gains, net of tax of $0.
(7)Consists of realized losses, net of tax of $375.
(8)Consists of realized gains, net of tax of $297.
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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
In addition to historical information, this document may contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.
 
Important factors that might cause such a difference include, but are not limited to:
 
•     the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the outbreak of coronavirus, or COVID-19, and the significant impact that such outbreak has had and may continue to have on our growth, operations and earnings;
•changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic;
•changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
•     general economic conditions, either nationally or in our market areas, that are different than expected;
•    inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
•     adverse changes in the securities and credit markets;
•    cyber-security concerns, including an interruption or breach in the security of our website or other information systems;
•     technological changes that may be more difficult or expensive than expected;
•     the ability of third-party providers to perform their obligations to us;
•     competition among depository and other financial institutions;
•     our ability to enter new markets successfully and capitalize on growth opportunities;
•     managing our internal growth and our ability to successfully integrate acquired entities, businesses or branch offices;
•     changes in consumer spending, borrowing and savings habits;
•     our ability to continue to increase and manage our commercial and personal loans;
•    possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;
•    the impact of the economy on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;
•     our ability to receive regulatory approvals for proposed transactions or new lines of business;
•     changes in the financial performance and/or condition of our borrowers; and
•    the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the FASB and other accounting standard setters.

Overview of Critical Accounting Policies Involving Estimates
 
Please refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2020 Annual Report on Form 10-K.

Recently Issued Accounting Standards
    
    The following accounting standard updates issued by the FASB have not yet been adopted.

    In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The
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guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective as of March 12, 2020 through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact on our financial statements.

In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform." This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform. This guidance is effective as of the date of issuance through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact on our financial statements.
 
Comparison of Financial Condition

Total assets at September 30, 2021 were $14.389 billion, an increase of $583.0 million, or 4.2%, from $13.806 billion at December 31, 2020.  This increase in assets was due to an increase in marketable securities as well as an increase in total cash and cash equivalents, as described in further detail below.

Total cash and cash equivalents increased by $354.2 million, or 48.1%, to $1.090 billion at September 30, 2021 from $736.3 million at December 31, 2020. This increase was primarily due to the increase in customer deposit balances associated with consumer stimulus checks and loan funds from the Paycheck Protection Program ("PPP").

Total marketable securities increased by $624.3 million, or 39.6%, to $2.202 billion at September 30, 2021 from $1.578 billion at December 31, 2020. This increase was primarily due to the $439.5 million increase in held-to-maturity marketable securities as a result of investing excess cash generated by deposits within our held-to-maturity portfolio.

Total loans receivable decreased by $381.9 million, or 3.6%, to $10.199 billion at September 30, 2021, from $10.581 billion at December 31, 2020. This decrease was due to loan paydowns and payoffs outpacing new originations across all of our loan portfolios including PPP forgiveness, with the exception of consumer loans, primarily indirect auto, which increased by $308.8 million, or 20.5%, to $1.817 billion at September 30, 2021 compared to $1.508 billion at December 31, 2020.

     Total deposits increased by $623.0 million, or 5.4%, to $12.222 billion at September 30, 2021 from $11.599 billion at December 31, 2020. This increase was primarily due to increases in checking deposits of $506.3 million, or 9.3%, as well as savings and money market deposits of $371.0 million, or 8.3%. These increases were primarily the result of consumer stimulus checks and PPP loan funds. Partially offsetting this increase was a decrease in time deposits of $254.3 million, or 15.5%, as customers moved funds from term products to checking and savings accounts.

Total shareholders’ equity at September 30, 2021 was $1.562 billion, or $12.34 per share, an increase of $23.1 million, or 1.5%, from $1.539 billion, or $12.11 per share, at December 31, 2020. This increase was primarily the result of year-to-date earnings of $124.3 million. Partially offsetting this increase was the payment of cash dividends of $75.0 million for the nine months ended September 30, 2021 as well as the payment of $23.9 million for share repurchases for the nine months ended September 30, 2021.

Regulatory Capital
 
    Financial institutions and their holding companies are subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct, material effect on a company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting guidelines. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.

    Applicable rules limit an organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a "capital conservation buffer" consisting of 2.5% of Total, Tier 1 and Common Equity Tier 1 ("CET1") capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

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    Quantitative measures, established by regulation to ensure capital adequacy, require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of Total, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Capital requirements are presented in the tables below (in thousands).
 At September 30, 2021
   Minimum capitalWell capitalized
 Actual requirements (1)requirements
 AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)      
Northwest Bancshares, Inc.$1,683,307 16.850 %$1,048,922 10.500 %$998,974 10.000 %
Northwest Bank1,526,216 15.292 %1,047,946 10.500 %998,044 10.000 %
Tier 1 capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,469,178 14.707 %849,127 8.500 %799,179 8.000 %
Northwest Bank1,435,573 14.384 %848,337 8.500 %798,435 8.000 %
CET1 capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,344,178 13.456 %699,281 7.000 %649,333 6.500 %
Northwest Bank1,435,573 14.384 %698,630 7.000 %648,728 6.500 %
Tier 1 capital (leverage) (to average assets)    
Northwest Bancshares, Inc.1,469,178 9.531 %616,557 4.000 %770,697 5.000 %
Northwest Bank1,435,573 10.101 %568,480 4.000 %710,601 5.000 %
(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).
 
 At December 31, 2020
   Minimum capitalWell capitalized
 Actualrequirements (1)requirements
 AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)      
Northwest Bancshares, Inc.$1,654,198 16.642 %$1,043,693 10.500 %$993,993 10.000 %
Northwest Bank1,478,310 14.887 %1,042,655 10.500 %993,004 10.000 %
Tier I capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,406,321 14.148 %844,894 8.500 %795,195 8.000 %
Northwest Bank1,354,028 13.636 %844,054 8.500 %794,403 8.000 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.1,281,516 12.893 %695,795 7.000 %646,096 6.500 %
Northwest Bank1,354,028 13.636 %695,103 7.000 %645,453 6.500 %
Tier I capital (leverage) (to average assets) 
Northwest Bancshares, Inc.1,406,321 10.145 %554,501 4.000 %693,126 5.000 %
Northwest Bank1,354,028 9.903 %546,905 4.000 %683,631 5.000 %
(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).

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Liquidity
 
We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking and Securities during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”).  Northwest Bank’s liquidity ratio at September 30, 2021 was 20.4%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At September 30, 2021, Northwest had $3.511 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit which had no balance at September 30, 2021, as well as $79.5 million of borrowing capacity available with the Federal Reserve Bank and $110.0 million with three correspondent banks.
 
Dividends
 
We paid $25.4 million and $24.3 million in cash dividends during the quarters ended September 30, 2021 and 2020, respectively. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 74.1% and 63.3% for the quarters ended September 30, 2021 and September 30, 2020, respectively, on dividends of $0.20 per share for the quarter ended September 30, 2021 and $0.19 per share for the quarter ended September 30, 2020. On October 25, 2021, the Board of Directors declared a cash dividend of $0.20 per share payable on November 15, 2021 to shareholders of record as of November 5, 2021. This represents the 108th consecutive quarter we have paid a cash dividend.

Nonperforming Assets
 
The following table sets forth information with respect to nonperforming assets.  Nonaccrual loans are those loans on which the accrual of interest has ceased.  Generally, when a loan is 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter.  Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well-secured loans that are in the process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual interest.  Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.
September 30, 2021December 31, 2020
 (in thousands)
Nonaccrual loans 90 days or more past due:  
Residential mortgage loans$8,069 14,489 
Home equity loans4,745 8,441 
Consumer loans2,184 5,473 
Commercial real estate loans25,562 25,287 
Commercial loans1,104 7,325 
Total nonaccrual loans 90 days or more past due41,664 61,015 
Total REO, net$809 2,232 
Total loans 90 days or more past due and REO42,473 63,247 
Total loans 90 days or more past due to net loans receivable0.41 %0.58 %
Total loans 90 days or more past due and REO to total assets0.30 %0.46 %
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due41,664 61,015 
Nonaccrual loans - loans less than 90 days past due135,278 41,817 
Loans 90 days or more past due and still accruing386 585 
Total nonperforming loans177,328 103,417 
Total nonperforming assets$178,137 105,649 
Nonaccrual TDR loans (1)$12,858 10,704 
Accruing TDR loans13,664 21,431 
Total TDR loans$26,522 32,135 
(1)Included in nonaccrual loans above.
 
    


 
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Allowance for Credit Losses
 
We adopted CECL on January 1, 2020, as further described in Note 1(f) of the Notes to the Consolidated Financial Statements in Item 8 of Part II of our 2020 Annual Report on Form 10-K. Our Board of Directors has adopted an “Allowance for Credit Losses” policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period.  This methodology was developed to provide a consistent process to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.
 
On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each region to monitor the performance and status of commercial loans on an internal watch list.  On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated.  This rating is also reviewed independently by our Loan Review department on a periodic basis.  Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss.”  Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”.  A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable.  Loans classified as “loss” have all the weakness inherent in those classified as "doubtful" and are considered uncollectible.
 
Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.
 
If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal.  If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.
 
If a substandard or doubtful loan is not individually assessed, it is grouped with other loans that possess common characteristics for credit losses and analysis.  For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a twenty four month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.

The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Loss Committee ("ACL Committee") monthly.  The ACL Committee reviews and approves the processes and ACL documentation presented.  Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined.  The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee's review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.
 
In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and/or the Pennsylvania Department of Banking and Securities perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements.  Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.
 
We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information
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previously discussed as well as current and known circumstances and events.  There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.

     We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of September 30, 2021, we considered the most recent economic conditions and forecasts available which incorporated the impact of COVID-19. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL decreased by $24.7 million, or 18.3%, to $109.8 million, or 1.08% of total loans at September 30, 2021 from $134.4 million, or 1.27% of total loans, at December 31, 2020. Total classified loans decreased $105.0 million, or 21.4%, to $384.4 million at September 30, 2021 from $489.3 million at December 31, 2020. This decrease was primarily due to the upgrade and payoff of loans in our commercial real estate portfolio during the year.
 
We also consider how the levels of nonaccrual loans and historical charge-offs have influenced the required amount of allowance for credit losses. Nonaccrual loans of $176.9 million, or 1.73% of total loans receivable at September 30, 2021, increased by $74.1 million, or 72.1%, from $102.8 million, or 0.97% of total loans receivable at December 31, 2020. This increase was primarily related to loans within the hospitality industry as they were judgmentally placed on nonaccrual after the end of their deferral periods. As a percentage of average loans, annualized net charge-offs decreased to 0.12% for the quarter ended September 30, 2021 compared to 0.13% for the year ended December 31, 2020.

Comparison of Operating Results for the Quarters Ended September 30, 2021 and 2020
 
Net income for the quarter ended September 30, 2021 was $35.1 million, or $0.27 per diluted share, a decrease of $3.0 million, or 7.9%, from net income of $38.1 million, or $0.30 per diluted share, for the quarter ended September 30, 2020. The decrease in net income primarily resulted from a decrease in noninterest income of $7.5 million, or 20.4%, and a decrease in net interest income of $5.1 million, or 4.9%. Partially offsetting these changes was a decrease in provision for credit losses of $11.2 million, or 163.9%, and a decrease in noninterest expense of $767,000, or 0.9%. Net income for the quarter ended September 30, 2021 represents annualized returns on average equity and average assets of 8.86% and 0.97%, respectively, compared to 9.82% and 1.09% for the same quarter last year. A further discussion of notable changes follows.

Interest Income
 
    Total interest income decreased $8.4 million, or 7.4%, to $105.0 million for the quarter ended September 30, 2021 from $113.4 million for the quarter ended September 30, 2020. This decrease is due to a decrease in the average yield earned on interest-earning assets to 3.13% for the quarter ended September 30, 2021 from 3.52% for the quarter ended September 30, 2020 due to decreases in market interest rates over the past 18 months. Offsetting this decrease in average yield earned was an increase in the average balance of interest-earning assets by $518.8 million, or 4.0%, to $13.334 billion for the quarter ended September 30, 2021 from $12.815 billion for the quarter ended September 30, 2020, which was primarily driven by growth in the mortgage-backed securities portfolio.

    Interest income on loans receivable decreased by $9.8 million, or 9.1%, to $97.5 million for the quarter ended September 30, 2021 compared to $107.2 million for the quarter ended September 30, 2020. This decrease in interest income was due to decreases in both the average balance of loans receivable and the average yield on loans receivable. The average balance of loans receivable decreased $551.4 million, or 5.1%, to $10.226 billion for the quarter ended September 30, 2021 from $10.777 billion for the quarter ended September 30, 2020 due to slower loan demand and $580.0 million of PPP loan forgiveness since September 30 of last year. The average yield on loans receivable decreased to 3.79% for the quarter ended September 30, 2021 from 3.96% for the quarter ended September 30, 2020, due to the decrease in market interest rates. Included in loan interest income for the current quarter is $4.1 million of accretion related to PPP fees, net of origination costs, compared to $1.8 million in the third quarter last year.

    Interest income on mortgage-backed securities increased by $1.2 million, or 25.5%, to $5.8 million for the quarter ended September 30, 2021 compared to $4.7 million for the quarter ended September 30, 2020. This increase was driven by an increase in the average balance of mortgage-backed securities of $828.1 million, or 82.4%, to $1.833 billion for the quarter ended September 30, 2021 from $1.005 billion for the quarter ended September 30, 2020. This increase in average balance was primarily a result of additional purchases utilizing excess cash from deposit growth during the past year. Offsetting this increase was a decrease in the average yield on mortgage-backed securities to 1.27% for the quarter ended September 30, 2021 from 1.85% for the quarter ended September 30, 2020 due to new purchases at lower market yields than our existing portfolio.

    Interest income on investment securities increased by $195,000, or 18.0%, for the quarter ended September 30, 2021 to $1.3 million from $1.1 million for the quarter ended September 30, 2020. This increase was due to an increase in the average balance of investment securities by $132.5 million, or 61.3%, to $348.6 million for the quarter ended September 30, 2021 from $216.1 million for the quarter ended September 30, 2020. The average balance of investment securities increased due to the utilization of excess funds
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from deposit growth. Partially offsetting this increase was a decrease in the average yield on investment securities which decreased to 1.47% for the quarter ended September 30, 2021 from 2.00% for the quarter ended September 30, 2020 due to new investment purchases at yields lower than the existing portfolio.

    Dividends on FHLB stock decreased by $147,000, or 67.4%, to $71,000 for the quarter ended September 30, 2021 from $218,000 for the quarter ended September 30, 2020. This decrease was due to both the decrease in average yield on FHLB stock and the decrease in the average balance of FHLB stock. The average yield decreased to 1.31% for the quarter ended September 30, 2021 from 3.39% for the quarter ended September 30, 2020 as the FHLB of Pittsburgh recently decreased yields on required stock holdings in reaction to lower market interest rates. The average balance of FHLB stock decreased by $4.0 million, or 15.6%, to $21.6 million for the quarter ended September 30, 2021 from $25.6 million for the quarter ended September 30, 2020. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.
 
    Interest income on interest-earning deposits increased by $131,000, or 59.3%, to $352,000 for the quarter ended September 30, 2021 from $221,000 for the quarter ended September 30, 2020. The average balance of interest-earning deposits increased by $113.5 million, or 14.3%, to $905.1 million for the quarter ended September 30, 2021 from $791.6 million for the quarter ended September 30, 2020 due to excess liquidity from recent deposit inflows. Also contributing to this increase was an increase in the average yield on interest-earning deposits to 0.15% for the quarter ended September 30, 2021 from 0.11% for the quarter ended September 30, 2020.

Interest Expense
 
Interest expense decreased by $3.3 million, or 33.2%, to $6.6 million for the quarter ended September 30, 2021 from $9.9 million for the quarter ended September 30, 2020. This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities, which decreased to 0.27% for the quarter ended September 30, 2021 from 0.42% for the quarter ended September 30, 2020. This decrease resulted from decreases in the interest rate paid on deposits and junior subordinated debentures in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $159.1 million, or 1.7%, to $9.534 billion for the quarter ended September 30, 2021 from $9.375 billion for the quarter ended September 30, 2020. This increase in average balance resulted from internal growth in deposits. In addition, on September 9, 2020, the Company issued $125 million of fixed-to-floating subordinated debt with an initial five-year fixed interest rate of 4.00%.
 
Net Interest Income
 
Net interest income decreased by $5.1 million, or 4.9%, to $98.4 million for the quarter ended September 30, 2021 from $103.5 million for the quarter ended September 30, 2020.  This decrease is attributable to the factors discussed above. Our interest rate spread decreased to 2.86% for the quarter ended September 30, 2021 from 3.10% for the quarter ended September 30, 2020 and our net interest margin decreased to 2.95% for the quarter ended September 30, 2021 from 3.23% for the quarter ended September 30, 2020 primarily due to declining interest-earning asset yields.

Provision for Credit Losses

    The provision for credit losses decreased by $11.2 million, or 163.9%, to a current period credit of $4.4 million for the quarter ended September 30, 2021 compared to a provision expense of $6.8 million for the quarter ended September 30, 2020. The prior year was impacted by COVID-19 and the uncertainty surrounding the possible negative effect on the economy. As such, the provision in the prior year was driven by the estimated increase in possible future loan losses. The current period decrease in provision was driven by continued improvements in economic forecasts compared to the uncertainty that existed last year due to COVID-19.
     
    In determining the amount of the current period provision, we considered current and forecasted economic conditions, including but not limited to improvements in unemployment levels, expected economic growth, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses." The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2021.

Noninterest Income
 
Noninterest income decreased by $7.5 million, or 20.4%, to $29.2 million for the quarter ended September 30, 2021 from $36.7 million for the quarter ended September 30, 2020. This decrease was primarily due to a decrease in mortgage banking income of $7.1 million, or 64.4%, to $3.9 million for the quarter ended September 30, 2021 from $11.1 million for the quarter ended
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September 30, 2020 due to the impact of less favorable pricing in the secondary market. In addition, insurance commission income decreased by $2.3 million, or 98.1%, to $44,000 for the quarter ended September 30, 2021 from $2.3 million for the quarter ended September 30, 2020 due to the sale of the insurance business during the second quarter of 2021. Lastly, service charges and fees decreased $1.2 million, or 8.0%, to $13.2 million for the quarter ended September 30, 2021 from $14.4 million for the quarter ended September 30, 2020 due primarily to the impact of being subject to the Durbin amendment on interchange revenue. Partially offsetting this decrease was an increase in trust and other financial services income of $1.8 million, or 33.6%, to $7.2 million for the quarter ended September 30, 2021 from $5.4 million for the quarter ended September 30, 2020 as a result of increases in both trust and brokerage advisory services. In addition, there was an increase in other operating income of $1.3 million, or 62.6%, to $3.3 million for the quarter ended September 30, 2021 from $2.0 million for the quarter ended September 30, 2020 primarily as a result of fees earned from debit/credit card volume-based incentives.

Noninterest Expense

Noninterest expense decreased by $767,000, or 0.9%, to $86.1 million for the quarter ended September 30, 2021 from $86.9 million for the quarter ended September 30, 2020. This decrease was due to a decline in a majority of the noninterest expense categories. Processing expenses decreased $1.5 million, or 10.1%, to $13.5 million for the quarter ended September 30, 2021 from $15.0 million for the quarter ended September 30, 2020. Merger related expenses decreased $1.4 million, or 100.0%, due to expenses incurred in the prior year as a result of the acquisition of MutualFirst Financial, Inc. Partially offsetting these decreases was an increase of $1.7 million, or 3.6%, in compensation and employee benefits due primarily to increases in health insurance and other benefit costs, regular merit expense increases and the addition of strategic personnel. In addition, there was an increase in other expenses of $2.2 million for the quarter ended September 30, 2021 due primarily due to an increase in the unfunded reserve as a result of an increase in the undrawn commitments in the commercial real estate and construction portfolios.

Income Taxes
 
The provision for income taxes increased by $2.3 million, or 27.5%, to $10.8 million for the quarter ended September 30, 2021 from $8.5 million for the quarter ended September 30, 2020. This increase in income taxes was due to an increase in the annual effective tax rate for 2021 as the prior year had a greater percentage of net income generated by tax free or tax efficient earning assets. We anticipate our effective tax rate to be between 22.0% and 24.0% for the year ending December 31, 2021.

Comparison of Operating Results for the Nine Months Ended September 30, 2021 and 2020
 
Net income for the nine months ended September 30, 2021 was $124.3 million, or $0.97 per diluted share, an increase of $84.5 million, or 212.3%, from $39.8 million, or $0.34 per diluted share, for the nine months ended September 30, 2020. The increase in net income resulted primarily from a decrease in provision for credit losses of $96.2 million, or 111.6%, as well as an increase in noninterest income of $15.7 million, or 15.7%, and an increase in net interest income of $5.8 million, or 2.0%. Partially offsetting these factors were an increase of $4.0 million, or 1.6%, in noninterest expense and an increase in income tax expense of $29.2 million. Net income for the nine months ended September 30, 2021 represents annualized returns on average equity and average assets of 10.67% and 1.17%, respectively, compared to 3.33% and 0.42% for the nine months ended September 30, 2020. A further discussion of notable changes follows.
 
Interest Income
 
    Total interest income decreased by $6.7 million, or 2.1%, to $315.6 million for the nine months ended September 30, 2021 from $322.3 million for the nine months ended September 30, 2020. This decrease is the result of a decrease in the average yield earned on interest-earning assets to 3.20% for the nine months ended September 30, 2021 from 3.78% for the nine months ended September 30, 2020. This decrease in average yield is attributed to a decline in overall market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-earning assets of $1.759 billion, or 15.4%, to $13.158 billion for the nine months ended September 30, 2021 from $11.400 billion for the nine months ended September 30, 2020 due primarily to the investment of excess cash from deposit growth.

Interest income on loans receivable decreased by $10.2 million, or 3.3%, to $295.0 million for the nine months ended September 30, 2021 from $305.2 million for the nine months ended September 30, 2020. This decrease is attributed to a decrease in the average yield on loans receivable to 3.82% for the nine months ended September 30, 2021 from 4.11% for the nine months ended September 30, 2020 primarily as a result of the decrease in market interest rates. Partially offsetting this decrease was an increase in the average balance of loans receivable of $387.9 million, or 3.9%, to $10.309 billion for the nine months ended September 30, 2021 from $9.921 billion for the nine months ended September 30, 2020. This increase is due to organic loan growth as well as the origination of almost $800.0 million of PPP loans over the past 18 months. Included in loan interest income for the current period is $11.4 million of accretion related to PPP fees, net of origination costs, compared to $2.9 million in the prior year period.

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    Interest income on mortgage-backed securities increased by $2.9 million, or 22.2%, to $15.7 million for the nine months ended September 30, 2021 from $12.9 million for the nine months ended September 30, 2020. This increase is attributed to an increase in the average balance of mortgage-backed securities of $843.0 million, or 105.8%, to $1.640 billion for the nine months ended September 30, 2021 from $796.7 million for the nine months ended September 30, 2020. This increase is due primarily to the additional purchases utilizing excess cash from deposit growth during the past year. Partially offsetting this increase was a decrease in the average yield on mortgage-backed securities to 1.28% for the quarter ended September 30, 2021 from 2.15% for the quarter ended September 30, 2020. This decrease in yield was primarily due to new purchases of mortgage-backed securities at lower market yields than our existing portfolio.

Interest income on investment securities increased by $855,000, or 29.3%, to $3.8 million for the nine months ended September 30, 2021 from $2.9 million for the nine months ended September 30, 2020. This increase is primarily attributable to an increase in the average balance of investment securities of $171.2 million, or 96.7%, to $348.2 million for the nine months ended September 30, 2021 from $177.0 million for the nine months ended September 30, 2020. The average balance of investments increased due to the utilization of excess funds from deposit growth. Partially offsetting this increase was a decrease in the average yield on investment securities to 1.44% for the nine months ended September 30, 2021 from 2.20% for the nine months ended September 30, 2020. 
 
Dividends on FHLB stock decreased by $464,000, or 58.8%, to $325,000 for the nine months ended September 30, 2021 from $789,000 for the nine months ended September 30, 2020. This decrease was due to a decrease in the average yield on FHLB stock to 1.95% for the nine months ended September 30, 2021 from 4.96% for the nine months ended September 30, 2020 as the FHLB of Pittsburgh decreased yields on required stock holdings due to lower market interest rates. Partially offsetting this decrease was an increase of $919,000, or 4.3%, in the average balance of FHLB stock to $22.2 million for the nine months ended September 30, 2021 from $21.3 million for the nine months ended September 30, 2020. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.
 
Interest income on interest-earning deposits increased by $186,000, or 34.4%, to $727,000 for the nine months ended September 30, 2021 from $541,000 for the nine months ended September 30, 2020. This increase is attributable to an increase in the average balance of interest-earning deposits which increased by $355.6 million, or 73.6%, to $839.0 million for the nine months ended September 30, 2021 from $483.4 million for the nine months ended September 30, 2020 due to excess liquidity from steady deposit inflows. Partially offsetting this increase was a decrease in the average yield on interest-earning deposits to 0.11% for the nine months ended September 30, 2021 from 0.15% for the nine months ended September 30, 2020, as a result of decreases in the targeted federal funds rate by the Federal Reserve.

Interest Expense
 
Interest expense decreased by $12.5 million, or 37.4%, to $21.0 million for the nine months ended September 30, 2021 from $33.5 million for the nine months ended September 30, 2020. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 0.30% for the nine months ended September 30, 2021 from 0.53% for the nine months ended September 30, 2020. This decrease resulted from decreases in the interest rate paid on deposits and junior subordinated debentures in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities which increased by $976.1 million, or 11.5%, to $9.475 billion for the nine months ended September 30, 2021 from $8.499 billion for the nine months ended September 30, 2020. This increase resulted from internal growth in deposits. In addition, on September 9, 2020, the Company issued $125 million of fixed-to-floating subordinated debt with an initial five year fixed interest rate of 4.00%.
 
Net Interest Income
 
Net interest income increased by $5.8 million, or 2.0%, to $294.6 million for the nine months ended September 30, 2021 from $288.8 million for the nine months ended September 30, 2020. This increase is attributable to the factors discussed above. Despite the overall increase in net interest income due primarily to balance sheet growth and the accretion of net PPP fees, our interest rate spread and net interest margin both decreased. Our interest rate spread decreased to 2.91% for the nine months ended September 30, 2021 from 3.25% for the nine months ended September 30, 2020 and our net interest margin decreased to 2.99% for the nine months ended September 30, 2021 from 3.38% for the nine months ended September 30, 2020. These decreases were primarily due to declining interest-earning asset yields. Contributing to the decline in asset yields was an increase in average cash balances of $355.6 million, earning just 0.11%, due to deposit growth associated with the PPP loan funds and consumer stimulus checks.

Provision for Credit Losses

    The provision for credit losses decreased by $96.2 million, or 111.6%, to a current period credit of $10.0 million for the nine months ended September 30, 2021 from a provision expense of $86.2 million for the nine months ended September 30, 2020. The
53
prior year provision was impacted by COVID-19 and the uncertainty surrounding the possible negative effect on economic forecasts. As such, the outsized provision in the prior year was driven by the estimated increase in possible future loan losses due to COVID-19. The current period decrease was primarily due to continued improvements in economic forecasts compared to the uncertainty that existed in the prior year.

Annualized net charge-offs to average loans decreased to 0.19% for the nine months ended September 30, 2021 from 0.32% for the nine months ended September 30, 2020. Additionally, classified assets declined by $73.4 million, or 16.0%, to $384.4 million, or 3.8% of loans outstanding at September 30, 2021 from $457.8 million, or 4.2% of loans outstanding at September 30, 2020.
     
In determining the amount of the current period provision, we considered current economic conditions, including but not limited to unemployment levels, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience.  We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses."  The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2021.

Noninterest Income

Noninterest income increased by $15.7 million, or 15.7%, to $115.8 million for the nine months ended September 30, 2021 from $100.1 million for the nine months ended September 30, 2020. This increase was primarily due to a $25.3 million pre-tax gain on the sale of our insurance business offered through Northwest Insurance Services, which closed April 30, 2021. In addition, trust and other financial services income increased by $5.9 million, or 38.8%, to $21.1 million for the nine months ended September 30, 2021 from $15.2 million for the nine months ended September 30, 2020 as a result of increases in both trust and brokerage advisory services. Partially offsetting this increase was a $10.5 million, or 43.3 %, decrease in mortgage banking income due to the impact of less favorable secondary market pricing. Additionally, service charges and fees decreased by $4.2 million, or 9.9%, due to the impact of the Durbin amendment on our interchange fees which came into effect in the second half of 2020.

Noninterest Expense
 
Noninterest expense increased by $4.0 million, or 1.6%, to $258.6 million for the nine months ended September 30, 2021, from $254.6 million for the nine months ended September 30, 2020. This increase was primarily due to the increase in compensation and employee benefits expense of $15.0 million, or 11.5%, to $145.2 million for the nine months ended September 30, 2021 from $130.2 million for the nine months ended September 30, 2020 primarily due to increases in health insurance and other benefit costs, regular merit expense and the addition of MutualBank employees and other strategic personnel. Processing expenses increased by $4.3 million, or 11.3%, to $42.1 million for the nine months ended September 30, 2021 from $37.9 million for the nine months ended September 30, 2020 as we continue to invest in technology and infrastructure and as activity-driven utilization fees for ATM, check card and online and mobile banking has increased. Additionally, professional service expense increased by $4.2 million, or 47.6%, to $13.1 million for the nine months ended September 30, 2021 from $8.9 million for the nine months ended September 30, 2020 due primarily to utilization of third-party experts to assist with our digital strategy rollout. Partially offsetting these increases, merger, asset disposition and restructuring expense decreased $12.9 million, or 95.3%, due to expenses incurred in the prior period as part of the MutualBank acquisition. Additionally, other expenses decreased by $5.8 million, or 45.1%, primarily due to the decrease in the reserve for unfunded commitments. The prior year was significantly impacted by the onset of COVID-19 and the uncertainty surrounding the possible negative effect on loan commitments and undrawn lines of credit.

Income Taxes
 
The provision for income taxes increased by $29.2 million, or 349.8%, to $37.5 million for the nine months ended September 30, 2021 from $8.3 million for the nine months ended September 30, 2020. This increase was primarily due to the increase in income before tax of $113.7 million, or 236.1%. We anticipate our effective tax rate to be between 22.0% and 24.0% for the year ending December 31, 2021.

54
Average Balance Sheet
(in thousands)
 
    The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.  Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.  Average balances are calculated using daily averages. 
 Quarter ended September 30,
 20212020
Average
balance		InterestAvg.
yield/
cost (i)		Average
balance		InterestAvg.
yield/
cost (i)
Assets      
Interest-earning assets:     
Residential mortgage loans$2,959,794 25,398 3.43 %$3,176,436 28,769 3.62 %
Home equity loans1,356,131 11,993 3.51 %1,479,429 13,732 3.69 %
Consumer loans1,728,563 16,220 3.72 %1,437,828 15,851 4.39 %
Commercial real estate loans3,205,839 35,305 4.31 %3,306,386 36,887 4.37 %
Commercial loans975,603 9,096 3.65 %1,377,223 12,603 3.58 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $537 and $600, respectively)10,225,930 98,012 3.80 %10,777,302 107,842 3.98 %
Mortgage-backed securities (c)1,832,876 5,840 1.27 %1,004,803 4,651 1.85 %
Investment securities (c) (d) (includes FTE adjustments of $189 and $254, respectively)348,619 1,466 1.68 %216,081 1,336 2.47 %
FHLB stock, at cost 21,607 71 1.31 %25,595 218 3.39 %
Other interest-earning deposits905,130 352 0.15 %791,601 221 0.11 %
Total interest-earning assets (includes FTE adjustments of $726 and $854, respectively)13,334,162 105,741 3.15 %12,815,382 114,268 3.55 %
Noninterest-earning assets (e)1,074,122 1,088,273 
Total assets$14,408,284   $13,903,655   
Liabilities and shareholders’ equity      
Interest-bearing liabilities:      
Savings deposits$2,271,365 603 0.11 %$2,015,604 648 0.13 %
Interest-bearing demand deposits2,890,905 414 0.06 %2,680,591 763 0.11 %
Money market deposit accounts2,565,159 637 0.10 %2,347,097 1,347 0.23 %
Time deposits1,423,041 2,886 0.80 %1,782,350 5,685 1.27 %
Borrowed funds (f)131,199 154 0.47 %419,375 411 0.55 %
Subordinated debentures (g)123,513 1,277 4.10 %1,340 306 N/M
Junior subordinated debentures128,946 625 1.90 %128,658 720 2.19 %
Total interest-bearing liabilities9,534,128 6,596 0.27 %9,375,015 9,880 0.42 %
Noninterest-bearing demand deposits (h)3,058,819 2,703,266 
Noninterest-bearing liabilities244,402 284,440 
Total liabilities12,837,349   12,362,721  
Shareholders’ equity1,570,935 1,540,934  
Total liabilities and shareholders’ equity$14,408,284   $13,903,655   
Net interest income/Interest rate spread 99,145 2.87 % 104,388 3.13 %
Net interest-earning assets/Net interest margin$3,800,034  2.97 %$3,440,367  3.26 %
Ratio of interest-earning assets to interest-bearing liabilities1.40X  1.37X  
(a)Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.
(b)Interest income includes accretion/amortization of deferred loan fees/expenses, which were not material.
(c)Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.
(d)Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent ("FTE") basis.
(e)Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.
(f)Average balances include FHLB borrowings and collateralized borrowings.
(g)On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity of September 15, 2030.
(h)Average cost of deposits were 0.15% and 0.29%, respectively.
(i)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 3.79% and 3.96%, respectively; investment securities — 1.47% and 2.00%, respectively; interest-earning assets — 3.13% and 3.52%, respectively. GAAP basis net interest rate spreads were 2.86% and 3.10%, respectively; and GAAP basis net interest margins were 2.95% and 3.23%, respectively.
55
Rate/Volume Analysis
(in thousands)
 
The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.  Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change.  Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.
For the quarter ended September 30, 2021 vs. 2020
Increase/(decrease) due to Total
 increase/(decrease)
RateVolume
Interest-earning assets:   
Loans receivable$(4,841)(4,989)(9,830)
Mortgage-backed securities(1,449)2,638 1,189 
Investment securities(428)558 130 
FHLB stock, at cost(133)(14)(147)
Other interest-earning deposits87 44 131 
Total interest-earning assets(6,764)(1,763)(8,527)
Interest-bearing liabilities:   
Savings deposits(115)70 (45)
Interest-bearing demand deposits(382)33 (349)
Money market deposit accounts(768)58 (710)
Time deposits(2,085)(714)(2,799)
Borrowed funds81 (338)(257)
Subordinated debt(292)1,263 971 
Junior subordinated debentures(97)2 (95)
Total interest-bearing liabilities(3,658)374 (3,284)
Net change in net interest income$(3,106)(2,137)(5,243)
56
Average Balance Sheet
(in thousands)
 
    The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.  Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.  Average balances are calculated using daily averages.
 Nine months ended September 30,
 20212020
Average
balance		InterestAvg.
yield/
cost (i)		Average
balance		InterestAvg.
yield/
cost (i)
Assets      
Interest-earning assets:      
Residential mortgage loans$2,967,248 77,373 3.48 %$3,038,712 85,850 3.77 %
Home equity loans1,389,367 37,039 3.55 %1,424,580 42,340 3.97 %
Consumer loans1,594,834 45,341 3.79 %1,302,282 43,004 4.41 %
Commercial real estate loans3,258,785 107,124 4.32 %3,071,047 102,918 4.40 %
Commercial loans1,099,010 29,640 3.54 %1,084,739 32,727 3.96 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,468 and $1,613, respectively)10,309,244 296,517 3.83 %9,921,360 306,839 4.13 %
Mortgage-backed securities (c)1,639,749 15,720 1.28 %796,739 12,865 2.15 %
Investment securities (c) (d) (includes FTE adjustments of $540 and $543, respectively)348,193 4,313 1.65 %176,991 3,461 2.61 %
FHLB stock, at cost22,174 325 1.95 %21,255 789 4.96 %
Other interest-earning deposits838,997 727 0.11 %483,390 541 0.15 %
Total interest-earning assets (includes FTE adjustments of $2,008 and $2,156, respectively)13,158,357 317,602 3.22 %11,399,735 324,495 3.80 %
Noninterest-earning assets (e)1,094,117 1,190,283  
Total assets$14,252,474   $12,590,018   
Liabilities and shareholders’ equity      
Interest-bearing liabilities:     
Savings deposits$2,215,553 1,818 0.11 %$1,837,624 2,023 0.15 %
Interest-bearing demand deposits2,838,822 1,250 0.06 %2,342,748 2,882 0.16 %
Money market deposit accounts2,533,676 1,914 0.10 %2,157,212 6,035 0.37 %
Time deposits1,499,583 9,845 0.87 %1,691,168 18,243 1.44 %
Borrowed funds (f)135,369 458 0.45 %344,007 1,415 0.55 %
Subordinated debentures (g)123,438 3,799 4.10 %450 306 N/M
Junior subordinated debentures128,882 1,903 1.94 %125,988 2,595 2.71 %
Total interest-bearing liabilities9,475,323 20,987 0.30 %8,499,197 33,499 0.53 %
Noninterest-bearing demand deposits (h)2,967,672 2,250,864  
Noninterest-bearing liabilities252,587 243,705  
Total liabilities12,695,582   10,993,766   
Shareholders’ equity1,556,892 1,596,252   
Total liabilities and shareholders’ equity$14,252,474   $12,590,018   
Net interest income/Interest rate spread 296,615 2.92 % 290,996 3.27 %
Net interest-earning assets/Net interest margin$3,683,034  3.01 %$2,900,538  3.40 %
Ratio of interest-earning assets to interest-bearing liabilities1.39X  1.34X  
(a)Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.
(b)Interest income includes accretion/amortization of deferred loan fees/expenses, which were not material.
(c)Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.
(d)Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent ("FTE") basis.
(e)Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.
(f)Average balances include FHLB borrowings and collateralized borrowings.
(g)On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity of September 15, 2030.
(h)Average cost of deposits were 0.16% and 0.38%, respectively.
(i)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 3.82% and 4.11%, respectively; investment securities — 1.44% and 2.20%, respectively; interest-earning assets — 3.20% and 3.78%, respectively. GAAP basis net interest rate spreads were 2.91% and 3.25%, respectively; and GAAP basis net interest margins were 2.99% and 3.38%, respectively.
57
Rate/Volume Analysis
(in thousands)
 
The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.  Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change.  Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.  
For the nine months ended September 30, 2021 vs. 2020
Increase/(decrease) due to Total
increase/(decrease)
RateVolume
Interest-earning assets:   
Loans receivable$(22,258)11,936 (10,322)
Mortgage-backed securities(5,227)8,082 2,855 
Investment securities(1,269)2,121 852 
FHLB stock, at cost(479)15 (464)
Other interest-earning deposits(122)308 186 
Total interest-earning assets(29,355)22,462 (6,893)
Interest-bearing liabilities:   
Savings deposits(519)314 (205)
Interest-bearing demand deposits(1,852)220 (1,632)
Money market deposit accounts(4,406)285 (4,121)
Time deposits(7,164)(1,234)(8,398)
Borrowed funds(251)(706)(957)
Subordinated debt(291)3,784 3,493 
Junior subordinated debentures(732)40 (692)
Total interest-bearing liabilities(15,215)2,703 (12,512)
Net change in net interest income$(14,140)19,759 5,619 
 
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Item 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As the holding company for a savings bank, one of our primary market risks is interest rate risk.  Interest rate risk is the sensitivity of net interest income to variations in interest rates over a specified time period.  The sensitivity results from differences in the time periods in which interest rate sensitive assets and liabilities mature or re-price.  We attempt to control interest rate risk by matching, within acceptable limits, the re-pricing periods of assets and liabilities.  We have attempted to limit our exposure to interest sensitivity by increasing core deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. We also have the ability to sell a portion of the long-term, fixed-rate mortgage loans that we originate.  In addition, we purchase shorter term or adjustable-rate investment securities and mortgage-backed securities.

We have an Asset/Liability Committee consisting of members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest-earning assets and interest-bearing liabilities and the balance sheet structure.  On a quarterly basis, this Committee also reviews the interest rate risk position and cash flow projections.
 
The Board of Directors has a Risk Management Committee which meets quarterly and reviews interest rate risk and trends, our interest sensitivity position, the liquidity position and the market risk inherent in the investment portfolio.
 
In an effort to assess interest rate risk and market risk, we utilize a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of equity.  Certain assumptions are made regarding loan prepayments and decay rates of savings and interest-bearing demand accounts.  Because it is difficult to accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest rates on these assumptions may differ from simulated results.  We have established the following guidelines for assessing interest rate risk:
 
Net interest income simulation.  Given a parallel shift of 100 basis points (“bps”), 200 bps and 300 bps in interest rates, the estimated net income may not decrease by more than 5%, 10% and 15%, respectively, within a one-year period.

     Net income simulation.  Given a parallel shift of 100 bps, 200 bps and 300 bps in interest rates, the estimated net income may not decrease by more than 10%, 20% and 30%, respectively, within a one-year period.
 
Market value of equity simulation.  The market value of equity is the present value of assets and liabilities.  Given a parallel shift of 100 bps, 200 bps and 300 bps in interest rates, the market value of equity may not decrease by more than 15%, 30% and 35%, respectively, from the computed economic value at current interest rate levels.
 
The following table illustrates the simulated impact of a 100 bps, 200 bps or 300 bps upward or a 100 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at September 30, 2021 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from September 30, 2021 levels.
 IncreaseDecrease
Parallel shift in interest rates over the next 12 months100 bps200 bps300 bps100 bps
Projected percentage increase/(decrease) in net interest income1.1 %1.4 %1.4 %(2.7 %)
Projected percentage increase/(decrease) in net income3.4 %4.6 %5.0 %(8.0 %)
Projected increase/(decrease) in return on average equity3.3 %4.4 %4.9 %(7.8 %)
Projected increase/(decrease) in earnings per share$0.03 $0.04 $0.04 $(0.06)
Projected percentage decrease in market value of equity(2.9 %)(7.8 %)(14.4 %)(12.2 %)
 
    The figures included in the table above represent projections that were computed based upon certain assumptions including prepayment rates and decay rates. These assumptions are inherently uncertain and, as a result, cannot precisely predict the impact of changes in interest rates. Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in market conditions, and actions that may be taken by management in response to interest rate changes.

59
Item 4.        CONTROLS AND PROCEDURES
 
Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”).  Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective.
 
There were no changes in the internal controls over financial reporting during the period covered by this report or in other factors that have materially affected, or are reasonably likely to materially affect the internal controls over financial reporting.

PART II.             OTHER INFORMATION
 
Item 1.        LEGAL PROCEEDINGS
 
We are subject to a number of asserted and unasserted claims encountered in the normal course of business.  We believe that any additional liability, other than that which has already been accrued, that may result from such potential litigation will not have a material adverse effect on the financial statements.  However, we cannot presently determine whether or not any claims against us will have a material adverse effect on our results of operations in any future reporting period. Refer to Note 11.
 
Item 1A.    RISK FACTORS

    Except as previously disclosed, there have been no material updates or additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.


60
Item 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a)       Not applicable.
b)       Not applicable.
c)    On December 13, 2012, the Board of Directors approved a program that authorizes the repurchase of approximately 5,000,000 shares of common stock. This program does not have an expiration date. During the quarter ended September 30, 2021, we repurchased 1,425,120 shares and there are a maximum of 2,261,130 remaining shares that can be purchased under the current repurchase program.
MonthNumber of shares purchasedAverage
price paid
per share		Total number of shares purchased as part of a publicly announced repurchase planMaximum number of
shares yet to be purchased under the plan
July1,065,540 $13.35 1,065,540 2,620,710 
August— — — 2,620,710 
September359,580 12.69 359,580 2,261,130 
1,425,120 

Item 3.        DEFAULTS UPON SENIOR SECURITIES
 
Not applicable.
 
Item 4.        MINE SAFETY DISCLOSURES
 
Not applicable.
 
Item 5.        OTHER INFORMATION
 
Not applicable.
 
61
Table of Contents
Item 6.        EXHIBITS
Certification of the Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Certification of the Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.
62
Signature
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
 
NORTHWEST BANCSHARES, INC.
(Registrant)
  
  
Date:November 4, 2021By:/s/ Ronald J. Seiffert
  Ronald J. Seiffert
  Chairman, President and Chief Executive Officer
  (Duly Authorized Officer)
  
  
Date:November 4, 2021By:/s/ Jeffrey R. White
  Jeffrey R. White
  Senior Vice President and Controller
(Principal Accounting Officer)
  

63

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