Northwest Bancshares Inc.

11/07/2024 | Press release | Distributed by Public on 11/07/2024 11:28

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

nwbi-20240930
Table of Contents
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, 2024
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $0.01 Par Value NWBI The Nasdaq 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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐No ☒
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), 127,399,707 shares outstanding as of October 31, 2024.
Table of Contents
NORTHWEST BANCSHARES, INC.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Statements of Financial Condition at September 30, 2024 and December 31, 2023 (Unaudited)
1
Consolidated Statements of Income for the quarter and nine months ended September 30, 2024 and 2023 (Unaudited)
2
Consolidated Statements of Comprehensive Income for the quarter and nine months ended September 30, 2024 and 2023 (Unaudited)
3
Consolidated Statements of Changes in Shareholders' Equity for the quarter and nine months ended September 30, 2024 and 2023 (Unaudited)
4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited)
6
Notes to Consolidated Financial Statements (Unaudited)
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
60
Item 4.
Controls and Procedures
61
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
61
Item 1A.
Risk Factors
61
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
62
Item 3.
Defaults Upon Senior Securities
62
Item 4.
Mine Safety Disclosures
62
Item 5.
Other Information
62
Item 6.
Exhibits
63
Signature
64
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Item 1. FINANCIAL STATEMENTS
NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands, except share data)
September 30, 2024 December 31, 2023
Assets
Cash and cash equivalents $ 226,883 122,260
Marketable securities available-for-sale (amortized cost of $1,248,104 and $1,240,003, respectively)
1,111,868 1,043,359
Marketable securities held-to-maturity (fair value of $672,641 and $699,506, respectively)
766,772 814,839
Total cash and cash equivalents and marketable securities 2,105,523 1,980,458
Loans held-for-sale 9,370 8,768
Loans held for investment 11,295,188 11,406,041
Allowance for credit losses (125,813) (125,243)
Loans receivable, net 11,178,745 11,289,566
FHLB stock, at cost 21,223 30,146
Accrued interest receivable 46,678 47,353
Real estate owned, net 76 104
Premises and equipment, net 126,391 138,838
Bank-owned life insurance 255,324 251,895
Goodwill 380,997 380,997
Other intangible assets, net 3,363 5,290
Other assets 236,005 294,458
Total assets $ 14,354,325 14,419,105
Liabilities and shareholders' equity
Liabilities:
Noninterest-bearing demand deposits $ 2,581,769 2,669,023
Interest-bearing demand deposits 2,676,779 2,634,546
Money market deposit accounts 1,956,747 1,968,218
Savings deposits 2,145,735 2,105,234
Time deposits 2,710,049 2,602,881
Total deposits 12,071,079 11,979,902
Borrowed funds 204,374 398,895
Subordinated debt 114,451 114,189
Junior subordinated debentures 129,769 129,574
Advances by borrowers for taxes and insurance 24,700 45,253
Accrued interest payable 15,125 13,669
Other liabilities 203,502 186,306
Total liabilities 12,763,000 12,867,788
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, 127,400,199 and 127,110,453 shares issued and outstanding, respectively
1,274 1,271
Additional paid-in capital 1,030,384 1,024,852
Retained earnings 665,845 674,686
Accumulated other comprehensive loss (106,178) (149,492)
Total shareholders' equity 1,591,325 1,551,317
Total liabilities and shareholders' equity $ 14,354,325 14,419,105
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,
2024 2023 2024 2023
Interest income:
Loans receivable $ 156,413 140,667 459,938 397,136
Mortgage-backed securities 10,908 8,072 28,278 24,935
Taxable investment securities 842 786 2,364 2,472
Tax-free investment securities 512 491 1,460 1,858
FHLB stock dividends 394 668 1,499 2,202
Interest-earning deposits 2,312 914 4,935 1,931
Total interest income
171,381 151,598 498,474 430,534
Interest expense:
Deposits 54,198 31,688 154,638 64,743
Borrowed funds 5,881 11,542 22,455 36,410
Total interest expense
60,079 43,230 177,093 101,153
Net interest income
111,302 108,368 321,381 329,381
Provision for credit losses - loans 5,727 3,983 12,130 14,863
Provision/(benefit) for credit losses - unfunded commitments (852) (2,981) (4,190) 65
Net interest income after provision for credit losses
106,427 107,366 313,441 314,453
Noninterest income:
Loss on sale of investments - - (39,413) (8,306)
Gain on sale of mortgage servicing rights - - - 8,305
Gain on sale of SBA loans 667 301 2,997 1,412
Service charges and fees 15,932 15,270 46,982 43,292
Trust and other financial services income 7,924 7,085 22,617 20,400
Gain on real estate owned, net 105 29 649 922
Income from bank-owned life insurance 1,434 4,561 4,307 7,134
Mortgage banking income 744 632 2,097 2,184
Other operating income 1,027 3,010 6,711 9,311
Total noninterest income 27,833 30,888 46,947 84,654
Noninterest expense:
Compensation and employee benefits 56,186 51,243 161,257 145,497
Premises and occupancy costs 7,115 7,052 22,206 22,102
Office operations 2,811 3,398 9,397 9,208
Collections expense 474 551 1,216 1,367
Processing expenses 14,570 14,672 43,990 43,670
Marketing expenses 2,004 2,379 6,563 8,127
Federal deposit insurance premiums 2,763 2,341 8,651 6,628
Professional services 3,302 3,002 11,095 11,564
Amortization of intangible assets 590 795 1,926 2,546
Real estate owned expense 23 141 146 405
Merger, asset disposition and restructuring expense 43 - 2,913 4,395
Other expenses 886 1,996 3,851 5,369
Total noninterest expense
90,767 87,570 273,211 260,878
Income before income taxes 43,493 50,684 87,177 138,229
Federal and state income taxes expense 9,875 11,464 19,649 32,286
Net income $ 33,618 39,220 67,528 105,943
Basic earnings per share $ 0.26 0.31 0.53 0.83
Diluted earnings per share $ 0.26 0.31 0.53 0.83
See accompanying notes to unaudited Consolidated Financial Statements.
2
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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
Quarter ended September 30, Nine months ended September 30,
2024 2023 2024 2023
Net income $ 33,618 39,220 67,528 105,943
Other comprehensive income/(loss) net of tax:
Net unrealized holding gains/(losses) on marketable securities:
Unrealized holding gains/(losses), net of tax of ($8,980), $9,140, ($7,054) and $9,603, respectively
27,947 (29,715) 18,858 (34,417)
Reclassification adjustment for losses included in net income, net of tax of $0, $0, ($7,706) and ($1,731), respectively
- - 26,789 5,636
Net unrealized holding gains/(losses) on marketable securities 27,947 (29,715) 45,647 (28,781)
Change in fair value of interest rate swaps, net of tax of $1,068, ($533), $342 and ($1,041), respectively
(3,654) 1,825 (1,170) 3,562
Defined benefit plan:
Actuarial reclassification adjustments for prior period service costs and actuarial gains included in net income, net of tax of $148, $152, $442 and $456, respectively
(387) (382) (1,163) (1,146)
Other comprehensive income/(loss) 23,906 (28,272) 43,314 (26,365)
Total comprehensive income $ 57,524 10,948 110,842 79,578
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 capital Retained earnings Accumulated
other comprehensive income/(loss) 		Total shareholders' equity
Common stock
Quarter ended September 30, 2024 Shares Amount
Beginning balance at June 30, 2024 127,307,997 $ 1,273 1,027,703 657,706 (130,084) 1,556,598
Comprehensive income:
Net income - - - 33,618 - 33,618
Other comprehensive income, net of tax of ($7,764)
- - - - 23,906 23,906
Total comprehensive income - - - 33,618 23,906 57,524
Exercise of stock options 94,731 1 1,098 - - 1,099
Stock-based compensation expense 9,928 - 1,583 - - 1,583
Stock-based compensation forfeited (12,457) - - - - -
Dividends paid ($0.20 per share)
- - - (25,479) - (25,479)
Ending balance at September 30, 2024 127,400,199 $ 1,274 1,030,384 665,845 (106,178) 1,591,325
Additional paid-in capital Retained earnings Accumulated
other comprehensive loss 		Total shareholders' equity
Common stock
Quarter ended September 30, 2023 Shares Amount
Beginning balance at June 30, 2023 127,088,963 $ 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 options 11,523 - 112 - - 112
Stock-based compensation expense 1,779 - 1,290 - - 1,290
Stock-based compensation forfeited (916) - - - - -
Dividends paid ($0.20 per share)
- - - (25,420) - (25,420)
Ending balance at September 30, 2023 127,101,349 $ 1,271 1,023,591 671,092 (197,523) 1,498,431
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 capital Retained earnings Accumulated
other comprehensive income/(loss) 		Total shareholders' equity
Common stock
Nine months ended September 30, 2024 Shares Amount
Beginning balance at December 31, 2023 127,110,453 $ 1,271 1,024,852 674,686 (149,492) 1,551,317
Comprehensive income:
Net income - - - 67,528 - 67,528
Other comprehensive income, net of tax of ($13,976)
- - - - 43,314 43,314
Total comprehensive income - - - 67,528 43,314 110,842
Exercise of stock options 101,123 1 1,179 - - 1,180
Stock-based compensation expense 213,906 2 4,353 - - 4,355
Stock-based compensation forfeited (25,283) - - - - -
Dividends paid ($0.60 per share)
- - - (76,369) - (76,369)
Ending balance at September 30, 2024 127,400,199 $ 1,274 1,030,384 665,845 (106,178) 1,591,325
Additional paid-in capital Retained earnings Accumulated
other comprehensive income/(loss) 		Total shareholders' equity
Common stock
Nine months ended September 30, 2023 Shares Amount
Beginning balance at December 31, 2022 127,028,848 $ 1,270 1,019,647 641,727 (171,158) 1,491,486
Comprehensive income:
Net income - - - 105,943 - 105,943
Other comprehensive income, 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 options 53,207 1 609 - - 610
Stock-based compensation expense 75,554 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, 2023 127,101,349 $ 1,271 1,023,591 671,092 (197,523) 1,498,431
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,
2024 2023
Operating activities:
Net income $ 67,528 105,943
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 7,940 14,928
Loss on sale of investments 39,413 8,306
Net (gain)/loss on sale of assets (5,646) 743
Mortgage banking activity (2,616) 5,342
Gain on sale of SBA loans (2,873) (1,390)
Gain on sale of mortgage servicing rights - (8,305)
Net depreciation, amortization and accretion 18,113 16,473
Decrease/(increase) in other assets 44,932 (114,158)
Increase in other liabilities 19,721 15,617
Net amortization on marketable securities 754 2,438
Noncash compensation expense related to stock benefit plans 4,355 3,335
Noncash write-down of other assets 6,140 37
Deferred income tax expense 2,641 (3,610)
Origination of loans held-for-sale (150,354) (137,789)
Proceeds from sale of loans held-for-sale 154,594 139,819
Net cash provided by operating activities 204,642 47,729
Investing activities:
Purchase of marketable securities available-for-sale (383,192) (23,502)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity 47,482 50,517
Proceeds from maturities and principal reductions of marketable securities available-for-sale 59,925 81,803
Proceeds from sale of marketable securities available-for-sale 275,585 101,229
Proceeds from bank-owned life insurance 874 2,798
Loan originations (2,729,306) (2,928,360)
Proceeds from sale of mortgage servicing rights - 13,118
Proceeds from loan maturities and principal reductions 2,820,106 2,524,676
Net proceeds/(redemptions) of FHLB stock 8,923 (261)
Proceeds from sale of real estate owned 746 1,343
Purchases of premises and equipment, net (2,076) (1,617)
Net cash provided by/(used in) investing activities 99,067 (178,256)
Financing activities:
Net increase in deposits 91,177 325,334
Net decrease in short-term borrowings (194,521) (76,578)
Decrease in advances by borrowers for taxes and insurance (20,553) (19,960)
Cash dividends paid on common stock (76,369) (76,249)
Proceeds from stock options exercised 1,180 610
Net cash (used in)/provided by financing activities (199,086) 153,157
Net increase in cash and cash equivalents $ 104,623 22,630
Cash and cash equivalents at beginning of period $ 122,260 139,365
Net increase in cash and cash equivalents 104,623 22,630
Cash and cash equivalents at end of period $ 226,883 161,995
Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $81,238 and $56,021, respectively)
$ 175,637 96,469
Income taxes 15,245 38,236
Non-cash activities:
Loan foreclosures and repossessions $ 3,259 2,844
Sale of real estate owned financed by the Company - 70
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 141 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 Mutual Federal 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, 2023 updated, as required, for any new pronouncements or changes.
Certain items previously reported have been reclassified to conform to the current year's reporting format.
The results of operations for the quarter ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other period.
Recently Adopted Accounting Standards
In March 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-02, "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Entities must make an accounting policy election to apply the proportional amortization method on a tax credit-program-by-tax-credit-program basis. The ASU's amendments also remove the specialized guidance for low-income-housing tax credit ("LIHTC") investments that are not accounted for using the proportional amortization method and instead require that those LIHTC investments be accounted for using the guidance in other accounting standards. This guidance is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. This ASU is applied on a modified retrospective or retrospective basis with the amendments to remove the specialized guidance for LIHTCs also being able to be applied on a prospective basis. This guidance was adopted on January 1, 2024 and did not have a material impact to the Company's financial statements.
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(2) Marketable Securities
The following table shows the portfolio of marketable securities available-for-sale at September 30, 2024 (in thousands):
Amortized
cost 		Gross
unrealized
holding
gains 		Gross
unrealized
holding
losses 		Fair
value
Debt issued by the U.S government and agencies:
Due after ten years $ 46,292 - (8,497) 37,795
Debt issued by government-sponsored enterprises:
Due after one year through five years 136 - (4) 132
Municipal securities:
Due after one year through five years 884 18 (2) 900
Due after five years through ten years 15,729 277 (1,382) 14,624
Due after ten years 52,244 288 (6,971) 45,561
Corporate debt issues:
Due after five years through ten years 25,396 307 (867) 24,836
Mortgage-backed securities:
Fixed rate pass-through 222,573 2,926 (12,641) 212,858
Variable rate pass-through 3,905 57 (4) 3,958
Fixed rate agency CMOs 835,445 3,801 (113,373) 725,873
Variable rate agency CMOs 45,500 44 (213) 45,331
Total mortgage-backed securities 1,107,423 6,828 (126,231) 988,020
Total marketable securities available-for-sale $ 1,248,104 7,718 (143,954) 1,111,868
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The following table shows the portfolio of marketable securities available-for-sale at December 31, 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 - (1,135) 18,865
Due after ten years 49,383 - (9,934) 39,449
Debt issued by government-sponsored enterprises:
Due after one year through five years 45,986 - (5,763) 40,223
Due after five years through ten years 386 - (12) 374
Municipal securities:
Due after one year through five years 4,279 22 (427) 3,874
Due after five years through ten years 20,725 - (1,437) 19,288
Due after ten years 60,762 125 (8,580) 52,307
Corporate debt issues:
Due after five years through ten years 8,466 - (778) 7,688
Mortgage-backed securities:
Fixed rate pass-through 209,069 27 (25,222) 183,874
Variable rate pass-through 7,140 11 (71) 7,080
Fixed rate agency CMOs 789,842 - (143,055) 646,787
Variable rate agency CMOs 23,965 38 (453) 23,550
Total mortgage-backed securities 1,030,016 76 (168,801) 861,291
Total marketable securities available-for-sale $ 1,240,003 223 (196,867) 1,043,359
The following table shows the portfolio of marketable securities held-to-maturity at September 30, 2024 (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 $ 109,460 - (10,520) 98,940
Due after five years through ten years 15,000 - (1,923) 13,077
Mortgage-backed securities:
Fixed rate pass-through 136,439 - (16,184) 120,255
Variable rate pass-through 387 - - 387
Fixed rate agency CMOs 504,957 - (65,502) 439,455
Variable rate agency CMOs 529 - (2) 527
Total mortgage-backed securities 642,312 - (81,688) 560,624
Total marketable securities held-to-maturity $ 766,772 - (94,131) 672,641
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The following table shows the portfolio of marketable securities held-to-maturity at December 31, 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 $ 69,471 - (8,100) 61,371
Due after five years through ten years 54,987 - (8,700) 46,287
Mortgage-backed securities:
Fixed rate pass-through 147,874 - (20,834) 127,040
Variable rate pass-through 449 1 - 450
Fixed rate agency CMOs 541,529 - (77,694) 463,835
Variable rate agency CMOs 529 - (6) 523
Total mortgage-backed securities 690,381 1 (98,534) 591,848
Total marketable securities held-to-maturity $ 814,839 1 (115,334) 699,506
The following table shows the contractual maturity of our mortgage-backed securities available-for-sale at September 30, 2024 (in thousands):
Amortized
cost 		Fair
value
Mortgage-backed securities:
Due within one year $ 42 43
Due after one year through five years 10,889 10,807
Due after five years through ten years 8,723 7,928
Due after ten years 1,087,769 969,242
Total mortgage-backed securities $ 1,107,423 988,020
The following table shows the contractual maturity of our mortgage-backed securities held-to-maturity at September 30, 2024 (in thousands):
Amortized
cost 		Fair
value
Mortgage-backed securities:
Due within one year $ 64 62
Due after one year through five years 19,983 18,219
Due after five years through ten years 20,192 17,088
Due after ten years 602,073 525,255
Total mortgage-backed securities $ 642,312 560,624
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, 2024 (in thousands):
Less than 12 months 12 months or more Total
Fair
value 		Unrealized
loss 		Fair
value 		Unrealized
loss 		Fair
value 		Unrealized
loss
U.S. government-sponsored enterprises $ - - 149,944 (20,944) 149,944 (20,944)
Municipal securities - - 41,002 (8,355) 41,002 (8,355)
Corporate issues 2,677 (92) 7,694 (775) 10,371 (867)
Mortgage-backed securities - agency 50,187 (174) 1,183,798 (207,745) 1,233,985 (207,919)
Total $ 52,864 (266) 1,382,438 (237,819) 1,435,302 (238,085)
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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, 2023 (in thousands):
Less than 12 months 12 months or more Total
Fair
value 		Unrealized
loss 		Fair
value 		Unrealized
loss 		Fair
value 		Unrealized
loss
U.S. government-sponsored enterprises $ - - 206,569 (33,644) 206,569 (33,644)
Corporate debt issues - - 7,688 (778) 7,688 (778)
Municipal securities 2,753 (81) 66,046 (10,363) 68,799 (10,444)
Mortgage-backed securities - agency 17,976 (242) 1,423,707 (267,093) 1,441,683 (267,335)
Total $ 20,729 (323) 1,704,010 (311,878) 1,724,739 (312,201)
The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2024, which were comprised of 325 individual securities, represent 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. As of September 30, 2024, 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, 2024.
The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of September 30, 2024 (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, 2024.
AA+ Total
Held-to-maturity securities (at amortized cost):
Debt issued by the U.S. government-sponsored enterprises $ 124,460 124,460
Mortgage-backed securities 642,312 642,312
Total marketable securities held-to-maturity $ 766,772 766,772
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(3) Loans Receivable
The following table shows a summary of our loans receivable at amortized cost basis at September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 December 31, 2023
Originated (1) Acquired (2) Total Originated (1) Acquired (2) Total
Personal Banking:
Residential mortgage loans (3) $ 3,128,027 130,131 3,258,158 3,283,299 144,886 3,428,185
Home equity loans 1,063,095 104,107 1,167,202 1,103,410 124,448 1,227,858
Vehicle loans 1,824,554 50,393 1,874,947 1,943,540 65,061 2,008,601
Consumer loans 95,406 27,679 123,085 111,446 5,980 117,426
Total Personal Banking 6,111,082 312,310 6,423,392 6,441,695 340,375 6,782,070
Commercial Banking:
Commercial real estate loans (4) 2,422,509 210,672 2,633,181 2,389,537 238,920 2,628,457
Commercial real estate loans - owner occupied 337,561 23,637 361,198 319,195 26,358 345,553
Commercial loans 1,881,643 5,144 1,886,787 1,623,481 35,248 1,658,729
Total Commercial Banking 4,641,713 239,453 4,881,166 4,332,213 300,526 4,632,739
Total loans receivable, gross 10,752,795 551,763 11,304,558 10,773,908 640,901 11,414,809
Allowance for credit losses (120,883) (4,930) (125,813) (118,079) (7,164) (125,243)
Total loans receivable, net (5) $ 10,631,912 546,833 11,178,745 10,655,829 633,737 11,289,566
(1) Includes originated and loan pools purchased in an asset acquisition.
(2) Includes loans subject to purchase accounting in a business combination.
(3) Includes $9 million of loans held-for-sale at September 30, 2024 and December 31, 2023.
(4) Includes $0 of loans held-for-sale at September 30, 2024 and December 31, 2023.
(5) Includes $60 million and $68 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at September 30, 2024 and December 31, 2023.
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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, 2024 (in thousands):
Balance as of September 30, 2024 Current period provision Charge-offs Recoveries Balance as of June 30, 2024
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans $ 13,553 (1,444) (255) 253 14,999
Home equity loans 4,704 187 (890) 197 5,210
Vehicle loans 22,162 2,371 (2,064) 491 21,364
Consumer loans 1,869 1,327 (1,496) 370 1,668
Total Personal Banking 42,288 2,441 (4,705) 1,311 43,241
Commercial Banking:
Commercial real estate loans 48,613 (1,577) (475) 106 50,559
Commercial real estate loans - owner occupied 3,849 223 - 11 3,615
Commercial loans 31,063 4,640 (1,580) 348 27,655
Total Commercial Banking 83,525 3,286 (2,055) 465 81,829
Total $ 125,813 5,727 (6,760) 1,776 125,070
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans $ - (1) - - 1
Home equity loans 59 (4) - - 63
Total Personal Banking 59 (5) - - 64
Commercial Banking:
Commercial real estate loans 3,407 (1,043) - - 4,450
Commercial real estate loans - owner occupied 159 8 - - 151
Commercial loans 9,308 188 - - 9,120
Total Commercial Banking 12,874 (847) - - 13,721
Total off-balance sheet exposure $ 12,933 (852) - - 13,785
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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, 2023 Current period provision Charge-offs Recoveries Balance as of June 30, 2023
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans $ 17,090 (370) (171) 75 17,556
Home equity loans 5,044 201 (320) 161 5,002
Vehicle loans 27,226 984 (1,524) 483 27,283
Consumer loans 1,202 1,436 (1,561) 317 1,010
Total Personal Banking 50,562 2,251 (3,576) 1,036 50,851
Commercial Banking:
Commercial real estate loans 48,582 (1,110) (484) 120 50,056
Commercial real estate loans - owner occupied 3,479 (30) - 11 3,498
Commercial loans 22,218 2,872 (1,286) 614 20,018
Total Commercial Banking 74,279 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 loans 67 3 - - 64
Total Personal Banking 70 2 - - 68
Commercial Banking:
Commercial real estate loans 4,797 (2,858) - - 7,655
Commercial real estate loans - owner occupied 140 (180) - - 320
Commercial loans 7,971 55 - - 7,916
Total Commercial Banking 12,908 (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 nine months ended September 30, 2024 (in thousands):
Balance
September 30, 2024 		Current period provision Charge-offs Recoveries Balance December 31, 2023
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans $ 13,553 (5,218) (669) 1,247 18,193
Home equity loans 4,704 53 (1,539) 787 5,403
Vehicle loans 22,162 444 (6,578) 1,385 26,911
Consumer loans 1,869 3,610 (4,116) 1,176 1,199
Total Personal Banking 42,288 (1,111) (12,902) 4,595 51,706
Commercial Banking:
Commercial real estate loans 48,613 (2,289) (1,324) 959 51,267
Commercial real estate loans - owner occupied 3,849 42 - 32 3,775
Commercial loans 31,063 15,488 (4,062) 1,142 18,495
Total Commercial Banking 83,525 13,241 (5,386) 2,133 73,537
Total $ 125,813 12,130 (18,288) 6,728 125,243
Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans $ - (2) - - 2
Home equity loans 59 (6) - - 65
Total Personal Banking 59 (8) - - 67
Commercial Banking:
Commercial real estate loans 3,407 (2,740) - - 6,147
Commercial real estate loans - owner occupied 159 (14) - - 173
Commercial loans 9,308 (1,428) - - 10,736
Total Commercial Banking 12,874 (4,182) - - 17,056
Total off-balance sheet exposure $ 12,933 (4,190) - - 17,123
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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 provision Charge-offs Recoveries ASU 2022-02 Adoption Balance December 31, 2022
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans $ 17,090 (2,047) (923) 799 - 19,261
Home equity loans 5,044 (705) (719) 566 - 5,902
Vehicle loans 27,226 7,267 (4,731) 1,631 - 23,059
Consumer loans 1,202 3,463 (3,860) 934 - 665
Total Personal Banking 50,562 7,978 (10,233) 3,930 - 48,887
Commercial Banking:
Commercial real estate loans 48,582 3,587 (1,556) 1,619 426 44,506
Commercial real estate loans - owner occupied 3,479 (515) (68) 58 - 4,004
Commercial loans 22,218 3,813 (3,360) 1,126 - 20,639
Total Commercial Banking 74,279 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
Personal Banking:
Residential mortgage loans 3 (1) - - - 4
Home equity loans 67 (7) - - - 74
Total Personal Banking 70 (8) - - - 78
Commercial Banking:
Commercial real estate loans 4,797 (578) - - - 5,375
Commercial real estate loans - owner occupied 140 (239) - - - 379
Commercial loans 7,971 890 - - - 7,081
Total Commercial Banking 12,908 73 - - - 12,835
Total off-balance sheet exposure $ 12,978 65 - - - 12,913
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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, 2024 (in thousands):
Total loans
receivable 		Allowance for
credit losses 		Nonaccrual
loans 		Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans $ 3,258,158 13,553 7,541 -
Home equity loans 1,167,202 4,704 4,041 -
Vehicle loans 1,874,947 22,162 5,009 -
Consumer loans 123,085 1,869 196 717
Total Personal Banking 6,423,392 42,288 16,787 717
Commercial Banking:
Commercial real estate loans 2,633,181 48,613 42,612 -
Commercial real estate loans - owner occupied 361,198 3,849 859 -
Commercial loans 1,886,787 31,063 16,570 328
Total Commercial Banking 4,881,166 83,525 60,041 328
Total $ 11,304,558 125,813 76,828 1,045
The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2023 (in thousands):
Total loans
receivable 		Allowance for
credit losses 		Nonaccrual
loans 		Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans $ 3,428,185 18,193 8,727 1,671
Home equity loans 1,227,858 5,403 4,492 26
Vehicle loans 2,008,601 26,911 4,816 44
Consumer loans 117,426 1,199 229 722
Total Personal Banking 6,782,070 51,706 18,264 2,463
Commercial Banking:
Commercial real estate loans 2,628,457 51,267 71,297 225
Commercial real estate loans - owner occupied 345,553 3,775 676 -
Commercial loans 1,658,729 18,495 4,147 10
Total Commercial Banking 4,632,739 73,537 76,120 235
Total $ 11,414,809 125,243 94,384 2,698
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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 period ended September 30, 2024 (in thousands):
September 30, 2024
Nonaccrual loans at January 1, 2024 Nonaccrual loans with an allowance Nonaccrual loans with no allowance Total nonaccrual loans at the end of the period Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans $ 8,727 6,707 834 7,541 -
Home equity loans 4,492 3,900 141 4,041 -
Vehicle loans 4,816 4,024 985 5,009 -
Consumer loans 229 196 - 196 717
Total Personal Banking 18,264 14,827 1,960 16,787 717
Commercial Banking:
Commercial real estate loans 71,297 22,695 19,917 42,612 -
Commercial real estate loans - owner occupied 676 859 - 859 -
Commercial loans 4,147 16,408 162 16,570 328
Total Commercial Banking 76,120 39,962 20,079 60,041 328
Total $ 94,384 54,789 22,039 76,828 1,045
During the three and nine months ended September 30, 2024, 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 beginning and end of the year ended December 31, 2023 (in thousands):
December 31, 2023
Nonaccrual loans at January 1, 2023 Nonaccrual loans with an allowance Nonaccrual loans with no allowance Total nonaccrual loans at the end of the period Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans $ 7,574 8,304 423 8,727 1,671
Home equity loans 4,145 4,084 408 4,492 26
Vehicle loans 3,771 4,187 629 4,816 44
Consumer loans 256 229 - 229 722
Total Personal Banking 15,746 16,804 1,460 18,264 2,463
Commercial Banking:
Commercial real estate loans 62,239 47,359 23,938 71,297 225
Commercial real estate loans - owner occupied 624 676 - 676 -
Commercial loans 2,627 3,996 151 4,147 10
Total Commercial Banking 65,490 52,031 24,089 76,120 235
Total $ 81,236 68,835 25,549 94,384 2,698
During the year ended December 31, 2023, we did not recognize any interest income on nonaccrual loans.
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A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of as of September 30, 2024 (in thousands):
Real estate Equipment Other Total
Commercial Banking:
Commercial real estate loans $ 36,268 - - 36,268
Commercial loans 3,014 5,061 2,583 10,658
Total Commercial Banking 39,282 5,061 2,583 46,926
Total $ 39,282 5,061 2,583 46,926
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2023 (in thousands):
Real estate Total
Commercial Banking:
Commercial real estate loans $ 66,934 66,934
Commercial loans 150 150
Total Commercial Banking 67,084 67,084
Total $ 67,084 67,084
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.
The following table presents the amortized cost basis of loans for the periods indicated that were both experiencing financial difficulty and modified during the respective period, 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,
2024 2023
Payment delay Term extension Combination term extension and interest rate reduction Total class of financing receivable Term extension Combination term extension and interest rate reduction Total class of financing receivable
Personal Banking:
Residential mortgage loans $ - $ 494 - 0.02 % 192 - 0.01 %
Home equity loans - 29 - 0.00 % 122 85 0.02 %
Consumer loans
- - 11 0.01 % - - - %
Total Personal Banking - 523 11 0.01 % 314 85 0.01 %
Commercial Banking:
Commercial real estate loans 1,357 - - 0.05 % - - - %
Commercial loans - 35 - - % 15 - - %
Total Commercial Banking 1,357 35 - 0.03 % 15 - - %
Total $ 1,357 $ 558 11 0.02 % 329 85 0.00 %
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For the nine months ended September 30,
2024 2023
Payment delay Term extension Interest rate reduction Combination term extension and interest rate reduction Total class of financing receivable Term extension Combination term extension and interest rate reduction Total class of financing receivable
Personal Banking:
Residential mortgage loans
$ - 979 - - 0.03 % 450 - 0.01 %
Home equity loans - 551 - 84 0.05 % 283 85 0.03 %
Consumer loans
- - - 13 0.01 % - 3 - %
Total Personal Banking - 1,530 - 97 0.03 % 733 88 0.01 %
Commercial Banking:
Commercial real estate loans 1,628 202 - - 0.07 % 197 - 0.01 %
Commercial real estate loans - owner occupied - - 680 - 0.19 % - - - %
Commercial loans - 35 - 8 - % 663 - 0.04 %
Total Commercial Banking 1,628 237 680 8 0.05 % 860 - 0.02 %
Total $ 1,628 1,767 680 105 0.04 % 1,593 88 0.01 %
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,
2024 2023
Weighted-average interest rate reduction Weighted-average term extension in months Weighted-average payment deferral in years Weighted-average interest rate reduction Weighted-average term extension in months
Personal Banking:
Residential mortgage loans - % 156 0 - % 169
Home equity loans - % 105 0 5 % 112
Consumer loans 5 % 10 0 12 % 0
Total Personal Banking 5 % 151 0 17 % 140
Commercial Banking:
Commercial real estate loans - % 0 0.3 - % 0
Commercial loans - % 6 0 - % 23
Total Commercial Banking - % 6 0.3 - % 23
Total loans 5 % 142 0.3 17 % 135
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For the nine months ended September 30,
2024 2023
Weighted-average interest rate reduction Weighted-average term extension in months Weighted-average payment deferral in years Weighted-average interest rate reduction Weighted-average term extension in months
Personal Banking:
Residential mortgage loans - % 151 0 - 149
Home equity loans 2 % 99 0 5 % 96
Consumer loans 6 % 66 0 12 % 356
Total Personal Banking 3 % 130 0 17 % 126
Commercial Banking:
Commercial real estate loans - % 117 0.5 - 25
Commercial real estate loans - owner occupied 2 % 0 0 - 0
Commercial loans 4 % 32 0 - 9
Total Commercial Banking 2 % 102 0.5 - 13
Total loans 2 % 126 0.5 17 % 68
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 modified within the previous twelve months of September 30, 2024 (in thousands):
Current 30-59 days
delinquent 		60-89 days
delinquent 		90 days or
greater
delinquent
Personal Banking:
Residential mortgage loans $ 976 - - 3
Home equity loans 525 13 9 88
Consumer loans 13 - - -
Total Personal Banking 1,514 13 9 91
Commercial Banking:
Commercial real estate loans 1,830 - - -
Commercial real estate loans - owner occupied 680 - - -
Commercial loans 43 - - -
Total Commercial Banking 2,553 - - -
Total loans $ 4,067 13 9 91
The following table presents the performance of loans modified since the adoption of ASU 2022-02 as of September 30, 2023 (in thousands):
Current 30-59 days
delinquent 		60-89 days
delinquent 		90 days or
greater
delinquent
Personal Banking:
Residential mortgage loans $ 450 - - -
Home equity loans 368 - - -
Consumer loans 3 - - -
Total Personal Banking 821 - - -
Commercial Banking:
Commercial real estate loans 74 - - 123
Commercial loans - 15 - 648
Total Commercial Banking 74 15 - 771
Total loans $ 895 15 - 771
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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 ended September 30, 2024and were modified within the previous twelve months to borrowers experiencing financial difficulty (in thousands):
Term extension
Personal Banking:
Residential mortgage loans $ 3
Home equity loans 88
Total Personal Banking 91
Total $ 91
The following table provides the amortized cost basis of financing receivables that had a payment default during the period ended September 30, 2023and 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 loans 648
Total Commercial Banking 771
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.
The following table provides information related to the amortized cost basis of loan payment delinquencies at September 30, 2024 (in thousands):
30-59 days
delinquent 		60-89 days
delinquent 		90 days or
greater
delinquent 		Total
delinquency 		Current Total loans
receivable 		90 days or
greater
delinquent
and accruing
Personal Banking:
Residential mortgage loans $ 685 9,027 5,370 15,082 3,243,076 3,258,158 -
Home equity loans 3,907 882 2,558 7,347 1,159,855 1,167,202 -
Vehicle loans 9,808 3,166 3,077 16,051 1,858,896 1,874,947 -
Consumer loans 969 434 906 2,309 120,776 123,085 717
Total Personal Banking 15,369 13,509 11,911 40,789 6,382,603 6,423,392 717
Commercial Banking:
Commercial real estate loans 5,919 7,643 6,167 19,729 2,613,452 2,633,181 -
Commercial real estate loans - owner occupied - - - - 361,198 361,198 -
Commercial loans 3,260 753 14,484 18,497 1,868,290 1,886,787 328
Total Commercial Banking 9,179 8,396 20,651 38,226 4,842,940 4,881,166 328
Total loans $ 24,548 21,905 32,562 79,015 11,225,543 11,304,558 1,045
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The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2023 (in thousands):
30-59 days
delinquent 		60-89 days
delinquent 		90 days or
greater
delinquent 		Total
delinquency 		Current Total loans
receivable 		90 days or
greater
delinquent
and accruing
Personal Banking:
Residential mortgage loans
$ 30,041 7,796 7,995 45,832 3,382,353 3,428,185 1,671
Home equity loans
5,761 982 3,126 9,869 1,217,989 1,227,858 26
Vehicle loans 10,382 3,326 3,051 16,759 1,991,842 2,008,601 44
Consumer loans
829 428 927 2,184 115,242 117,426 722
Total Personal Banking 47,013 12,532 15,099 74,644 6,707,426 6,782,070 2,463
Commercial Banking:
Commercial real estate loans
2,010 1,031 6,535 9,576 2,618,881 2,628,457 225
Commercial real estate loans - owner occupied 1,194 - 177 1,371 344,182 345,553 -
Commercial loans
4,196 703 2,780 7,679 1,651,050 1,658,729 10
Total Commercial Banking 7,400 1,734 9,492 18,626 4,614,113 4,632,739 235
Total originated loans $ 54,413 14,266 24,591 93,270 11,321,539 11,414,809 2,698
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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, 2024 (in thousands):
YTD September 30, 2024 2023 2022 2021 2020 Prior Revolving loans Revolving loans converted to term loans Total loans
receivable
Personal Banking:
Residential mortgage loans
Pass $ 23,970 195,945 638,920 759,324 478,181 1,150,387 - - 3,246,727
Substandard - 51 1,401 267 259 9,453 - - 11,431
Total residential mortgage loans 23,970 195,996 640,321 759,591 478,440 1,159,840 - - 3,258,158
Residential mortgage current period charge-offs - - (262) - (113) (294) - - (669)
Home equity loans
Pass 22,491 61,170 89,615 92,832 129,272 248,594 474,033 44,944 1,162,951
Substandard - - 120 91 162 1,613 1,308 957 4,251
Total home equity loans 22,491 61,170 89,735 92,923 129,434 250,207 475,341 45,901 1,167,202
Home equity current period charge-offs - - (41) (2) (197) (411) (557) (331) (1,539)
Vehicle loans
Pass 453,937 503,197 497,117 265,552 78,513 71,623 - - 1,869,939
Substandard 157 1,086 1,717 1,276 307 465 - - 5,008
Total vehicle loans 454,094 504,283 498,834 266,828 78,820 72,088 - - 1,874,947
Vehicle current period charge-offs (78) (1,705) (1,974) (1,644) (323) (854) - - (6,578)
Consumer loans
Pass 22,809 16,742 7,426 3,339 997 6,704 63,495 659 122,171
Substandard 3 61 25 8 - 14 722 81 914
Total consumer loans 22,812 16,803 7,451 3,347 997 6,718 64,217 740 123,085
Consumer loan current period charge-offs (349) (1,736) (470) (198) (62) (725) (543) (33) (4,116)
Total Personal Banking 523,367 778,252 1,236,341 1,122,689 687,691 1,488,853 539,558 46,641 6,423,392
Commercial Banking:
Commercial real estate loans
Pass 133,296 240,845 481,825 261,936 293,395 871,032 24,784 23,890 2,331,003
Special mention - 4,294 17,645 18,323 14,570 15,376 746 - 70,954
Substandard - 6,902 41,510 48,625 21,533 112,403 175 76 231,224
Total commercial real estate loans 133,296 252,041 540,980 328,884 329,498 998,811 25,705 23,966 2,633,181
Commercial real estate current period charge-offs - - (44) (360) - (920) - - (1,324)
Commercial real estate loans - owner occupied
Pass 52,440 13,999 28,641 46,102 12,138 148,673 1,991 - 303,984
Special mention - 1,184 7,194 1,293 - 7,068 - - 16,739
Substandard - 12,865 875 - 4,595 18,679 751 2,710 40,475
Total commercial real estate loans - owner occupied 52,440 28,048 36,710 47,395 16,733 174,420 2,742 2,710 361,198
Commercial real estate - owner occupied current period charge-offs - - - - - - - - -
Commercial loans
Pass 510,269 380,280 279,532 32,637 14,137 56,373 531,611 3,594 1,808,433
Special mention 7,434 26,726 4,180 652 271 100 11,255 1,096 51,714
Substandard 349 10,075 5,506 1,001 148 1,689 4,746 3,126 26,640
Total commercial loans 518,052 417,081 289,218 34,290 14,556 58,162 547,612 7,816 1,886,787
Commercial loans current period charge-offs - (170) (2,777) (115) (226) (627) (119) (28) (4,062)
Total Commercial Banking 703,788 697,170 866,908 410,569 360,787 1,231,393 576,059 34,492 4,881,166
Total loans $ 1,227,155 1,475,422 2,103,249 1,533,258 1,048,478 2,720,246 1,115,617 81,133 11,304,558
For the nine months ended September 30, 2024, $13 millionof 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, 2023 (in thousands):
2023 2022 2021 2020 2019 Prior Revolving loans Revolving loans converted to term loans Total loans
receivable
Personal Banking:
Residential mortgage loans
Pass $ 186,081 665,379 792,488 506,068 244,678 1,019,152 - - 3,413,846
Substandard - 1,581 - 1,252 311 11,195 - - 14,339
Total residential mortgage loans 186,081 666,960 792,488 507,320 244,989 1,030,347 - - 3,428,185
Residential mortgage current period charge-offs - (9) (5) (130) (23) (1,023) - - (1,189)
Home equity loans
Pass 71,497 100,639 106,043 146,121 94,144 197,259 463,868 43,526 1,223,097
Substandard - 236 54 197 35 1,733 1,447 1,059 4,761
Total home equity loans 71,497 100,875 106,097 146,318 94,179 198,992 465,315 44,585 1,227,858
Home equity current period charge-offs - (53) (46) - (48) (352) (144) (209) (852)
Vehicle loans
Pass 664,876 682,275 397,809 132,775 67,853 58,153 - - 2,003,741
Substandard 646 1,418 1,453 299 556 488 - - 4,860
Total vehicle loans 665,522 683,693 399,262 133,074 68,409 58,641 - - 2,008,601
Vehicle current period charge-offs (678) (1,844) (1,967) (475) (652) (853) - - (6,468)
Consumer loans
Pass 24,277 11,582 5,552 2,072 1,355 6,603 64,214 820 116,475
Substandard 55 43 19 6 6 46 726 50 951
Total consumer loans 24,332 11,625 5,571 2,078 1,361 6,649 64,940 870 117,426
Consumer loan current period charge-offs (3,412) (511) (390) (157) (177) (980) (317) (38) (5,983)
Total Personal Banking 947,432 1,463,153 1,303,418 788,790 408,938 1,294,629 530,255 45,455 6,782,070
Commercial Banking:
Commercial real estate loans
Pass 223,335 470,762 303,873 332,620 228,382 745,244 27,583 24,804 2,356,603
Special Mention 2,819 24,735 27,871 5,365 4,053 38,665 711 - 104,219
Substandard 1,920 750 26,850 18,167 37,044 82,717 79 108 167,635
Total commercial real estate loans 228,074 496,247 358,594 356,152 269,479 866,626 28,373 24,912 2,628,457
Commercial real estate current period
charge-offs 		(14) - (492) - (51) (1,741) - - (2,298)
Commercial real estate loans -
owner occupied
Pass 24,725 51,986 47,655 15,984 28,614 140,175 2,378 2,390 313,907
Special Mention 1,221 120 1,218 - 14,386 2,952 - - 19,897
Substandard - - 118 1,666 4,646 4,641 - 678 11,749
Total commercial real estate loans -
owner occupied 		25,946 52,106 48,991 17,650 47,646 147,768 2,378 3,068 345,553
Commercial real estate - owner occupied current period charge-offs - - - - - (68) - - (68)
Commercial loans
Pass 482,605 430,378 73,469 26,868 34,090 54,617 531,742 4,110 1,637,879
Special Mention 508 3,671 52 299 240 26 1,882 - 6,678
Substandard - 3,015 872 356 2,361 840 4,729 1,999 14,172
Total commercial loans 483,113 437,064 74,393 27,523 36,691 55,483 538,353 6,109 1,658,729
Commercial loans current period
charge-offs 		(35) (2,072) (517) (430) (205) (845) (60) (2) (4,166)
Total Commercial Banking 737,133 985,417 481,978 401,325 353,816 1,069,877 569,104 34,089 4,632,739
Total loans $ 1,684,565 2,448,570 1,785,396 1,190,115 762,754 2,364,506 1,099,359 79,544 11,414,809
For the year ended December 31, 2023, $19 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, 2024 December 31, 2023
Amortizable intangible assets:
Core deposit intangibles - gross $ 74,899 74,899
Less: accumulated amortization (71,536) (69,609)
Core deposit intangibles - net $ 3,363 5,290
Total intangible assets - net $ 3,363 5,290
The following table shows the actual aggregate amortization expense for the quarters ended September 30, 2024 and 2023, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the succeeding fiscal years until the intangible assets are fully amortized (in thousands):
For the quarter ended September 30, 2024 $ 590
For the quarter ended September 30, 2023 795
For the nine months ended September 30, 2024 1,926
For the nine months ended September 30, 2023 2,546
For the year ending December 31, 2024 2,452
For the year ending December 31, 2025 1,662
For the year ending December 31, 2026 871
For the year ending December 31, 2027 304
The following table provides information for the changes in the carrying amount of goodwill (in thousands):
Total
Balance at December 31, 2023 $ 380,997
Balance at September 30, 2024 $ 380,997
We performed our annual goodwill impairment test as of June 30, 2024 in accordance with Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other, and concluded that goodwill was not impaired.
(5) Borrowed Funds
(a) Borrowings
Borrowed funds at September 30, 2024 and December 31, 2023 are presented in the following table (dollars in thousands):
September 30, 2024 December 31, 2023
Amount Average rate Amount Average rate
Term notes payable to the FHLB of Pittsburgh, due within one year $ 175,000 5.15 % $ 175,000 5.71 %
Notes payable to the FHLB of Pittsburgh, due within one year - - % 163,500 5.70 %
Collateralized borrowings, due within one year 21,624 1.59 % 35,495 1.72 %
Collateral received, due within one year 7,750 5.72 % 24,900 5.26 %
Total borrowed funds $ 204,374 $ 398,895
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, 2024, the carrying value of these loans was $5.8 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 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, 2024 there was no balance on the revolving line of credit, and at December 31, 2023 the balance was $164 million.
At September 30, 2024 and December 31, 2023, collateralized borrowings due within one year were $22 million and $35 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB. At September 30, 2024, the carrying value of the cash and securities used as collateral was$37 million.
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At September 30, 2024 and December 31, 2023, collateral received was $8 million and $25 million, respectively. This represents collateral posted to us from our derivative counterparties.
At September 30, 2024 and December 31, 2023, term notes payable to the FHLB of Pittsburgh due within one year were $175 million. The September 30, 2024 total is made up of seven advances: $25 million at 5.15% maturing October 28, 2024; $25 million at 5.09% maturing October 31, 2024; $25 million at 5.15% maturing November 8, 2024; $25 million at 5.16% maturing November 12, 2024; $25 million at 5.16% maturing November 12, 2024; $25 million at 5.17% maturing November 19, 2024; $25 million at 5.14% maturing November 29, 2024.
On September 9, 2020, the Company issued $125 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, 2023 the Company repurchased $10 million of subordinated notes leaving $115 million of subordinated notes outstanding. The subordinated debt issuance costs of approximately $2 million are being amortized over five years on a straight-line basis into interest expense. At September 30, 2024 and December 31, 2023, subordinated debentures, net of issuance costs, were $114 million. For the nine months ended September 30, 2024 and September 30, 2023 total interest expense paid on the subordinate notes was $4 million.
(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 date Interest rate Capital debt securities September 30, 2024 December 31, 2023
Northwest Bancorp Capital Trust III December 30, 2035
3-month SOFR plus 1.38%
$ 50,000 51,547 51,547
Northwest Bancorp Statutory Trust IV December 15, 2035
3-month SOFR plus 1.38%
50,000 51,547 51,547
LNB Trust II June 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 8,018 7,999
Union National Capital Trust II (1) November 23, 2034
3-month SOFR plus 2.00%
3,000 2,816 2,796
MFBC Statutory Trust I (1) September 15, 2035
3-month SOFR plus 1.70%
5,000 3,865 3,788
Universal Preferred Trust (1) October 7, 2035
3-month SOFR plus 1.69%
5,000 3,857 3,778
$ 128,875 129,769 129,574
(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. For each of the nine month periods ended September 30, 2024 and September 30, 2023 total interest expense paid on trust preferred securities was $7 million.
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:
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•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, 2024, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was $58 million, of which $41 million is fully collateralized. At September 30, 2024, we had a liability which represents deferred income of $1 million related to the standby letters of credit.
In addition, we maintain a $20 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 $11 million in notional value of credit cards have been issued. These issued credit cards had an outstanding balance of $2 million at September 30, 2024. 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 is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine diluted EPS. The two-class method was used to determine basic EPS for the three months and nine months ended September 30, 2024 and basic and diluted EPS for the three and nine months ended September 30, 2023, and the treasury stock method was used to determine diluted earnings per share for the three months and nine months ended September 30, 2024.
The following table sets forth the computation of basic and diluted EPS (in thousands, except share data and per share amounts):
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Quarter ended September 30, Nine months ended September 30,
2024 2023 2024 2023
Numerator for earnings per share - Basic and Diluted:
Net income - treasury stock method - Basic and Diluted $ 33,618 39,220 67,528 105,943
Less: Dividends and undistributed earnings allocated to participating securities 43 99 86 267
Net income available to common shareholders - two class method - Basic and Diluted $ 33,575 39,121 67,442 105,676
Denominator for earnings per share - treasury stock method - Basic and Diluted
Weighted average common shares outstanding - Basic 127,206,579 126,767,507 127,015,478 126,629,786
Add: Potentially dilutive shares 507,932 234,139 553,536 373,605
Denominator for treasury stock method - Diluted 127,714,511 127,001,646 127,569,014 127,003,391
Denominator for earnings per share - two class method - Basic and Diluted:
Weighted average common shares outstanding - Basic 127,206,579 126,767,507 127,015,478 126,629,786
Add: Average participating shares outstanding 162,943 320,177 162,943 320,177
Denominator for two class method - Diluted 127,369,522 127,087,684 127,178,421 126,949,963
Basic earnings per share $ 0.26 0.31 0.53 0.83
Diluted earnings per share $ 0.26 0.31 0.53 0.83
Anti-dilutive awards (1) 2,195 2,832 2,369 2,832
(1) Reflects the total number of shares related to outstanding options that have been excluded from the computation of diluted earnings per share because the impact would have been anti-dilutive.
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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 benefits Other post-retirement benefits
2024 2023 2024 2023
Service cost $ 1,425 1,560 - -
Interest cost 2,205 2,245 15 7
Expected return on plan assets (3,776) (3,479) - -
Amortization of prior service cost (563) (564) - -
Amortization of the net loss 18 20 10 10
Net periodic cost $ (691) (218) 25 17
Nine months ended September 30,
Pension benefits Other post-retirement benefits
2024 2023 2024 2023
Service cost $ 4,275 4,680 - -
Interest cost 6,615 6,735 45 21
Expected return on plan assets (11,328) (10,437) - -
Amortization of prior service cost (1,689) (1,692) - -
Amortization of the net loss 54 60 30 30
Net periodic cost $ (2,073) (654) 75 51
Because of the current funding status, we do not anticipate a funding requirement during the year ending December 31, 2024.
(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;
◦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.
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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, 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.
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.
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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, 2024 and December 31, 2023, 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, 2024 (in thousands):
Carrying
amount 		Estimated
fair value 		Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 226,883 226,883 226,883 - -
Securities available-for-sale 1,111,868 1,111,868 - 1,111,868 -
Securities held-to-maturity 766,772 672,641 - 672,641 -
Loans receivable, net 11,169,375 10,494,023 - - 10,494,023
Loans held-for-sale 9,370 9,370 - - 9,370
Accrued interest receivable 46,678 46,678 46,678 - -
Interest rate lock commitments 673 673 - - 673
Forward commitments 115 115 - 115 -
Foreign exchange swaps 6 6 - 6 -
Interest rate swaps designated as hedging instruments 90 90 - 90 -
Interest rate swaps not designated as hedging instruments 31,761 31,761 - 31,761 -
FHLB stock 21,223 21,223 - - -
Total financial assets $ 13,384,814 12,615,331 273,561 1,816,481 10,504,066
Financial liabilities:
Savings and checking deposits $ 9,361,030 9,361,030 9,361,030 - -
Time deposits 2,710,049 2,492,832 - - 2,492,832
Borrowed funds 204,374 194,912 194,912 - -
Subordinated debt 114,451 107,555 - 107,555 -
Junior subordinated debentures 129,769 120,054 - - 120,054
Foreign exchange swaps 173 173 - 173 -
Interest rate swaps designated as hedging instruments 2,085 2,085 - 2,085 -
Interest rate swaps not designated as hedging instruments 31,924 31,924 - 31,924 -
Risk participation agreements 49 49 - 49 -
Accrued interest payable 15,125 15,125 15,125 - -
Total financial liabilities $ 12,569,029 12,325,739 9,571,067 141,786 2,612,886
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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, 2023 (in thousands):
Carrying
amount 		Estimated
fair value 		Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 122,260 122,260 122,260 - -
Securities available-for-sale 1,043,359 1,043,359 - 1,043,359 -
Securities held-to-maturity 814,839 699,506 - 699,506 -
Loans receivable, net 11,280,798 10,274,593 - - 10,274,593
Loans held-for-sale 8,768 8,768 - - 8,768
Accrued interest receivable 47,353 47,353 47,353 - -
Interest rate lock commitments 641 641 - - 641
Forward commitments 12 12 - 12 -
Interest rate swaps designated as hedging instruments 713 713 - 713 -
Interest rate swaps not designated as hedging instruments 41,406 41,406 - 41,406 -
FHLB stock 30,146 30,146 - - -
Total financial assets $ 13,390,295 12,268,757 169,613 1,784,996 10,284,002
Financial liabilities:
Savings and checking accounts $ 9,377,021 9,377,021 9,377,021 - -
Time deposits 2,602,881 2,113,177 - - 2,113,177
Borrowed funds 398,895 386,446 386,446 - -
Subordinated debt 114,189 109,471 - 109,471 -
Junior subordinated debentures 129,574 112,159 - - 112,159
Foreign exchange swaps 291 291 - 291 -
Interest rate swaps designated as hedging instruments 1,198 1,198 - 1,198 -
Interest rate swaps not designated as hedging instruments 41,437 41,437 - 41,437 -
Risk participation agreements 14 14 - 14 -
Accrued interest payable 13,669 13,669 13,669 - -
Total financial liabilities $ 12,679,169 12,154,883 9,777,136 152,411 2,225,336
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, 2024 and December 31, 2023.
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The following table represents assets and liabilities measured at fair value on a recurring basis at September 30, 2024 (in thousands):
Level 1 Level 2 Level 3 Total assets
at fair value
Debt securities:
U.S. government and agencies $ - 37,795 - 37,795
Government-sponsored enterprises - 132 - 132
States and political subdivisions - 61,085 - 61,085
Corporate - 24,836 - 24,836
Total debt securities - 123,848 - 123,848
Mortgage-backed securities:
GNMA - 55,677 - 55,677
FNMA - 65,222 - 65,222
FHLMC - 95,913 - 95,913
Non-agency - 4 - 4
Collateralized mortgage obligations:
GNMA - 558,360 - 558,360
FNMA - 78,304 - 78,304
FHLMC - 134,540 - 134,540
Total mortgage-backed securities - 988,020 - 988,020
Interest rate lock commitments - - 673 673
Forward commitments - 115 - 115
Foreign exchange swaps - 6 - 6
Interest rate swaps designated as hedging instruments - 90 - 90
Interest rate swaps not designated as hedging instruments - 31,761 - 31,761
Total assets $ - 1,143,840 673 1,144,513
Foreign exchange swaps $ - 173 - 173
Interest rate swaps designated as hedging instruments - 2,085 - 2,085
Interest rate swaps not designated as hedging instruments - 31,924 - 31,924
Risk participation agreements - 49 - 49
Total liabilities $ - 34,231 - 34,231
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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2023 (in thousands):
Level 1 Level 2 Level 3 Total assets
at fair value
Debt securities:
U.S. government and agencies $ - 58,314 - 58,314
Government-sponsored enterprises - 40,597 - 40,597
States and political subdivisions - 75,469 - 75,469
Corporate - 7,688 - 7,688
Total debt securities - 182,068 - 182,068
Mortgage-backed securities:
GNMA - 17,441 - 17,441
FNMA - 102,678 - 102,678
FHLMC - 70,830 - 70,830
Non-agency - 5 - 5
Collateralized mortgage obligations:
GNMA - 331,784 - 331,784
FNMA - 148,892 - 148,892
FHLMC - 189,661 - 189,661
Total mortgage-backed securities - 861,291 - 861,291
Interest rate lock commitments - - 641 641
Forward commitments - 12 - 12
Interest rate swaps designated as hedging instruments - 713 - 713
Interest rate swaps not designated as hedging instruments - 41,406 - 41,406
Total assets $ - 1,085,490 641 1,086,131
Foreign exchange swaps $ - 291 - 291
Interest rate swaps designated as hedging instruments - 1,198 - 1,198
Interest rate swaps not designated as hedging instruments - 41,437 - 41,437
Risk participation agreements - 14 - 14
Total liabilities $ - 42,940 - 42,940
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,
2024 2023 2024 2023
Beginning balance, $ 791 761 641 559
Interest rate lock commitments:
Net activity (118) (97) 32 105
Ending balance $ 673 664 673 664
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, 2024 (in thousands):
Level 1 Level 2 Level 3 Total assets
at fair value
Loans individually assessed $ - - 14,949 14,949
Mortgage servicing rights - - 23 23
Real estate owned, net - - 76 76
Total assets $ - - 15,048 15,048
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, 2023 (in thousands):
Level 1 Level 2 Level 3 Total assets
at fair value
Loans individually assessed $ - - 36,747 36,747
Mortgage servicing rights - - 133 133
Real estate owned, net - - 104 104
Total assets $ - - 36,984 36,984
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 2023 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, 2024 (in thousands):
Fair value Valuation techniques Significant
unobservable inputs 		Range (weighted average)
Loans individually assessed $ 14,949 Appraisal value (1) Estimated cost to sell 10%
Mortgage servicing rights 23 Discounted cash flow Annual service cost $88
Prepayment rate
6.5% to 18.7% (11.0%)
Expected life (months)
50.3 to 101.9 (70.5)
Option adjusted spread
725 basis points
Forward yield curve
5.31% to 4.50%
Real estate owned, net 76 Appraisal value (1) Estimated cost to sell 10%
Loans held for sale 9,370 Quoted prices for similar loans in active markets adjusted by an expected pull-through rate Estimated pull-through rate 100%
(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
During the year ended December 31, 2023 the Company 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 threeto 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 at the dates indicated (in thousands):
Asset derivatives Liability derivatives
Notional amount Fair value Notional amount Fair value
At September 30, 2024
Derivatives designated as hedging instruments:
Interest rate swap agreements $ 50,000 90 125,000 2,085
Derivatives not designated as hedging instruments:
Interest rate swap agreements 748,903 31,761 748,903 31,924
Foreign exchange swap agreements 2,987 6 119 173
Interest rate lock commitments 27,536 673 - -
Forward commitments 4,514 115 - -
Risk participation agreements - - 137,126 49
Total Derivatives $ 833,940 32,645 1,011,148 34,231
At December 31, 2023
Derivatives designated as hedging instruments:
Interest rate swap agreements $ 75,000 713 100,000 1,198
Derivatives not designated as hedging instruments:
Interest rate swap agreements 725,139 41,406 725,139 41,437
Foreign exchange swap agreements - - 12,278 291
Interest rate lock commitments 21,857 641 - -
Forward commitments 281 12 - -
Risk participation agreements - - 101,727 14
Total derivatives $ 822,277 42,772 939,144 42,940
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,
2024 2023 2024 2023
Hedging derivatives:
Decrease in interest expense $ 732 627 2,198 831
Non-hedging swap derivatives:
(Decrease)/increase in other income (221) 203 (45) (127)
(Decrease)/increase in mortgage banking income (73) (221) 135 (46)
The following table presents information regarding our derivative financial instruments designated as hedging for the quarter ended September 30, 2024 (dollars in thousands):
Notional amount Effective rate Estimated decrease to interest expense in the next twelve months Maturity date Remaining term
(in months)
Interest rate products:
Issued May 11, 2023 $ 25,000 3.51 % $ (462) 5/11/2027 31
Issued May 12, 2023 25,000 3.56 % (450) 5/12/2028 43
Issued May 19, 2023 25,000 3.86 % (377) 11/19/2027 38
Issued May 31, 2023 25,000 4.04 % (326) 11/30/2026 26
Issued July 26, 2023 25,000 4.24 % (271) 7/26/2028 46
Issued July 31, 2023 25,000 4.27 % (249) 1/31/2028 40
Issued August 9, 2023 25,000 4.31 % (254) 8/9/2027 34
Total $ 175,000 $ (2,389)
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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, 2024, 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, 2024
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, 2024 $ (132,959) 2,110 765 (130,084)
Other comprehensive/(loss) income before reclassification adjustments (1) (3) 27,947 (3,654) - 24,293
Amounts reclassified from accumulated other comprehensive income (2) (4) - - (387) (387)
Net other comprehensive income/(loss) 27,947 (3,654) (387) 23,906
Balance as of September 30, 2024 $ (105,012) (1,544) 378 (106,178)
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 (5) (7) (29,715) 1,825 - (27,890)
Amounts reclassified from accumulated other comprehensive income (6) (8) - - (382) (382)
Net other comprehensive income/(loss) (29,715) 1,825 (382) (28,272)
Balance as of September 30, 2023 $ (192,987) 3,562 (8,098) (197,523)
(1)Consists of unrealized holding gains, net of tax of ($8,980).
(2)Consists of realized losses, net of tax of $0.
(3)Change in fair value of interest rate swaps, net of tax $1,068.
(4)Consists of realized gains, net of tax of $148.
(5)Consists of unrealized holding losses, net of tax of $9,140.
(6)Consists of realized losses, net of tax of $0.
(7)Change in fair value of interest rate swaps, net of tax ($533).
(8)Consists of realized gains, net of tax of $152.
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For the nine months ended September 30, 2024
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, 2023 $ (150,659) (374) 1,541 (149,492)
Other comprehensive income/(loss) before reclassification adjustments (1) (3) 18,858 (1,170) - 17,688
Amounts reclassified from accumulated other comprehensive income (2) (4) 26,789 - (1,163) 25,626
Net other comprehensive income/(loss) 45,647 (1,170) (1,163) 43,314
Balance as of September 30, 2024 $ (105,012) (1,544) 378 (106,178)
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 before reclassification adjustments (5) (7) (34,417) 3,562 - (30,855)
Amounts reclassified from accumulated other comprehensive income (6) (8) 5,636 - (1,146) 4,490
Net other comprehensive loss (28,781) 3,562 (1,146) (26,365)
Balance as of September 30, 2023 $ (192,987) 3,562 (8,098) (197,523)
(1)Consists of unrealized holding gains, net of tax of ($7,054).
(2)Consists of realized losses, net of tax of ($7,706).
(3)Change in fair value of interest rate swaps, net of tax $342.
(4)Consists of realized gains, net of tax of $442.
(5)Consists of unrealized holding losses, net of tax $9,603.
(6)Consists of realized losses, net of tax ($1,731).
(7)Change in fair value of interest rate swaps, net of tax ($1,041).
(8)Consists of realized gains, net of tax of $456.
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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, including inflationary or recessionary pressures;
• 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 growth internally 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;
• the effects of natural disasters and extreme weather events;
• changes in our ability to continue to pay dividends, either at current rates or at all;
• 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 2023 Annual Report on Form 10-K.
Recently Issued Accounting Standards
The following Accounting Standard Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") have
not yet been adopted.
In October 2023, the FASB issued ASU No. 2023-06, "Disclosure Improvements." This ASU includes amendments on several subtopics in the FASB Accounting Standards Codification ("Codification") to incorporate certain disclosures and presentation requirements currently residing in SEC Regulations S-X and S-K. The adoption of this ASU may lead to certain disclosures being relocated into the financial statements. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. These amendments are to be applied prospectively. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. We do not believe this guidance will have a material impact on the Company's financial statements.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" to improve disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update requires that an entity that has a single reportable segment, such as the Company, to provide all the disclosures required by this update. The amendments in this update require annual and interim disclosures on significant segment expenses that are regularly provided to the chief operating decision maker to make operating decisions and to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. A public entity should apply the amendments in this update retrospectively to all prior periods presented in the consolidated financial statements with early adoption permitted. The Company is evaluating the accounting and disclosure requirements of ASU 2023-07 and does not expect them to have a material effect on the consolidated financial statements or disclosures.
In December 2023, the FASB issued ASU No. 2023-09, "Improvements to Income Tax Disclosures." This ASU requires additional disaggregated disclosures on entity's effective tax rate reconciliation and additional details on income taxes paid. This guidance is effective for annual periods beginning after December 15, 2025, with early adoption permitted. This ASU is applied prospectively with the option to apply the ASU retrospectively. We do not believe this guidance will have a material impact on the Company's financial statements.
Comparison of Financial Condition
Total assets at September 30, 2024 were $14.4 billion, a decrease of $65 million from December 31, 2023. This decrease in assets was primarily driven by decreases in personal banking loans receivable, partially offset by increases in cash and cash equivalents, marketable securities and commercial banking loans receivable. A discussion of significant changes follows.
Cash and cash equivalents increased by $105 million, or 86%, to $227 million at September 30, 2024, from $122 million at December 31, 2023 due to growth in our deposits coupled with a focus on profitability and credit discipline while investing these cash flows into commercial loans.
Total marketable securities increased to $1.9 billion at September 30, 2024, an increase of $20 million, or 1%, from December 31, 2023. Available-for-sale securities increased by $69 million, driven by the securities portfolio restructure in the prior quarter, while held-to-maturity securities decreased $48 million, driven by maturities and regular monthly cash flows.
Gross loans receivable decreased by $110 million, or 1%, to $11.3 billion at September 30, 2024. Our personal banking loan portfolio decreased by $359 million, or 5%, to $6.4 billion at September 30, 2024 from $6.8 billion at December 31, 2023. Cash flows from our personal banking portfolio were partially redirected to fund commercial banking growth, which increased by $248 million, or 5%, to $4.9 billion at September 30, 2024, from $4.6 billion at December 31, 2023. This increase represents organic loan growth resulting from the new commercial lending verticals that we implemented during the prior year. Specifically, our commercial and industrial (C&I) loan portfolio increased by $228 million, or 14% compared to December 31, 2023.
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The following table provides the various loan sectors in our commercial real estate portfolio at September 30, 2024:
Property type Percent of portfolio
5 or more unit dwelling 16.6 %
Retail Building 11.5
Nursing Home 11.2
Commercial office building - non-owner occupied 8.9
Manufacturing & industrial building 5.4
Warehouse/storage building 5.1
Residential acquisition & development - 1-4 family, townhouses and apartments 4.3
Commercial office building - owner occupied 4.0
Multi-use building - commercial, retail and residential 3.9
Multi-use building - office and warehouse 3.1
Other medical facility 3.0
Single family dwelling 2.6
Student housing 2.1
Hotel/motel 2.1
Agricultural real estate 2.0
All other 14.2
Total 100.0 %
The following table describes the collateral of our commercial real estate portfolio by state at September 30, 2024:
State Percent of portfolio
New York 33.9 %
Pennsylvania 29.3
Ohio 19.8
Indiana 8.9
All other 8.1
Total 100.0 %
Total deposits increased by $91 million, or 1%, to $12.1 billion at September 30, 2024 from $12.0 billion at December 31, 2023. This increase was driven by a $107 million, or 4%, increase in time deposits as we continued competitively positioning our deposit products, a $42 million, or 2%, increase in interest demand deposit accounts and a $41 million, or 2%, increase in savings deposits. Partially offsetting these increases was a decrease in non-interest bearing deposit accounts by $87 million, or 3%, due to seasonality in customer deposit account balances.
As of September 30, 2024, we had $212 million of brokered deposits, which made up 8% of our time deposits and 2% of our total deposit balance at quarter end. The balance carried an average all-in cost of 5.37% and an average original term of 12 months.These deposits were purchased through a registered broker, as part of an Asset/Liability Committee ("ALCO") strategy to increase and diversify funding sources.
In addition, at quarter end we had $697 million of deposits through our participation in the Intrafi Network Deposits and FIS Insured Deposit programs. These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC coverage by placing multiple interest-bearing demand accounts at other member banks and Northwest receives an equal amount of deposits from other member banks. The balance carried an average cost of 3.91%.
At September 30, 2024 and December 31, 2023, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $1.9 billion and $1.8 billion respectively. At those dates, we had no deposits that were uninsured for any other reason. The following table presents details regarding the Company's uninsured deposits portfolio:
As of September 30, 2024
Balance Percent of
total deposits 		Number of relationships
Uninsured deposits per the Call Report (1) $ 3,097,247 25.7 % 5,234
Less intercompany deposit accounts 1,201,625 10.0 % 12
Less collateralized deposit accounts 480,039 4.0 % 262
Uninsured deposits excluding intercompany and collateralized accounts $ 1,415,583 11.7 % 4,960
(1) Uninsured deposits presented may be different from actual amounts due to titling of accounts.
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Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $19.6 million, or 0.16% of total deposits, as of September 30, 2024. Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $103 million, or 0.85% of total deposits, as of September 30, 2024. The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $285,000 as of September 30, 2024.
Total shareholders' equity remained stable at $1.6 billion, or $12.49 per share, at September 30, 2024 compared to $12.20 per share at December 31, 2023, increasing by $40 million in the current year. This increase was the result of year-to-date earnings of $68 million as well as an improvement in accumulated other comprehensive loss of $43 million, or 29%, primarily due to an increase in realized losses on our available-for-sale investment portfolio as a result of the investment sales made during the period, partially offset by $76 million of cash dividend payments for the nine months ended September 30, 2024.
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).
At September 30, 2024
Actual Minimum capital requirements (1) Well capitalized requirements
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc. $ 1,705,283 16.024 % $ 1,117,392 10.500 % $ 1,064,183 10.000 %
Northwest Bank 1,460,909 13.740 % 1,116,384 10.500 % 1,063,223 10.000 %
Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,457,698 13.698 % 904,555 8.500 % 851,346 8.000 %
Northwest Bank 1,327,894 12.489 % 903,739 8.500 % 850,578 8.000 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,331,918 12.516 % 744,928 7.000 % 691,719 6.500 %
Northwest Bank 1,327,894 12.489 % 744,256 7.000 % 691,095 6.500 %
Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc. 1,457,698 10.283 % 567,025 4.000 % 708,782 5.000 %
Northwest Bank 1,327,894 9.374 % 566,633 4.000 % 708,292 5.000 %
(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).
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At December 31, 2023
Actual Minimum capital requirements (1) Well capitalized requirements
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc. $ 1,799,883 16.753 % $ 1,128,054 10.500 % $ 1,074,337 10.000 %
Northwest Bank 1,520,736 14.167 % 1,127,076 10.500 % 1,073,406 10.000 %
Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,553,766 14.463 % 913,186 8.500 % 859,469 8.000 %
Northwest Bank 1,388,808 12.938 % 912,395 8.500 % 858,725 8.000 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,428,181 13.294 % 752,036 7.000 % 698,319 6.500 %
Northwest Bank 1,388,808 12.938 % 751,384 7.000 % 697,714 6.500 %
Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc. 1,553,766 10.841 % 573,290 4.000 % 716,612 5.000 %
Northwest Bank 1,388,808 9.697 % 572,903 4.000 % 716,128 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).
Regulatory Considerations
In September 2024, the FDIC adopted a final statement of policy regarding its review of Bank Merger Act ("BMA") applications. The final policy statement addresses, among other things, an expanded scope of transactions subject to FDIC approval, a more rigorous process for evaluating BMA applications, and heightened expectations with respect to the BMA's statutory factors. As a result, BMA applications to the FDIC will now require additional information.
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, 2024 was 11.25%. 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, 2024, Northwest had $3.3 billion of additional borrowing capacity available with the FHLB, including $250 million on an overnight line of credit, which had no balance as of September 30, 2024, as well as $500 million of borrowing capacity available with the Federal Reserve Bank and $105 million with two correspondent banks.
Dividends
We paid $25 million in cash dividends during the quarters ended September 30, 2024 and 2023. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for September 30, 2024 and 2023 was 76.9% and 64.5% on dividends of $0.20 per share. On October 17, 2024, the Board of Directors declared a cash dividend of $0.20 per share payable on November 18, 2024 to shareholders of record as of November 8, 2024. This represents the 120thconsecutive 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.
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September 30, 2024 December 31, 2023
(in thousands)
Loans 90 days or more past due:
Residential mortgage loans $ 5,370 7,995
Home equity loans 2,558 3,126
Vehicle loans 3,077 3,051
Other consumer loans 906 927
Commercial real estate loans 6,167 6,535
Commercial real estate - owner occupied - 177
Commercial loans 14,484 2,780
Total loans 90 days or more past due $ 32,562 24,591
Total real estate owned (REO) $ 76 104
Total loans 90 days or more past due and REO 32,638 24,695
Total loans 90 days or more past due to net loans receivable 0.29 % 0.22 %
Total loans 90 days or more past due and REO to total assets 0.23 % 0.17 %
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due 31,516 21,894
Nonaccrual loans - loans less than 90 days past due 45,312 72,490
Loans 90 days or more past due still accruing 1,045 2,698
Total nonperforming loans 77,873 97,082
Total nonperforming assets $ 77,949 97,186
Total nonaccrual loans to total loans 0.68 % 0.83 %
Allowance for Credit Losses
On an ongoing basis, the Credit Administration department, as well as loan officers 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 vertical to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as "substandard", "doubtful" or "loss". Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as "special mention". A "substandard" loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as "doubtful" have all the weaknesses inherent in those classified as "substandard" with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as "loss" have all the weakness inherent in those classified as "doubtful" and are considered uncollectible.
Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.
If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.
If a substandard or doubtful loan is not individually assessed, it is grouped with other loans that possess common characteristics for credit losses and analysis. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a twenty four month forecasting period and revert to historical average loss rates thereafter. Reversion to average
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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, 2024, 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 $0.6 million to $126 million, or 1.11% of total loans at September 30, 2024, up slightly from 1.10% at December 31, 2023.
Total classified loans increased by $101 million to $320 million at September 30, 2024 compared to $218 million at December 31, 2023. The primary driver of the increase over the current year is reflective of the Company's exposure to the Long Term Healthcare segment and the challenges a few operators have experienced post Covid.
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 $77 million at September 30, 2024 decreased by $18 million, or 19%, from $94 million at December 31, 2023, or 0.68% of total loans receivable as of September 30, 2024 and 0.83% of total loans receivable as of December 31, 2023. As a percentage of average loans, annualized net charge-offs remained low at 0.14% for the nine months ended September 30, 2024 compared to 0.11% for the year ended December 31, 2023.
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Comparison of Operating Results for the Quarters Ended September 30, 2024 and 2023
The following chart provides a reconciliation of net income from the quarter ended September 30, 2023 to the the quarter ended September 30, 2024 (dollars in thousands):
Net income for the quarter ended September 30, 2024 was $34 million, or $0.26 per diluted share, a decrease of $6 million, or 14%, from net income of $39 million, or $0.31 per diluted share, for the quarter ended September 30, 2023. This decrease in net income resulted primarily from a $4 million increase in the provision for credit losses, a $3 million, or 10%, decrease in noninterest income and an increase in noninterest expense of $3 million, or 4%, partially offset by an increase in net interest income of $3 million, or 3%, and a $2 million, or 14%, decrease in income tax expense. Net income for the quarter ended September 30, 2024 represents annualized returns on average equity and average assets of 8.50% and 0.93%, respectively, compared to 10.27% and 1.08% for the same quarter last year.
Net income for the nine months ended September 30, 2024 was $68 million, or $0.53 per diluted share, a decrease of $51 million, or 37%, from net income of $138 million, or $0.83 per diluted share, for the nine months ended September 30, 2023. This decrease in net income resulted primarily from a $39 million loss on sale of securities, a decrease in net interest income of $8 million, or 2%, and an increase in noninterest expense of $12 million, or 5%, partially offset by a decrease in the provision for credit losses of $7 million, or 47%, and a $13 million, or 14%, decrease in income tax expense. Net income for the nine months ended September 30, 2024 represents annualized returns on average equity and average assets of 5.80% and 0.63%, respectively, compared to 9.37% and 0.99% for the nine months ended September 30, 2023. A further discussion of notable changes follows.
To make it easier to compare both the results across several periods and the yields on various types of earning assets (some taxable, some not), we present net interest income in the discussion below on a fully taxable equivalent "FTE basis" (i.e., as if all income were taxable and at the same rate). For example, $100 of tax-exempt income would be presented as $126, an amount that, if taxed at the statutory federal income tax rate of 21%, would yield $100. See the "GAAP to Non-GAAP Reconciliations" for information regarding tax-equivalent adjustments and GAAP results.
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Net Interest Income
Net interest income for the third quarter of 2024 was $111 million which increased $3 million, or 3%, from the third quarter of 2023. Net interest income (FTE) was $112 million for the quarter ended September 30, 2024 and net interest margin (FTE) was 3.33%. Compared to the same quarter of the prior year, net interest income (FTE) increased $3 million and net interest margin (FTE) increased by ten basis points. The increase in net interest income (FTE) and net interest margin (FTE) was driven by an increase in interest income resulting from higher earning asset yields. Partly offsetting this increase was an increase in interest-bearing deposit costs and a shift in funding mix to higher cost deposits due to the higher interest rate environment.
For the nine months ended September 30, 2024, net interest income was $321 million which decreased $8 million, or 2%, from the nine months ended September 30, 2023. For the nine months ended September 30, 2024, net interest income (FTE) was $324 million, a decrease of $8 million, or 2% from the same period last year. Net interest margin (FTE) decreased by 11 basis points. Similar to the quarterly fluctuations noted above, the decrease in net interest income (FTE) included increases in both interest income and interest expense driven by higher interest-bearing deposit costs and balances, partially offset by higher interest-earning asset yields and balances.
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Average loans receivable increased $33 million, or 0.3%, from the quarter ended September 30, 2023 and $263 million, or 2.4% for the nine months ended September 30, 2023. This increase was driven by commercial loans, which grew by $372 million from the quarter ended September 30, 2023 and $456 million from the nine months ended September 30, 2023, as we have continued to build-out our commercial lending verticals, and commercial real estate loans, which grew by $84 million and $148 million from the same periods. These increases were offset partially by a $423 million decrease in personal banking loans from the quarter ended September 30, 2023 and $341 million from the nine months ended September 30, 2023. Interest income on loans receivable increased by $16 million, or 11%, from the same quarter in the prior year, and by $63 million, or 16%, from the same nine-month period in the prior year, the result of increases in both the average yield and the average balance on loans receivable. The average yield on loans receivable increased due to the elevated market interest rates as well as a change in mix to higher yield loan products.
Average investments declined 6% from the third quarter of 2023 and 9% from the nine months ended September 30, 2023 driven by the sale of investment securities during the third quarter of 2024 coupled with regular principal payments and maturities. Interest income on investment securities increased by $3 million, or 31%, from the quarter ended September 30, 2023, and increased by $3 million, 9.7%, for the nine months ended September 30, 2023. The increase is due to the increase in the average yield on investments (FTE) to 2.48% for the quarter ended September 30, 2024 and 2.14% for the nine months ended September 30, 2024 which was partially offset by a decline in the average balance of investments for both periods.
Average deposits grew 3% from the quarter ended September 30, 2023 and 4% from the nine months ended September 30, 2023 driven by an increase in our average time deposits due to customer preferences for this fixed maturity product type which grew by $666 million from the quarter ended September 30, 2023 and by $1.1 billion from the nine months ended September 30, 2023. This increase was partially offset by a $146 million decrease in money market balances from the quarter ended September 30, 2023 and $284 million from the nine months ended September 30, 2023 as customers shifted balances into higher yielding time deposit accounts. Interest expense on deposits increased by $23 million, or 71%, from the quarter ended September 30, 2023, and by $90 million, or 139% from the nine months ended September 30, 2023, primarily attributable to increases in both the average yield and average balance of deposit accounts as we continued competitively positioning our deposit products.
Compared to the quarter ended September 30, 2023, average borrowings saw a 66% reduction, and compared to the nine months ended September 30, 2023 average borrowings decreased 54% primarily attributable to the strategic pay-down of wholesale borrowings. This decrease was made possible by a substantial increase in cash reserves, resulting from the sale of investment securities during the prior quarter, as well as a notable rise in the average balance of deposits. The decrease in the average balance of borrowings resulted in a decrease in interest expense on borrowings by $6 million from the quarter ended September 30, 2023, and by $14 million from the nine months ended September 30, 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,
2024 2023
Average
balance 		Interest Avg.
yield/
cost (h) 		Average
balance 		Interest Avg.
yield/
cost (h)
Assets
Interest-earning assets:
Residential mortgage loans $ 3,286,316 31,537 3.84 % $ 3,476,446 32,596 3.75 %
Home equity loans 1,166,866 17,296 5.90 % 1,264,134 17,435 5.47 %
Consumer loans 1,955,988 26,034 5.29 % 2,092,023 23,521 4.46 %
Commercial real estate loans 2,995,032 47,473 6.31 % 2,911,145 41,611 5.59 %
Commercial loans 1,819,400 34,837 7.62 % 1,447,211 26,239 7.09 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $764 and $735, respectively) 11,223,602 157,177 5.57 % 11,190,959 141,402 5.01 %
Mortgage-backed securities (c) 1,735,728 10,908 2.51 % 1,781,010 8,072 1.81 %
Investment securities (c) (d) (includes FTE adjustments of $150 and $154, respectively) 263,127 1,504 2.29 % 336,125 1,431 1.70 %
FHLB stock, at cost 20,849 394 7.51 % 37,722 668 7.03 %
Other interest-earning deposits 173,770 2,312 5.29 % 67,143 915 5.33 %
Total interest-earning assets (includes FTE adjustments of $914 and $889, respectively) 13,417,076 172,295 5.11 % 13,412,959 152,488 4.51 %
Noninterest-earning assets (e) 934,593 966,364
Total assets $ 14,351,669 $ 14,379,323
Liabilities and shareholders' equity
Interest-bearing liabilities:
Savings deposits (g) $ 2,151,933 6,680 1.23 % $ 2,116,759 2,695 0.51 %
Interest-bearing demand deposits (g) 2,567,682 7,452 1.15 % 2,569,229 4,086 0.63 %
Money market deposit accounts (g) 1,966,684 9,170 1.85 % 2,112,228 6,772 1.27 %
Time deposits (g) 2,830,737 30,896 4.34 % 2,164,559 18,136 3.32 %
Borrowed funds (f) 220,677 2,266 4.09 % 643,518 7,937 4.89 %
Subordinated debentures 114,396 1,148 4.01 % 114,045 1,148 4.03 %
Junior subordinated debentures 129,727 2,467 7.56 % 129,466 2,456 7.42 %
Total interest-bearing liabilities 9,981,836 60,079 2.39 % 9,849,804 43,230 1.74 %
Noninterest-bearing demand deposits (g) 2,579,775 2,757,091
Noninterest-bearing liabilities 217,161 257,141
Total liabilities 12,778,772 12,864,036
Shareholders' equity 1,572,897 1,515,287
Total liabilities and shareholders' equity $ 14,351,669 $ 14,379,323
Net interest income (FTE)/Interest rate spread (FTE) (d) 112,216 2.72 % 109,258 2.77 %
Net interest-earning assets/Net interest margin (FTE) $ 3,435,240 3.33 % $ 3,563,155 3.23 %
Tax equivalent adjustment (d) 914 890
Net interest income, GAAP basis 111,302 108,368
Ratio of interest-earning assets to interest- bearing liabilities 1.34X 1.36X
(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 FTE basis. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(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 1.78% and 1.07%, respectively, average cost of interest-bearing deposits were 2.27% and 1.40%, respectively .
(h)Annualized.
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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 (FTE) 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, 2024 vs. 2023
Increase/(decrease) due to Total
increase/(decrease)
Rate Volume
Interest-earning assets:
Loans receivable $ 15,318 457 15,775
Mortgage-backed securities 3,121 (285) 2,836
Investment securities 490 (417) 73
FHLB stock, at cost 45 (319) (274)
Other interest-earning deposits (21) 1,418 1,397
Total interest-earning assets 18,953 854 19,807
Interest-bearing liabilities:
Savings deposits 3,876 109 3,985
Interest-bearing demand deposits 3,371 (5) 3,366
Money market deposit accounts 3,077 (679) 2,398
Time deposits 5,489 7,271 12,760
Borrowed funds (1,329) (4,342) (5,671)
Subordinated debt (4) 4 -
Junior subordinated debentures 5 6 11
Total interest-bearing liabilities 14,485 2,364 16,849
Net change in net interest income (FTE) $ 4,468 (1,510) 2,958
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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,
2024 2023
Average
balance 		Interest Avg.
yield/
cost (h) 		Average
balance 		Interest Avg.
yield/
cost (h)
Assets
Interest-earning assets:
Residential mortgage loans $ 3,340,332 96,392 3.85 % $ 3,485,130 97,090 3.71 %
Home equity loans 1,185,145 51,893 5.85 % 1,273,878 50,467 5.30 %
Consumer loans 2,012,461 77,401 5.14 % 2,119,717 66,977 4.22 %
Commercial real estate loans 3,005,966 136,556 6.07 % 2,857,555 117,074 5.40 %
Commercial loans 1,768,325 99,923 7.55 % 1,312,750 67,465 6.78 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $2,227 and $1,937, respectively) 11,312,229 462,165 5.46 % 11,049,030 399,073 4.83 %
Mortgage-backed securities (c) 1,729,064 28,278 2.18 % 1,849,567 24,935 1.80 %
Investment securities (c) (d) (includes FTE adjustments of $427 and $579, respectively) 294,598 4,251 1.92 % 364,956 4,909 1.79 %
FHLB stock, at cost 26,195 1,499 7.64 % 40,945 2,202 7.19 %
Other interest-earning deposits 124,037 4,935 5.31 % 64,560 1,931 4.00 %
Total interest-earning assets (includes FTE adjustments of $2,654 and $2,516, respectively) 13,486,123 501,128 4.96 % 13,369,058 433,050 4.33 %
Noninterest-earning assets (e) 919,969 880,799
Total assets $ 14,406,092 $ 14,249,857
Liabilities and shareholders' equity
Interest-bearing liabilities:
Savings deposits (g) $ 2,139,461 17,673 1.10 % $ 2,163,564 4,777 0.30 %
Interest-bearing demand deposits (g) 2,554,172 19,501 1.02 % 2,550,433 6,684 0.35 %
Money market deposit accounts (g) 1,962,019 25,684 1.75 % 2,246,422 17,289 1.03 %
Time deposits (g) 2,787,306 91,780 4.40 % 1,733,428 35,993 2.78 %
Borrowed funds (f) 337,427 11,636 4.61 % 740,011 26,077 4.71 %
Subordinated debentures 114,310 3,444 4.02 % 113,958 3,444 4.03 %
Junior subordinated debentures 129,662 7,375 7.60 % 129,401 6,889 7.02 %
Total interest-bearing liabilities 10,024,357 177,093 2.36 % 9,677,217 101,153 1.40 %
Noninterest-bearing demand deposits (g) 2,581,018 2,822,178
Noninterest-bearing liabilities 245,917 239,034
Total liabilities 12,851,292 12,738,429
Shareholders' equity 1,554,800 1,511,428
Total liabilities and shareholders' equity $ 14,406,092 $ 14,249,857
Net interest income (FTE)/Interest rate spread (FTE) (d) 324,035 2.60 % 331,897 2.93 %
Net interest-earning assets/Net interest margin (FTE) $ 3,461,766 3.21 % $ 3,691,841 3.32 %
Tax equivalent adjustment (d) 2,654 2,516
Net interest income, GAAP basis 321,381 329,381
Ratio of interest-earning assets to interest-bearing liabilities 1.35X 1.38X
(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. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(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 1.72% and 0.75%, respectively and average cost of Interest-bearing deposits were 2.19% and 1%, respectively.
(h)Annualized.
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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 (FTE) 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, 2024 vs. 2023
Increase/(decrease) due to Total
increase/(decrease)
Rate Volume
Interest-earning assets:
Loans receivable $ 52,338 10,754 63,092
Mortgage-backed securities 5,314 (1,971) 3,343
Investment securities 356 (1,014) (658)
FHLB stock, at cost 142 (845) (703)
Other interest-earning deposits 637 2,367 3,004
Total interest-earning assets 58,787 9,291 68,078
Interest-bearing liabilities:
Savings deposits 13,095 (199) 12,896
Interest-bearing demand deposits 12,788 29 12,817
Money market deposit accounts 12,118 (3,723) 8,395
Time deposits 21,086 34,701 55,787
Borrowed funds (559) (13,882) (14,441)
Subordinated debt (11) 11 -
Junior subordinated debentures 472 14 486
Total interest-bearing liabilities 58,989 16,951 75,940
Net change in net interest income (FTE) $ (202) (7,660) (7,862)
Provision for Credit Losses
3Q23 4Q23 1Q24 2Q24 3Q24
Provision for credit losses - loans (in thousands) $ 3,983 3,801 4,234 2,169 5,727
Provision/(benefit) for credit losses - unfunded commitments (in thousands) (2,981) 4,145 (799) (2,539) (852)
Annualized net charge-offs to average loans 0.13 % 0.12 % 0.16 % 0.07 % 0.18 %
The provision for credit losses increased by $4 million from the quarter ended September 30, 2023. This increase included a $2 million increase in the provision for credit losses - loans, as well as a $2 million increase in the provision for credit losses - unfunded commitments.
Compared to the nine months ended September 30, 2023, the provision for credit losses decreased $7 million, or 47%. This decrease included a $3 million decrease in the provision for credit losses - loans, as well as a $4 million decrease in the provision for credit losses - unfunded commitments.
The changes in the provision noted above is driven by growth within our commercial lending portfolio and changes in the economic forecasts coupled with a decline in our reserves for unfunded commitments in the current period. This decline is based on the timing of origination and funding of commercial construction loans and lines of credit.
Additionally, the Company saw an increase in classified loans to $320 million, or 2.83% of total loans, at September 30, 2024 from $209 million, or 1.84% of total loans, at September 30, 2023 and $257 million, or 2.26% of total loans, at June 30, 2024. The primary driver of the increase over the past year and quarter is reflective of the Company's exposure to the Long Term Healthcare segment and the challenges a few operators have experienced post Covid.
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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, 2024.
Noninterest Income
(a) Other noninterest income includes the net gain on real estate owned, mortgage banking income, and other operating income. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.
Noninterest income for the quarter ended September 30, 2024 was $28 million, a decrease of $3 million, or 10%, from the quarter ended September 30, 2023, which was driven by a $3 million decline in income from bank-owned life insurance as a result of death benefits received in the prior period. Compared to the nine months ended September 30, 2023, excluding the loss on sale of securities of $39 million, noninterest income increased $2 million, or 2%, in the nine months ended September 30, 2024.The increase from the nine months ended September 30, 2023 was driven by service charges and fees and the gain on sale of SBA loans. Service charges and fees increased $4 million, or 9%, to $47 million for the nine months ended September 30, 2024 driven by commercial loan fees and deposit related fees based on customer activity in the nine months ended September 30, 2024. Additionally, the gain on the sale of SBA loans increased $2 million, or 112%, to $3 million for the nine months ended September 30, 2024 due to increased loan sale activity in the nine months ended September 30, 2024. Partially offsetting these increases was a decrease in income from bank owned life insurance of $3 million, or 40%, to $4 milliondue to death benefits received in the prior period.
Noninterest Expense
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(a) Other noninterest expense includes collections expense, marketing expense, FDIC insurance expense, amortization of intangible assets, real estate owned expense, merger, asset disposition and restructuring expense, and other expenses. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.
Noninterest expense increased by $3 million, or 4%, from the quarter ended September 30, 2023. This increase was primarily attributable to an increase in compensation and employee benefits expense of $5 million, or 10%, to $56 million for the quarter ended September 30, 2024, from $51 million for the quarter ended September 30, 2023 driven primarily by the build out of the commercial business and related credit, risk management, and internal audit support functions over the past year coupled with an increase in contracted employees utilized during the quarter and an increase in employee benefits expense.
Noninterest expense increased $12 million, or 5%, to $273 million for the nine months ended September 30, 2024 from $261 million for the nine months ended September 30, 2023. This increase was primarily attributable to an increase in compensation and employee benefits expense of $16 million, or 11%, for the nine months ended September 30, 2023 for the same reasons noted above. Partially offsetting this increase was a decrease in non-personnel expense related to a decline in merger, asset disposition and restructuring expense and marketing expenses. Marketing expenses decreased by $2 million, or 19%, for the nine months ended September 30, 2024, due primarily to the timing of deposit marketing campaigns. Merger, asset disposition and restructuring expense decreased $1 million, or 34%, due to the severance and fixed asset charges related to the branch optimization and personnel reductions during the prior year.
Income Taxes
The provision for income taxes decreased by $2 million from the quarter ended September 30, 2023 and $13 million from the nine months ended September 30, 2023 primarily due to lower income before income taxes.
The provision for income taxes is primarily driven by changes in our current period income before taxes. We anticipate our effective tax rate to be between 22.0% and 24.0% for the year ending December 31, 2024.
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GAAP to Non-GAAP Reconciliations
The following non-GAAP financial measures used by the Company provide information useful to investors in understanding our operating performance and trends, and facilitate comparisons with the performance of our peers. The following table summarizes the non-GAAP financial measures derived from amounts reported in the Company's Consolidated Statements of Income.
Quarter ended Nine months ended September 30,
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023 		2024 2023
Net interest income fully tax equivalent (FTE)
Net interest income (GAAP) $ 111,302 106,841 103,238 106,302 108,368 321,381 329,381
Plus: Taxable-equivalent adjustment 914 883 857 758 890 2,654 2,516
Net interest income FTE 112,216 107,724 104,095 107,060 109,258 324,035 331,897
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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, 2024 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, 2024 levels.
Increase Decrease
Parallel shift in interest rates over the next 12 months 100 bps 200 bps 300 bps 100 bps 200 bps 300 bps
Projected percentage increase/(decrease) in net interest income (1.3) % (3.0) % (4.8) % 0.3 % (4.8 %) (7.1 %)
Projected percentage increase/(decrease) in net income (3.1) % (7.3) % (11.5) % 0.8 % (11.9 %) (17.3 %)
Projected increase/(decrease) in return on average equity (2.9) % (6.9) % (11.1) % 0.8 % (11.3 %) (16.7 %)
Projected increase/(decrease) in earnings per share $ (0.03) $ (0.08) $ (0.13) $ 0.01 $ (0.13) $ (0.19)
Projected percentage increase/(decrease) in market value of equity (5.6 %) (11.9 %) (18.3 %) 3.3 % 3.6 % 2.9 %
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 previously disclosed, there have been no material updates or additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 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, 2024, 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, 2024, no directors or officers of the Company, as defined in Section 16 of the Exchange Act, adopted or terminated any "Rule 10b5-1 trading arrangements" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K of the Exchange Act.
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Item 6. EXHIBITS
31.1
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.
31.2
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.
32.1
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.INS The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
104 The 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 7, 2024 By: /s/ Louis J. Torchio
Louis J. Torchio
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 7, 2024 By: /s/ Joseph D. Canfield Jr.
Joseph D. Canfield Jr.
Executive Vice President, Chief Accounting Officer
(Principal Accounting Officer)
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