Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2015

 

or

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                   to                  

 

Commission File Number 001-34582

 

NORTHWEST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

27-0950358

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

100 Liberty Street, Warren, Pennsylvania

 

16365

(Address of principal executive offices)

 

(Zip Code)

 

(814) 726-2140

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer x

Accelerated Filer o

Non-Accelerated Filer o

Smaller reporting company o

 

Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

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) 94,461,849 shares outstanding as of April 30, 2015

 

 

 



Table of Contents

 

NORTHWEST BANCSHARES, INC.

INDEX

 

 

 

 

PAGE

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition as of March 31, 2015 and December 31, 2014

 

1

 

 

 

 

 

Consolidated Statements of Income for the quarter ended March 31, 2015 and 2014

 

2

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the quarter ended March 31, 2015 and 2014

 

3

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the quarter ended March 31, 2015 and 2014

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows for the quarter ended March 31, 2015 and 2014

 

5

 

 

 

 

 

Notes to Consolidated Financial Statements -Unaudited

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

42

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

55

 

 

 

 

Item 4.

Controls and Procedures

 

56

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

56

 

 

 

 

Item 1A.

Risk Factors

 

56

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

57

 

 

 

 

Item 4.

Mine Safety Disclosures

 

57

 

 

 

 

Item 5.

Other information

 

57

 

 

 

 

Item 6.

Exhibits

 

57

 

 

 

 

 

Signature

 

59

 

 

 

 

 

Certifications

 

 

 



Table of Contents

 

ITEM 1. FINANCIAL STATEMENTS

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

 

 

 

(Unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

83,970

 

87,401

 

Interest-earning deposits in other financial institutions

 

212,496

 

152,671

 

Federal funds sold and other short-term investments

 

635

 

634

 

Marketable securities available-for-sale (amortized cost of $906,028 and $906,702)

 

916,423

 

912,371

 

Marketable securities held-to-maturity (fair value of $92,989 and $106,292)

 

90,825

 

103,695

 

Total cash and investments

 

1,304,349

 

1,256,772

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

Residential mortgage loans

 

2,543,870

 

2,521,456

 

Home equity loans

 

1,055,739

 

1,066,131

 

Other consumer loans

 

239,956

 

242,744

 

Total Personal Banking

 

3,839,565

 

3,830,331

 

Business Banking:

 

 

 

 

 

Commercial real estate loans

 

1,856,574

 

1,801,184

 

Commercial loans

 

368,725

 

358,376

 

Total Business Banking

 

2,225,299

 

2,159,560

 

Total loans

 

6,064,864

 

5,989,891

 

Allowance for loan losses

 

(67,298

)

(67,518

)

Total loans, net

 

5,997,566

 

5,922,373

 

 

 

 

 

 

 

Federal Home Loan Bank stock, at cost

 

36,292

 

33,293

 

Accrued interest receivable

 

19,753

 

18,623

 

Real estate owned, net

 

15,346

 

16,759

 

Premises and equipment, net

 

142,481

 

143,909

 

Bank owned life insurance

 

145,275

 

144,362

 

Goodwill

 

175,498

 

175,323

 

Other intangible assets

 

3,027

 

3,033

 

Other assets

 

50,772

 

60,586

 

Total assets

 

$

7,890,359

 

7,775,033

 

 

 

 

 

 

 

Liabilities and Shareholders’ equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Noninterest-bearing checking deposits

 

$

944,937

 

891,248

 

Interest-bearing checking deposits

 

898,945

 

874,623

 

Money market deposit accounts

 

1,151,971

 

1,179,070

 

Savings deposits

 

1,257,446

 

1,209,287

 

Time deposits

 

1,428,768

 

1,478,314

 

Total deposits

 

5,682,067

 

5,632,542

 

 

 

 

 

 

 

Borrowed funds

 

943,842

 

888,109

 

Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities

 

103,094

 

103,094

 

Advances by borrowers for taxes and insurance

 

34,998

 

30,507

 

Accrued interest payable

 

1,336

 

936

 

Other liabilities

 

57,506

 

57,198

 

Total liabilities

 

6,822,843

 

6,712,386

 

 

 

 

 

 

 

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, 94,553,350 and 94,721,453 shares issued, respectively

 

946

 

947

 

Paid-in capital

 

624,584

 

626,134

 

Retained earnings

 

484,774

 

481,577

 

Unallocated common stock of employee stock ownership plan

 

(21,565

)

(21,641

)

Accumulated other comprehensive loss

 

(21,223

)

(24,370

)

Total shareholders’ equity

 

1,067,516

 

1,062,647

 

Total liabilities and shareholders’ equity

 

$

7,890,359

 

7,775,033

 

 

See accompanying notes to unaudited consolidated financial statements

 

1



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

 

 

 

Quarter ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

Interest income:

 

 

 

 

 

Loans receivable

 

$

70,711

 

69,322

 

Mortgage-backed securities

 

2,234

 

2,793

 

Taxable investment securities

 

1,045

 

1,080

 

Tax-free investment securities

 

1,348

 

1,655

 

Interest-earning deposits

 

139

 

200

 

Total interest income

 

75,477

 

75,050

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

5,766

 

6,490

 

Borrowed funds

 

8,133

 

7,714

 

Total interest expense

 

13,899

 

14,204

 

 

 

 

 

 

 

Net interest income

 

61,578

 

60,846

 

Provision for loan losses

 

900

 

7,485

 

Net interest income after provision for loan losses

 

60,678

 

53,361

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Gain on sale of investments

 

95

 

3,348

 

Service charges and fees

 

8,659

 

8,408

 

Trust and other financial services income

 

2,776

 

3,047

 

Insurance commission income

 

2,428

 

2,564

 

Loss on real estate owned, net

 

(1,046

)

(135

)

Income from bank owned life insurance

 

913

 

1,001

 

Mortgage banking income

 

240

 

249

 

Other operating income

 

1,963

 

1,175

 

Total noninterest income

 

16,028

 

19,657

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Compensation and employee benefits

 

27,895

 

27,972

 

Premises and occupancy costs

 

6,267

 

6,557

 

Office operations

 

3,680

 

3,757

 

Processing expenses

 

7,205

 

6,589

 

Marketing expenses

 

1,976

 

1,637

 

Federal deposit insurance premiums

 

1,347

 

1,297

 

Professional services

 

1,792

 

2,062

 

Amortization of other intangible assets

 

268

 

331

 

Real estate owned expense

 

692

 

639

 

Acquisition expense

 

347

 

 

Other expenses

 

2,242

 

2,322

 

Total noninterest expense

 

53,711

 

53,163

 

 

 

 

 

 

 

Income before income taxes

 

22,995

 

19,855

 

 

 

 

 

 

 

Federal and state income taxes

 

6,825

 

5,244

 

 

 

 

 

 

 

Net income

 

$

16,170

 

14,611

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.18

 

0.16

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.18

 

0.16

 

 

See accompanying notes to unaudited consolidated financial statements

 

2



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

 

 

 

Quarter ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

Net Income

 

$

16,170

 

14,611

 

Other comprehensive income net of tax:

 

 

 

 

 

Net unrealized holding gains/ (losses) on marketable securities:

 

 

 

 

 

Unrealized holding gains net of tax of $(1,885) and $(3,579), respectively

 

2,952

 

5,596

 

Reclassification adjustment for gains included in net income, net of tax of $43 and $1,218 respectively

 

(68

)

(1,904

)

Net unrealized holding gains on marketable securities

 

2,884

 

3,692

 

 

 

 

 

 

 

Change in fair value of interest rate swaps, net of tax of $(24) and $(135), respectively

 

44

 

251

 

 

 

 

 

 

 

Defined benefit plan:

 

 

 

 

 

Reclassification adjustment for prior period service costs included in net income, net of tax of $(140) and $75, respectively

 

219

 

(138

)

 

 

 

 

 

 

Other comprehensive income

 

3,147

 

3,805

 

 

 

 

 

 

 

Total comprehensive income

 

$

19,317

 

18,416

 

 

See accompanying notes to unaudited consolidated financial statements

 

3



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, expect share data)

 

Quarter ended March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Unallocated

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

common stock

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income/ (loss)

 

of ESOP

 

Equity

 

Beginning balance at December 31, 2013

 

94,243,713

 

$

943

 

619,678

 

569,547

 

(11,900

)

(23,083

)

1,155,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

14,611

 

 

 

14,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax of $(2,421)

 

 

 

 

 

3,805

 

 

3,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

14,611

 

3,805

 

 

18,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

220,717

 

2

 

2,292

 

 

 

 

2,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

788

 

 

 

451

 

1,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid ($0.23 per share)

 

 

 

 

(21,225

)

 

 

(21,225

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance at March 31, 2014

 

94,464,430

 

$

945

 

622,758

 

562,933

 

(8,095

)

(22,632

)

1,155,909

 

 

Quarter ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Unallocated

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

common stock

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income/ (loss)

 

of ESOP

 

Equity

 

Beginning balance at December 31, 2014

 

94,721,453

 

$

947

 

626,134

 

481,577

 

(24,370

)

(21,641

)

1,062,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

16,170

 

 

 

16,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax of $(2,006)

 

 

 

 

 

3,147

 

 

3,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

16,170

 

3,147

 

 

19,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

149,897

 

2

 

1,433

 

 

 

 

1,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

804

 

 

 

76

 

880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

(318,000

)

(3

)

(3,787

)

 

 

 

(3,790

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid ($0.14 per share)

 

 

 

 

(12,973

)

 

 

(12,973

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance at March 31, 2015

 

94,553,350

 

$

946

 

624,584

 

484,774

 

(21,223

)

(21,565

)

1,067,516

 

 

See accompanying notes to unaudited consolidated financial statements

 

4



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

 

 

Quarter ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net Income

 

$

16,170

 

14,611

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

900

 

7,485

 

Net (gain)/ loss on sale of assets

 

274

 

(3,602

)

Net depreciation, amortization and accretion

 

1,549

 

2,845

 

Decrease in other assets

 

5,685

 

10,032

 

Increase/ (decrease) in other liabilities

 

1,136

 

(6,534

)

Net amortization on marketable securities

 

87

 

105

 

Noncash write-down of real estate owned

 

1,181

 

648

 

Origination of loans held for sale

 

(221

)

(660

)

Proceeds from sale of loans held for sale

 

224

 

907

 

Noncash compensation expense related to stock benefit plans

 

880

 

1,239

 

Net cash provided by operating activities

 

27,865

 

27,076

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of marketable securities available-for-sale

 

(29,985

)

(22,805

)

Proceeds from maturities and principal reductions of marketable securities available-for-sale

 

30,329

 

33,414

 

Proceeds from maturities and principal reductions of marketable securities held-to-maturity

 

12,914

 

3,643

 

Proceeds from sale of marketable securities available-for-sale

 

293

 

5,735

 

Loan originations

 

(496,009

)

(447,423

)

Proceeds from loan maturities and principal reductions

 

419,198

 

398,726

 

(Purchase)/ redemption of Federal Home Loan Bank stock

 

(2,999

)

1

 

Proceeds from sale of real estate owned

 

2,729

 

2,866

 

Sale of real estate owned for investment, net

 

152

 

152

 

Purchase of premises and equipment

 

(2,075

)

(3,607

)

Acquistions, net of cash received

 

(438

)

(2,792

)

Net cash used in investing activities

 

(65,891

)

(32,090

)

 

5



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)

 

 

 

Quarter ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

FINANCING ACTIVITIES:

 

 

 

 

 

Increase in deposits, net

 

$

49,525

 

105,984

 

Proceeds from long-term borrowings

 

85,000

 

 

Repayments of long-term borrowings

 

(10,013

)

(15

)

Net decrease in short-term borrowings

 

(19,254

)

(16,009

)

Increase in advances by borrowers for taxes and insurance

 

4,491

 

4,405

 

Cash dividends paid

 

(12,973

)

(21,224

)

Purchase of common stock for retirement

 

(3,790

)

 

Proceeds from stock options exercised

 

1,435

 

2,294

 

Net provided by in financing activities

 

94,421

 

75,435

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

$

56,395

 

70,421

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

240,706

 

391,905

 

Net increase in cash and cash equivalents

 

56,395

 

70,421

 

Cash and cash equivalents at end of period

 

$

297,101

 

462,326

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$

83,970

 

81,927

 

Interest-earning deposits in other financial institutions

 

212,496

 

379,765

 

Federal funds sold and other short-term investments

 

635

 

634

 

Total cash and cash equivalents

 

$

297,101

 

462,326

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest on deposits and borrowings (including interest credited to deposit accounts of $5,256 and $5,819, respectively)

 

$

13,499

 

14,232

 

Income taxes

 

$

1,027

 

5,016

 

 

 

 

 

 

 

Business acquistions:

 

 

 

 

 

Fair value of assets acquired

 

$

438

 

2,798

 

Cash paid

 

(438

)

(2,792

)

Liabilities assumed

 

$

 

6

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

Loans foreclosures and repossessions

 

$

2,623

 

1,839

 

Sale of real estate owned financed by the Company

 

$

114

 

88

 

 

See accompanying notes to unaudited consolidated financial statements

 

6



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited

 

(1)                                 Basis of Presentation and Informational Disclosures

 

Northwest Bancshares, Inc. (the “Company”) or (“NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System.  The Company was incorporated to be the successor to Northwest Bancorp, Inc. upon the completion of the mutual-to-stock conversion of Northwest Bancorp, MHC in December 2009.  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 FDIC and the Pennsylvania Department of Banking.  At March 31, 2015, Northwest operated 161 community-banking offices throughout Pennsylvania, western New York, eastern Ohio and Maryland.

 

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Settlement Agency, LLC, Northwest Consumer Discount Company, Northwest Financial Services, Inc., Northwest Advisors, Inc., Northwest Capital Group, Inc., Allegheny Services, Inc., Great Northwest Corporation, Boetger & Associates, Inc. and The Bert Company. 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 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, 2014 updated, as required, for any new pronouncements or changes.

 

Certain items previously reported have been reclassified to conform with the current year’s reporting format.

 

The results of operations for the quarter ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or any other period.

 

Stock-Based Compensation

 

Stock-based compensation expense of $880,000 and $1.2 million for the quarters ended March 31, 2015 and 2014, respectively, was recognized in compensation expense relating to our stock benefit plans.  At March 31, 2015 there was compensation expense of $4.4 million to be recognized for awarded but unvested stock options and $13.5 million for unvested common shares.

 

Income Taxes- Uncertain Tax Positions

 

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits.  The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.  At March 31, 2015 we had no liability for unrecognized tax benefits.

 

We recognize interest accrued related to: (1) unrecognized tax benefits in federal and state income taxes and (2) refund claims in other operating income.  We recognize penalties (if any) in federal and state income taxes.  There is no amount accrued for the payment of interest or penalties at March 31, 2015.  We

 

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are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2013, 2012 and 2011.

 

Recent Accounting Pronouncements

 

In May 2014 the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This guidance supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of this guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and provides five steps to be analyzed to accomplish the core principle. This guidance is effective retrospectively for annual reporting periods beginning after December 15, 2016, including interim periods within those years and early adoption is not permitted.  We are currently evaluating the impact this standard will have on our results of operations and financial position.

 

In June 2014 the FASB issued ASU 2014-11, “Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. This guidance requires repurchase-to-maturity transactions to be recorded and accounted for as secured borrowings and also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  Additionally, an entity is required to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements, and provide increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The guidance related to repurchase-to-maturity and repurchase financing transactions, and disclosures for certain transactions accounted for as a sale is effective for annual reporting periods beginning after December 15, 2014, including interim periods within those years. The disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings are required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015.  We do not expect that this standard will have a material impact on our results of operations or financial position.

 

In June 2014 the FASB issued ASU 2014-12, “Compensation—Stock Compensation”. This guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Specifically, if the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. Further, the total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. This guidance is effective for annual periods beginning after December 15, 2015, including interim periods within those years and early adoption is permitted.  We do not expect that this standard will have a material impact on our results of operations or financial position.

 

(2)                                 Business Segments

 

We operate in two reportable business segments: Community Banking and Consumer Finance.  The Community Banking segment provides services traditionally offered by full-service community banks, including business and personal deposit accounts and business and personal loans, as well as insurance, brokerage and investment management and trust services.  The Consumer Finance segment, which is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, operates 51 offices in Pennsylvania and offers personal installment loans for a variety of consumer and real estate products.  This activity is funded primarily through an intercompany borrowing relationship with Allegheny Services, Inc., a

 

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subsidiary of Northwest.  Net income is the primary measure used by management to measure segment performance.  The following tables provide financial information for these reportable segments.  The “All Other” column represents the parent company and elimination entries necessary to reconcile to the consolidated amounts presented in the financial statements.

 

At or for the quarter ended:

 

 

 

Community

 

Consumer

 

 

 

 

 

March 31, 2015 ($ in 000’s)

 

Banking

 

Finance

 

All other (1)

 

Consolidated

 

External interest income

 

$

70,928

 

4,330

 

219

 

75,477

 

Intersegment interest income

 

575

 

 

(575

)

 

Interest expense

 

12,888

 

575

 

436

 

13,899

 

Provision for loan losses

 

250

 

650

 

 

900

 

Noninterest income

 

15,729

 

270

 

29

 

16,028

 

Noninterest expense

 

50,440

 

2,953

 

318

 

53,711

 

Income tax expense (benefit)

 

7,035

 

175

 

(385

)

6,825

 

Net income

 

16,619

 

247

 

(696

)

16,170

 

Total assets

 

$

7,769,901

 

102,913

 

17,545

 

7,890,359

 

 

 

 

Community

 

Consumer

 

 

 

 

 

March 31, 2014 ($ in 000’s)

 

Banking

 

Finance

 

All other (1)

 

Consolidated

 

External interest income

 

$

70,068

 

4,659

 

323

 

75,050

 

Intersegment interest income

 

606

 

 

(606

)

 

Interest expense

 

13,169

 

606

 

429

 

14,204

 

Provision for loan losses

 

6,850

 

635

 

 

7,485

 

Noninterest income

 

17,033

 

288

 

2,336

 

19,657

 

Noninterest expense

 

49,862

 

2,921

 

380

 

53,163

 

Income tax expense (benefit)

 

4,513

 

326

 

405

 

5,244

 

Net income

 

13,313

 

459

 

839

 

14,611

 

Total assets

 

$

7,849,806

 

103,677

 

19,830

 

7,973,313

 

 


(1)  Eliminations consist of intercompany loans, interest income and interest expense.

 

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(3)                                 Investment securities and impairment of investment securities

 

The following table shows the portfolio of investment securities available-for-sale at March 31, 2015 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

23

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

339,140

 

706

 

(693

)

339,153

 

Due in five years - ten years

 

25,128

 

 

(29

)

25,099

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

2,314

 

651

 

(41

)

2,924

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

1,159

 

10

 

 

1,169

 

Due in one year - five years

 

7,755

 

159

 

 

7,914

 

Due in five years - ten years

 

5,564

 

104

 

 

5,668

 

Due after ten years

 

50,236

 

2,292

 

 

52,528

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due after ten years

 

18,080

 

2,646

 

(444

)

20,282

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

69,549

 

3,423

 

(130

)

72,842

 

Variable rate pass-through

 

62,918

 

3,180

 

(8

)

66,090

 

Fixed rate non-agency CMOs

 

2,978

 

335

 

 

3,313

 

Fixed rate agency CMOs

 

214,343

 

709

 

(3,070

)

211,982

 

Variable rate agency CMOs

 

106,841

 

622

 

(27

)

107,436

 

Total residential mortgage-backed securities

 

456,629

 

8,269

 

(3,235

)

461,663

 

Total marketable securities available-for-sale

 

$

906,028

 

14,837

 

(4,442

)

916,423

 

 

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The following table shows the portfolio of investment securities available-for-sale at December 31, 2014 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

25

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

310,172

 

287

 

(2,672

)

307,787

 

Due in five years - ten years

 

25,746

 

 

(28

)

25,718

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

2,591

 

682

 

(116

)

3,157

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

810

 

15

 

 

825

 

Due in one year - five years

 

7,878

 

132

 

 

8,010

 

Due in five years - ten years

 

6,965

 

115

 

 

7,080

 

Due after ten years

 

51,839

 

2,391

 

 

54,230

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due after ten years

 

18,267

 

2,579

 

(419

)

20,427

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

72,852

 

3,149

 

(124

)

75,877

 

Variable rate pass-through

 

66,140

 

3,466

 

(8

)

69,598

 

Fixed rate non-agency CMOs

 

3,162

 

246

 

 

3,408

 

Fixed rate agency CMOs

 

226,413

 

685

 

(5,331

)

221,767

 

Variable rate agency CMOs

 

113,842

 

657

 

(37

)

114,462

 

Total residential mortgage-backed securities

 

482,409

 

8,203

 

(5,500

)

485,112

 

Total marketable securities available-for-sale

 

$

906,702

 

14,404

 

(8,735

)

912,371

 

 

The following table shows the portfolio of investment securities held-to-maturity at March 31, 2015 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in five years - ten years

 

$

7,425

 

74

 

 

7,499

 

Due after ten years

 

49,131

 

998

 

 

50,129

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

7,897

 

510

 

 

8,407

 

Variable rate pass-through

 

4,091

 

86

 

 

4,177

 

Fixed rate agency CMOs

 

21,239

 

481

 

 

21,720

 

Variable rate agency CMOs

 

1,042

 

15

 

 

1,057

 

Total residential mortgage-backed securities

 

34,269

 

1,092

 

 

35,361

 

Total marketable securities held-to-maturity

 

$

90,825

 

2,164

 

 

92,989

 

 

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The following table shows the portfolio of investment securities held-to-maturity at December 31, 2014 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in five years - ten years

 

$

10,207

 

141

 

 

10,348

 

Due after ten years

 

56,545

 

1,314

 

 

57,859

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

8,236

 

477

 

 

8,713

 

Variable rate pass-through

 

4,273

 

122

 

 

4,395

 

Fixed rate agency CMOs

 

23,382

 

531

 

 

23,913

 

Variable rate agency CMOs

 

1,052

 

12

 

 

1,064

 

Total residential mortgage-backed securities

 

36,943

 

1,142

 

 

38,085

 

Total marketable securities held-to-maturity

 

$

103,695

 

2,597

 

 

106,292

 

 

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2015 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

75,986

 

(84

)

125,116

 

(638

)

201,102

 

(722

)

Municipal securities

 

782

 

 

 

 

782

 

 

Corporate issues

 

 

 

1,979

 

(444

)

1,979

 

(444

)

Equity securities

 

577

 

(41

)

 

 

577

 

(41

)

Residential mortgage-backed securities - agency

 

19,664

 

(104

)

164,546

 

(3,131

)

184,210

 

(3,235

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

97,009

 

(229

)

291,641

 

(4,213

)

388,650

 

(4,442

)

 

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The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2014 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

28,878

 

(67

)

244,828

 

(2,633

)

273,706

 

(2,700

)

Corporate debt issues

 

 

 

2,003

 

(419

)

2,003

 

(419

)

Equity securities

 

506

 

(116

)

 

 

506

 

(116

)

Residential mortgage- backed securities - agency

 

20,832

 

(79

)

195,505

 

(5,421

)

216,337

 

(5,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

50,216

 

(262

)

442,336

 

(8,473

)

492,552

 

(8,735

)

 

We review our investment portfolio on a quarterly basis for indications of impairment.  This review includes analyzing the length of time and the extent to which amortized costs have exceeded fair values, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the intent to hold the investments for a period of time sufficient to allow for a recovery in value.  Certain investments are evaluated using our best estimate of future cash flows. If the estimate of cash flows indicates that an adverse change has occurred, other-than-temporary impairment is recognized for the amount of the unrealized loss that was deemed credit related.

 

Credit related other-than-temporary impairment on all debt securities is recognized in earnings while noncredit related other-than-temporary impairment on available-for-sale debt securities, not expected to be sold, is recognized in other comprehensive income.

 

The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold for the quarter ended (in thousands):

 

 

 

2015

 

2014

 

Beginning balance at January 1, (1)

 

$

8,894

 

10,342

 

Credit losses on debt securities for which other-than-temporary impairment was not previously recognized

 

 

 

Reduction for losses realized during the quarter

 

(29

)

(8

)

Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized

 

 

 

Ending balance at March 31,

 

$

8,865

 

10,334

 

 


(1) — The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.

 

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(4)                                 Loans receivable

 

The following table shows a summary of our loans receivable at March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Personal Banking:

 

 

 

 

 

Residential mortgage loans

 

$

2,544,116

 

2,526,240

 

Home equity loans

 

1,055,739

 

1,066,131

 

Other consumer loans

 

239,956

 

242,744

 

Total Personal Banking

 

3,839,811

 

3,835,115

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

Commercial real estate

 

1,970,160

 

1,874,944

 

Commercial loans

 

381,501

 

419,525

 

Total Business Banking

 

2,351,661

 

2,294,469

 

Total loans receivable, gross

 

6,191,472

 

6,129,584

 

 

 

 

 

 

 

Deferred loan costs

 

7,741

 

6,095

 

Allowance for loan losses

 

(67,298

)

(67,518

)

Undisbursed loan proceeds:

 

 

 

 

 

Residential mortgage loans

 

(7,987

)

(10,879

)

Commercial real estate

 

(113,586

)

(73,760

)

Commercial loans

 

(12,776

)

(61,149

)

Total loans receivable, net

 

$

5,997,566

 

5,922,373

 

 

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The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the quarter ended March 31, 2015 (in thousands):

 

 

 

Balance
March 31,
2015

 

Current
period
provision

 

Charge-offs

 

Recoveries

 

Balance
December 31,
2014

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

5,077

 

(282

)

(335

)

113

 

5,581

 

Home equity loans

 

4,043

 

(213

)

(342

)

48

 

4,550

 

Other consumer loans

 

5,835

 

1,270

 

(1,940

)

387

 

6,118

 

Total Personal Banking

 

14,955

 

775

 

(2,617

)

548

 

16,249

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

33,252

 

242

 

(1,113

)

734

 

33,389

 

Commercial loans

 

15,113

 

270

 

(724

)

2,052

 

13,515

 

Total Business Banking

 

48,365

 

512

 

(1,837

)

2,786

 

46,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

3,978

 

(387

)

 

 

4,365

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

67,298

 

900

 

(4,454

)

3,334

 

67,518

 

 

The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the quarter ended March 31, 2014 (in thousands):

 

 

 

Balance
March 31,
2014

 

Current
period
provision

 

Charge-offs

 

Recoveries

 

Balance
December 31,
2013

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

7,467

 

35

 

(459

)

16

 

7,875

 

Home equity loans

 

6,958

 

37

 

(372

)

48

 

7,245

 

Other consumer loans

 

5,280

 

1,184

 

(1,716

)

325

 

5,487

 

Total Personal Banking

 

19,705

 

1,256

 

(2,547

)

389

 

20,607

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

36,209

 

1,321

 

(932

)

621

 

35,199

 

Commercial loans

 

16,169

 

5,419

 

(770

)

640

 

10,880

 

Total Business Banking

 

52,378

 

6,740

 

(1,702

)

1,261

 

46,079

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

4,151

 

(511

)

 

 

4,662

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

76,234

 

7,485

 

(4,249

)

1,650

 

71,348

 

 

15



Table of Contents

 

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at March 31, 2015 (in thousands):

 

 

 

Recorded
investment in
loans
receivable

 

Allowance for
loan losses

 

Recorded
investment in
loans on
nonaccrual
(1)

 

Recorded
investment in
loans past
due 90 days
or more and
still accruing

 

TDRs

 

Allowance
related to
TDRs

 

Additional
commitments
to customers
with loans
classified as
TDRs

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

2,543,870

 

5,077

 

19,233

 

7

 

6,658

 

1,072

 

 

Home equity loans

 

1,055,739

 

4,043

 

8,443

 

 

2,340

 

310

 

 

Other consumer loans

 

239,956

 

5,835

 

2,380

 

282

 

 

 

 

Total Personal Banking

 

3,839,565

 

14,955

 

30,056

 

289

 

8,998

 

1,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,856,574

 

33,252

 

31,650

 

 

41,343

 

4,114

 

923

 

Commercial loans

 

368,725

 

15,113

 

11,601

 

21

 

10,304

 

780

 

1,321

 

Total Business Banking

 

2,225,299

 

48,365

 

43,251

 

21

 

51,647

 

4,894

 

2,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,064,864

 

63,320

 

73,307

 

310

 

60,645

 

6,276

 

2,244

 

 


(1)   Includes $19.8 million of nonaccrual TDRs.

 

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2014 (in thousands):

 

 

 

Recorded
investment in
loans
receivable

 

Allowance for
loan losses

 

Recorded
investment in
loans on
nonaccrual
(1)

 

Recorded
investment in
loans past
due 90 days
or more and
still accruing

 

TDRs

 

Allowance
related to
TDRs

 

Additional
commitments
to customers
with loans
classified as
TDRs

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

2,521,456

 

5,581

 

21,194

 

8

 

6,574

 

1,133

 

 

Home equity loans

 

1,066,131

 

4,550

 

9,569

 

 

2,412

 

229

 

 

Other consumer loans

 

242,744

 

6,118

 

2,820

 

206

 

 

 

 

Total Personal Banking

 

3,830,331

 

16,249

 

33,583

 

214

 

8,986

 

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,801,184

 

33,389

 

38,647

 

 

41,917

 

4,938

 

449

 

Commercial loans

 

358,376

 

13,515

 

7,578

 

21

 

10,885

 

1,095

 

814

 

Total Business Banking

 

2,159,560

 

46,904

 

46,225

 

21

 

52,802

 

6,033

 

1,263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,989,891

 

63,153

 

79,808

 

235

 

61,788

 

7,395

 

1,263

 

 


(1)   Includes $24.5 million of nonaccrual TDRS.

 

16



Table of Contents

 

The following table provides geographical and delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at March 31, 2015 (in thousands):

 

 

 

Pennsylvania

 

New York

 

Ohio

 

Maryland

 

Other

 

Total

 

Recorded investment in loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

2,176,741

 

160,609

 

18,705

 

132,630

 

55,185

 

2,543,870

 

Home equity loans

 

897,681

 

117,853

 

8,910

 

26,217

 

5,078

 

1,055,739

 

Other consumer loans

 

221,324

 

10,635

 

3,377

 

1,359

 

3,261

 

239,956

 

Total Personal Banking

 

3,295,746

 

289,097

 

30,992

 

160,206

 

63,524

 

3,839,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

995,436

 

662,453

 

24,751

 

117,092

 

56,842

 

1,856,574

 

Commercial loans

 

284,442

 

55,009

 

15,991

 

4,506

 

8,777

 

368,725

 

Total Business Banking

 

1,279,878

 

717,462

 

40,742

 

121,598

 

65,619

 

2,225,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

4,575,624

 

1,006,559

 

71,734

 

281,804

 

129,143

 

6,064,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans receivable

 

75.5

%

16.6

%

1.2

%

4.6

%

2.1

%

100.0

%

 

 

 

Pennsylvania

 

New York

 

Ohio

 

Maryland

 

Other

 

Total

 

Loans 90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

10,771

 

1,229

 

602

 

1,221

 

1,245

 

15,068

 

Home equity loans

 

3,510

 

1,012

 

 

1,083

 

41

 

5,646

 

Other consumer loans

 

1,954

 

65

 

8

 

18

 

 

2,045

 

Total Personal Banking

 

16,235

 

2,306

 

610

 

2,322

 

1,286

 

22,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

6,551

 

1,242

 

 

27

 

413

 

8,233

 

Commercial loans

 

1,921

 

 

 

 

 

1,921

 

Total Business Banking

 

8,472

 

1,242

 

 

27

 

413

 

10,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

24,707

 

3,548

 

610

 

2,349

 

1,699

 

32,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans 90 or more days delinquent

 

75.1

%

10.8

%

1.9

%

7.1

%

5.2

%

100.0

%

 

17



Table of Contents

 

The following table provides geographical and delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at December 31, 2014 (in thousands):

 

 

 

Pennsylvania

 

New York

 

Ohio

 

Maryland

 

Other

 

Total

 

Recorded investment in loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

2,151,361

 

161,445

 

18,486

 

134,228

 

55,936

 

2,521,456

 

Home equity loans

 

909,139

 

115,459

 

9,087

 

27,203

 

5,243

 

1,066,131

 

Other consumer loans

 

225,088

 

9,961

 

3,132

 

1,328

 

3,235

 

242,744

 

Total Personal Banking

 

3,285,588

 

286,865

 

30,705

 

162,759

 

64,414

 

3,830,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,013,632

 

590,934

 

24,901

 

114,850

 

56,867

 

1,801,184

 

Commercial loans

 

243,159

 

83,252

 

15,826

 

7,817

 

8,322

 

358,376

 

Total Business Banking

 

1,256,791

 

674,186

 

40,727

 

122,667

 

65,189

 

2,159,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

4,542,379

 

961,051

 

71,432

 

285,426

 

129,603

 

5,989,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans receivable

 

75.8

%

16.0

%

1.2

%

4.8

%

2.2

%

100.0

%

 

 

 

Pennsylvania

 

New York

 

Ohio

 

Maryland

 

Other

 

Total

 

Loans 90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

12,282

 

1,237

 

710

 

1,678

 

1,789

 

17,696

 

Home equity loans

 

4,474

 

936

 

35

 

1,058

 

103

 

6,606

 

Other consumer loans

 

2,388

 

55

 

7

 

 

 

2,450

 

Total Personal Banking

 

19,144

 

2,228

 

752

 

2,736

 

1,892

 

26,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

8,827

 

1,072

 

 

270

 

930

 

11,099

 

Commercial loans

 

2,659

 

284

 

 

207

 

325

 

3,475

 

Total Business Banking

 

11,486

 

1,356

 

 

477

 

1,255

 

14,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

30,630

 

3,584

 

752

 

3,213

 

3,147

 

41,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total loans 90 or more days delinquent

 

74.1

%

8.7

%

1.8

%

7.8

%

7.6

%

100.0

%

 

18



Table of Contents

 

The following table provides information related to the composition of impaired loans by portfolio segment and by class of financing receivable at and for the quarter ended March 31, 2015 (in thousands):

 

 

 

Nonaccrual
loans 90 or
more days
delinquent

 

Nonaccrual
loans less
than 90
days
delinquent

 

Loans less
than 90
days
delinquent
reviewed for
impairment

 

TDRs less
than 90
days
delinquent
not included
elsewhere

 

Total
impaired
loans

 

Average
recorded
investment
in impaired
loans

 

Interest
income
recognized
on impaired
loans

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

15,068

 

4,165

 

 

5,931

 

25,164

 

25,316

 

218

 

Home equity loans

 

5,646

 

2,797

 

 

1,760

 

10,203

 

11,124

 

121

 

Other consumer loans

 

2,045

 

335

 

 

 

2,380

 

2,722

 

24

 

Total Personal Banking

 

22,759

 

7,297

 

 

7,691

 

37,747

 

39,162

 

363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

8,233

 

23,417

 

25,367

 

17,628

 

74,645

 

80,773

 

846

 

Commercial loans

 

1,921

 

9,680

 

5,047

 

3,665

 

20,313

 

19,981

 

211

 

Total Business Banking

 

10,154

 

33,097

 

30,414

 

21,293

 

94,958

 

100,754

 

1,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

32,913

 

40,394

 

30,414

 

28,984

 

132,705

 

139,916

 

1,420

 

 

The following table provides information related to the composition of impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2014 (in thousands):

 

 

 

Nonaccrual
loans 90 or
more days
delinquent

 

Nonaccrual
loans less
than 90
days
delinquent

 

Loans less
than 90
days
delinquent
reviewed for
impairment

 

TDRs less
than 90
days
delinquent
not included
elsewhere

 

Total
impaired
loans

 

Average
recorded
investment
in impaired
loans

 

Interest
income
recognized
on impaired
loans

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

17,696

 

3,498

 

 

5,845

 

27,039

 

28,227

 

817

 

Home equity loans

 

6,606

 

2,963

 

 

1,706

 

11,275

 

11,753

 

485

 

Other consumer loans

 

2,450

 

370

 

 

 

2,820

 

2,383

 

66

 

Total Personal Banking

 

26,752

 

6,831

 

 

7,551

 

41,134

 

42,363

 

1,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

11,099

 

27,548

 

26,400

 

12,128

 

77,175

 

90,187

 

3,589

 

Commercial loans

 

3,475

 

4,103

 

5,266

 

6,026

 

18,870

 

27,088

 

914

 

Total Business Banking

 

14,574

 

31,651

 

31,666

 

18,154

 

96,045

 

117,275

 

4,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

41,326

 

38,482

 

31,666

 

25,705

 

137,179

 

159,638

 

5,871

 

 

19



Table of Contents

 

The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at March 31, 2015 (in thousands):

 

 

 

Loans
collectively
evaluated for
impairment

 

Loans
individually
evaluated for
impairment

 

Loans
individually
evaluated for
impairment
for which
there is a
related
impairment
reserve

 

Related
impairment
reserve

 

Loans
individually
evaluated for
impairment
for which
there is no
related
reserve

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

2,536,741

 

7,129

 

7,129

 

1,140

 

 

Home equity loans

 

1,053,073

 

2,666

 

2,666

 

220

 

 

Other consumer loans

 

239,862

 

94

 

94

 

1

 

 

Total Personal Banking

 

3,829,676

 

9,889

 

9,889

 

1,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,791,047

 

65,527

 

42,972

 

5,223

 

22,555

 

Commercial loans

 

357,677

 

11,048

 

7,391

 

742

 

3,657

 

Total Business Banking

 

2,148,724

 

76,575

 

50,363

 

5,965

 

26,212

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,978,400

 

86,464

 

60,252

 

7,326

 

26,212

 

 

The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at December 31, 2014 (in thousands):

 

 

 

Loans
collectively
evaluated for
impairment

 

Loans
individually
evaluated for
impairment

 

Loans
individually
evaluated for
impairment
for which
there is a
related
impairment
reserve

 

Related
impairment
reserve

 

Loans
individually
evaluated for
impairment
for which
there is no
related
reserve

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

$

2,514,060

 

7,396

 

7,396

 

1,116

 

 

Home equity loans

 

1,063,741

 

2,390

 

2,390

 

246

 

 

Other consumer loans

 

242,678

 

66

 

66

 

1

 

 

Total Personal Banking

 

3,820,479

 

9,852

 

9,852

 

1,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,734,864

 

66,320

 

42,869

 

6,189

 

23,451

 

Commercial loans

 

343,416

 

14,960

 

10,938

 

1,378

 

4,022

 

Total Business Banking

 

2,078,280

 

81,280

 

53,807

 

7,567

 

27,473

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,898,759

 

91,132

 

63,659

 

8,930

 

27,473

 

 

20



Table of Contents

 

Our loan portfolios include loans that have been modified in a troubled debt restructuring (TDR), where concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include: extending the note’s maturity date, permitting interest only payments, reducing the interest rate to a rate lower than current market rates for new debt with similar risk, reducing the principal payment, principal forbearance or other actions.  These concessions are applicable to all loan segments and classes. Certain TDRs are classified as nonperforming at the time of restructuring and may be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

 

When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, the loan’s observable market price or the current fair value of the collateral, less selling costs, for collateral dependent loans.  If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.  In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment, using ASC 310-10. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan.

 

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a TDR subsequently default, we evaluate the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, partial charge-offs may be taken to further write-down the carrying value of the loan, or the loan may be charged-off completely.

 

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

 

 

 

For the quarters ended March 31,

 

 

 

2015

 

2014

 

 

 

Number of
contracts

 

 

 

Number of
contracts

 

 

 

Beginning TDR balance:

 

248

 

$

61,788

 

262

 

$

79,166

 

New TDRs

 

2

 

112

 

7

 

1,309

 

Re-modified TDRs

 

1

 

85

 

4

 

159

 

Net paydowns

 

 

 

(823

)

 

 

(4,494

)

Charge-offs:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

Home equity loans

 

2

 

(31

)

 

 

Commercial real estate loans

 

1

 

(14

)

2

 

(31

)

Commercial loans

 

2

 

(387

)

1

 

(7

)

Paid-off loans:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

Home equity loans

 

1

 

(6

)

 

 

Commercial real estate loans

 

2

 

(79

)

2

 

(277

)

Commercial loans

 

 

 

6

 

(1,314

)

Ending TDR balance:

 

242

 

$

60,645

 

258

 

$

74,511

 

 

 

 

 

 

 

 

 

 

 

Accruing TDRs

 

 

 

$

40,802

 

 

 

$

40,243

 

Non-accrual TDRs

 

 

 

19,843

 

 

 

34,268

 

 

21



Table of Contents

 

The following table provides information related to troubled debt restructurings (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (dollars in thousands):

 

 

 

For the quarter ended
March 31, 2015

 

 

 

Number of
contracts

 

Recorded
investment
at the time of
modification

 

Current 
recorded
investment

 

Current
allowance

 

Troubled debt restructurings:

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

2

 

$

112

 

112

 

1

 

Home equity loans

 

1

 

85

 

84

 

17

 

Other consumer loans

 

 

 

 

 

Total Personal Banking

 

3

 

197

 

196

 

18

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

Commercial loans

 

 

 

 

 

Total Business Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

3

 

$

197

 

196

 

18

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings modified within the previous twelve months that have subsequently defaulted:

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

$

 

 

 

Home equity loans

 

 

 

 

 

Other consumer loans

 

 

 

 

 

Total Personal Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

Commercial loans

 

1

 

50

 

 

 

Total Business Banking

 

1

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1

 

$

50

 

 

 

 

22



Table of Contents

 

The following table provides information related to troubled debt restructurings (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (dollars in thousands):

 

 

 

For the quarter ended
March 31, 2014

 

 

 

Number of
contracts

 

Recorded
investment
at the time of
modification

 

Current 
recorded
investment

 

Current
allowance

 

Troubled debt restructurings:

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

6

 

$

1,290

 

1,289

 

119

 

Home equity loans

 

 

 

 

 

Other consumer loans

 

 

 

 

 

Total Personal Banking

 

6

 

1,290

 

1,289

 

119

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

3

 

89

 

87

 

32

 

Commercial loans

 

2

 

89

 

107

 

10

 

Total Business Banking

 

5

 

178

 

194

 

42

 

 

 

 

 

 

 

 

 

 

 

Total

 

11

 

$

1,468

 

1,483

 

161

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructurings modified within the previous twelve months that have subsequently defaulted:

 

 

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

$

 

 

 

Home equity loans

 

 

 

 

 

Other consumer loans

 

 

 

 

 

Total Personal Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

Commercial loans

 

 

 

 

 

Total Business Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

 

 

 

 

23



Table of Contents

 

The following table provides information as of March 31, 2015 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended March 31, 2015 (dollars in thousands):

 

 

 

 

 

Type of modification

 

 

 

 

 

Number of
contracts

 

Rate

 

Payment

 

Maturity
date

 

Other

 

Total

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

2

 

$

 

 

112

 

 

112

 

Home equity loans

 

1

 

84

 

 

 

 

84

 

Other consumer loans

 

 

 

 

 

 

 

Total Personal Banking

 

3

 

84

 

 

112

 

 

196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

Total Business Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

3

 

$

84

 

 

112

 

 

196

 

 

The following table provides information as of March 31, 2014 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended March 31, 2014 (dollars in thousands):

 

 

 

 

 

Type of modification

 

 

 

 

 

Number of
contracts

 

Rate

 

Payment

 

Maturity
date

 

Other

 

Total

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

6

 

$

 

 

1,289

 

 

1,289

 

Home equity loans

 

 

 

 

 

 

 

Other consumer loans

 

 

 

 

 

 

 

Total Personal Banking

 

6

 

 

 

1,289

 

 

1,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

3

 

 

 

59

 

28

 

87

 

Commercial loans

 

2

 

 

102

 

 

5

 

107

 

Total Business Banking

 

5

 

 

102

 

59

 

33

 

194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

11

 

$

 

102

 

1,348

 

33

 

1,483

 

 

24



Table of Contents

 

The following table provides information related to re-modified troubled debt restructurings by portfolio segment and by class of financing receivable for the quarter ended March 31, 2015 (dollars in thousands):

 

 

 

Number of re-

 

Type of re-modification

 

 

 

 

 

modified
TDRs

 

Rate

 

Payment

 

Maturity
date

 

Other

 

Total

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

 

$

 

 

 

 

 

Home equity loans

 

1

 

84

 

 

 

 

84

 

Other consumer loans

 

 

 

 

 

 

 

Total Personal Banking

 

1

 

84

 

 

 

 

84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

Total Business Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1

 

$

84

 

 

 

 

84

 

 

The following table provides information related to re-modified troubled debt restructurings by portfolio segment and by class of financing receivable for the quarter ended March 31, 2014 (dollars in thousands):

 

 

 

Number of re-

 

Type of re-modification

 

 

 

 

 

modified
TDRs

 

Rate

 

Payment

 

Maturity
date

 

Other

 

Total

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residental mortgage loans

 

1

 

$

 

 

77

 

 

77

 

Home equity loans

 

 

 

 

 

 

 

Other consumer loans

 

 

 

 

 

 

 

Total Personal Banking

 

1

 

 

 

77

 

 

77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

2

 

 

 

59

 

18

 

77

 

Commercial loans

 

1

 

 

 

 

5

 

5

 

Total Business Banking

 

3

 

 

 

59

 

23

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4

 

$

 

 

136

 

23

 

159

 

 

25



Table of Contents

 

The following table provides information related to loan payment delinquencies at March 31, 2015 (in thousands):

 

 

 

30-59 Days
delinquent

 

60-89 Days
delinquent

 

90 Days or
greater
delinquent

 

Total
delinquency

 

Current

 

Recorded
investment
in loans
receivable

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

25,586

 

3,397

 

15,068

 

44,051

 

2,499,819

 

2,543,870

 

Home equity loans

 

3,737

 

1,404

 

5,646

 

10,787

 

1,044,952

 

1,055,739

 

Other consumer loans

 

4,374

 

1,515

 

2,045

 

7,934

 

232,022

 

239,956

 

Total Personal Banking

 

33,697

 

6,316

 

22,759

 

62,772

 

3,776,793

 

3,839,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

5,497

 

2,351

 

8,233

 

16,081

 

1,840,493

 

1,856,574

 

Commercial loans

 

1,480

 

136

 

1,921

 

3,537

 

365,188

 

368,725

 

Total Business Banking

 

6,977

 

2,487

 

10,154

 

19,618

 

2,205,681

 

2,225,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

40,674

 

8,803

 

32,913

 

82,390

 

5,982,474

 

6,064,864

 

 

The following table provides information related to loan payment delinquencies at December 31, 2014 (in thousands):

 

 

 

30-59 Days
delinquent

 

60-89 Days
delinquent

 

90 Days or
greater
delinquent

 

Total
delinquency

 

Current

 

Recorded
investment
in loans
receivable

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

27,443

 

6,970

 

17,696

 

52,109

 

2,469,347

 

2,521,456

 

Home equity loans

 

5,752

 

1,672

 

6,606

 

14,030

 

1,052,101

 

1,066,131

 

Other consumer loans

 

5,572

 

2,435

 

2,450

 

10,457

 

232,287

 

242,744

 

Total Personal Banking

 

38,767

 

11,077

 

26,752

 

76,596

 

3,753,735

 

3,830,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

4,956

 

2,038

 

11,099

 

18,093

 

1,783,091

 

1,801,184

 

Commercial loans

 

2,262

 

209

 

3,475

 

5,946

 

352,430

 

358,376

 

Total Business Banking

 

7,218

 

2,247

 

14,574

 

24,039

 

2,135,521

 

2,159,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

45,985

 

13,324

 

41,326

 

100,635

 

5,889,256

 

5,989,891

 

 

Credit quality indicators:  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

 

26



Table of Contents

 

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.

 

LossLoans 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.

 

The following table sets forth information about credit quality indicators, which were updated during the quarter ended March 31, 2015 (in thousands):

 

 

 

Pass

 

Special
mention

 

Substandard

 

Doubtful

 

Loss

 

Recorded
investment
in loans
receivable

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

2,531,595

 

 

10,851

 

 

1,424

 

2,543,870

 

Home equity loans

 

1,050,092

 

 

5,647

 

 

 

1,055,739

 

Other consumer loans

 

238,381

 

 

1,575

 

 

 

239,956

 

Total Personal Banking

 

3,820,068

 

 

18,073

 

 

1,424

 

3,839,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,671,331

 

43,874

 

141,369

 

 

 

1,856,574

 

Commercial loans

 

305,632

 

22,651

 

31,243

 

9,199

 

 

368,725

 

Total Business Banking

 

1,976,963

 

66,525

 

172,612

 

9,199

 

 

2,225,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,797,031

 

66,525

 

190,685

 

9,199

 

1,424

 

6,064,864

 

 

27



Table of Contents

 

The following table sets forth information about credit quality indicators, which were updated during the year ended December 31, 2014 (in thousands):

 

 

 

Pass

 

Special
mention

 

Substandard

 

Doubtful

 

Loss

 

Recorded

investment
in loans
receivable

 

Personal Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

2,507,269

 

 

12,763

 

 

1,424

 

2,521,456

 

Home equity loans

 

1,059,525

 

 

6,606

 

 

 

1,066,131

 

Other consumer loans

 

240,947

 

 

1,797

 

 

 

242,744

 

Total Personal Banking

 

3,807,741

 

 

21,166

 

 

1,424

 

3,830,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans

 

1,618,269

 

36,908

 

145,502

 

505

 

 

1,801,184

 

Commercial loans

 

286,234

 

23,690

 

46,280

 

2,172

 

 

358,376

 

Total Business Banking

 

1,904,503

 

60,598

 

191,782

 

2,677

 

 

2,159,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,712,244

 

60,598

 

212,948

 

2,677

 

1,424

 

5,989,891

 

 

(5)                                 Goodwill and Other Intangible Assets

 

The following table provides information for intangible assets subject to amortization at the dates indicated (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Amortizable intangible assets:

 

 

 

 

 

Core deposit intangibles — gross

 

$

30,578

 

30,578

 

Acquisitions

 

 

 

Less: accumulated amortization

 

(30,578

)

(30,578

)

Core deposit intangibles — net

 

 

 

Customer and Contract intangible assets — gross

 

8,234

 

6,197

 

Acquisitions

 

262

 

2,037

 

Less: accumulated amortization

 

(5,469

)

(5,201

)

Customer and Contract intangible assets — net

 

$

3,027

 

3,033

 

 

28



Table of Contents

 

The following table shows the actual aggregate amortization expense for the quarters ended March 31, 2015 and 2014, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):

 

For the quarter ended March 31, 2015

 

$

268

 

For the quarter ended March 31, 2014

 

331

 

For the year ending December 31, 2015

 

1,074

 

For the year ending December 31, 2016

 

835

 

For the year ending December 31, 2017

 

597

 

For the year ending December 31, 2018

 

429

 

For the year ending December 31, 2019

 

260

 

For the year ending December 31, 2020

 

92

 

 

The following table provides information for the changes in the carrying amount of goodwill (in thousands):

 

 

 

Community

 

Consumer

 

 

 

 

 

Banks

 

Finance

 

Total

 

Balance at December 31, 2013

 

$

173,031

 

1,613

 

174,644

 

Goodwill acquired

 

679

 

 

679

 

Impairment losses

 

 

 

 

Balance at December 31, 2014

 

173,710

 

1,613

 

175,323

 

Goodwill acquired

 

175

 

 

175

 

Impairment losses

 

 

 

 

Balance at March 31, 2015

 

$

173,885

 

1,613

 

175,498

 

 

We performed our annual goodwill impairment test as of June 30, 2014 and concluded that goodwill was not impaired. At March 31, 2015, there were no changes in our operations or other factors that would cause us to update that test. See the Overview of Critical Accounting Policies Involving Estimates section for a description of our testing procedures.

 

(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 March 31, 2015, the maximum potential amount of future payments we could be required to make under these standby letters of credit was $23.8 million, of which $23.2 million is fully collateralized.  At March 31, 2015, we had a liability, which represents deferred income, of $1.1 million related to the standby letters of credit.  There are no recourse provisions that would enable us to recover any amounts from third parties.

 

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Table of Contents

 

(7)                           Earnings Per Share

 

Basic earnings per common share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  Stock options to purchase 3,744,878 shares of common stock with a weighted average exercise price of $12.43 per share were outstanding during the quarter ended March 31, 2015 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares of $11.89.  All stock options outstanding during the quarter ended March 31, 2014 were included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $14.47 during the quarter.

 

The computation of basic and diluted earnings per share follows (in thousands, except share data and per share amounts):

 

 

 

Quarter ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

Reported net income

 

$

16,170

 

14,611

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

91,634,064

 

91,154,998

 

Dilutive potential shares due to effect of stock options

 

268,007

 

1,198,314

 

Total weighted average common shares and dilutive potential shares

 

91,902,071

 

92,353,312

 

 

 

 

 

 

 

Basic earnings per share:

 

$

0.18

 

0.16

 

 

 

 

 

 

 

Diluted earnings per share:

 

$

0.18

 

0.16

 

 

(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):

 

Components of net periodic benefit cost

 

 

 

Quarter ended March 31,

 

 

 

Pension benefits

 

Other post-retirement benefits

 

 

 

2015

 

2014

 

2015

 

2014

 

Service cost

 

$

1,430

 

1,035

 

 

 

Interest cost

 

1,531

 

1,457

 

15

 

16

 

Expected return on plan assets

 

(2,593

)

(2,416

)

 

 

Amortization of prior service cost

 

(581

)

(581

)

 

 

Amortization of the net loss

 

925

 

356

 

15

 

12

 

Net periodic (benefit)/ cost

 

$

712

 

(149

)

30

 

28

 

 

We anticipate making a contribution to our defined benefit pension plan of $4.0 million to $8.0 million during the year ending December 31, 2015.

 

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(9)                           Disclosures About Fair Value of Financial Instruments

 

Fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, is required to be disclosed. These requirements exclude certain financial instruments and all nonfinancial instruments. 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;

·                  Quotes and other information from brokers or other external sources where the inputs are not deemed observable.

 

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

 

The carrying amounts reported in the consolidated statement of financial condition approximate fair value for the following financial instruments: cash on hand, interest-earning deposits in other institutions, federal funds sold and other short-term investments, accrued interest receivable, accrued interest payable, and marketable securities available-for-sale.

 

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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 US government obligations.  Certain corporate debt securities do not have an active market and as such the broker pricing received uses alternative methods. The fair value of these corporate debt securities is determined by using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions.  As such, these securities are included herein as Level 3 assets.

 

Equity securities — available for sale - Level 1 securities include publicly traded securities valued using quoted market prices.  We consider the financial condition of the issuer to determine if the securities have indicators of impairment.

 

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. Characteristics 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 and the approximate discount or market rate.  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.

 

Federal Home Loan Bank of Pittsburgh (“FHLB”) Stock

 

Due to the restrictions placed on the transferability of FHLB stock it is not practical to determine the fair value.

 

Deposit Liabilities

 

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

 

Borrowed Funds

 

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

 

Junior Subordinated Debentures

 

The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest.

 

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Table of Contents

 

Cash flow hedges — Interest rate swap agreements (“swaps”)

 

The fair value of the swaps is the amount we would expect to pay to terminate the agreements and is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate.

 

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 March 31, 2015 and December 31, 2014, there was no significant unrealized appreciation or depreciation on these financial instruments.

 

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 March 31, 2015:

 

 

 

Carrying

 

Estimated

 

 

 

 

 

 

 

 

 

amount

 

fair value

 

Level 1

 

Level 2

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

297,101

 

297,101

 

297,101

 

 

 

Securities available-for-sale

 

916,423

 

916,423

 

2,924

 

903,193

 

10,306

 

Securities held-to-maturity

 

90,825

 

92,989

 

 

92,989

 

 

Loans receivable, net

 

5,997,566

 

6,323,248

 

 

 

6,323,248

 

Accrued interest receivable

 

19,753

 

19,753

 

19,753

 

 

 

FHLB Stock

 

36,292

 

36,292

 

 

 

 

Total financial assets

 

$

7,357,960

 

7,685,806

 

319,778

 

996,182

 

6,333,554

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Savings and checking deposits

 

$

4,253,299

 

4,253,299

 

4,253,299

 

 

 

Time deposits

 

1,428,768

 

1,446,470

 

 

 

1,446,470

 

Borrowed funds

 

943,842

 

975,867

 

143,460

 

 

832,407

 

Junior subordinated debentures

 

103,094

 

109,373

 

 

 

109,373

 

Cash flow hedges - swaps

 

6,205

 

6,205

 

 

6,205

 

 

Accrued interest payable

 

1,336

 

1,336

 

1,336

 

 

 

Total financial liabilities

 

$

6,736,544

 

6,792,550

 

4,398,095

 

6,205

 

2,388,250

 

 

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Table of Contents

 

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, 2014:

 

 

 

Carrying

 

Estimated

 

 

 

 

 

 

 

 

 

amount

 

fair value

 

Level 1

 

Level 2

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

240,706

 

240,706

 

240,706

 

 

 

Securities available-for-sale

 

912,371

 

912,371

 

3,157

 

898,617

 

10,597

 

Securities held-to-maturity

 

103,695

 

106,292

 

 

106,292

 

 

Loans receivable, net

 

5,922,373

 

6,240,079

 

 

 

6,240,079

 

Accrued interest receivable

 

18,623

 

18,623

 

18,623

 

 

 

FHLB Stock

 

33,293

 

33,293

 

 

 

 

Total financial assets

 

$

7,231,061

 

7,551,364

 

262,486

 

1,004,909

 

6,250,676

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Savings and checking accounts

 

$

4,154,228

 

4,154,228

 

4,154,228

 

 

 

Time deposits

 

1,478,314

 

1,498,539

 

 

 

1,498,539

 

Borrowed funds

 

888,109

 

919,612

 

162,714

 

 

756,898

 

Junior subordinated debentures

 

103,094

 

109,435

 

 

 

109,435

 

Cash flow hedges - swaps

 

6,273

 

6,273

 

 

6,273

 

 

Accrued interest payable

 

936

 

936

 

936

 

 

 

Total financial liabilities

 

$

6,630,954

 

6,689,023

 

4,317,878

 

6,273

 

2,364,872

 

 

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 March 31, 2015 and December 31, 2014.  There were no transfers of financial instruments between Level 1 and Level 2 during the quarter ended March 31, 2015.

 

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Table of Contents

 

The following table represents assets and liabilities measured at fair value on a recurring basis at March 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

assets at

 

 

 

Level 1

 

Level 2

 

Level 3

 

fair value

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

2,924

 

 

 

2,924

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

 

23

 

 

23

 

Government sponsored enterprises

 

 

364,252

 

 

364,252

 

States and political subdivisions

 

 

67,279

 

 

67,279

 

Corporate

 

 

9,976

 

10,306

 

20,282

 

Total debt securities

 

 

441,530

 

10,306

 

451,836

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

GNMA

 

 

28,192

 

 

28,192

 

FNMA

 

 

70,503

 

 

70,503

 

FHLMC

 

 

39,611

 

 

39,611

 

Non-agency

 

 

626

 

 

626

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

GNMA

 

 

7,679

 

 

7,679

 

FNMA

 

 

132,706

 

 

132,706

 

FHLMC

 

 

169,614

 

 

169,614

 

SBA

 

 

9,419

 

 

9,419

 

Non-agency

 

 

3,313

 

 

3,313

 

Total mortgage-backed securities

 

 

461,663

 

 

461,663

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(6,205

)

 

(6,205

)

 

 

 

 

 

 

 

 

 

 

Total assets and liabilities

 

$

2,924

 

896,988

 

10,306

 

910,218

 

 

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Table of Contents

 

The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

assets at

 

 

 

Level 1

 

Level 2

 

Level 3

 

fair value

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

3,157

 

 

 

3,157

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

 

25

 

 

25

 

Government sponsored enterprises

 

 

333,505

 

 

333,505

 

States and political subdivisions

 

 

70,145

 

 

70,145

 

Corporate

 

 

9,830

 

10,597

 

20,427

 

Total debt securities

 

 

413,505

 

10,597

 

424,102

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

GNMA

 

 

29,216

 

 

29,216

 

FNMA

 

 

73,497

 

 

73,497

 

FHLMC

 

 

42,119

 

 

42,119

 

Non-agency

 

 

643

 

 

643

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

GNMA

 

 

8,329

 

 

8,329

 

FNMA

 

 

139,150

 

 

139,150

 

FHLMC

 

 

 

178,698

 

 

 

178,698

 

SBA

 

 

10,052

 

 

10,052

 

Non-agency

 

 

3,408

 

 

3,408

 

Total mortgage-backed securities

 

 

485,112

 

 

485,112

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(6,273

)

 

(6,273

)

 

 

 

 

 

 

 

 

 

 

Total assets and liabilities

 

$

3,157

 

892,344

 

10,597

 

906,098

 

 

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Table of Contents

 

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated (in thousands):

 

 

 

Quarter ended

 

 

 

March 31,
2015

 

March 31,
2014

 

 

 

 

 

 

 

Beginning balance

 

$

10,597

 

12,251

 

 

 

 

 

 

 

Total net realized investment gains/ (losses) and net change in unrealized appreciation/(depreciation):

 

 

 

 

 

Included in net income as OTTI

 

 

 

Included in other comprehensive income

 

(291

)

140

 

 

 

 

 

 

 

Purchases

 

 

 

Sales

 

 

 

Transfers in to Level 3

 

 

 

Transfers out of Level 3

 

 

 

 

 

 

 

 

 

Ending balance

 

$

10,306

 

12,391

 

 

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and real estate owned.  The following table represents the fair value measurement for nonrecurring assets at March 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

assets at

 

 

 

Level 1

 

Level 2

 

Level 3

 

fair value

 

 

 

 

 

 

 

 

 

 

 

Loans measured for impairment

 

$

 

 

52,926

 

52,926

 

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

 

 

15,346

 

15,346

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

 

68,272

 

68,272

 

 

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Table of Contents

 

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and real estate owned.  The following table represents the fair value measurement for nonrecurring assets at December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

assets at

 

 

 

Level 1

 

Level 2

 

Level 3

 

fair value

 

 

 

 

 

 

 

 

 

 

 

Loans measured for impairment

 

$

 

 

54,729

 

54,729

 

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

 

 

16,759

 

16,759

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

 

71,488

 

71,488

 

 

Impaired loans — A loan is considered to be impaired as described in the Overview of Critical Accounting Policies Involving Estimates, Allowance for Loan Losses section.  We classify loans individually evaluated for impairment that require a specific or TDR reserve as nonrecurring Level 3.

 

Real Estate Owned — Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by delinquent 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 all real estate owned as nonrecurring Level 3.

 

The 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 March 31, 2015 (dollar amounts in thousands):

 

 

 

Fair value

 

Valuation
techniques

 

Significant
unobservable inputs

 

Range (weighted
average)

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

$

10,306

 

Discounted cash flow

 

Discount margin

 

0.35% to 2.1% (0.69)%

 

 

 

 

 

 

 

Default rates

 

1.00%

 

 

 

 

 

 

 

Prepayment speeds

 

1.00% annually

 

 

 

 

 

 

 

 

 

 

 

Loans measured for impairment

 

52,926

 

Appraisal value (1)

 

Estimated cost to sell

 

10%

 

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

15,346

 

Appraisal value (1)

 

Estimated cost to sell

 

10%

 

 


(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.

 

The significant unobservable inputs used in the fair value measurement of our debt securities are discount margins, default rates and prepayment speeds.  Significant increases in any of those rates would result in a significantly lower fair value measurement.

 

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Table of Contents

 

(10)                          Guaranteed Preferred Beneficial Interests in the Company’s Junior Subordinated Deferrable Interest Debentures (Trust Preferred Securities) and Interest Rate Swaps

 

We have two statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust and Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust (“Trusts”).  These 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 the trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed.

 

Northwest Bancorp Capital Trust III (Trust III) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 5, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 30, 2035.  These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%.  Northwest Bancorp Statutory Trust IV (Trust IV) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 15, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 15, 2035.  These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%.  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.  Trust III holds $51,547,000 of the Company’s junior subordinated debentures and Trust IV holds $51,547,000 of the Company’s junior subordinated debentures.  These subordinated debentures are the sole assets of the Trusts.  Cash distri-butions 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 preferred securities are also deferred.  Interest on the subordinated debentures and distributions on the trust securities is cumulative.  To date, there have been no interest deferrals.  Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.

 

We are currently a counterparty to three interest rate swap agreements (swaps), designating the swaps as cash flow hedges.  The swaps are intended to protect against the variability of cash flows associated with Trust III and Trust IV.  The first swap modifies the re-pricing characteristics of Trust III, wherein for a ten year period expiring in September 2018, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 4.61% to the same counterparty calculated on a notional amount of $25.0 million.  The other two swaps modify the re-pricing characteristics of Trust IV, wherein (i) for a seven year period expiring in September 2015, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 3.85% to the same counterparty calculated on a notional amount of $25.0 million and (ii) for a ten year period expiring in September 2018, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 4.09% to the same counterparty calculated on a notional amount of $25.0 million.  The swap agreements were entered into with a counterparty that met our credit standards and the agreements contain collateral provisions protecting the at-risk party.  We believe that the credit risk inherent in the contracts is not significant.  At March 31, 2015, $6.6 million of cash was pledged as collateral to the counterparty.

 

At March 31, 2015, the fair value of the swap agreements was $(6.2) million and was the amount we would have expected to pay if the contracts were terminated.  There was no material hedge ineffectiveness for these swaps.

 

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Table of Contents

 

The following table shows liability derivatives, included in other liabilities, at March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Fair value

 

$

6,205

 

6,273

 

Notional amount

 

75,000

 

75,000

 

Collateral posted

 

6,555

 

6,805

 

 

(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 March 31, 2015 we have not accrued for legal proceedings based on our analysis of currently available information which is subject to significant judgment and a variety of assumptions and uncertainties.  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.

 

Toth v. Northwest Savings Bank

 

On May 7, 2012, Ashley Toth (“Plaintiff”) filed a putative class action complaint in the Court of Common Pleas of Allegheny County, Pennsylvania against Northwest Savings Bank (“Northwest”).  Plaintiff’s complaint alleged state law claims related to Northwest’s order of posting ATM and debit card transactions and the assessment of overdraft fees on deposit customer accounts.  Northwest filed preliminary objections to the putative class action complaint on June 29, 2012.  On September 6, 2012, Plaintiff filed an amended putative class action complaint containing substantially the same allegations as the initial putative class action complaint.  On November 5, 2012, Northwest filed preliminary objections to the amended putative class action complaint.  Plaintiff filed her opposition to Northwest’s preliminary objections on December 6, 2012, and Northwest filed its reply in support of the preliminary objections on January 3, 2013.  On June 25, 2013, the court entered an order, granting in part and overruling in part, Northwest’s preliminary objections.

 

On November 18, 2013, the parties participated in a mediation and reached an agreement in principle, subject to the preparation and execution of a mutually acceptable settlement agreement and release, to fully, finally and completely settle, resolve, discharge and release all claims that have been or could have been asserted in the action on a class-wide basis.  The proposed settlement contemplates that, in return for a full and complete release of claims by Plaintiff and the settlement class members, Northwest will create a settlement fund for distribution to the settlement class members after certain court-approved reductions, including for attorney’s fees and expenses.  The proposed settlement has been preliminarily and finally approved by the court.

 

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(12)                      Changes in Accumulated Other Comprehensive Income

 

The following table shows the changes in accumulated other comprehensive income by component for the periods indicated (in thousands):

 

 

 

For the quarter ended March 31, 2015

 

 

 

Unrealized
gains and
(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, 2014

 

$

3,461

 

(4,078

)

(23,753

)

(24,370

)

Other comprehensive income before reclassification adjustments

 

2,952

 

44

 

 

2,996

 

Amounts reclassified from accumulated other comprehensive income (1), (2)

 

(68

)

 

219

 

151

 

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income

 

2,884

 

44

 

219

 

3,147

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2015

 

$

6,345

 

(4,034

)

(23,534

)

(21,223

)

 

 

 

For the quarter ended March 31, 2014

 

 

 

Unrealized
gains and
(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, 2013

 

$

(3,233

)

(5,224

)

(3,443

)

(11,900

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification adjustments

 

5,596

 

251

 

 

5,847

 

Amounts reclassified from accumulated other comprehensive income (3), (4)

 

(1,904

)

 

(138

)

(2,042

)

 

 

 

 

 

 

 

 

 

 

Net other comprehensive income

 

3,692

 

251

 

(138

)

3,805

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2014

 

$

459

 

(4,973

)

(3,581

)

(8,095

)

 


(1)         Consists of realized gains on securities (gain on sales of investments, net) of $111, net of tax (income tax expense) of $(43).

(2)         Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net loss (compensation and employee benefits) of $(940), net of tax (income tax expense) of $140.  See note 8.

(3)         Consists of realized gains on securities (gain on sales of investments, net) of $3,122, net of tax (income tax expense) of $(1,218).

(4)         Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net loss (compensation and employee benefits) of $(368), net of tax (income tax expense) of $(75).  See note 8.

 

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(13)                          Other Items

 

As was previously announced on December 15, 2014 the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) by and between the Company and LNB Bancorp, Inc. (“LNB”).  Pursuant to the Merger Agreement, LNB will merge with and into the Company, with the Company as the surviving entity. Immediately thereafter, The Lorain National Bank (“Lorain National Bank”), the wholly owned subsidiary of LNB, will merge with and into Northwest Bank, the wholly owned subsidiary of the Company, with Northwest Bank as the surviving entity.

 

Under the terms of the Merger Agreement, 50% of LNB’s common shares will be converted into Company common stock and the remaining 50% will be exchanged for cash.  LNB’s shareholders will have the option to elect to receive either 1.461 shares of the Company’s common stock or $18.70 in cash for each LNB common share, subject to proration to ensure that, in the aggregate, 50% of LNB’s common shares will be converted into Company stock.

 

The transaction has been approved by the Boards of Directors of the Company and LNB as well as both the FDIC and the Pennsylvania Department of Banking. Additionally, the Federal Reserve Bank has issued a non-objection waiver. Completion of the transaction is subject to customary closing conditions, including the approval of LNB’s shareholders. We anticipate this transaction to be completed in the third quarter of 2015.

 

As of March 31, 2015 LNB had total assets of $1.256 billion (unaudited) and net income of $1.8 million (unaudited) for the quarter ended March 31, 2015.

 

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:

 

·                                          changes in laws, government regulations or policies affecting financial institutions, including regulatory fees and capital requirements;

·                                          general economic conditions, either nationally or in our market areas, that are worse than expected;

·                                          competition among other financial institutions and non-depository entities;

·                                          inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

·                                          adverse changes in the securities markets;

·                                          our ability to enter new markets successfully, capitalize on growth opportunities and our ability to successfully integrate acquired entities, if any;

·                                          changes in consumer spending, borrowing and savings habits;

·                                          our ability to continue to increase and manage our business and personal loans;

 

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·                                          possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;

·                                          the impact of the economy on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;

·                                          the impact of the current governmental effort to restructure the U.S. financial and regulatory system;

·                                          changes in the financial performance and/or condition of our borrowers; and

·                                          the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

 

Overview of Critical Accounting Policies Involving Estimates

 

Please refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2014 Annual Report on Form 10-K.

 

Executive Summary and Comparison of Financial Condition

 

Total assets at March 31, 2015 were $7.890 billion, an increase of $115.3 million, or 1.5%, from $7.775 billion at December 31, 2014.  This increase in assets was due to increases in net loans receivable of $75.2 million and interest-earning deposits in other financial institutions of $59.8 million, which were partially offset by a decrease in marketable securities of $8.8 million. The net increase in total assets was funded by increases in borrowed funds and total deposits of $55.7 million and $49.5 million, respectively.

 

Total loans receivable increased by $75.0 million, or 1.3%, to $6.065 billion at March 31, 2015, from $5.990 billion at December 31, 2014.  Loans funded during the quarter ended March 31, 2015, of $496.2 million exceeded loan maturities, principal repayments and mortgage loan sales of $419.4 million. Our business banking loan portfolio increased by $65.7 million, or 3.0%, to $2.225 billion at March 31, 2015 from $2.160 billion at December 31, 2014, as we continue to emphasize the origination and retention of commercial and commercial real estate loans. Our personal banking loan portfolio increased by $9.2 million, or 0.2%, to $3.840 billion at March 31, 2015 from $3.830 billion at December 31, 2014.  This increase is attributable to an increase in the residential mortgage loans of $22.4 million, which was partially offset by a decrease in home equity loans of $10.4 million, which traditionally decrease during the first quarter.

 

Total deposits increased by $49.5 million, or 0.9%, to $5.682 billion at March 31, 2015 from $5.633 billion at December 31, 2014. Noninterest-bearing demand deposits increased by $53.7 million, or 6.0%, to $944.9 million at March 31, 2015 from $891.2 million at December 31, 2014. Interest-bearing demand deposits increased by $24.3 million, or 2.8%, to $898.9 million at March 31, 2015 from $874.6 million at December 31, 2014.  Savings deposits increased by $48.2 million, or 4.0%, to $1.257 billion at March 31, 2015 from $1.209 billion at December 31, 2014.  Partially offsetting these increases was a decrease in time deposits of $49.5 million, or 3.4%, to $1.429 billion at March 31, 2015 from $1.478 billion at December 31, 2014.  Additionally, money market deposit accounts decreased by $27.1 million, or 2.3%, to $1.152 billion at March 31, 2015 from $1.179 billion at December 31, 2014.  We believe the increase in more liquid deposit accounts is due primarily to customers’ continued reluctance to lock in time deposits at these historically low rates.  In addition, our checking account marketing campaign has been successful in attracting customers.

 

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Borrowed funds increased by $55.7 million, or 6.3%, to $943.8 million at March 31, 2015, from $888.1 million at December 31, 2014. During the quarter ended March 31, 2015 we borrowed $85.0 million from the FHLB with an average maturity of 8.2 years and an average interest rate of 2.40%. Our intention was to lock in long-term, low-cost borrowings before market interest rates rise in order to fund $110.0 million of FHLB advances that mature in 2015.  Partially offsetting this increase was a decrease of $19.2 million in collateralized borrowings and the maturity of a $10.0 million FHLB advance.

 

Total shareholders’ equity at March 31, 2015 was $1.068 billion, or $11.29 per share, an increase of $4.9 million, or 0.5%, from $1.063 billion, or $11.22 per share, at December 31, 2014.  This increase in equity was the result of net income during the quarter ended March 31, 2015 of $16.2 million and a decrease in accumulated other comprehensive loss of $3.1 million due to an improvement in the net unrealized gain of the investment securities portfolio. Partially offsetting these increases was the payment of cash dividends of $13.0 million and the repurchase of 318,000 shares of common stock for $3.8 million during the quarter ended March 31, 2015.

 

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.

 

In July 2013, the FDIC and the other federal regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the rule establishes a new Common Equity Tier 1 (“CET1”) minimum capital requirement (4.5% of risk-weighted assets) and increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets). The rule limits 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 CET1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

 

The final rule became effective for Northwest on January 1, 2015.  The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rule also officially implements these consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.

 

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Quantitative measures, established by regulation to ensure capital adequacy, require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of Total, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to total assets (as defined).  Capital ratios are presented in the tables below.  Dollar amounts in the accompanying tables are in thousands.

 

 

 

At March 31, 2015

 

 

 

 

 

 

 

Minimum capital

 

Well capitalized

 

 

 

Actual

 

requirements

 

requirements

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Total capital (to risk weighted assts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

$

1,087,830

 

20.42

%

426,272

 

8.00

%

532,840

 

10.00

%

Northwest Savings Bank

 

851,575

 

16.03

%

424,939

 

8.00

%

531,173

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

1,021,052

 

19.16

%

319,704

 

6.00

%

426,272

 

8.00

%

Northwest Savings Bank

 

785,165

 

14.78

%

318,704

 

6.00

%

424,939

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

921,052

 

17.29

%

239,778

 

4.50

%

346,346

 

6.50

%

Northwest Savings Bank

 

785,165

 

14.78

%

239,028

 

4.50

%

345,263

 

6.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (leverage) (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

1,021,052

 

13.16

%

310,247

 

4.00

%

387,809

 

5.00

%

Northwest Savings Bank

 

785,165

 

10.14

%

309,615

 

4.00

%

387,018

 

5.00

%

 

 

 

At December 31, 2014

 

 

 

 

 

 

 

Minimum capital

 

Well capitalized

 

 

 

Actual

 

requirements (1)

 

requirements (1)

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Total capital (to risk weighted assts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

$

1,062,802

 

20.29

%

 

 

 

 

Northwest Savings Bank

 

945,652

 

18.09

%

418,104

 

8.00

%

522,629

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

997,049

 

19.04

%

 

 

 

 

Northwest Savings Bank

 

880,290

 

16.84

%

209,052

 

4.00

%

313,578

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I capital (leverage) (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Northwest Bancshares, Inc.

 

997,049

 

12.80

%

 

 

 

 

Northwest Savings Bank

 

880,290

 

11.55

%

304,883

 

4.00

%

381,104

 

5.00

%

 


(1) The Federal Reserve did not have formal capital requirements established for savings and loan holding companies at December 31, 2014.

 

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The following table shows the Basel III regulatory capital levels that must be maintained to avoid limitations on capital distributions and discretionary bonus payments for the periods indicated:

 

 

 

Basel III Regulatory Capital Requirements

 

 

 

January 1,

 

January 1,

 

January 1,

 

January 1,

 

January 1,

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

New common equity tier 1 ratio plus capital conservation buffer

 

4.50

%

5.125

%

5.75

%

6.375

%

7.00

%

Tier 1 risk-based capital ratio plus capital conservation buffer

 

6.00

%

6.625

%

7.25

%

7.875

%

8.50

%

Total risk-based capital ratio plus capital conservation buffer

 

8.00

%

8.625

%

9.25

%

9.875

%

10.50

%

 

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 during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”).  Northwest’s liquidity ratio at March 31, 2015 was 9.0%.  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 March 31, 2015 Northwest had $2.036 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, as well as $176.2 million of borrowing capacity available with the Federal Reserve Bank and $80.0 million with two correspondent banks.

 

We paid $13.0 million and $21.2 million in cash dividends during the quarters ended March 31, 2015 and 2014, respectively. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 77.8% and 143.8% for the quarters ended March 31, 2015 and 2014, respectively, on regular dividends of $0.14 per share for the quarter ended March 31, 2015 and on regular dividends of $0.13 per share and a special dividend of $0.10 per share for the quarter ended March 31, 2014.  On April 15, 2015, the Board of Directors declared a dividend of $0.14 per share payable on May 14, 2015 to shareholders of record as of April 30, 2015.  This represents the 82nd consecutive quarter we have paid a cash dividend.

 

Nonperforming Assets

 

The following table sets forth information with respect to nonperforming assets.  Nonaccrual loans are those loans on which the accrual of interest has ceased.  Generally, when a loan is 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter.  Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in 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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Table of Contents

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Dollars in thousands)

 

Loans 90 days or more delinquent:

 

 

 

 

 

Residential mortgage loans

 

$

15,068

 

$

17,696

 

Home equity loans

 

5,646

 

6,606

 

Other consumer loans

 

2,045

 

2,450

 

Commercial real estate loans

 

8,233

 

10,215

 

Commercial loans

 

1,921

 

4,359

 

Total loans 90 days or delinquent

 

$

32,913

 

$

41,326

 

 

 

 

 

 

 

Total real estate owned (REO)

 

15,346

 

16,759

 

 

 

 

 

 

 

Total loans 90 days or more delinquent and REO

 

48,259

 

58,085

 

 

 

 

 

 

 

Total loans 90 days or more delinquent to net loans receivable

 

0.55

%

0.70

%

 

 

 

 

 

 

Total loans 90 days or more delinquent and REO to total assets

 

0.61

%

0.75

%

Nonperforming assets:

 

 

 

 

 

Nonaccrual loans - loans 90 days or more delinquent

 

$

32,913

 

41,326

 

Nonaccrual loans — loans less than 90 days delinquent

 

40,394

 

38,482

 

Loans 90 days or more past maturity and still accruing

 

310

 

235

 

Total nonperforming loans

 

73,617

 

80,043

 

Total nonperforming assets

 

$

88,963

 

96,802

 

 

 

 

 

 

 

Nonaccrual troubled debt restructured loans *

 

$

19,843

 

24,459

 

Accruing troubled debt restructured loans

 

40,802

 

37,329

 

Total troubled debt restructured loans

 

$

60,645

 

61,788

 

 


*   Included in nonaccurual loans above.

 

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement including both contractual principal and interest payments.  The amount of impairment is required to be measured using 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 collateral if the loan is collateral dependent.  If the measure of the impaired loan is less than the recorded investment in the loan, a specific allowance is allocated for the impairment.  Impaired loans at March 31, 2015 and December 31, 2014 were $132.7 million and $137.2 million, respectively.

 

Allowance for Loan Losses

 

Our Board of Directors has adopted an “Allowance for Loan and Lease Losses” (“ALL”) policy designed to provide management with a systematic methodology for determining and documenting the ALL each reporting period.  This methodology was developed to provide a consistent process and review procedure to ensure that the ALL is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

 

On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans.  This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis.  In addition, a meeting is held every quarter with each region to monitor the performance and status of loans on an internal watch list.  On an on-going basis the loan officer in conjunction with a portfolio manager grades or classifies problem loans or potential problem 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

 

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problem loans is consistent with industry regulatory guidelines which classify 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” are considered uncollectible so that their continuance as assets without the establishment of a specific loss allowance is not warranted.

 

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 for possible impairment.  A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including both contractual principal and interest payments.

 

If an individual loan is deemed to be impaired, the Credit Administration department determines the proper measure of impairment 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 impaired loan is more or less than the recorded investment in the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.

 

If a substandard or doubtful loan is not considered individually for impairment, it is grouped with other loans that possess common characteristics for impairment evaluation and analysis.  This segmentation is accomplished by grouping loans of similar product types, risk characteristics and industry concentration into homogeneous pools.  Historical loss ratios are analyzed and adjusted based on delinquency trends as well as the current economic, political, regulatory and interest rate environment and used to estimate the current measure of impairment.

 

The individual impairment measures 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 Credit Committee on a quarterly basis.  The Credit Committee reviews the processes and documentation presented, reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas.  Based on this review and discussion, the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined.  In addition, the Credit Committee considers if any changes to the methodology are needed.  The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to our peer group as well as state and national statistics.  Similarly, following the Credit Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis.

 

In addition to the reviews by management’s Credit Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC or the Pennsylvania Department of Banking perform an extensive review on an annual basis for the adequacy of the ALL and its conformity with regulatory guidelines and pronouncements.  Any recommendations or enhancements from these

 

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independent parties are considered by management and the Credit 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 often, rapidly and substantially.  The adequacy of the ALL 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 consistent methodology each period when analyzing the adequacy of the allowance for loan losses and the related provision for loan losses.  As part of the analysis as of March 31, 2015, we considered the economic conditions in our markets, such as unemployment and bankruptcy levels as well as changes in real estate collateral values.  In addition, we considered the overall trends in asset quality, specific reserves already established for criticized loans, historical loss rates and collateral valuations.  As a result of this analysis, the allowance for loan losses decreased by $220,000, or 0.3%, to $67.3 million, or 1.11% of total loans, at March 31, 2015 from $67.5 million, or 1.13% of total loans, at December 31, 2014.  This decrease is primarily attributable to the continued improvement in overall asset quality as classified loans and non-accrual loans delinquent 90 days or more decreased by $15.7 million and $8.4 million, respectively, compared to December 31, 2014.

 

We also consider how the level of non-accrual loans and historical charge-offs have influenced the required amount of allowance for loan losses.  Nonaccrual loans of $73.3 million or 1.21% of total loans receivable, at March 31, 2015 decreased by $6.5 million, or 8.1%, from $79.8 million, or 1.33% of total loans receivable, at December 31, 2014.  As a percentage of average loans, annualized net charge-offs decreased to 0.07% for the quarter ended March 31, 2015 compared to 0.41% for the year ended December 31, 2014.

 

Comparison of Operating Results for the Quarters Ended March 31, 2015 and 2014

 

Net income for the quarter ended March 31, 2015 was $16.2 million, or $0.18 per diluted share, an increase of $1.6 million, or 10.7%, from $14.6 million, or $0.16 per diluted share, for the quarter ended March 31, 2014.  The increase in net income resulted from a decrease in the provision for loan losses of $6.6 million, or 88.0% and an increase in net interest income of $732,000, or 1.2%.  Partially offsetting these improvements was a decrease in noninterest income of $3.7 million, or 18.5%, and increases in income tax expense of $1.6 million, or 30.1%, and noninterest expense of $548,000, or 1.0%.  Annualized, net income for the quarter ended March 31, 2015 represents a 6.17% and 0.83% return on average equity and return on average assets, respectively, compared to 5.15% and 0.75% for the same quarter last year.  A discussion of significant changes follows.

 

Interest Income

 

Total interest income increased by $427,000, or 0.6%, to $75.5 million for the quarter ended March 31, 2015 from $75.1 million for the quarter ended March 31, 2014. This increase is due primarily to an increase in the average yield earned on interest earning assets to 4.21% for the quarter ended March 31, 2015 from 4.15% for the quarter ended March 31, 2014.  Partially offsetting this increase was a decrease in the average balance of interest earning assets of $52.8 million, or 0.7%, to $7.295 billion for the quarter ended March 31, 2015 from $7.347 billion for the quarter ended March 31, 2014.

 

Interest income on loans receivable increased by $1.4 million, or 2.0%, to $70.7 million for the quarter ended March 31, 2015 from $69.3 million for the quarter ended March 31, 2014.  This increase in interest income on loans receivable can be attributed to an increase in the average balance of loans receivable which increased by $195.7 million, or 3.4%, to $6.019 billion for the quarter ended March 31, 2015 from $5.824 billion for the quarter ended March 31, 2014.  This increase is due to continued success

 

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in growing business banking relationships and the retention of the residential mortgage loans originated by our wholesale lending function. Partially offsetting this increase was a decline in the average yield which decreased to 4.76% for the quarter ended March 31, 2015 from 4.83% for the quarter ended March 31, 2014.  The continued decline in average yield is due primarily to the historically low level of market interest rates.

 

Interest income on mortgage-backed securities decreased by $559,000, or 20.0%, to $2.2 million for the quarter ended March 31, 2015 from $2.8 million for the quarter ended March 31, 2014.  This decrease is the result of decreases in both the average balance and average yield. The average balance of mortgage-backed securities decreased by $114.3 million, or 18.4%, to $506.8 million for the quarter ended March 31, 2015 from $621.1 million for the quarter ended March 31, 2014 due primarily to redirecting cash flows from these securities to fund loan growth, repurchase our common stock and the payment of dividends over the past year.  The average yield on mortgage-backed securities decreased slightly to 1.76% for the quarter ended March 31, 2015 from 1.80% for the quarter ended March 31, 2014 due primarily to the pay-down of higher rate securities.

 

Interest income on investment securities decreased by $342,000, or 12.5%, to $2.4 million for the quarter ended March 31, 2015 from $2.7 million for the quarter ended March 31, 2014.  This decrease is the result of decreases in both the average balance and average yield.  The average yield of investment securities decreased to 1.97% for the quarter ended March 31, 2015 from 2.16% for the quarter ended March 31, 2014.  This decrease is primarily the result of higher rate, tax-free, municipal securities maturing or being called and when replaced, being replaced by lower yielding, shorter duration government agency securities.  The average balance of investment securities decreased by $21.3 million, or 4.2%, to $486.1 million for the quarter ended March 31, 2015 from $507.4 million for the quarter ended March 31, 2014.  This decrease is due primarily to the maturity or call of municipal and government bonds and the use of these proceeds to fund loan growth.

 

Regular dividends on FHLB stock increased by $88,000, or 32.0%, to $363,000 for the quarter ended March 31, 2015 from $275,000 for the quarter ended March 31, 2014. The average yield increased to 4.07% for the quarter ended March 31, 2015 from 2.55% for the quarter ended March 31, 2014. The increase in average yield was partially offset by a decrease in the average balance of $7.6 million, or 17.3%, to $36.1 million for the quarter ended March 31, 2015 from $43.7 million for the quarter ended March 31, 2014. As a result of their improved financial condition, the FHLB has increased regular dividends to member financial institutions and also paid a special dividend in February 2015 of which we received $1.0 million.

 

Interest income on interest-earning deposits decreased by $61,000, or 30.5%, to $139,000 for the quarter ended March 31, 2015 from $200,000 for the quarter ended March 31, 2014.  This decrease is due to a decrease in the average balance of $105.3 million, or 30.0%, to $246.3 million for the quarter ended March 31, 2015 from $351.6 million for the quarter ended March 31, 2014, due to the utilization of cash to fund loan growth, repurchase our common stock and pay dividends over the past year.  The average yield on interest-earning deposits remained unchanged at 0.23% for both quarters ended March 31, 2015 and 2014.

 

Interest Expense

 

Interest expense decreased by $305,000, or 2.1%, to $13.9 million for the quarter ended March 31, 2015 from $14.2 million for the quarter ended March 31, 2014.  This decrease in interest expense was due to a decrease in the average balance of interest-bearing liabilities, which decreased by $69.0 million, or 1.2%, to $5.792 billion for the quarter ended March 31, 2015 from $5.861 billion for the quarter ended March 31, 2014.  The decrease in average interest-bearing liabilities resulted primarily from a reduction in average time deposits of $189.7 million, or 11.6%, compared to last year, as consumers continue to shift

 

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investment priorities to demand products as well as to utilize funds for living expenses. The decrease in time deposits was partially offset by an increase in the average balance of borrowed funds of $79.6 million, or 9.0%, from the prior year due primarily to $85.0 million of FHLB advances borrowed during the quarter ended March 31, 2015. Our intention was to lock in long-term, low-cost borrowings before market interest rates rise in order to fund $110.0 million of FHLB advances maturing in 2015. The average cost of interest-bearing liabilities decreased slightly to 0.97% for the quarter ended March 31, 2015 from 0.98% for the quarter ended March 31, 2014.

 

Net Interest Income

 

Net interest income increased by $732,000, or 1.2%, to $61.6 million for the quarter ended March 31, 2015 from $60.8 million for the quarter ended March 31, 2014.  This increase is attributable to the factors discussed above. Solid loan growth enabled us to redirect cash flows from lower yielding cash and investments which helped offset overall lower market interest rates and increase our net interest spread and margin.  Our net interest rate spread increased to 3.24% for the quarter ended March 31, 2015 from 3.17% for the quarter ended March 31, 2014 and our net interest margin increased to 3.44% for the quarter ended March 31, 2015 from 3.37% for the quarter ended March 31, 2014.

 

Provision for Loan Losses

 

The provision for loan losses decreased by $6.6 million, or 88.0%, to $900,000 for the quarter ended March 31, 2015 from $7.5 million for the quarter ended March 31, 2014.  This decrease is due primarily to continued improvements in overall asset quality as classified loans decreased by $21.1 million, or 9.5%, to $201.3 million at March 31, 2015 from $222.4 million at March 31, 2014.  In addition, total nonaccrual loans decreased by $35.8 million, or 32.8%, to $73.3 million at March 31, 2015 from $109.1 million at March 31, 2014 and loans 90 days or more delinquent decreased by $18.5 million, or 36.0%, to $32.9 million at March 31, 2015 from $51.4 million at March 31, 2014.

 

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels and bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss factors.  We analyze the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.”  The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience.

 

Noninterest Income

 

Noninterest income decreased by $3.7 million, or 18.5%, to $16.0 million for the quarter ended March 31, 2015 from $19.7 million for the quarter ended March 31, 2014. The decrease is primarily attributable to a decrease in the gain on sale of investments and an increase in loss on real estate owned.  Gain on sale of investments decreased by $3.3 million to $95,000 for the quarter ended March 31, 2015 from $3.3 million for the quarter ended March 31, 2014 as a result of the sale of equity securities during the first quarter of 2014.  Loss on real estate owned increased by $911,000 to $1.0 million for the quarter ended March 31, 2015 from $135,000 for the quarter ended March 31, 2014.  This increase is due primarily to the write-down of one commercial property. Partially offsetting these factors was an increase in other operating income of $788,000, or 67.1%, to $2.0 million for the quarter ended March 31, 2015 from $1.2 million for the quarter ended March 31, 2014. This increase is due primarily to a $1.0 million special dividend from the FHLB.

 

Noninterest Expense

 

Noninterest expense increased by $548,000, or 1.0%, to $53.7 million for the quarter ended March 31, 2015 from $53.2 million for the quarter ended March 31, 2014.  This increase is primarily the result of increases in processing expenses, marketing expenses and acquisition costs. Processing expense increased

 

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by $616,000, or 9.3%, to $7.2 million for the quarter ended March 31, 2015 from $6.6 million for the quarter ended March 31, 2014, due primarily to software and software amortization expense related to upgrades made during the past two years.  Marketing expenses increased by $339,000, or 20.7%, to $2.0 million for the quarter ended March 31, 2015 from $1.6 million for the quarter ended March 31, 2014.  This increase is primarily the result of the timing of loan and checking account campaigns.  Additionally, expenses totaling $347,000 were incurred during the quarter ended March 31, 2015 related to the proposed acquisition of LNB.  Partially offsetting these increases was a decrease in premises and occupancy costs of $290,000, or 4.4%, to $6.3 million for the quarter ended March 31, 2015 from $6.6 million for the quarter ended March 31, 2014 due primarily to reduced snow removal costs. Professional services also declined from the prior year decreasing by $270,000, or 13.1%, to $1.8 million for the quarter ended March 31, 2015 from $2.1 million for the quarter ended March 31, 2014 as a result of the completion of a third party review of our compliance management system.

 

Income Taxes

 

The provision for income taxes increased by $1.6 million, or 30.1%, to $6.8 million for the quarter ended March 31, 2015 from $5.2 million for the quarter ended March 31, 2014.  This increase in income tax expense is primarily the result of an increase in pretax income of $3.1 million, 15.8%, and a reduction in tax free income from municipal bonds as well as a lower amount of Pennsylvania state tax credits anticipated for 2015.  Our effective tax rate for the quarter ended March 31, 2015 was 29.7% compared to 26.4% for the quarter ended March 31, 2014.  We anticipate our effective tax rate to be approximately 29.0% during 2015.

 

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Average Balance Sheet

(Dollars 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 March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Avg.

 

 

 

 

 

Avg.

 

 

 

Average

 

 

 

yield/

 

Average

 

 

 

yield/

 

 

 

balance

 

Interest

 

cost (f)

 

balance

 

Interest

 

cost (f)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (a) (b) (includes FTE adjustments of $471 and $543, respectively)

 

$

6,019,250

 

71,182

 

4.80

%

5,823,527

 

69,865

 

4.87

%

Mortgage-backed securities (c) 

 

506,778

 

2,234

 

1.76

%

621,146

 

2,793

 

1.80

%

Investment securities (c) (includes FTE adjustments of $726 and $892, respectively)

 

486,078

 

3,119

 

2.57

%

507,354

 

3,627

 

2.86

%

FHLB stock (g)

 

36,139

 

363

 

4.07

%

43,715

 

275

 

2.55

%

Other interest-earning deposits

 

246,296

 

139

 

0.23

%

351,615

 

200

 

0.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-earning assets (includes FTE adjustments of $1,197 and $1,435, respectively)

 

7,294,541

 

77,037

 

4.28

%

7,347,357

 

76,760

 

4.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest earning assets (d)

 

595,425

 

 

 

 

 

583,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,889,966

 

 

 

 

 

7,930,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings deposits

 

$

1,231,745

 

813

 

0.27

%

1,208,349

 

804

 

0.27

%

Interest-bearing checking deposits

 

878,230

 

131

 

0.06

%

851,723

 

139

 

0.07

%

Money market deposit accounts

 

1,165,159

 

765

 

0.27

%

1,173,957

 

782

 

0.27

%

Time deposits

 

1,452,476

 

4,057

 

1.13

%

1,642,224

 

4,765

 

1.18

%

Borrowed funds (e)

 

960,812

 

6,975

 

2.94

%

881,187

 

6,557

 

3.02

%

Junior subordinated debentures

 

103,094

 

1,158

 

4.49

%

103,094

 

1,157

 

4.49

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

5,791,516

 

13,899

 

0.97

%

5,860,534

 

14,204

 

0.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing checking deposits

 

914,025

 

 

 

 

 

815,117

 

 

 

 

 

Noninterest-bearing liabilities

 

121,121

 

 

 

 

 

105,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

6,826,662

 

 

 

 

 

6,780,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

1,063,304

 

 

 

 

 

1,149,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

7,889,966

 

 

 

 

 

7,930,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income/ Interest rate spread

 

 

 

63,138

 

3.31

%

 

 

62,556

 

3.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest-earning assets/ Net interest margin

 

$

1,503,025

 

 

 

3.51

%

1,486,823

 

 

 

3.45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.26X

 

 

 

 

 

1.25X

 

 

 

 

 

 


(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) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

(e) Average balances include FHLB borrowings and collateralized borrowings.

(f) Annualized. Shown on a fully tax-equivalent basis (“FTE”). The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans — 4.76% and 4.83%, respectively; Investment securities — 1.97% and 2.16%, respectively; interest-earning assets — 4.21% and 4.15%, respectively. GAAP basis net interest rate spreads were 3.24% and 3.17%, respectively; and GAAP basis net interest margins were 3.44% and 3.37%, respectively.

(g) Excludes the $1.0 million special dividend paid in February 2015.

 

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Rate/ Volume Analysis

(Dollars in Thousands)

 

The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.  Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change.  Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.

 

Quarters ended March 31, 2015 and 2014

 

 

 

 

 

 

 

Net

 

 

 

Rate

 

Volume

 

Change

 

Interest earning assets:

 

 

 

 

 

 

 

Loans receivable

 

$

(1,064

)

2,381

 

1,317

 

Mortgage-backed securities

 

(55

)

(504

)

(559

)

Investment securities

 

(356

)

(152

)

(508

)

FHLB stock

 

166

 

(78

)

88

 

Other interest-earning deposits

 

(2

)

(59

)

(61

)

Total interest-earning assets

 

(1,311

)

1,588

 

277

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

Savings deposits

 

(7

)

16

 

9

 

Interest-bearing checking deposits

 

(12

)

4

 

(8

)

Money market deposit accounts

 

(11

)

(6

)

(17

)

Time deposits

 

(157

)

(551

)

(708

)

Borrowed funds

 

(160

)

578

 

418

 

Junior subordinated debentures

 

1

 

 

1

 

Total interest-bearing liabilities

 

(346

)

41

 

(305

)

 

 

 

 

 

 

 

 

Net change in net interest income

 

$

(965

)

1,547

 

582

 

 

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Table of Contents

 

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 continue 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 income simulation.  Given a non-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 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 non-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.

 

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The following table illustrates the simulated impact of a 100 bps, 200 bps or 300 bps upward or a 100 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity.  This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at March 31, 2015 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 March 31, 2015 levels.

 

 

 

Increase

 

Decrease

 

 

 

100 bps

 

200 bps

 

300 bps

 

100 bps

 

Non-parallel shift in interest rates over the next 12 months

 

 

 

 

 

 

 

 

 

Projected percentage increase/ (decrease) in net income

 

(0.9

)%

1.5

%

2.5

%

(14.6

)%

Projected increase/ (decrease) in return on average equity

 

(0.9

)%

1.4

%

2.5

%

(14.3

)%

Projected increase/ (decrease) in earnings per share

 

$

0.00

 

$

0.01

 

$

0.02

 

$

(0.09

)

Projected percentage increase/ (decrease) in market value of equity

 

(4.8

)%

(10.4

)%

(16.7

)%

(1.2

)%

 

The figures included in the table above represent projections that were computed based upon certain assumptions including prepayment rates and decay rates.  These assumptions are inherently uncertain and, as a result, cannot precisely predict the impact of changes in interest rates.  Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in market conditions.

 

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 its 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 control 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.  See note 11.

 

Item 1A.  Risk Factors

 

There are no material changes to the risk factors as previously discussed in Item 1A, to Part I of our 2014 Annual Report on Form 10-K.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

a.)                                  Not applicable.

 

b.)                                  Not applicable.

 

c.)                                   The following table discloses information regarding the repurchase of shares of common stock during the quarter ending March 31, 2015:

 

Month

 

Number of
shares
purchased

 

Average price
paid per
share

 

Total number of shares
purchased as part of a
publicly announced
repurchase plan (1)

 

Maximum number of
shares yet to be
purchased under the
plan (1)

 

January

 

106,000

 

$

12.08

 

106,000

 

519,289

 

February

 

95,400

 

11.85

 

95,400

 

423,889

 

March

 

116,600

 

11.83

 

116,600

 

307,289

 

 

 

318,000

 

$

11.92

 

 

 

 

 

 

Month

 

Number of
shares
purchased

 

Average price
paid per
share

 

Total number of shares
purchased as part of a
publicly announced
repurchase plan (2)

 

Maximum number of
shares yet to be
purchased under the
plan (2)

 

January

 

 

$

 

 

5,000,000

 

February

 

 

 

 

5,000,000

 

March

 

 

 

 

5,000,000

 

 

 

 

$

 

 

 

 

 

 


(1)  Reflects the program for 4,750,000 shares announced September 26, 2011. This program does not have an expiration date.

(2)  Reflects the program for 5,000,000 shares announced December 13, 2012. This program does not have an expiration date.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

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.

 

57



Table of Contents

 

101.INS                                                   XBRL Instance 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

 

58



Table of Contents

 

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:

May 11, 2015

 

By:

/s/ William J. Wagner

 

 

 

 

William J. Wagner

 

 

 

 

President and Chief Executive Officer

 

 

 

 

(Duly Authorized Officer)

 

 

 

 

 

 

 

 

 

 

Date:

May 11, 2015

 

By:

/s/ Gerald J. Ritzert

 

 

 

 

Gerald J. Ritzert

 

 

 

 

Controller

 

 

 

 

(Principal Accounting Officer)

 

59