Companies: 10,761     total market cap: โ‚น12261.080 T
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Northwest Bancshares
NWBI
#4795
Rank
โ‚น173.42 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
โ‚น1,187
Share price
1.29%
Change (1 day)
19.29%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Northwest Bancshares
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q3

Northwest Bancshares - 10-Q quarterly report FY2023 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, 2023
 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.)
   
3 Easton Oval
    Suite 500
Columbus
   Ohio
 43219
(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), 127,104,458 shares outstanding as of October 31, 2023.
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NORTHWEST BANCSHARES, INC.
Table of Contents 
    
PART I FINANCIAL INFORMATION 
    
   
     
   
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Table of Contents
Item 1.        FINANCIAL STATEMENTS
 
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands, except share data)
September 30, 2023December 31, 2022
Assets  
Cash and cash equivalents $161,995 139,365 
Marketable securities available-for-sale (amortized cost of $1,262,080 and $1,431,728, respectively)
1,010,076 1,218,108 
Marketable securities held-to-maturity (fair value of $682,681 and $751,384, respectively)
830,106 881,249 
Total cash and cash equivalents and marketable securities2,002,177 2,238,722 
Loans held-for-sale10,592 9,913 
Loans held for investment11,299,681 10,910,539 
Allowance for credit losses(124,841)(118,036)
Loans receivable, net11,185,432 10,802,416 
FHLB stock, at cost40,404 40,143 
Accrued interest receivable42,624 35,528 
Real estate owned, net363 413 
Premises and equipment, net138,041 145,909 
Bank-owned life insurance250,502 255,062 
Goodwill380,997 380,997 
Other intangible assets, net6,013 8,560 
Other assets315,648 205,574 
Total assets$14,362,201 14,113,324 
Liabilities and shareholders’ equity  
Liabilities:  
Noninterest-bearing demand deposits$2,774,291 2,993,243 
Interest-bearing demand deposits2,598,080 2,686,431 
Money market deposit accounts2,042,813 2,457,569 
Savings deposits2,116,360 2,275,020 
Time deposits2,258,338 1,052,285 
Total deposits11,789,882 11,464,548 
Borrowed funds604,587 681,166 
Subordinated debt114,102 113,840 
Junior subordinated debentures 129,509 129,314 
Advances by borrowers for taxes and insurance27,653 47,613 
Accrued interest payable7,915 3,231 
Other liabilities190,122 182,126 
Total liabilities12,863,770 12,621,838 
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, 127,101,349 and 127,028,848 shares issued and outstanding, respectively
1,271 1,270 
Additional paid-in capital1,023,591 1,019,647 
Retained earnings671,092 641,727 
Accumulated other comprehensive loss(197,523)(171,158)
Total shareholders’ equity1,498,431 1,491,486 
Total liabilities and shareholders’ equity$14,362,201 14,113,324 
See accompanying notes to unaudited Consolidated Financial Statements.
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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except share data) 
Quarter ended September 30,Nine months ended September 30,
 2023202220232022
Interest income:    
Loans receivable$140,667 106,943 397,136 290,691 
Mortgage-backed securities8,072 8,683 24,935 22,201 
Taxable investment securities786 838 2,472 2,230 
Tax-free investment securities491 709 1,858 2,066 
FHLB stock dividends668 148 2,202 311 
Interest-earning deposits914 1,295 1,931 3,446 
Total interest income
151,598 118,616 430,534 320,945 
Interest expense:    
Deposits31,688 3,157 64,743 10,249 
Borrowed funds11,542 2,710 36,410 7,059 
Total interest expense
43,230 5,867 101,153 17,308 
Net interest income
108,368 112,749 329,381 303,637 
Provision for credit losses - loans3,983 7,689 14,863 8,837 
Provision for credit losses - unfunded commitments(2,981)3,585 65 8,577 
Net interest income after provision for credit losses
107,366 101,475 314,453 286,223 
Noninterest income:    
Loss on sale of investments— (2)(8,306)(7)
Gain on sale of mortgage servicing rights— — 8,305 — 
Gain on sale of SBA loans301 — 1,412 — 
Service charges and fees15,270 14,323 43,292 41,063 
Trust and other financial services income7,085 6,650 20,400 21,123 
Gain on real estate owned, net29 290 922 552 
Income from bank-owned life insurance4,561 1,475 7,134 5,466 
Mortgage banking income632 766 2,184 4,388 
Other operating income3,010 3,301 9,311 10,406 
Total noninterest income
30,888 26,803 84,654 82,991 
Noninterest expense:    
Compensation and employee benefits51,243 46,711 145,497 141,701 
Premises and occupancy costs7,052 7,171 22,102 22,248 
Office operations3,398 3,229 9,208 9,774 
Collections expense551 322 1,367 1,245 
Processing expenses14,672 13,416 43,670 38,911 
Marketing expenses2,379 2,147 8,127 6,322 
Federal deposit insurance premiums2,341 1,200 6,628 3,459 
Professional services3,002 3,363 11,564 9,269 
Amortization of intangible assets795 1,047 2,546 3,345 
Real estate owned expense141 61 405 170 
Merger, asset disposition and restructuring expense— — 4,395 1,374 
Other expenses1,996 321 5,369 2,929 
Total noninterest expense
87,570 78,988 260,878 240,747 
Income before income taxes50,684 49,290 138,229 128,467 
Federal and state income taxes expense11,464 11,986 32,286 29,450 
Net income$39,220 37,304 105,943 99,017 
Basic earnings per share$0.31 0.29 0.83 0.78 
Diluted earnings per share$0.31 0.29 0.83 0.78 
See accompanying notes to unaudited Consolidated Financial Statements.
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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Unaudited)
(in thousands)
Quarter ended September 30,Nine months ended September 30,
 2023202220232022
Net income$39,220 37,304 105,943 99,017 
Other comprehensive loss net of tax:    
Net unrealized holding (losses)/gains on marketable securities:    
Unrealized holding losses, net of tax of $9,140, $14,705, $9,603 and $45,555, respectively
(29,715)(48,387)(34,417)(153,124)
Reclassification adjustment for losses/(gains) included in net income, net of tax of $0, $0, ($1,731) and $0, respectively
— — 5,636 (2)
Net unrealized holding losses on marketable securities(29,715)(48,387)(28,781)(153,126)
Change in fair value of interest rate swaps, net of tax of ($533), $0, ($1,041) and $0, respectively
1,825 — 3,562 — 
Defined benefit plan:    
Actuarial reclassification adjustments for prior period service costs and actuarial gains included in net income, net of tax of $152, $50, $456 and $151, respectively
(382)(131)(1,146)(393)
Other comprehensive loss(28,272)(48,518)(26,365)(153,519)
Total comprehensive income/(loss)$10,948 (11,214)79,578 (54,502)
See accompanying notes to unaudited Consolidated Financial Statements.

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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, 2023SharesAmount
Beginning balance at June 30, 2023127,088,963 $1,271 1,022,189 657,292 (169,251)1,511,501 
Comprehensive income:      
Net income— — — 39,220 — 39,220 
Other comprehensive loss, net of tax of $8,759
— — — — (28,272)(28,272)
Total comprehensive income/(loss)— — — 39,220 (28,272)10,948 
Exercise of stock options11,523 — 112 — — 112 
Stock-based compensation expense1,779 — 1,290 — — 1,290 
Stock-based compensation forfeited(916)— — — — — 
Dividends paid ($0.20 per share)
— — — (25,420)— (25,420)
Ending balance at September 30, 2023127,101,349 $1,271 1,023,591 671,092 (197,523)1,498,431 

Additional paid-in capitalRetained earningsAccumulated
other comprehensive loss		Total shareholders’ equity
 Common stock
Quarter ended September 30, 2022SharesAmount
Beginning balance at June 30, 2022126,881,766 $1,269 1,015,349 620,551 (142,630)1,494,539 
Comprehensive income:      
Net income— — — 37,304 — 37,304 
Other comprehensive loss, net of tax of $14,755
— — — — (48,518)(48,518)
Total comprehensive income/(loss)— — — 37,304 (48,518)(11,214)
Exercise of stock options73,472 — 897 — — 897 
Stock-based compensation expense— — 944 — — 944 
Stock-based compensation forfeited (33,249)— (1)— — (1)
Dividends paid ($0.20 per share)
— — — (25,379)— (25,379)
Ending balance at September 30, 2022126,921,989 $1,269 1,017,189 632,476 (191,148)1,459,786 
See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in thousands, expect share data)
Additional paid-in capitalRetained earningsAccumulated
other comprehensive income/(loss)		Total shareholders’ equity
 Common stock
Nine months ended September 30, 2023SharesAmount
Beginning balance at December 31, 2022127,028,848 $1,270 1,019,647 641,727 (171,158)1,491,486 
Comprehensive income:      
Net income— — — 105,943 — 105,943 
Other comprehensive loss, net of tax of $7,287
— — — — (26,365)(26,365)
Total comprehensive income— — — 105,943 (26,365)79,578 
Adoption of ASU No. 2022-02— — — (329)— (329)
Exercise of stock options53,207 1 609 — — 610 
Stock-based compensation expense75,554 1 3,334 — — 3,335 
Stock-based compensation forfeited(56,260)(1)1 — — — 
Dividends paid ($0.60 per share)
— — — (76,249)— (76,249)
Ending balance at September 30, 2023127,101,349 $1,271 1,023,591 671,092 (197,523)1,498,431 


Additional paid-in capitalRetained earningsAccumulated
other comprehensive income/(loss)		Total shareholders’ equity
 Common stock
Nine months ended September 30, 2022SharesAmount
Beginning balance at December 31, 2021126,612,183 $1,266 1,010,405 609,529 (37,629)1,583,571 
Comprehensive income:      
Net income— — — 99,017 — 99,017 
Other comprehensive loss, net of tax of $45,706
— — — — (153,519)(153,519)
Total comprehensive income/(loss)— — — 99,017 (153,519)(54,502)
Exercise of stock options314,880 2 3,719 — — 3,721 
Stock-based compensation expense75,377 2 3,065 — — 3,067 
Stock-based compensation forfeited(80,451)(1)— — — (1)
Dividends paid ($0.60 per share)
— — — (76,070)— (76,070)
Ending balance at September 30, 2022126,921,989 $1,269 1,017,189 632,476 (191,148)1,459,786 
See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine months ended September 30,
 20232022
Operating activities:  
Net income$105,943 99,017 
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:  
Provision for credit losses14,928 8,837 
Loss on sale of investments8,306 — 
Net loss/(gain) on sale of assets743 (858)
Mortgage banking activity5,342 (3,308)
Gain on sale of SBA loans(1,390)— 
Gain on sale of mortgage servicing rights(8,305)— 
Net depreciation, amortization and accretion16,473 3,874 
Increase in other assets(114,158)(31,790)
Increase in other liabilities15,617 11,270 
Net amortization on marketable securities2,438 3,849 
Noncash compensation expense related to stock benefit plans3,335 3,066 
Noncash write-down of real estate owned37 44 
Deferred income tax (benefit)/expense(3,610)1,928 
Origination of loans held-for-sale(137,789)(317,117)
Proceeds from sale of loans held-for-sale139,819 331,268 
Net cash provided by operating activities47,729 110,080 
Investing activities:  
Purchase of marketable securities held-to-maturity— (212,892)
Purchase of marketable securities available-for-sale(23,502)(102,178)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity50,517 80,765 
Proceeds from maturities and principal reductions of marketable securities available-for-sale81,803 197,310 
Proceeds from sale of marketable securities available-for-sale101,229 — 
Proceeds from bank-owned life insurance2,798 4,753 
Loan originations(2,928,360)(3,464,471)
Proceeds from sale of mortgage servicing rights13,118 — 
Loan purchases— (371,121)
Proceeds from loan maturities and principal reductions2,524,676 3,110,264 
Net redemptions of FHLB stock(261)(5,097)
Proceeds from sale of real estate owned1,343 1,469 
Proceeds from sale of real estate owned for investment, net— 229 
Purchases of premises and equipment, net(1,617)(613)
Net cash used in investing activities(178,256)(761,582)













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Nine months ended September 30,
20232022
Financing activities:
Net increase/(decrease) in deposits325,334 (422,773)
Repayments of long-term borrowings— (10,094)
Net (decrease)/increase in short-term borrowings(76,578)10,943 
Increase in advances by borrowers for taxes and insurance(19,960)(14,935)
Cash dividends paid on common stock(76,249)(76,070)
Proceeds from stock options exercised610 3,721 
Net cash provided by/(used in) financing activities153,157 (509,208)
Net increase/(decrease) in cash and cash equivalents$22,630 (1,160,710)
Cash and cash equivalents at beginning of period$139,365 1,279,259 
Net increase/(decrease) in cash and cash equivalents22,630 (1,160,710)
Cash and cash equivalents at end of period$161,995 118,549 
Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $56,021 and $9,812, respectively)
$96,469 18,281 
Income taxes38,236 21,851 
Non-cash activities:
Loan foreclosures and repossessions$2,844 3,423 
Sale of real estate owned financed by the Company70 175 
See accompanying notes to unaudited Consolidated Financial Statements.
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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 Columbus, Ohio, 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 142 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., Great Northwest Corporation, and MutualFirst Interest 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, 2022 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. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Income and Consolidated Statements of Cash Flows for the quarter and nine months ended September 30, 2022, to reclassify the provision for credit losses - unfunded commitments, previously presented in other expense, to provide additional transparency to financial statement users.

The results of operations for the quarter ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period.
 
Stock-Based Compensation
 
On March 15, 2023, the Company awarded employees 176,623 restricted stock units (“RSUs”) with a weighted average discounted grant date fair value of $11.28. The RSUs vest over a three-year period with the first vesting occurring one year from the grant date. The Company awarded directors 33,048 restricted stock awards (“RSAs”) with a grant date fair value of $12.80 which fully vest one-year from the grant date. Also, the Company awarded employees 176,623 performance share units (“PSUs”) with a discounted grant date fair value of $10.54. The number of PSUs earned will be based on attainment of certain performance criteria over a three-year period, with the actual number of shares issuable ranging between 0% and 150% of the number of PSUs granted. The PSUs have a three-year cliff vesting, from the date of grant, and any PSUs earned will be issued after the vesting period. As of September 30, 2023, we awarded discretionary grants of 178,483 RSUs with a weighted average grant date fair value of $10.87. These shares vest over a two or three year period with the first vesting occurring one year from the grant date. Stock-based compensation expense of $1.3 million and $944,000 for the quarters ended September 30, 2023 and 2022, respectively, was recognized in compensation expense relating to our stock benefit plans. At September 30, 2023, there was compensation expense of $401,000 to be recognized for awarded but unvested stock options, $2.5 million for unvested restricted common shares, $3.7 million to be recognized for awarded but unvested RSUs, $193,000 to be recognized for awarded but unvested RSAs, and $2.1 million to be recognized for awarded but unvested PSUs.

 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. We had $702,000 and $473,000 of liability for unrecognized tax benefits as of September 30, 2023 and December 31, 2022.
 
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, 2022, 2021, 2020 and 2019.


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Recently Adopted Accounting Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure.” This ASU eliminates the accounting guidance for troubled debt restructurings (“TDRs”), while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. This ASU also requires the disclosure of current period gross write-offs by year for origination for financing receivables. This guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, with early adoption permitted. This ASU is applied prospectively to modifications and write-offs beginning on the first day of the fiscal year of adoption. An entity may elect to adopt a modified retrospective transition method on the recognition and measurement of the TDR guidance.

We adopted ASU 2022-02 using a modified retrospective transition approach related to the recognition and measurement of the TDR guidance and on a prospective basis for modification and write-offs. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required ASU 2022-02 disclosure for periods before the date of adoption (i.e. January 1, 2023). This change did not have a material effect on our consolidated financial statements.

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 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 was effective as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date to Topic 848”. This guidance extends the guidance of ASU 2022-04 from December 31, 2022 to December 31, 2024. 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 ASU is effective upon issuance through December 31, 2024, and can be adopted at any time during this period.

During the current year, we completed our LIBOR transition plan and modified the Company’s loan and other financial instrument contracts that are impacted by the transition. The Company chose the Secured Overnight Financing Rate (“SOFR”) as its alternative replacement for LIBOR on both back-to-back swaps and variable rate loans. There was no material impact to the Company's financial statements as a result of the transition.

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(2)    Marketable Securities
 
The following table shows the portfolio of marketable securities available-for-sale at September 30, 2023 (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 one year through five years$20,000 — (1,750)18,250 
Due after ten years50,166 — (11,890)38,276 
Debt issued by government-sponsored enterprises:
Due after one year through five years45,985 — (7,502)38,483 
Due after five years through ten years434 — (11)423 
Municipal securities:
Due after one year through five years954 3 (9)948 
Due after five years through ten years21,976 — (3,055)18,921 
Due after ten years62,990 — (14,788)48,202 
Corporate debt issues:
Due after five years through ten years8,464 — (1,000)7,464 
Residential mortgage-backed securities:
Fixed rate pass-through213,849 — (35,305)178,544 
Variable rate pass-through7,501 2 (169)7,334 
Fixed rate agency CMOs805,086 — (175,985)629,101 
Variable rate agency CMOs24,675 28 (573)24,130 
Total residential mortgage-backed securities1,051,111 30 (212,032)839,109 
Total marketable securities available-for-sale$1,262,080 33 (252,037)1,010,076 


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The following table shows the portfolio of marketable securities available-for-sale at December 31, 2022 (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 one year through five years$20,000 — (1,799)18,201 
Due after ten years53,152 — (10,761)42,391 
Debt issued by government-sponsored enterprises:    
Due after one year through five years993 — (49)944 
Due after five years through ten years45,814 — (7,557)38,257 
Municipal securities:    
Due within one year506 — (1)505 
Due after one year through five years986 21 (13)994 
Due after five years through ten years36,332 — (2,290)34,042 
Due after ten years89,631 8 (13,414)76,225 
Corporate debt issues:    
Due after five years through ten years13,540 — (562)12,978 
Residential mortgage-backed securities:    
Fixed rate pass-through227,122 35 (31,171)195,986 
Variable rate pass-through8,837 10 (184)8,663 
Fixed rate agency CMOs906,962 — (145,284)761,678 
Variable rate agency CMOs27,853 31 (640)27,244 
Total residential mortgage-backed securities1,170,774 76 (177,279)993,571 
Total marketable securities available-for-sale$1,431,728 105 (213,725)1,218,108 

The following table shows the portfolio of marketable securities held-to-maturity at September 30, 2023 (in thousands):
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by government-sponsored enterprises:    
Due after one year through five years$49,471 — (6,830)42,641 
Due after five years through ten years74,986 — (14,901)60,085 
Residential mortgage-backed securities:    
Fixed rate pass-through151,411 — (27,070)124,341 
Variable rate pass-through468 — (8)460 
Fixed rate agency CMOs553,241 — (98,606)454,635 
Variable rate agency CMOs529 — (10)519 
Total residential mortgage-backed securities705,649 — (125,694)579,955 
Total marketable securities held-to-maturity$830,106 — (147,425)682,681 


11
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The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2022 (in thousands): 
Amortized
cost		Gross
unrealized
holding
gains		Gross
unrealized
holding
losses		Fair
value
Debt issued by government-sponsored enterprises:    
Due after one year through five years$29,478 — (3,676)25,802 
Due after five years through ten years94,977 — (18,157)76,820 
Residential mortgage-backed securities:    
Fixed rate pass-through163,196 — (24,684)138,512 
Variable rate pass-through542 — (12)530 
Fixed rate agency CMOs592,527 — (83,325)509,202 
Variable rate agency CMOs529 — (11)518 
Total residential mortgage-backed securities756,794 — (108,032)648,762 
Total marketable securities held-to-maturity$881,249 — (129,865)751,384 

The following table shows the contractual maturity of our residential mortgage-backed securities available-for-sale at September 30, 2023 (in thousands):
Amortized
cost		Fair
value
Residential mortgage-backed securities:  
Due within one year$60 59 
Due after one year through five years25,302 23,185 
Due after five years through ten years27,837 25,424 
Due after ten years997,912 790,441 
Total residential mortgage-backed securities$1,051,111 839,109 

The following table shows the contractual maturity of our residential mortgage-backed securities held-to-maturity at September 30, 2023 (in thousands):
Amortized
cost		Fair
value
Residential mortgage-backed securities:  
Due after one year through five years$20,343 17,291 
Due after five years through ten years20,225 15,484 
Due after ten years665,081 547,180 
Total residential mortgage-backed securities$705,649 579,955 

The following table shows the fair value of and gross unrealized losses on available for sale investment securities and held to maturity investment 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, 2023 (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$423 (11)197,736 (42,873)198,159 (42,884)
Municipal securities8,412 (526)59,233 (17,326)67,645 (17,852)
Corporate issues— — 7,464 (1,000)7,464 (1,000)
Residential mortgage-backed securities - agency25,649 (1,271)1,390,685 (336,455)1,416,334 (337,726)
Total $34,484 (1,808)1,655,118 (397,654)1,689,602 (399,462)

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The following table shows the fair value of and gross unrealized losses on available for sale investment securities and held to maturity investment 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, 2022 (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$1,735 (82)200,679 (41,917)202,414 (41,999)
Corporate debt issues12,979 (562)— — 12,979 (562)
Municipal securities60,676 (4,047)44,493 (11,671)105,169 (15,718)
Residential mortgage-backed securities - agency373,186 (22,796)1,264,042 (262,515)1,637,228 (285,311)
Total $448,576 (27,487)1,509,214 (316,103)1,957,790 (343,590)
 
The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2023, which were comprised of 548 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies, U.S. government-sponsored enterprises, local municipalities, or represent corporate debt. The securities issued by the U.S. government agencies or U.S. government-sponsored enterprises 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 securities issued by local municipalities and the corporate debt issues were all highly rated by major rating agencies and have no history of 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 more likely than not 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. These 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 decline in fair value of the held-to-maturity debt securities were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities, therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2023.

The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of September 30, 2023 (in thousands). The credit ratings are sourced from nationally recognized rating agencies, which include Moody’s and S&P, and 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, 2023.
AA+Total
Held-to-maturity securities (at amortized cost):
  Debt issued by the U.S. government-sponsored enterprises$124,457 124,457 
  Residential mortgage-backed securities705,649 705,649 
Total marketable securities held-to-maturity$830,106 830,106 


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(3)    Loans Receivable

The following table shows a summary of our loans receivable at amortized cost basis at September 30, 2023 and December 31, 2022 (in thousands): 
September 30, 2023December 31, 2022
 Originated (1)Acquired (2)TotalOriginated (1)Acquired (2)Total
Personal Banking:    
Residential mortgage loans (3)$3,322,136 150,627 3,472,763 3,327,879 170,720 3,498,599 
Home equity loans1,126,675 132,090 1,258,765 1,131,641 166,033 1,297,674 
Vehicle loans1,969,029 70,670 2,039,699 1,965,385 91,398 2,056,783 
Consumer loans109,319 6,101 115,420 104,284 7,588 111,872 
Total Personal Banking6,527,159 359,488 6,886,647 6,529,189 435,739 6,964,928 
Commercial Banking:      
Commercial real estate loans (4)2,286,563 267,081 2,553,644 2,135,607 312,421 2,448,028 
Commercial real estate loans - owner occupied343,714 25,659 369,373 341,704 33,823 375,527 
Commercial loans1,463,159 37,450 1,500,609 1,082,914 49,055 1,131,969 
Total Commercial Banking4,093,436 330,190 4,423,626 3,560,225 395,299 3,955,524 
Total loans receivable, gross10,620,595 689,678 11,310,273 10,089,414 831,038 10,920,452 
Allowance for credit losses(116,596)(8,245)(124,841)(107,379)(10,657)(118,036)
Total loans receivable, net (5)$10,503,999 681,433 11,185,432 9,982,035 820,381 10,802,416 
(1) Includes originated and loan pools purchased in an asset acquisition.
(2) Includes loans subject to purchase accounting in a business combination.
(3) Includes $10.2 million and $9.9 million of loans held-for-sale at September 30, 2023 and December 31, 2022, respectively.
(4) Includes $435,000 and $0 of loans held-for-sale at September 30, 2023 and December 31, 2022, respectively.
(5) Includes $71.5 million and $76.1 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at September 30, 2023 and December 31, 2022, respectively.
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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, 2023 (in thousands):
Balance as of September 30, 2023Current period provisionCharge-offsRecoveriesBalance as of June 30, 2023
Allowance for Credit Losses
Personal Banking:     
Residential mortgage loans$17,090 (370)(171)75 17,556 
Home equity loans5,044 201 (320)161 5,002 
Vehicle loans27,226 984 (1,524)483 27,283 
Consumer loans1,202 1,436 (1,561)317 1,010 
Total Personal Banking50,562 2,251 (3,576)1,036 50,851 
Commercial Banking:     
Commercial real estate loans48,582 (1,110)(484)120 50,056 
Commercial real estate loans - owner occupied3,479 (30)— 11 3,498 
Commercial loans22,218 2,872 (1,286)614 20,018 
Total Commercial Banking74,279 1,732 (1,770)745 73,572 
Total$124,841 3,983 (5,346)1,781 124,423 
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans$3 (1)— — 4 
Home equity loans67 3 — — 64 
Total Personal Banking70 2 — — 68 
Commercial Banking:     
Commercial real estate loans4,797 (2,858)— — 7,655 
Commercial real estate loans - owner occupied 140 (180)— — 320 
Commercial loans7,971 55 — — 7,916 
Total Commercial Banking12,908 (2,983)— — 15,891 
Total off-balance sheet exposure$12,978 (2,981)— — 15,959 


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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, 2022 (in thousands):
Balance as of September 30, 2022Current period provisionCharge-offsRecoveriesBalance as of June 30, 2022
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans$17,967 1,646 (166)329 16,158 
Home equity loans5,448 341 (535)410 5,232 
Vehicle loans17,004 1,576 (936)626 15,738 
Consumer loans825 1,170 (1,405)281 779 
Total Personal Banking41,244 4,733 (3,042)1,646 37,907 
Commercial Banking:
Commercial real estate loans49,649 5,117 (1,329)6,220 39,641 
Commercial real estate loans - owner occupied4,087 (34)— 26 4,095 
Commercial loans14,839 (2,127)(243)497 16,712 
Total Commercial Banking68,575 2,956 (1,572)6,743 60,448 
Total$109,819 7,689 (4,614)8,389 98,355 
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans$4 (2)— — 6 
Home equity loans74 10 — — 64 
Total Personal Banking78 8 — — 70 
Commercial Banking:
Commercial real estate loans5,382 1,919 — — 3,463 
Commercial real estate loans - owner occupied287 (41)— — 328 
Commercial loans5,288 1,699 — — 3,589 
Total Commercial Banking10,957 3,577 — — 7,380 
Total off-balance sheet exposure$11,035 3,585 — — 7,450 
















16
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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, 2023 (in thousands):
Balance
September 30,
2023		Current period provisionCharge-offsRecoveriesASU 2022-02 AdoptionBalance December 31, 2022
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans$17,090 (2,047)(923)799 — 19,261 
Home equity loans5,044 (705)(719)566 — 5,902 
Vehicle loans27,226 7,267 (4,731)1,631 — 23,059 
Consumer loans1,202 3,463 (3,860)934 — 665 
Total Personal Banking50,562 7,978 (10,233)3,930 — 48,887 
Commercial Banking:
Commercial real estate loans48,582 3,587 (1,556)1,619 426 44,506 
Commercial real estate loans - owner occupied3,479 (515)(68)58 — 4,004 
Commercial loans22,218 3,813 (3,360)1,126 — 20,639 
Total Commercial Banking74,279 6,885 (4,984)2,803 426 69,149 
Total$124,841 14,863 (15,217)6,733 426 118,036 
Allowance for Credit Losses - off-balance sheet exposure (1)
Personal Banking:
Residential mortgage loans$3 (1)— — — 4 
Home equity loans67 (7)— — — 74 
Total Personal Banking70(8)— — — 78 
Commercial Banking:
Commercial real estate loans4,797 (578)— — — 5,375 
Commercial real estate loans - owner occupied140 (239)— — — 379 
Commercial loans7,971 890 — — — 7,081 
Total Commercial Banking12,908 73 — — — 12,835 
Total off-balance sheet exposure$12,978 65 — — — 12,913 
(1) The table above has been revised to reflect the correct ending balance for total off-balance-sheet exposure at December 31, 2022. We evaluated the effect of the revision, both qualitatively and quantitatively, and concluded that the impact of the revision was not material.




    














17
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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, 2022 (in thousands):
 Balance as of September 30, 2022Current period provisionCharge-offsRecoveriesBalance as of December 31, 2021
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans$17,967 11,331 (1,487)750 7,373 
Home equity loans5,448 127 (1,237)1,258 5,300 
Vehicle loans17,004 2,159 (2,517)1,879 15,483 
Consumer loans825 479 (3,459)921 2,884 
Total Personal Banking41,244 14,096 (8,700)4,808 31,040 
Commercial Banking:
Commercial real estate loans49,649 (6,465)(6,745)8,718 54,141 
Commercial real estate loans - owner occupied4,087 167 — 37 3,883 
Commercial loans14,839 1,039 (1,253)1,876 13,177 
Total Commercial Banking68,575 (5,259)(7,998)10,631 71,201 
Total$109,819 8,837 (16,698)15,439 102,241 
Allowance for Credit Losses -
off-balance sheet exposure
Personal Banking:
Residential mortgage loans$4 2 — — 2 
Home equity loans74 35 — — 39 
Total Personal Banking7837— — 41 
Commercial Banking:
Commercial real estate loans5,382 4,501 — — 881 
Commercial real estate loans - owner occupied287 145 — — 142 
Commercial loans5,288 3,894 — — 1,394 
Total Commercial Banking10,957 8,540 — — 2,417 
Total off-balance sheet exposure$11,035 8,577 — — 2,458 

During the nine months ended September 30, 2022, the Company purchased a total of $182.8 million small business equipment finance loan pools and a total of $188.3 million one- to four-family jumbo mortgage loan pools.

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The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at September 30, 2023 (in thousands):
 Total loans
receivable		Allowance for
credit losses		Nonaccrual
loans		Loans 90 days past due and accruing
Personal Banking:    
Residential mortgage loans$3,472,763 17,090 9,760 — 
Home equity loans1,258,765 5,044 3,431 133 
Vehicle loans2,039,699 27,226 3,817 57 
Consumer loans115,420 1,202 281 500 
Total Personal Banking6,886,647 50,562 17,289 690 
Commercial Banking:    
Commercial real estate loans2,553,644 48,582 54,109 — 
Commercial real estate loans - owner occupied369,373 3,479 1,071 — 
Commercial loans1,500,609 22,218 4,185 38 
Total Commercial Banking4,423,626 74,279 59,365 38 
Total$11,310,273 124,841 76,654 728 

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2022, prior to the adoption of ASU 2022-02 (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$3,498,599 19,261 7,574 — 6,279 1,069 — 
Home equity loans1,297,674 5,902 4,145 — 1,470 546 — 
Vehicle loans2,056,783 23,059 3,771 2 — — — 
Consumer loans111,872 665 256 405 — — — 
Total Personal Banking6,964,928 48,887 15,746 407 7,749 1,615 — 
Commercial Banking:       
Commercial real estate loans2,448,028 44,506 62,239 — 31,980 638 400 
Commercial real estate loans - owner occupied375,527 4,004 624 — 94 31 — 
Commercial loans1,131,969 20,639 2,627 337 858 116 4 
Total Commercial Banking3,955,524 69,149 65,490 337 32,932 785 404 
Total$10,920,452 118,036 81,236 744 40,681 2,400 404 
(1)Includes $29.2 million of nonaccrual TDRs.
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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 the beginning and end of the nine-month period ended September 30, 2023 (in thousands): 
September 30, 2023
 Nonaccrual loans at January 1, 2023Nonaccrual loans with an allowanceNonaccrual loans with no allowanceTotal nonaccrual loans at the end of the periodLoans 90 days past due and accruing
Personal Banking:    
Residential mortgage loans$7,574 9,760 — 9,760 — 
Home equity loans4,145 3,262 169 3,431 133 
Vehicle loans3,771 2,838 979 3,817 57 
Consumer loans256 281 — 281 500 
Total Personal Banking15,746 16,141 1,148 17,289 690 
Commercial Banking:    
Commercial real estate loans62,239 21,838 32,271 54,109 — 
Commercial real estate loans - owner occupied624 1,071 — 1,071 — 
Commercial loans2,627 3,828 357 4,185 38 
Total Commercial Banking65,490 26,737 32,628 59,365 38 
Total$81,236 42,878 33,776 76,654 728 
 
During the three and nine months ended September 30, 2023, we did not recognize any interest income on nonaccrual loans.

The following table presents the amortized cost of our loans on nonaccrual status as of the year ended December 31, 2022 (in thousands): 
December 31, 2022
 Nonaccrual loans at January 1, 2022Nonaccrual loans with an allowanceNonaccrual loans with no allowanceTotal nonaccrual loans at the end of the periodLoans 90 days past due and accruing
Personal Banking:
Residential mortgage loans$10,402 7,574 — 7,574 — 
Home equity loans5,758 3,887 258 4,145 — 
Vehicle loans3,263 2,175 1,596 3,771 2 
Consumer loans675 256 — 256 405 
Total Personal Banking20,098 13,892 1,854 15,746 407 
Commercial Banking:
Commercial real estate loans129,666 22,182 40,057 62,239 — 
Commercial real estate loans - owner occupied 1,233 624 — 624 — 
Commercial loans7,474 2,024 603 2,627 337 
Total Commercial Banking138,373 24,830 40,660 65,490 337 
Total$158,471 38,722 42,514 81,236 744 
 
During the year ended December 31, 2022, we recognized $678,000 of interest income on nonaccrual and troubled debt restructuring loans.

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The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2023 (in thousands):
 Real estateTotal
Commercial Banking:  
Commercial real estate loans$51,402 51,402 
Commercial loans160 160 
Total Commercial Banking51,562 51,562 
Total$51,562 51,562 
 
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2022 (in thousands):
 Real estateEquipmentTotal
Personal Banking:
Residential mortgage loans$569 — 569 
Home equity loans100 — 100 
Total Personal Banking669 — 669 
Commercial Banking:
Commercial real estate loans57,056 — 57,056 
Commercial loans175 210 385 
Total Commercial Banking57,231 210 57,441 
Total$57,900 210 58,110 
 
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extensions, an other-than-insignificant payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions to one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay, and/or an interest rate reduction.





















21
Table of Contents
The following table presents the amortized cost basis of loans as of September 30, 2023 that were both experiencing financial difficulty and modified during the periods indicated, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below (dollars in thousands).

For the quarter ended September 30, 2023For the nine months ended September 30, 2023
Term extensionCombination term extension and interest rate reductionTotal class of financing receivableTerm extensionCombination term extension and interest rate reductionTotal class of financing receivable
Personal Banking:
Residential mortgage loans
$192 — 0.01 %450 — 0.01 %
Home equity loans122 85 0.02 %283 85 0.03 %
Consumer loans
— — — %— 3 0.00 %
Total Personal Banking314 85 0.01 %733 88 0.01 %
Commercial Banking:
Commercial real estate loans— — — %197 — 0.01 %
Commercial loans15 — 0.00 %663 — 0.04 %
Total Commercial Banking15 — — %860 — 0.02 %
Total$329 85 0.00 %1,593 88 0.01 %

The Company has committed to lend additional amounts totaling $31,000 to the borrowers included in the previous table.

The following table presents the effect of the loan modifications presented above to borrowers experiencing financial difficulty for the periods indicated:
For the quarter ended September 30, 2023For the nine months ended September 30, 2023
 Weighted-average interest rate reductionWeighted-average term extension in monthsWeighted-average interest rate reductionWeighted-average term extension in months
Personal Banking:  
Residential mortgage loans— %169— 149
Home equity loans5 %1125 %96
Consumer loans— %— 12 %356
Total Personal Banking5 %14017 %126
Commercial Banking:
Commercial real estate loans— %— — 25
Commercial loans— %23— 9
Total Commercial Banking— %23— 13
Total loans5 %13517 %68
















22
Table of Contents
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of loans that such loans have been modified since the adoption of ASU 2022-02 (in thousands):
 Current30-59 days
delinquent		60-89 days
delinquent		90 days or
greater
delinquent
Personal Banking:
Residential mortgage loans$450 — — — 
Home equity loans368 — — — 
Consumer loans3 — — — 
Total Personal Banking821 — — — 
Commercial Banking:
Commercial real estate loans74 — — 123 
Commercial real estate loans - owner occupied— — — — 
Commercial loans— 15 — 648 
Total Commercial Banking74 15 — 771 
Total loans$895 15 — 771 


A modification is considered to be in default when the loan is 90 days or more past due. The following table provides the amortized cost basis of financing receivables that had a payment default during the period and were modified since the adoption of ASU 2022-02 to borrowers experiencing financial difficulty (in thousands):
Term extension
Commercial Banking:
Commercial real estate loans$123 
Commercial loans648 
Total Commercial Banking771 
Total$771 

The modifications to borrowers experiencing financial distress are included in their respective portfolio segment and the current loan balance and updated loan terms are run through their respective ACL models to arrive at the quantitative portion of the ACL. Subsequent performance of the loans will be measured by delinquency status and will be captured through our ACL models or our qualitative factor assessment, as deemed appropriate. If we no longer believe the loan demonstrates similar risks to their respective portfolio segment an individual assessment will be performed. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.



















23
Table of Contents
The following tables provide a roll forward of troubled debt restructurings for the periods indicated, prior to the adoption of ASU 2022-02 (dollars in thousands):

 For the quarter ended September 30, 2022For the nine months ended September 30, 2022
 Number of ContractsAmountNumber of ContractsAmount
Beginning TDR balance:128 $54,237 134 $30,288 
New TDRs6 221 8 25,626 
Re-modified TDRs4 977 10 1,178 
Net paydowns— (810)— (1,609)
Charge-offs: 
Residential mortgage loans— — 1 (3)
Paid-off loans:
Residential mortgage loans1 (35)2 (236)
Home equity loans1 (11)3 (88)
Commercial real estate loans1 (3,349)4 (3,718)
Commercial real estate loans - owner occupied1 (44)1 (44)
Commercial loans3 (3,459)4 (3,466)
Ending TDR balance:127 $46,750 127 $46,750 
Accruing TDRs$16,344 $16,344 
Nonaccrual TDRs30,406 30,406 


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, prior to the adoption of ASU 2022-02 (dollars in thousands):

 For the quarter ended September 30, 2022For the nine months ended September 30, 2022
 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 loans2 $147 144 15 2 $147 144 15 
Home equity loans5 160 154 23 5 160 154 23 
Total Personal Banking7 307 298 38 7 307 298 38 
Commercial Banking:
Commercial real estate loans1 $610 609 89 5 $34,295 26,212 102 
Commercial loans2 332 291 20 6 3,856 294 20 
Total Commercial Banking3 942 900 109 11 38,151 26,506 122 
Total10 $1,249 1,198 147 18 $38,458 26,804 160 















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The following table provides information as of September 30, 2022 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, 2022, prior to the adoption of ASU 2022-02 (dollars in thousands):
Type of modification
Number of contractsMaturity dateTotal
Personal Banking:
Residential mortgage loans2 $144 144 
Home equity loans
5 154 154 
Total Personal Banking7 298 298 
Commercial Banking:
Commercial real estate loans1 $609 609 
Commercial loans2 291 291 
Total Commercial Banking3 900 900 
Total10 $1,198 1,198 

The following table provides information as of September 30, 2022 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, 2022, prior to the adoption of ASU 2022-02 (dollars in thousands):
Type of modification
Number of contractsRateMaturity dateTotal
Personal Banking:
Residential mortgage loans2 $— 144 144 
Home equity loans
5 — 154 154 
Total Personal Banking7 — 298 298 
Commercial Banking:
Commercial real estate loans5 $4,166 22,046 26,212 
Commercial loans6 — 294 294 
Total Commercial Banking11 4,166 22,340 26,506 
Total18 $4,166 22,638 26,804 

No TDRs modified within the previous twelve months of September 30, 2022 subsequently defaulted, prior to the adoption of ASU 2022-02.



















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The following table provides information related to the amortized cost basis of loan payment delinquencies at September 30, 2023 (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$573 5,395 7,695 13,663 3,459,100 3,472,763 — 
Home equity loans4,707 1,341 2,206 8,254 1,250,511 1,258,765 133 
Vehicle loans9,122 2,412 2,274 13,808 2,025,891 2,039,699 57 
Consumer loans752 295 746 1,793 113,627 115,420 500 
Total Personal Banking15,154 9,443 12,921 37,518 6,849,129 6,886,647 690 
Commercial Banking:     
Commercial real estate loans3,411 1,328 8,042 12,781 2,540,863 2,553,644 — 
Commercial real estate loans - owner occupied— 260 374 634 368,739 369,373 — 
Commercial loans2,847 981 2,472 6,300 1,494,309 1,500,609 38 
Total Commercial Banking6,258 2,569 10,888 19,715 4,403,911 4,423,626 38 
Total loans$21,412 12,012 23,809 57,233 11,253,040 11,310,273 728 


The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2022 (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
$29,487 5,563 5,574 40,624 3,457,975 3,498,599 — 
Home equity loans
6,657 975 2,257 9,889 1,287,785 1,297,674 — 
Vehicle loans8,677 2,770 2,471 13,918 2,042,865 2,056,783 2 
Consumer loans
758 300 608 1,666 110,206 111,872 405 
Total Personal Banking45,579 9,608 10,910 66,097 6,898,831 6,964,928 407 
Commercial Banking:       
Commercial real estate loans
3,947 2,377 7,589 13,913 2,434,115 2,448,028 — 
Commercial real estate loans - owner occupied61 — 278 339 375,188 375,527 — 
Commercial loans
2,648 1,115 1,829 5,592 1,126,377 1,131,969 337 
Total Commercial Banking6,656 3,492 9,696 19,844 3,935,680 3,955,524 337 
Total originated loans$52,235 13,100 20,606 85,941 10,834,511 10,920,452 744 
















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Credit Quality Indicators: For Commercial Banking 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 90 days or greater 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, 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 and the current period charge-offs by year of origination for each portfolio segment as of September 30, 2023 (in thousands):
YTD September 30, 20232022202120202019PriorRevolving loansRevolving loans converted to term loansTotal loans
receivable
Personal Banking:    
Residential mortgage loans
Pass$159,472 673,235 803,613 516,270 249,797 1,056,864 — — 3,459,251 
Substandard— 1,033 260 872 336 11,011 — — 13,512 
Total residential mortgage loans159,472 674,268 803,873 517,142 250,133 1,067,875 — — 3,472,763 
Residential mortgage current period charge-offs— — (5)(130)— (788)— — (923)
Home equity loans
Pass65,795 104,272 110,823 153,431 98,062 210,273 469,459 42,870 1,254,985 
Substandard— — — — 149 1,783 1,050 798 3,780 
Total home equity loans65,795 104,272 110,823 153,431 98,211 212,056 470,509 43,668 1,258,765 
Home equity current period charge-offs— (53)(46)— (48)(257)(142)(173)(719)
Vehicle loans
Pass541,270 746,225 444,934 153,264 81,931 68,201 — — 2,035,825 
Substandard320 901 1,386 247 564 456 — — 3,874 
Total vehicle loans541,590 747,126 446,320 153,511 82,495 68,657 — — 2,039,699 
Vehicle current period charge-offs(324)(1,385)(1,425)(416)(497)(684)— — (4,731)
Consumer loans
Pass20,061 13,137 6,361 2,485 1,727 6,201 63,801 866 114,639 
Substandard45 57 31 8 14 1 506 119 781 
Total consumer loans20,106 13,194 6,392 2,493 1,741 6,202 64,307 985 115,420 
Consumer loan current period charge-offs(2,055)(340)(271)(116)(150)(766)(149)(13)(3,860)
Total Personal Banking786,963 1,538,860 1,367,408 826,577 432,580 1,354,790 534,816 44,653 6,886,647 
Business Banking:     
Commercial real estate loans
Pass127,229 437,503 356,152 330,522 225,478 776,377 23,845 25,345 2,302,451 
Special mention— 7,451 26,749 21,732 5,615 34,909 350 — 96,806 
Substandard— 174 1,056 8,108 48,592 95,825 514 118 154,387 
Total commercial real estate loans127,229 445,128 383,957 360,362 279,685 907,111 24,709 25,463 2,553,644 
Commercial real estate current period charge-offs— — (492)— (51)(1,013)— — (1,556)
Commercial real estate loans - owner occupied
Pass17,830 50,716 48,567 14,845 44,834 148,778 2,237 2,214 330,021 
Special mention— 17,631 — 1,690 — 7,808 — — 27,129 
Substandard— — 122 1,344 4,736 5,308 — 713 12,223 
Total commercial real estate loans - owner occupied17,830 68,347 48,689 17,879 49,570 161,894 2,237 2,927 369,373 
Commercial real estate - owner occupied current period charge-offs— — — — — (68)— — (68)
Commercial loans
Pass315,190 455,098 77,266 28,754 37,787 56,731 501,722 4,285 1,476,833 
Special mention542 315 58 369 316 68 2,022 — 3,690 
Substandard— 2,496 577 495 2,503 1,025 11,730 1,260 20,086 
Total commercial loans315,732 457,909 77,901 29,618 40,606 57,824 515,474 5,545 1,500,609 
Commercial loans current period charge-offs— (1,526)(517)(430)(110)(715)(60)(2)(3,360)
Total Business Banking460,791 971,384 510,547 407,859 369,861 1,126,829 542,420 33,935 4,423,626 
Total loans$1,247,754 2,510,244 1,877,955 1,234,436 802,441 2,481,619 1,077,236 78,588 11,310,273 
For the nine months ended September 30, 2023, $13.7 million of revolving loans were converted to term loans.
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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 December 31, 2022 (in thousands): 
20222021202020192018PriorRevolving loansRevolving loans converted to term loansTotal loans
receivable
Personal Banking:     
Residential mortgage loans
Pass$659,930 837,823 546,604 265,520 131,599 1,043,394 — — 3,484,870 
Substandard422 187 474 796 531 11,319 — — 13,729 
Total residential mortgage loans660,352 838,010 547,078 266,316 132,130 1,054,713 — — 3,498,599 
Home equity loans
Pass114,598 126,608 173,044 110,495 50,314 198,971 475,229 42,887 1,292,146 
Substandard— 46 — 127 324 3,066 683 1,282 5,528 
Total home equity loans114,598 126,654 173,044 110,622 50,638 202,037 475,912 44,169 1,297,674 
Vehicle loans
Pass966,432 611,310 227,897 135,134 70,071 42,166 — — 2,053,010 
Substandard292 1,096 667 689 657 372 — — 3,773 
Total vehicle loans966,724 612,406 228,564 135,823 70,728 42,538 — — 2,056,783 
Consumer loans
Pass19,302 9,874 4,327 3,557 2,409 5,094 65,610 1,037 111,210 
Substandard24 9 37 9 3 48 432 100 662 
Total consumer loans19,326 9,883 4,364 3,566 2,412 5,142 66,042 1,137 111,872 
Total Personal Banking1,761,000 1,586,953 953,050 516,327 255,908 1,304,430 541,954 45,306 6,964,928 
Business Banking:
Commercial real estate loans
Pass322,050 346,355 369,868 244,188 209,500 696,628 24,954 13,314 2,226,857 
Special mention— 17,216 16,782 87 1,000 15,887 157 15 51,144 
Substandard— 4,561 3,617 48,879 41,521 70,384 459 606 170,027 
Total commercial real estate loans322,050 368,132 390,267 293,154 252,021 782,899 25,570 13,935 2,448,028 
Commercial real estate - owner occupied
Pass62,905 51,673 17,989 49,600 43,570 123,278 2,477 1,460 352,952 
Special mention126 — 18 — 2,297 1,106 385 — 3,932 
Substandard— — — 5,085 2,440 9,250 — 1,868 18,643 
Total commercial real estate - owner occupied loans63,031 51,673 18,007 54,685 48,307 133,634 2,862 3,328 375,527 
Commercial loans
Pass481,797 90,320 52,833 46,966 17,250 53,107 354,402 4,032 1,100,707 
Special mention628 2,190 506 1,704 227 — 2,129 — 7,384 
Substandard1,833 603 908 2,097 1,605 735 12,941 3,156 23,878 
Total commercial loans484,258 93,113 54,247 50,767 19,082 53,842 369,472 7,188 1,131,969 
Total Business Banking869,339 512,918 462,521 398,606 319,410 970,375 397,904 24,451 3,955,524 
Total loans$2,630,339 2,099,871 1,415,571 914,933 575,318 2,274,805 939,858 69,757 10,920,452 
For the year ended December 31, 2022, $20.7 million of revolving loans were converted to term loans.
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(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, 2023December 31, 2022
Amortizable intangible assets:  
Core deposit intangibles - gross$74,899 74,899 
Less: accumulated amortization(68,886)(66,367)
Core deposit intangibles - net$6,013 8,532 
Customer and Contract intangible assets - gross$12,775 12,775 
Less: accumulated amortization(12,775)(12,747)
Customer and Contract intangible assets - net— 28 
Total intangible assets - net$6,013 8,560 

The following table shows the actual aggregate amortization expense for the quarters ended September 30, 2023 and 2022, 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, 2023$795 
For the quarter ended September 30, 20221,047 
For the nine months ended September 30, 20232,546 
For the nine months ended September 30, 20223,345 
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 
For the year ending December 31, 2027305 
 
The following table provides information for the changes in the carrying amount of goodwill (in thousands):
Total
Balance at December 31, 2022$380,997 
Balance at September 30, 2023$380,997 
 
We performed our annual goodwill impairment test as of June 30, 2023 in accordance with ASC 350 and concluded that goodwill was not impaired.

(5)    Borrowed Funds

(a)    Borrowings

Borrowed funds at September 30, 2023 and December 31, 2022 are presented in the following table:
September 30, 2023December 31, 2022
AmountAverage rateAmountAverage rate
Term notes payable to the FHLB of Pittsburgh, due within one year$375,400 5.65 %$500,000 4.55 %
Notes payable to the FHLB of Pittsburgh, due within one year119,000 5.68 %51,300 4.45 %
Collateralized borrowings, due within one year48,587 1.52 %105,7660.27 %
Collateral received, due within one year61,600 5.16 %24,100 4.17 %
      Total borrowed funds$604,587 $681,166 
    
Borrowings from the Federal Home Loan Bank (“FHLB”) of Pittsburgh, if any, are secured by our residential first mortgage and other qualifying loans. At September 30, 2023, the carrying value of these loans was $6.049 billion. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment.

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. At September 30, 2023 and December 31, 2022, the balance of the revolving line of credit was $119.0 million and $51.3 million, respectively.

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At September 30, 2023 and December 31, 2022, collateralized borrowings due within one year were $48.6 million and $105.8 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB. At September 30, 2023, the carrying value of the cash and securities used as collateral was $89.3 million.

At September 30, 2023 and December 31, 2022, collateral received was $61.6 million and $24.1 million, respectively. This represents collateral posted to us from our derivative counterparties.

At September 30, 2023 and December 31, 2022, term notes payable to the FHLB of Pittsburgh due within one year were $375.4 million and $500.0 million, respectively. The September 30, 2023 total is made up of ten advances: 400,000 at 5.72% maturing October 2, 2023; $100.0 million at 5.65% maturing October 6, 2023; $100.0 million at 5.65% maturing October 13, 2023; $25.0 million at 5.63% maturing October 26, 2023; $25.0 million at 5.66% maturing October 31, 2023; $25.0 million at 5.63% maturing November 9, 2023; $25.0 million at 5.65% maturing November 13, 2023; $25.0 million at 5.62% maturing November 14, 2023; $25.0 million at 5.63% maturing November 21, 2023; and $25.0 million at 5.65% maturing November 30, 2023.

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. During the year-ended December 31, 2022 the Company repurchased $10.2 million of subordinated notes leaving $114.8 million of subordinated notes outstanding. 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, 2023 and December 31, 2022, subordinated debentures, net of issuance costs, were $114.1 million and $113.8 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 the date listed (dollars in thousands).
Maturity dateInterest rateCapital debt securitiesSeptember 30, 2023December 31, 2022
Northwest Bancorp Capital Trust IIIDecember 30, 2035
3-month SOFR plus 1.38%
$50,000 $51,547 51,547 
Northwest Bancorp Statutory Trust IVDecember 15, 2035
3-month SOFR plus 1.38%
50,000 51,547 51,547 
LNB Trust IIJune 15, 2037
3-month SOFR plus 1.48%
7,875 8,119 8,119 
Union National Capital Trust I (1)January 23, 2034
3-month SOFR plus 2.85%
8,000 7,993 7,975 
Union National Capital Trust II (1)November 23, 2034
3-month SOFR plus 2.00%
3,000 2,789 2,768 
MFBC Statutory Trust I (1)September 15, 2035
3-month SOFR plus 1.70%
5,000 3,762 3,684 
Universal Preferred Trust (1)October 7, 2035
3-month SOFR plus 1.69%
5,000 3,752 3,674 
$129,509 129,314 
(1) Net of discounts due to the fair value adjustment made at the time of acquisition.

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.
 
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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, 2023, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was $45.9 million, of which $28.7 million is fully collateralized. At September 30, 2023, we had a liability which represents deferred income of $1.0 million related to the standby letters of credit.

In addition, we maintain a $5.0 million unsecured line of credit with a correspondent bank for private label credit card facilities for certain existing commercial clients of the Bank, of which $3.4 million in notional value of credit cards have been issued. These issued credit cards had an outstanding balance of $578,000 at September 30, 2023. The clients of the Bank are responsible for repaying any balances due on these credit cards directly to the correspondent bank; however, if the customer fails to repay their balance, the Bank could be required to satisfy the obligation to correspondent bank and initiate collection from our customer as part of the existing credit facility of that customer.

(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,
 2023202220232022
Net income$39,220 37,304 105,943 99,017 
Less: Dividends and undistributed earnings allocated to participating securities99 166 267 441 
Net income available to common shareholders$39,121 37,138 105,676 98,576 
Weighted average common shares outstanding126,767,507 126,320,706 126,629,786 126,082,217 
Add: Participating shares outstanding320,177 565,729 320,177 565,729 
Total weighted average common shares and dilutive potential shares127,087,684 126,886,435 126,949,963 126,647,946 
Basic earnings per share$0.31 0.29 0.83 0.78 
Diluted earnings per share$0.31 0.29 0.83 0.78 


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(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
 2023202220232022
Service cost$1,560 2,599 — — 
Interest cost2,245 1,671 7 10 
Expected return on plan assets(3,479)(3,864)— — 
Amortization of prior service cost(564)(564)— — 
Amortization of the net loss20 381 10 2 
Net periodic cost$(218)223 17 12 

Nine months ended September 30,
Pension benefitsOther post-retirement benefits
2023202220232022
Service cost$4,680 7,797 — — 
Interest cost6,735 5,013 21 30 
Expected return on plan assets(10,437)(11,592)— — 
Amortization of prior service cost(1,692)(1,692)— — 
Amortization of the net loss60 1,143 30 6 
Net periodic cost$(654)669 51 36 

Because of the current funding status, we do not anticipate a funding requirement during the year ending December 31, 2023.

(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; and
◦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, residential mortgage loans held-for-sale, accrued interest receivable, interest rate lock commitments, forward commitments, interest rate swaps, savings and checking deposits, foreign exchange swaps, 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.
    
FHLB Stock
 
Due to the restrictions placed on transferability of FHLB stock, it is not practical to determine the fair value. FHLB stock is recorded at cost.

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 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.
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Borrowed Funds
 
Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost. The carrying amount of repurchase agreements approximates their 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 and Risk Participation Agreements

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the SOFR discount 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 SOFR 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 that 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, 2023 and December 31, 2022, there was no significant unrealized appreciation or depreciation on these financial instruments.

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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, 2023 (in thousands): 
Carrying
amount		Estimated
fair value		Level 1Level 2Level 3
Financial assets:     
Cash and cash equivalents$161,995 161,995 161,995 — — 
Securities available-for-sale1,010,076 1,010,076 — 1,010,076 — 
Securities held-to-maturity830,106 682,681 — 682,681 — 
Loans receivable, net11,174,840 10,031,968 — — 10,031,968 
Loans held-for-sale10,592 10,592 — — 10,592 
Accrued interest receivable42,624 42,624 42,624 — — 
Interest rate lock commitments664 664 — — 664 
Foreign exchange swaps203 203 — 203 — 
Interest rate swaps designated as hedging instruments4,603 4,603 — 4,603 — 
Interest rate swaps not designated as hedging instruments57,249 57,249 — 57,249 — 
FHLB stock40,404 40,404 — — — 
Total financial assets$13,333,356 12,043,059 204,619 1,754,812 10,043,224 
Financial liabilities:     
Savings and checking deposits$9,531,544 9,531,544 9,531,544 — — 
Time deposits2,258,338 2,250,768 — — 2,250,768 
Borrowed funds604,587 617,832 617,832 — — 
Subordinated debt114,102 102,456 — 102,456 — 
Junior subordinated debentures129,509 136,461 — — 136,461 
Forward commitments23 23 — 23 — 
Foreign exchange swaps 10 10 — 10 — 
Interest rate swaps not designated as hedging instruments57,275 57,275 — 57,275 — 
Risk participation agreements17 17 — 17 — 
Accrued interest payable7,915 7,915 7,915 — — 
Total financial liabilities$12,703,320 12,704,301 10,157,291 159,781 2,387,229 
 
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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, 2022 (in thousands): 
Carrying
amount		Estimated
fair value		Level 1Level 2Level 3
Financial assets:     
Cash and cash equivalents$139,365 139,365 139,365 — — 
Securities available-for-sale1,218,108 1,218,108 — 1,218,108 — 
Securities held-to-maturity881,249 751,384 — 751,384 — 
Loans receivable, net10,792,503 9,910,852 — — 9,910,852 
Residential mortgage loans held-for-sale9,913 9,913 — — 9,913 
Accrued interest receivable 35,528 35,528 35,528 — — 
Interest rate lock commitments559 559 — — 559 
Forward commitments128 128 — 128 — 
Interest rate swaps not designated as hedging instruments26,642 26,642 — 26,642 — 
FHLB stock40,143 40,143 — — — 
Total financial assets$13,144,138 12,132,622 174,893 1,996,262 9,921,324 
Financial liabilities:     
Savings and checking accounts$10,412,263 10,412,263 10,412,263 — — 
Time deposits1,052,285 1,059,790 — — 1,059,790 
Borrowed funds681,166 680,996 680,996 — — 
Subordinated debt113,840 102,554 — 102,554 — 
Junior subordinated debentures129,314 133,546 — — 133,546 
Foreign exchange swaps23 23 — 23 — 
Interest rate swaps not designated as hedging instruments45,464 45,464 — 45,464 — 
Risk participation agreements 18 18 — 18 — 
Accrued interest payable3,231 3,231 3,231 — — 
Total financial liabilities$12,437,604 12,437,885 11,096,490 148,059 1,193,336 

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, 2023 and December 31, 2022.
     
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The following table represents assets and liabilities measured at fair value on a recurring basis at September 30, 2023 (in thousands):
Level 1Level 2Level 3Total assets 
at fair value
Debt securities:    
U.S. government and agencies$— 56,526 — 56,526 
Government-sponsored enterprises— 38,906 — 38,906 
States and political subdivisions— 68,071 — 68,071 
Corporate— 7,464 — 7,464 
Total debt securities— 170,967 — 170,967 
Residential mortgage-backed securities:    
GNMA— 17,073 — 17,073 
FNMA— 99,874 — 99,874 
FHLMC— 68,926 — 68,926 
Non-agency— 5 — 5 
Collateralized mortgage obligations:    
GNMA— 318,652 — 318,652 
FNMA— 148,389 — 148,389 
FHLMC— 186,190 — 186,190 
Total mortgage-backed securities— 839,109 — 839,109 
Interest rate lock commitments— — 664 664 
Foreign exchange swaps— 203 — 203 
Interest rate swaps designated as hedging instruments— 4,603 — 4,603 
Interest rate swaps not designated as hedging instruments— 57,249 — 57,249 
Total assets$— 1,072,131 664 1,072,795 
Forward commitments$— 23 — 23 
Foreign exchange swaps — 10 — 10 
Interest rate swaps not designated as hedging instruments— 57,275 — 57,275 
Risk participation agreements— 17 — 17 
Total liabilities $— 57,325 — 57,325 
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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2022 (in thousands):
Level 1Level 2Level 3Total assets 
at fair value
Debt securities:    
U.S. government and agencies$— 60,592 — 60,592 
Government-sponsored enterprises— 39,201 — 39,201 
States and political subdivisions— 111,766 — 111,766 
Corporate— 12,978 — 12,978 
Total debt securities— 224,537 — 224,537 
Residential mortgage-backed securities:    
GNMA— 12,434 — 12,434 
FNMA— 117,218 — 117,218 
FHLMC— 74,991 — 74,991 
Non-agency— 6 — 6 
Collateralized mortgage obligations:    
GNMA— 364,553 — 364,553 
FNMA— 185,588 — 185,588 
FHLMC— 238,781 — 238,781 
Total mortgage-backed securities— 993,571 — 993,571 
Interest rate lock commitments— — 559 559 
Forward commitments— 128 — 128 
Interest rate swaps not designated as hedging instruments— 26,642 — 26,642 
Total assets$— 1,244,878 559 1,245,437 
Foreign exchange swaps$— 23 — 23 
Interest rate swaps not designated as hedging instruments— 45,464 — 45,464 
Risk participation agreements— 18 — 18 
Total liabilities $— 45,505 — 45,505 

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,
2023202220232022
Beginning balance,$761 1,520 559 1,684 
Interest rate lock commitments:
Net activity(97)(457)105 (621)
Ending balance$664 1,063 664 1,063 

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, 2023 (in thousands):
Level 1Level 2Level 3Total assets 
at fair value
Loans individually assessed$— — 13,467 13,467 
Mortgage servicing rights— — 198 198 
Real estate owned, net— — 363 363 
Total assets$— — 14,028 14,028 

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, 2022 (in thousands): 
Level 1Level 2Level 3Total assets 
at fair value
Loans individually assessed$— — 15,416 15,416 
Mortgage servicing rights— — 95 95 
Real estate owned, net— — 413 413 
Total assets$— — 15,924 15,924 

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 2022 Annual Report on Form 10-K. We classify loans individually assessed as nonrecurring Level 3.

Mortgage servicing rights - Mortgage servicing rights represent the value of servicing residential mortgage loans, when the mortgage loans have been sold into the secondary market and the associated servicing has been retained. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common characteristics. Adjustments are only made when the estimated discounted future cash flows are less than the carrying value, as determined by individual pool. As such, mortgage servicing rights are classified 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, 2023 (in thousands): 
 Fair valueValuation techniquesSignificant
unobservable inputs		Range  (weighted average)
Loans individually assessed$13,467 Appraisal value (1)Estimated cost to sell10.0%
Mortgage servicing rights198 Discounted cash flowAnnual service cost$90
Prepayment rate
6.6% to 15.0% (9.9%)
Expected life (months)
53.1 to 103.5 (75.8)
Option adjusted spread
720 basis points
Forward yield curve
5.44% to 5.60%
Real estate owned, net363 Appraisal value (1)Estimated cost to sell15.0%
Loans held for sale10,592 Quoted prices for similar loans in active markets adjusted by an expected pull-through rateEstimated pull-through rate100.0%
(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.


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(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

As of September 30, 2023, the Company has entered into seven 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 $175 million with maturities ranging 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-SOFR swap rate, the designated benchmark interest rate being hedged. Based upon our contemporaneous quantitative analysis at the inception of the interest rate swaps, we have determined these interest rate swaps qualify for hedge accounting in accordance with ASC 815, Derivatives and Hedging. Our cash flow hedges are recorded within other assets on the Consolidated Statement of Financial Condition at their estimated fair value.

As long as the hedge remains highly effective, the changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. A hedging relationship that is determined to not be highly effective no longer qualifies for hedge accounting and any gain or loss is recognized immediately into earnings. Amount reclassified into earnings are included in interest expense in the Consolidated Statement of Income.

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. These risk participation agreements are recorded within other liabilities on the Consolidated Statement of Financial Condition at their estimated fair value. Changes to the fair value of the the risk participation agreements are included in other operating income in the Consolidated Statement of Income.

    






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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, 2023
Derivatives designated as hedging instruments:
Interest rate swap agreements$175,000 4,603 — — 
Derivatives not designated as hedging instruments:
Interest rate swap agreements673,255 57,249 673,255 57,275 
Foreign exchange swap agreements7,393 203 760 10 
Interest rate lock commitments35,272 664 — — 
Forward commitments— — 6,772 23 
Risk participation agreements— — 102,385 17 
Total Derivatives$890,920 62,719 783,172 57,325 
At December 31, 2022
Derivatives not designated as hedging instruments:
Interest rate swap agreements $651,114 26,642 651,114 45,464 
Foreign exchange swap agreements— — 2,328 23 
Interest rate lock commitments19,727 559 — — 
Forward commitments4,909 128 — — 
Risk participation agreements— — 114,159 18 
Total derivatives $675,750 27,329 767,601 45,505 
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,
2023202220232022
Hedging derivatives:
Decrease in interest expense$627 — 831 — 
Non-hedging swap derivatives:
Increase/(decrease) in other income$203 93 (127)207 
(Decrease)/increase in mortgage banking income$(221)809 (46)1,131 

The following table presents information regarding our derivative financial instruments designated as hedging for the quarter ended September 30, 2023 (in thousands):
Notional amountEffective rateEstimated decrease to interest expense in the next twelve monthsMaturity dateRemaining term
(in months)
Interest rate products:
Issued May 11, 2023$25,000 3.52 %$(540)5/11/202743
Issued May 12, 202325,000 3.54 %(528)5/12/202855
Issued May 19, 202325,000 3.84 %(454)11/19/202750
Issued May 31, 202325,000 4.08 %(400)11/30/202638
Issued July 26, 202325,000 4.24 %(348)7/26/202858
Issued July 31, 202325,000 4.36 %(330)1/31/202852
Issued August 9, 202325,000 4.32 %(333)8/9/202746
Total$175,000 $(2,933)


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(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, 2023, 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.

(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, 2023
 Unrealized 
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, 2023$(163,272)1,737 (7,716)(169,251)
Other comprehensive (loss)/income before reclassification adjustments (1) (2)(29,715)1,825 — (27,890)
Amounts reclassified from accumulated other comprehensive income (3) — — (382)(382)
Net other comprehensive (loss)/income(29,715)1,825 (382)(28,272)
Balance as of September 30, 2023$(192,987)3,562 (8,098)(197,523)

 For the quarter ended September 30, 2022
Unrealized 
losses
on securities 
available-for-sale		Change in 
defined benefit 
pension plans		Total
Balance as of June 30, 2022$(117,056)(25,574)(142,630)
Other comprehensive loss before reclassification adjustments (4)(48,387)— (48,387)
Amounts reclassified from accumulated other comprehensive income (5)— (131)(131)
Net other comprehensive loss(48,387)(131)(48,518)
Balance as of September 30, 2022$(165,443)(25,705)(191,148)
(1)Consists of unrealized holding losses, net of tax of $9,140.
(2)Change in fair value of interest rate swaps, net of tax ($533).
(3)Consists of realized gains, net of tax of $152.
(4)Consists of unrealized holding losses, net of tax $14,705.
(5)Consists of realized gains, net of tax of $50.



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 For the nine months ended September 30, 2023
 Unrealized 
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, 2022$(164,206)— (6,952)(171,158)
Other comprehensive (loss)/income before reclassification adjustments (1) (3)(34,417)3,562 — (30,855)
Amounts reclassified from accumulated other comprehensive income (2) (4)5,636 — (1,146)4,490 
Net other comprehensive income/(loss)(28,781)3,562 (1,146)(26,365)
Balance as of September 30, 2023$(192,987)3,562 (8,098)(197,523)

 For the nine months ended September 30, 2022
 Unrealized 
losses 
on securities 
available-for-sale		Change in 
defined benefit 
pension plans		Total
Balance as of December 31, 2021$(12,317)(25,312)(37,629)
Other comprehensive loss before reclassification adjustments (5)(153,124)— (153,124)
Amounts reclassified from accumulated other comprehensive income (6) (7)(2)(393)(395)
Net other comprehensive loss(153,126)(393)(153,519)
Balance as of September 30, 2022$(165,443)(25,705)(191,148)
(1)Consists of unrealized holding losses, net of tax of $9,603.
(2)Consists of realized losses, net of tax of ($1,731).
(3)Change in fair value of interest rate swaps, net of tax ($1,041).
(4)Consists of realized gains, net of tax of $456.
(5)Consists of unrealized holding losses, net of tax $45,555.
(6)Consists of realized losses, net of tax $0.
(7)Consists of realized gains, net of tax of $151.
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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:
 
•    inflation and changes in the interest rate environment that reduce our margins, our loan origination, or the fair value of financial instruments;     
•    changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally;
•    changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
•    changes in federal, state, or local tax laws and tax rates;
•    general economic conditions, either nationally or in our market areas, that are different than expected;
•    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;
•    changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;
•    the ability of third-party providers to perform their obligations to us;
•    competition among depository and other financial institutions, including with respect to deposit gathering, service charges and fees;
•    our ability to enter new markets successfully and capitalize on growth opportunities;
•    our ability to manage 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;
•    changes in the value of our goodwill or other intangible assets;
•    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;
•    the effects of any federal government shutdown or the inability of the federal government to manage debt limits;
•    changes in the financial performance and/or condition of our borrowers;
•    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 Financial Accounting Standards Board (“FASB”) and other accounting standard setters;
•    changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
•    our ability to access cost-effective funding;
•    the effect of global or national war, conflict, or terrorism;
•    our ability to manage market risk, credit risk and operational risk;
•    the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, and the significant impact that any such outbreaks may have on our growth, operations and earnings;
•    our ability to retain key employees; and
•    our compensation expense associated with equity allocated or awarded to our employees.




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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 2022 Annual Report on Form 10-K.

Comparison of Financial Condition

Total assets at September 30, 2023 were $14.362 billion, an increase of $248.9 million, or 1.8%, from $14.113 billion at December 31, 2022. This increase in assets was primarily driven by an increase in loans receivable, partially offset by a decrease in marketable securities. A discussion of significant changes follows.

Total marketable securities decreased by $259.2 million, or 12.3%, to $1.840 billion at September 30, 2023 from $2.099 billion at December 31, 2022. Available-for-sale securities decreased $208.0 million, and held-to-maturity securities decreased $51.1 million. These decreases were driven by the maturity and regular monthly cash flows, in addition to the sale of approximately $110.0 million of available-for-sale securities during the year in order to reallocate these funds into higher interest-earning products.

Gross loans receivable increased by $389.8 million, or 3.6%, to $11.310 billion at September 30, 2023, from $10.920 billion at December 31, 2022. This increase was attributable to organic loan growth. Our commercial loan portfolio increased by $368.6 million, or 32.6%, to $1.501 billion at September 30, 2023, from $1.132 billion at December 31, 2022, primarily as a result of the new lending verticals that we recently implemented. Our commercial real estate loan portfolio increased by $99.5 million, or 3.5%, to $2.923 billion at September 30, 2023, from $2.824 billion at December 31, 2022. These increases in our total business banking loans were slightly offset by a decrease in our personal banking loans of $78.3 million, or 1.1%, to $6.887 billion at September 30, 2023 compared to $6.965 billion at December 31, 2022. This included a $38.9 million, or 3.0%, decrease in our home equity portfolio and a $25.8 million, or 0.7%, decrease in our mortgage portfolio as demand for these products has been impacted by the higher market interest rates.

Total deposits increased by $325.3 million, or 2.8%, to $11.790 billion at September 30, 2023 from $11.465 billion at December 31, 2022. This increase was driven by a $1.206 billion, or 114.6%, increase in time deposits due to customer preferences for this fixed maturity product. Partially offsetting this increase were decreases in savings and money market deposits totaling $573.4 million, or 12.1%, due to customers choosing higher yielding product alternatives. In addition, demand deposit accounts decreased by $307.3 million, or 5.4%, as we believe customers used funds during this period of higher inflationary costs.

Total shareholders’ equity at September 30, 2023 was $1.498 billion, or $11.79 per share, an increase of $6.9 million, or 0.5%, from $1.491 billion, or $11.74 per share, at December 31, 2022. This increase was the result of year-to-date earnings of $105.9 million, partially offset by $76.2 million of cash dividend payments for the nine months ended September 30, 2023 as well as a change in accumulated other comprehensive loss of $26.4 million, or 15.4%, primarily due to an increase in unrealized loss on our available-for-sale investment portfolio as a result of higher market interest rates.

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.

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 (dollars in thousands).
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 At September 30, 2023
 Actual Minimum capital requirements (1)Well capitalized requirements
 AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)      
Northwest Bancshares, Inc.$1,789,604 16.114 %$1,166,094 10.500 %$1,110,566 10.000 %
Northwest Bank1,514,889 13.652 %1,165,115 10.500 %1,109,634 10.000 %
Tier 1 capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,548,121 13.940 %943,981 8.500 %888,453 8.000 %
Northwest Bank1,387,508 12.504 %943,189 8.500 %887,707 8.000 %
CET1 capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,422,601 12.810 %777,396 7.000 %721,868 6.500 %
Northwest Bank1,387,508 12.504 %776,744 7.000 %721,262 6.500 %
Tier 1 capital (leverage) (to average assets)    
Northwest Bancshares, Inc.1,548,121 10.773 %574,801 4.000 %718,501 5.000 %
Northwest Bank1,387,508 9.656 %574,776 4.000 %718,471 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, 2022
 ActualMinimum capital requirements (1)Well capitalized requirements
 AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)      
Northwest Bancshares, Inc.$1,745,701 16.363 %$1,120,216 10.500 %$1,066,872 10.000 %
Northwest Bank1,568,202 14.712 %1,119,214 10.500 %1,065,918 10.000 %
Tier I capital (to risk weighted assets)    
Northwest Bancshares, Inc.1,516,621 14.216 %906,841 8.500 %853,498 8.000 %
Northwest Bank1,452,962 13.631 %906,030 8.500 %852,734 8.000 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.1,391,296 13.041 %746,810 7.000 %693,467 6.500 %
Northwest Bank1,452,962 13.631 %746,143 7.000 %692,847 6.500 %
Tier I capital (leverage) (to average assets) 
Northwest Bancshares, Inc.1,516,621 10.817 %560,816 4.000 %701,020 5.000 %
Northwest Bank1,452,962 10.365 %560,706 4.000 %700,882 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).

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 frequently 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, 2023 was 9.66%. 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, 2023, Northwest had $3.119 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit, which had a drawn balance of $119.0 million at September 30, 2023, as well as $302.4 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks.
 






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Dividends
 
We paid $25.4 million in cash dividends during the quarters ended September 30, 2023 and 2022. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for September 30, 2023 and 2022 was 64.5% and 69.0% on dividends of $0.20 per share. On October 18, 2023, the Board of Directors declared a cash dividend of $0.20 per share payable on November 14, 2023 to shareholders of record as of November 2, 2023. This represents the 116th 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, 2023December 31, 2022
 (in thousands)
Loans 90 days or more past due:  
Residential mortgage loans$7,695 5,574 
Home equity loans2,206 2,257 
Vehicle loans2,274 2,471 
Other consumer loans746 608 
Commercial real estate loans8,042 7,589 
Commercial real estate - owner occupied374 278 
Commercial loans2,472 1,829 
Total loans 90 days or more past due$23,809 20,606 
Total real estate owned (REO)$363 413 
Total loans 90 days or more past due and REO24,172 21,019 
Total loans 90 days or more past due to net loans receivable0.21 %0.19 %
Total loans 90 days or more past due and REO to total assets0.17 %0.15 %
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due23,082 19,861 
Nonaccrual loans - loans less than 90 days past due53,572 61,375 
Loans 90 days or more past due still accruing728 744 
Total nonperforming loans77,382 81,980 
Total nonperforming assets$77,745 82,393 
Total nonaccrual loans to total loans0.68 %0.74 %
 
Allowance for Credit Losses
  
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.    

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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 Losses 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 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, 2023, we considered the most recent economic conditions and forecasts available which incorporated the impact of material recent economic events. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by $6.8 million, or 5.8%, to $124.8 million, or 1.10% of total loans at September 30, 2023 from $118.0 million, or 1.08% of total loans, at December 31, 2022. This increase was primarily the result of growth within our commercial loan portfolio during the year, as well as forecasted economic deterioration in our allowance for credit loss models.

Total classified loans decreased $27.6 million, or 11.7%, to $208.6 million at September 30, 2023 from $236.2 million at December 31, 2022. This decrease was primarily driven by upgrades and payoffs of loans in our commercial real estate portfolio during the current 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 $76.7 million, or 0.68% of total loans receivable at September 30, 2023, decreased by $4.6 million, or 5.6%, from $81.2 million, or 0.74% of total loans receivable at December 31, 2022. This decrease primarily related to classification upgrades of loans within our commercial real estate portfolio. As a percentage of average loans, annualized net charge-offs increased to 0.13% for the quarter ended September 30, 2023 compared to 0.02% for the year ended December 31, 2022 due to several large recoveries during 2022.

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Comparison of Operating Results for the Quarters Ended September 30, 2023 and 2022
 
Net income for the quarter ended September 30, 2023 was $39.2 million, or $0.31 per diluted share, an increase of $1.9 million, or 5.1%, from net income of $37.3 million, or $0.29 per diluted share, for the quarter ended September 30, 2022. The increase in net income resulted primarily from a decrease in provision for credit losses and an increase in noninterest income. The provision for credit losses decreased $10.3 million, or 91.1%, and noninterest income increased $4.1 million, or 15.2%. These changes were partially offset by an increase in noninterest expense of $8.6 million, or 10.9% and a decrease in net interest income of $4.4 million, or 3.9%. Net income for the quarter ended September 30, 2023 represents annualized returns on average equity and average assets of 10.27% and 1.08%, respectively, compared to 9.84% and 1.05% for the same quarter last year. A further discussion of notable changes follows.

Interest Income
 
Total interest income increased by $33.0 million, or 27.8%, to $151.6 million for the quarter ended September 30, 2023 from $118.6 million for the quarter ended September 30, 2022. This increase is attributable to increases in both the average yield and average balance of interest-earning assets. The average yield earned on interest-earning assets increased to 4.49% for the quarter ended September 30, 2023 from 3.58% for the quarter ended September 30, 2022 due to the continued rising interest rate environment. The average balance of interest-earning assets increased $249.0 million, or 1.9%, to $13.405 billion for the quarter ended September 30, 2023 from $13.156 billion for the quarter ended September 30, 2022, primarily driven by a $710.4 million increase in the average balance of loans receivable, offset partially by a $238.7 million decrease in the average balance of mortgage-backed securities and a $193.8 million decrease in the average balance of other interest-earning deposits. These changes are described further below.

Interest income on loans receivable increased by $33.7 million, or 31.5%, to $140.7 million for the quarter ended September 30, 2023 compared to $106.9 million for the quarter ended September 30, 2022. This increase in interest income was the result of increases in both the average yield and the average balance on loans receivable. The average yield on loans receivable increased to 4.99% for the quarter ended September 30, 2023 from 4.05% for the quarter ended September 30, 2022, due to the increase in market interest rates as well as a change in mix to higher yielding loan products. The average balance of loans receivable increased $710.4 million, or 6.8%, to $11.191 billion for the quarter ended September 30, 2023 from $10.481 billion for the quarter ended September 30, 2022, due to organic loan growth in our commercial, residential mortgage, consumer, and commercial real estate portfolios. Additionally contributing to loan growth were purchases of loan pools during 2022, including $182.8 million in small business equipment finance loans and $188.3 million of one- to four-family jumbo mortgage loans.

Interest income on mortgage-backed securities decreased by $611,000, or 7.0%, to $8.1 million for the quarter ended September 30, 2023 compared to $8.7 million for the quarter ended September 30, 2022. This decrease was driven by a $238.7 million, or 11.8%, decrease in the average balance of mortgage-backed securities to $1.781 billion for the quarter ended September 30, 2023 from $2.020 billion for the quarter ended September 30, 2022 due to the sale of lower yielding available-for-sale securities during the current year along with scheduled payments and maturities. Slightly offsetting this decrease was an increase in the average yield on mortgage-backed securities to 1.81% for the quarter ended September 30, 2023 from 1.72% for the quarter ended September 30, 2022 due to the purchase of higher yielding mortgage-backed securities in the prior year.

Interest income on investment securities decreased by $270,000, or 17.5%, to $1.3 million for the quarter ended September 30, 2023 from $1.5 million for the quarter ended September 30, 2022. This decrease was attributable to decreases in both the average yield and the average balance of investment securities. The average yield decreased to 1.52% for the quarter ended September 30, 2023 from 1.59% for the quarter ended September 30, 2022, and the average balance of investment securities decreased by $52.6 million, or 13.5%, to $336.1 million for the quarter ended September 30, 2023 from $388.8 million for the quarter ended September 30, 2022 as cash flows have been redirected to the higher yield loan portfolio.

Dividends on FHLB stock increased by $520,000, or 351.4%, to $668,000 for the quarter ended September 30, 2023 from $148,000 for the quarter ended September 30, 2022. This increase was due to increases in both the average balance and the average yield on FHLB stock. The average balance of FHLB stock increased by $23.7 million, or 168.9%, to $37.7 million for the quarter ended September 30, 2023 from $14.0 million for the quarter ended September 30, 2022. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB. In addition, the average yield increased to 7.03% for the quarter ended September 30, 2023 from 4.19% for the quarter ended September 30, 2022 due to increases in market interest rates.





 
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Interest income on interest-earning deposits decreased by $381,000, or 29.4%, to $914,000 for the quarter ended September 30, 2023 from $1.3 million for the quarter ended September 30, 2022, driven by a decrease in the average balance of interest-earning deposits of $193.8 million, or 76.5%, to $59.4 million for the quarter ended September 30, 2023 from $253.2 million for the quarter ended September 30, 2022 as the Bank redeployed these funds into higher yielding loans and investments. Offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to 6.11% for the quarter ended September 30, 2023 from 2.00% for the quarter ended September 30, 2022, due to the aggressive campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

Interest Expense

Interest expense increased by $37.4 million, or 636.8%, to $43.2 million for the quarter ended September 30, 2023 from $5.9 million for the quarter ended September 30, 2022 due to increases in both the average balance and average cost of interest-bearing liabilities. The average balance of interest-bearing liabilities increased $603.5 million, or 6.53%, to $9.850 billion for the quarter ended September 30, 2023 from $9.246 billion for the quarter ended September 30, 2022 while the average balance of noninterest-bearing demand deposits decreased by $336.4 million, or 10.9%, to $2.757 billion at September 30, 2023 from $3.093 billion at September 30, 2022. We believe customers utilized funds in their demand deposit accounts for both higher yielding products as well as higher inflationary cost of goods. The increase in average balance of interest-bearing liabilities was driven by an increase in average borrowed funds of $516.4 million, or 406.4%, which were used to fund loan growth. Additionally, the average balance of interest-bearing deposits increased by $86.4 million, or 1.0%, specifically driven by an increase in time deposits due to customer preferences for this fixed maturity product type. The average cost of interest-bearing liabilities increased to 1.74% for the quarter ended September 30, 2023 from 0.25% for the quarter ended September 30, 2022, primarily attributable to increases in the interest rates paid on deposit accounts and borrowed funds in response to increases in market interest rates, as well as a change in mix to higher cost products.
 
Net Interest Income
 
Net interest income decreased by $4.4 million, or 3.9%, to $108.4 million for the quarter ended September 30, 2023 from $112.7 million for the quarter ended September 30, 2022. This decrease is attributable to the factors discussed above. Our interest rate spread decreased to 2.75% for the quarter ended September 30, 2023 from 3.33% for the quarter ended September 30, 2022 and our net interest margin decreased to 3.21% for the quarter ended September 30, 2023 from 3.40% for the quarter ended September 30, 2022 due to the increase in our cost of interest bearing liabilities.

Provision for Credit Losses

The provision for credit losses decreased by $10.3 million, or 91.1%, to $1.0 million for the quarter ended September 30, 2023 compared to $11.3 million for the quarter ended September 30, 2022. The current period provision for credit losses includes $4.0 million for credit losses - loans and a provision release of $3.0 million for credit losses - unfunded commitments. The prior period provision for credit losses included $7.7 million for credit losses - loans and $3.6 million for credit losses - unfunded commitments. The $3.7 million decrease in the provision for credit losses - loans can be attributed to changes in the economic forecasts reflected in our allowance for credit loss models, as well continued decreases in classified loans. While economic forecasts have continued to deteriorate in the current year, our current allowance reflects such that deterioration was slower during the current period as compared to the same period last year. Classified assets decreased by $29.1 million, or 12.2%, to $208.6 million, or 1.84% of total loans, at September 30, 2023 from $237.7 million, or 2.21% of total loans, at September 30, 2022. The $6.6 million decrease in our provision for credit losses - unfunded commitments was related to the timing of the origination of loans with current off-balance sheet exposure.
     
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, 2023.

Noninterest Income
 
Noninterest income increased by $4.1 million, or 15.2%, to $30.9 million for the quarter ended September 30, 2023 from $26.8 million for the quarter ended September 30, 2022. This increase was driven by a $3.1 million, or 209.2%, increase in income from bank-owned life insurance to $4.6 million for the quarter ended September 30, 2023 from $1.5 million for the quarter ended September 30, 2022 due to death benefits received in the current period. In addition, service charges and fees increased $947,000, or 6.6%, to $15.3 million for the quarter ended September 30, 2023 from $14.3 million for the quarter ended September 30, 2022 driven by deposit related fees based on customer activity in the current quarter.
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Noninterest Expense

Noninterest expense increased by $8.6 million, or 10.9%, to $87.6 million for the quarter ended September 30, 2023 from $79.0 million for the quarter ended September 30, 2022. This increase was primarily attributable to increases in compensation and employee benefits, other expenses, processing expenses, and FDIC insurance premiums. Compensation and employee benefits expense increased $4.5 million, or 9.7%, to $51.2 million for the quarter ended September 30, 2023, from $46.7 million for the quarter ended September 30, 2022 primarily as a result of additional talent and expertise to propel the organization to higher performance levels, in particular commercial and small business lending as well as risk management and back office support and infrastructure. Other expenses increased $1.7 million to $2.0 million for the quarter ended September 30, 2023, from $321,000 for the quarter ended September 30, 2022 due to an increase in employee relocation and other expenses. Processing expenses increased $1.3 million, or 9.4%, to $14.7 million for the quarter ended September 30, 2023, from $13.4 million for the quarter ended September 30, 2022 due to the implementation of additional third-party software programs. Lastly, FDIC insurance premiums increased $1.1 million, or 95.1%, to $2.3 million for the quarter ended September 30, 2023 from $1.2 million for the quarter ended September 30, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023.

Income Taxes
 
The provision for income taxes decreased by $522,000, or 4.4%, to $11.5 million for the quarter ended September 30, 2023 from $12.0 million for the quarter ended September 30, 2022. This decrease in income taxes was due primarily to a decrease in our effective tax rate in the current year related to bank-owned life insurance tax benefits. We anticipate our effective tax rate to be between 22.5% and 24.5% for the year ending December 31, 2023.

Comparison of Operating Results for the Nine Months Ended September 30, 2023 and 2022
 
Net income for the nine months ended September 30, 2023 was $105.9 million, or $0.83 per diluted share, an increase of $6.9 million, or 7.0%, from $99.0 million, or $0.78 per diluted share, for the nine months ended September 30, 2022. The increase in net income resulted from an increase in net interest income of $25.7 million, or 8.5%, a decrease in provision for credit losses of $2.5 million, or 14.3%, and an increase in noninterest income of $1.7 million, or 2.0%. These changes were partially offset by an increase of $20.1 million, or 8.4%, in noninterest expense and an increase in income tax expense of $2.8 million, or 9.6%. Net income for the nine months ended September 30, 2023 represents annualized returns on average equity and average assets of 9.37% and 0.99%, respectively, compared to 8.61% and 0.93% for the nine months ended September 30, 2022. A further discussion of notable changes follows.
 
Interest Income
 
    Total interest income increased by $109.6 million, or 34.1%, to $430.5 million for the nine months ended September 30, 2023 from $320.9 million for the nine months ended September 30, 2022. This increase is the result of increases in both the average yield and average balance of interest-earning assets. The average yield on interest-earning assets increased to 4.31% for the nine months ended September 30, 2023 from 3.23% for the nine months ended September 30, 2022. This increase in average yield is attributed to the increased interest rate environment. The average balance of interest-earning assets increased $67.7 million, or 0.5%, to $13.369 billion for the nine months ended September 30, 2023 from $13.301 billion for the nine months ended September 30, 2022 driven by an increase in the average balance of loans receivable, offset by a decrease in the average balance of other interest-earning deposits, described further below.

Interest income on loans receivable increased by $106.4 million, or 36.6%, to $397.1 million for the nine months ended September 30, 2023 from $290.7 million for the nine months ended September 30, 2022. This increase is attributed to increases in both the average yield and the average balance of loans receivable. The average yield on loans receivable increased to 4.81% for the nine months ended September 30, 2023 from 3.82% for the nine months ended September 30, 2022 due to the increase in market interest rates. The average balance of loans receivable increased $867.5 million, or 8.5%, to $11.049 billion for the nine months ended September 30, 2023 from $10.182 billion for the nine months ended September 30, 2022 due to organic loan growth in our commercial, residential mortgage, and consumer portfolios. Additionally contributing to loan growth were purchases of loan pools during 2022 of small business equipment finance loans and one- to four-family jumbo mortgage loans.

    Interest income on mortgage-backed securities increased by $2.7 million, or 12.3%, to $24.9 million for the nine months ended September 30, 2023 from $22.2 million for the nine months ended September 30, 2022. This increase is attributed to an increase in the average yield on mortgage-backed securities to 1.80% for the nine months ended September 30, 2023 from 1.50% for the nine months ended September 30, 2022 due to the purchase of higher yielding mortgage-backed securities in the prior year. Partially offsetting this increase was a decrease in the average balance of mortgage-backed securities of $123.1 million, or 6.2%, to $1.850 billion for the nine months ended September 30, 2023 from $1.973 billion for the nine months ended September 30, 2022 due to the sale of available-for-sale securities during the year coupled with regularly scheduled payments and maturities.
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Interest income on investment securities remained relatively flat, increasing by $34,000, or 0.8%, to $4.3 million for the nine months ended September 30, 2023. This increase is attributable to an increase in the average yield on investment securities. The average yield on investment securities increased to 1.58% for the nine months ended September 30, 2023 from 1.51% for the nine months ended September 30, 2022. Slightly offsetting this increase in average yield was a decrease in the average balance of investment securities by $14.9 million, or 3.9%, to $365.0 million for the nine months ended September 30, 2023 from $379.9 million for the nine months ended September 30, 2022.
 
Dividends on FHLB stock increased by $1.9 million, or 608.0%, to $2.2 million for the nine months ended September 30, 2023 from $311,000 for the nine months ended September 30, 2022. This increase was due to increases in both the average balance and the average yield of FHLB stock. The average balance of FHLB stock increased $27.2 million, or 197.2%, to $40.9 million for the nine months ended September 30, 2023 from $13.8 million for the nine months ended September 30, 2022. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB. Additionally, the average yield increased to 7.19% for the nine months ended September 30, 2023 from 3.02% for the nine months ended September 30, 2022, due to increases in market interest rates.
 
Interest income on interest-earning deposits decreased by $1.5 million, or 44.0%, to $1.9 million for the nine months ended September 30, 2023 from $3.4 million for the nine months ended September 30, 2022. This decrease is attributable to a decrease in the average balance of interest-earning deposits by $688.9 million, or 91.4%, to $64.6 million for the nine months ended September 30, 2023 from $753.5 million for the nine months ended September 30, 2022 as the Bank redeployed these funds into higher yielding loans and investments. Partially offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to 4.00% for the nine months ended September 30, 2023 from 0.60% for the nine months ended September 30, 2022, due to the campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

Interest Expense
 
Interest expense increased by $83.8 million, or 484.4%, to $101.2 million for the nine months ended September 30, 2023 from $17.3 million for the nine months ended September 30, 2022. This increase in interest expense was due to increases in the average cost of interest-bearing liabilities and the average balance of interest-bearing liabilities as well as the change in liability mix. The average cost of interest-bearing liabilities increased to 1.40% for the nine months ended September 30, 2023 from 0.25% for the nine months ended September 30, 2022 resulting primarily from the rising interest rate environment. The average balance of interest-bearing liabilities increased by $252.0 million, or 2.7%, to $9.677 billion for the nine months ended September 30, 2023 from $9.425 billion for the nine months ended September 30, 2022 driven by an increase in average borrowed funds by $608.6 million, or 463.3%. Wholesale borrowings were utilized to fund loan growth as well as replace the decrease in the average balance of interest-bearing deposits which declined by $351.9 million, or 3.9%. In addition, noninterest-bearing demand deposits decreased by $259.5 million, or 8.4%, as we believe customers used funds during a period of higher inflationary costs and searched for higher yield alternatives.
 
Net Interest Income
 
Net interest income increased by $25.7 million, or 8.5%, to $329.4 million for the nine months ended September 30, 2023 from $303.6 million for the nine months ended September 30, 2022. This increase is attributable to the factors discussed above. Our interest rate spread decreased to 2.91% for the nine months ended September 30, 2023 from 2.98% for the nine months ended September 30, 2022 and our net interest margin increased to 3.29% for the nine months ended September 30, 2023 from 3.05% for the nine months ended September 30, 2022 due to the change in market rates as well as the change in our interest-earning asset and funding mix.

Provision for Credit Losses

    The provision for credit losses decreased by $2.5 million, or 14.3%, to $14.9 million for the nine months ended September 30, 2023 from $17.4 million for the nine months ended September 30, 2022. The current period provision for credit losses includes $14.9 million for credit losses - loans and $65,000 for credit losses - unfunded commitments. The prior period provision for credit losses includes $8.8 million for credit losses - loans and $8.6 million for credit losses - unfunded commitments. The $6.0 million increase in the provision for credit losses - loans was driven by continued growth within our loan portfolio, as well as forecasted economic deterioration reflected in our allowance for credit loss models. This was partially offset by an $8.5 million decrease in our provision for credit losses - unfunded commitments compared to the same period last year based on the timing of the origination of loans with current off-balance sheet exposure.

Annualized net charge-offs to average loans increased to 0.10% for the nine months ended September 30, 2023 from 0.02% for the nine months ended September 30, 2022 due to several large recoveries during 2022. Additionally, classified assets declined by $29.1 million, or 12.2%, to $208.6 million, or 1.84% of loans outstanding at September 30, 2023 from $237.7 million, or 2.21% of loans outstanding at September 30, 2022 resulting primarily from upgrades and payoffs within our commercial real estate portfolio.
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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, 2023.

Noninterest Income

Noninterest income increased by $1.7 million, or 2.0%, to $84.7 million for the nine months ended September 30, 2023 from $83.0 million for the nine months ended September 30, 2022. This increase was primarily due to increases in service charges and fees, income from bank-owned life insurance, and a gain on the sale of Small Business Administration (SBA) loans. Service charges and fees increased by $2.2 million, or 5.4%, to $43.3 million for the nine months ended September 30, 2023 from $41.1 million for the nine months ended September 30, 2022 driven primarily by commercial loan fees and an increase in deposit related fees based on customer activity in the current year. In addition, income from bank-owned life insurance increased $1.7 million, or 30.5%, to $7.1 million for the nine months ended September 30, 2023 from $5.5 million for the nine months ended September 30, 2022 due to death benefits recognized in the current period. We also recognized a $1.4 million gain on the sale of SBA loans during the nine months ended September 30, 2023 due to this newly launched lending vertical. Partially offsetting these increases to income was a decrease in mortgage banking income of $2.2 million, or 50.2%, to $2.2 million for the nine months ended September 30, 2023 from $4.4 million for the nine months ended September 30, 2022 due to the volatile interest rate environment causing less favorable pricing in the secondary market, as well as a decrease in mortgage volumes primarily due to higher market interest rates.

In addition, during the nine months ended September 30, 2023, we recognized an $8.3 million gain on the sale of the servicing rights for a $1.3 billion one- to four- family mortgage portfolio. We tried to maximize our profit in the current interest rate environment as we pivot towards a commercial bank, and it also enabled us to accelerate the cash flow from our investment portfolio by selling approximately $110.0 million of investment securities yielding 2.0% for an equivalent $8.3 million loss and reinvesting these proceeds into commercial loans yielding over 7.0%.

Noninterest Expense
 
Noninterest expense increased by $20.1 million, or 8.4%, to $260.9 million for the nine months ended September 30, 2023, from $240.7 million for the nine months ended September 30, 2022. This increase was due to increases in almost all expense categories due to both inflationary costs as well as the continued build out of talent and infrastructure necessary to propel the organization to a higher level of performance. In particular, processing expenses increased by $4.8 million, or 12.2%, to $43.7 million for the nine months ended September 30, 2023, from $38.9 million for the nine months ended September 30, 2022 due to the implementation of third party software programs. Compensation and employee benefits increased by $3.8 million, or 2.7%, to $145.5 million for the nine months ended September 30, 2023 from $141.7 million for the nine months ended September 30, 2022 driven by increases in commercial lending, small business lending, risk management and internal audit salaries and benefits over the past twelve months. FDIC insurance premiums increased $3.2 million, or 91.6%, to $6.6 million for the nine months ended September 30, 2023, from $3.5 million for the nine months ended September 30, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023. Merger, asset disposition and restructuring expense increased $3.0 million, or 219.9%, to $4.4 million for the nine months ended September 30, 2023, from $1.4 million for the nine months ended September 30, 2022 due to the severance and fixed asset charges related to the branch optimization and personnel reductions previously announced. Other expenses increased by $2.4 million, or 83.3%, to $5.4 million for the nine months ended September 30, 2023, from $2.9 million for the nine months ended September 30, 2022 due to an increase in employee relocation and other expenses. Additionally, professional service expense increased by $2.3 million, or 24.8%, to $11.6 million for the nine months ended September 30, 2023, from $9.3 million for the nine months ended September 30, 2022 due to the use of third-party consulting and staffing support. Lastly, marketing expenses increased by $1.8 million, or 28.6%, to $8.1 million for the nine months ended September 30, 2023, from $6.3 million for the nine months ended September 30, 2022 due primarily to deposit marketing campaigns.

Income Taxes
 
The provision for income taxes increased by $2.8 million, or 9.6%, to $32.3 million for the nine months ended September 30, 2023 from $29.5 million for the nine months ended September 30, 2022. This increase was primarily due to the increase in income before tax of $9.8 million, or 7.6%. We anticipate our effective tax rate to be between 22.5% and 24.5% for the year ending December 31, 2023.

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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,
 20232022
Average
balance		InterestAvg.
yield/
cost (h)		Average
balance		InterestAvg.
yield/
cost (h)
Assets      
Interest-earning assets:     
Residential mortgage loans$3,476,446 32,596 3.75 %$3,331,173 29,414 3.53 %
Home equity loans1,264,134 17,435 5.47 %1,274,918 13,658 4.25 %
Consumer loans2,092,023 23,521 4.46 %1,981,754 17,256 3.45 %
Commercial real estate loans2,911,145 41,611 5.67 %2,842,597 34,158 4.70 %
Commercial loans1,447,211 26,239 7.19 %1,050,124 12,978 4.84 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $735 and $521, respectively)11,190,959 141,402 5.01 %10,480,566 107,464 4.07 %
Mortgage-backed securities (c)1,781,010 8,072 1.81 %2,019,715 8,683 1.72 %
Investment securities (c) (d) (includes FTE adjustments of $154 and $215, respectively)336,125 1,431 1.70 %388,755 1,762 1.81 %
FHLB stock, at cost 37,722 668 7.03 %14,028 148 4.19 %
Other interest-earning deposits59,433 915 6.11 %253,192 1,295 2.00 %
Total interest-earning assets (includes FTE adjustments of $889 and $736, respectively)13,405,249 152,488 4.51 %13,156,256 119,352 3.60 %
Noninterest-earning assets (e)974,074 896,663 
Total assets$14,379,323   $14,052,919   
Liabilities and shareholders’ equity      
Interest-bearing liabilities:      
Savings deposits (g)$2,116,759 2,695 0.51 %$2,350,248 594 0.10 %
Interest-bearing demand deposits (g)2,569,229 4,086 0.63 %2,794,338 360 0.05 %
Money market deposit accounts (g)2,112,228 6,772 1.27 %2,620,850 692 0.10 %
Time deposits (g)2,164,559 18,136 3.32 %1,110,906 1,511 0.54 %
Borrowed funds (f)643,518 7,937 4.89 %127,073 239 0.75 %
Subordinated debentures114,045 1,148 4.03 %113,695 1,149 4.04 %
Junior subordinated debentures129,466 2,456 7.42 %129,207 1,322 4.00 %
Total interest-bearing liabilities9,849,804 43,230 1.74 %9,246,317 5,867 0.25 %
Noninterest-bearing demand deposits (g)2,757,091 3,093,490 
Noninterest-bearing liabilities257,141 209,486 
Total liabilities12,864,036   12,549,293  
Shareholders’ equity1,515,287 1,503,626  
Total liabilities and shareholders’ equity$14,379,323   $14,052,919   
Net interest income/Interest rate spread 109,258 2.77 % 113,485 3.35 %
Net interest-earning assets/Net interest margin$3,555,445  3.23 %$3,909,939  3.42 %
Ratio of interest-earning assets to interest- bearing liabilities1.36X  1.42X  
(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)Average cost of deposits were 1.07% and 0.11%, respectively, average cost of interest-bearing deposits were 1.40% and 0.14%, respectively .
(h)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 — 4.99% and 4.05%, respectively; investment securities — 1.52% and 1.59%, respectively; interest-earning assets — 4.49% and 3.58%, respectively. GAAP basis net interest rate spreads were 2.75% and 3.33%, respectively; and GAAP basis net interest margins were 3.21% and 3.40%, respectively.
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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, 2023 vs. 2022
Increase/(decrease) due to Total
 increase/(decrease)
RateVolume
Interest-earning assets:   
Loans receivable$24,962 8,976 33,938 
Mortgage-backed securities470 (1,081)(611)
Investment securities(107)(224)(331)
FHLB stock, at cost104 416 520 
Other interest-earning deposits2,578 (2,958)(380)
Total interest-earning assets28,007 5,129 33,136 
Interest-bearing liabilities:   
Savings deposits2,398 (297)2,101 
Interest-bearing demand deposits4,084 (358)3,726 
Money market deposit accounts7,711 (1,631)6,080 
Time deposits7,797 8,828 16,625 
Borrowed funds1,328 6,370 7,698 
Subordinated debt(4)3 (1)
Junior subordinated debentures1,129 5 1,134 
Total interest-bearing liabilities24,443 12,920 37,363 
Net change in net interest income$3,564 (7,791)(4,227)
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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,
 20232022
Average
balance		InterestAvg.
yield/
cost (i)		Average
balance		InterestAvg.
yield/
cost (i)
Assets      
Interest-earning assets:      
Residential mortgage loans$3,485,130 97,090 3.71 %$3,162,758 82,282 3.47 %
Home equity loans1,273,878 50,467 5.30 %1,282,045 37,443 3.90 %
Consumer loans2,119,717 66,977 4.22 %1,887,843 47,588 3.37 %
Commercial real estate loans2,857,555 117,074 5.48 %2,918,940 95,813 4.33 %
Commercial loans1,312,750 67,465 6.87 %929,942 28,981 4.11 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,937 and $1,416, respectively)11,049,030 399,073 4.83 %10,181,528 292,107 3.84 %
Mortgage-backed securities (c)1,849,567 24,935 1.80 %1,972,694 22,201 1.50 %
Investment securities (c) (d) (includes FTE adjustments of $579 and $627, respectively)364,956 4,909 1.79 %379,850 4,923 1.73 %
FHLB stock, at cost40,945 2,202 7.19 %13,776 311 3.02 %
Other interest-earning deposits64,560 1,931 4.00 %753,482 3,447 0.60 %
Total interest-earning assets (includes FTE adjustments of $2,516 and $2,043, respectively)13,369,058 433,050 4.33 %13,301,330 322,989 3.25 %
Noninterest-earning assets (e)880,799 941,947  
Total assets$14,249,857   $14,243,277   
Liabilities and shareholders’ equity      
Interest-bearing liabilities:     
Savings deposits (h)$2,163,564 4,777 0.30 %$2,348,944 1,758 0.10 %
Interest-bearing demand deposits (h)2,550,433 6,684 0.35 %2,842,071 1,008 0.05 %
Money market deposit accounts (h)2,246,422 17,289 1.03 %2,647,301 2,067 0.10 %
Time deposits (h)1,733,428 35,993 2.78 %1,207,444 5,416 0.60 %
Borrowed funds (f)740,011 26,077 4.71 %131,368 563 0.57 %
Subordinated debentures (g)113,958 3,444 4.03 %118,919 3,603 4.04 %
Junior subordinated debentures129,401 6,889 7.02 %129,142 2,893 2.95 %
Total interest-bearing liabilities9,677,217 101,153 1.40 %9,425,189 17,308 0.25 %
Noninterest-bearing demand deposits (h)2,822,178 3,081,640  
Noninterest-bearing liabilities239,034 199,742  
Total liabilities12,738,429   12,706,571   
Shareholders’ equity1,511,428 1,536,706   
Total liabilities and shareholders’ equity$14,249,857   $14,243,277   
Net interest income/Interest rate spread 331,897 2.93 % 305,681 3.00 %
Net interest-earning assets/Net interest margin$3,691,841  3.32 %$3,876,141  3.07 %
Ratio of interest-earning assets to interest-bearing liabilities1.38X  1.41X  
(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 0.75% and 0.11%, respectively and average cost of Interest-bearing deposits were 1.00% and0.15%, 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 — 4.81% and 3.82%, respectively; investment securities — 1.58% and 1.51%, respectively; interest-earning assets — 4.31% and 3.23%, respectively. GAAP basis net interest rate spreads were 2.91% and 2.98%, respectively; and GAAP basis net interest margins were 3.29% and 3.05%, respectively.
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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, 2023 vs. 2022
Increase/(decrease) due to Total
increase/(decrease)
RateVolume
Interest-earning assets:   
Loans receivable$75,633 31,333 106,966 
Mortgage-backed securities4,394 (1,660)2,734 
Investment securities186 (200)(14)
FHLB stock, at cost426 1,465 1,891 
Other interest-earning deposits19,094 (20,610)(1,516)
Total interest-earning assets99,733 10,328 110,061 
Interest-bearing liabilities:   
Savings deposits3,428 (409)3,019 
Interest-bearing demand deposits6,440 (764)5,676 
Money market deposit accounts18,307 (3,085)15,222 
Time deposits19,655 10,922 30,577 
Borrowed funds4,066 21,448 25,514 
Subordinated debt(8)(151)(159)
Junior subordinated debentures3,982 14 3,996 
Total interest-bearing liabilities55,870 27,975 83,845 
Net change in net interest income$43,863 (17,647)26,216 
 
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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, 200 bps or 300 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, 2023 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, 2023 levels.
 IncreaseDecrease
Parallel shift in interest rates over the next 12 months100 bps200 bps300 bps100 bps200 bps300 bps
Projected percentage increase/(decrease) in net interest income(0.1)%(1.3)%(3.8)%(0.7 %)(5.7 %)(10.8 %)
Projected percentage increase/(decrease) in net income(0.2)%(2.6)%(7.5)%(1.7 %)(12.2 %)(23.2 %)
Projected increase/(decrease) in return on average equity(0.1)%(2.4)%(7.1)%(1.5 %)(11.6 %)(22.2 %)
Projected increase/(decrease) in earnings per share$(0.01)$(0.04)$(0.10)$(0.03)$(0.16)$(0.30)
Projected percentage increase/(decrease) in market value of equity(8.8 %)(19.0 %)(33.3 %)10.4 %18.2 %25.7 %
 
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.

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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 reported in Quarterly Reports on Form 10-Q we have filed during the year ended December 31, 2023, there have been no material updates or additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 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.




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Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

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, 2023, there were no shares of common stock repurchased and there are a maximum of 2,261,130 remaining shares that can be purchased under the current repurchase program.


Item 3.        DEFAULTS UPON SENIOR SECURITIES
 
Not applicable.
 
Item 4.        MINE SAFETY DISCLOSURES
 
Not applicable.
 
Item 5.        OTHER INFORMATION
 
During the three months ended September 30, 2023, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any “Rule 10b5-1 trading arrangement.”
 
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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.
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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 3, 2023By:/s/ Louis J. Torchio
  Louis J. Torchio
  President and Chief Executive Officer
  (Duly Authorized Officer)
  
  
Date:November 3, 2023By:/s/ Jeffrey J. Maddigan
  Jeffrey J. Maddigan
  Executive Vice President, Finance, Accounting and Corporate Treasurer
(Principal Accounting Officer)
  

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