Northwest Bancshares, Inc. - Quarter Report: 2020 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

☐ 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)

Not applicable

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, 0.01 Par Value

NWBI

NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☒ Large accelerated filer ☐ Accelerated filer

☐ Non-accelerated filer ☐ Smaller reporting company

☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock ($0.01 par value), 127,801,297 shares outstanding as of October 31, 2020.

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NORTHWEST BANCSHARES, INC.

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PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Financial Condition as of September 30, 2020 and December 31, 2019 (Unaudited)

Consolidated Statements of Income for the quarter and nine months ended September 30, 2020 and 2019 (Unaudited)

Consolidated Statements of Comprehensive Income for the quarter and nine months ended Se ptember 30, 2020 and 2019 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the quarter and nine months ended September 30, 2020 and 2019 (Unaudited)

Consolidated Statements of Cash Flows for the quarter and nine months ended September 30, 2020 and 2019 (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 1. FINANCIAL STATEMENTS

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(in thousands, except share data)


	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	656,749	60,846


Marketable securities available-for-sale (amortized cost of $1,385,835 and $815,495, respectively)	1,409,150		819,901
Marketable securities held-to-maturity (fair value of $16,168 and $18,223, respectively)	15,333		18,036
Total cash and cash equivalents and marketable securities	2,081,232		898,783


Loans held-for-sale	25,140		7,709








Loans held for investment	10,756,712		8,800,965

Allowance for credit losses	(140,209)		(57,941)
Loans receivable, net	10,641,643		8,750,733


Federal Home Loan Bank stock, at cost	23,171		14,740
Accrued interest receivable	36,916		25,755
Real estate owned, net	2,575		950
Premises and equipment, net	166,919		147,409
Bank-owned life insurance	252,621		189,091
Goodwill	386,044		346,103
Other intangible assets, net	21,601		23,076
Other assets	176,083		97,268
Total assets	$	13,788,805	10,493,908

Liabilities and shareholders’ equity
Liabilities:
Noninterest-bearing demand deposits	$	2,641,234	1,609,653
Interest-bearing demand deposits	2,663,878		1,944,108
Money market deposit accounts	2,396,567		1,863,998
Savings deposits	2,022,918		1,604,838
Time deposits	1,732,022		1,569,410
Total deposits	11,456,619		8,592,007


Borrowed funds	398,216		246,336
Junior subordinated debentures	128,729		121,800
Advances by borrowers for taxes and insurance	29,755		44,556
Accrued interest payable	1,002		1,142
Other liabilities	227,253		134,782
Total liabilities	12,241,574		9,140,623

Shareholders’ equity:
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	—		—
Common stock, $0.01 par value: 500,000,000 shares authorized, 127,801,297 and 106,859,088 shares issued and outstanding, respectively	1,278		1,069
Additional paid-in capital	1,023,827		805,750
Retained earnings	544,695		583,407

Accumulated other comprehensive loss	(22,569)		(36,941)
Total shareholders’ equity	1,547,231		1,353,285
Total liabilities and shareholders’ equity	$	13,788,805	10,493,908

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except share data)


	Quarter ended September 30,			Nine months ended September 30,
	2020		2019	2020	2019
Interest income:
Loans receivable	$	107,241	101,091	305,226	296,943
Mortgage-backed securities	4,652		4,188	12,865	12,433
Taxable investment securities	427		884	1,514	2,718
Tax-free investment securities	655		224	1,404	643
Federal Home Loan Bank stock dividends	218		307	789	794
Interest-earning deposits	221		172	541	431
Total interest income	113,414		106,866	322,339	313,962
Interest expense:
Deposits	8,443		13,694	29,182	36,323
Borrowed funds	1,437		2,236	4,317	6,118
Total interest expense	9,880		15,930	33,499	42,441
Net interest income	103,534		90,936	288,840	271,521
Provision for credit losses	6,818		3,302	86,205	14,436
Net interest income after provision for credit losses	96,716		87,634	202,635	257,085
Noninterest income:
Gain/(loss) on sale of investments	(12)		—	161	23
Gain on sale of loans	—		826	1,302	826
Service charges and fees	14,354		13,558	42,539	38,940


Trust and other financial services income	5,376		4,609	15,200	13,248
Insurance commission income	2,331		1,887	7,098	6,210
Loss on real estate owned, net	(32)		(227)	(220)	(139)
Income from bank-owned life insurance	1,576		1,095	3,860	3,297
Mortgage banking income	11,055		1,921	24,271	2,325

Other operating income	2,022		2,500	5,931	6,464
Total noninterest income	36,670		26,169	100,142	71,194
Noninterest expense:
Compensation and employee benefits	47,371		40,816	130,166	121,012
Premises and occupancy costs	8,342		7,061	23,008	21,666
Office operations	4,626		3,197	11,719	10,036
Collections expense	1,264		747	2,382	1,994
Processing expenses	15,042		11,122	37,864	32,190
Marketing expenses	2,147		1,373	5,701	5,988
Federal deposit insurance premiums	1,498		(702)	3,116	685
Professional services	3,246		3,032	8,883	8,754
Amortization of intangible assets	1,781		1,702	5,192	4,909
Real estate owned expense	111		119	295	406
Acquisition/branch optimization expense	1,414		23	13,551	3,054

Other expenses	27		2,106	12,766	8,838
Total noninterest expense	86,869		70,596	254,643	219,532
Income before income taxes	46,517		43,207	48,134	108,747
Federal and state income taxes expense	8,467		9,793	8,345	23,906
Net income	$	38,050	33,414	39,789	84,841
Basic earnings per share	$	0.30	0.32	0.34	0.81
Diluted earnings per share	$	0.30	0.31	0.34	0.80

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)


	Quarter ended September 30,			Nine months ended September 30,
	2020		2019	2020	2019
Net income	$	38,050	33,414	39,789	84,841
Other comprehensive income net of tax:
Net unrealized holding gains on marketable securities:
Unrealized holding gains net of tax of $(107), $(525), $(5,286), and $(4,549), respectively	676		1,315	13,623	11,376
Reclassification adjustment for (gains)/losses included in net income, net of tax of $1, $0, $0, and $1 respectively	(1)		(1)	1	(3)
Net unrealized holding gains on marketable securities	675		1,314	13,624	11,373

Change in fair value of interest rate swaps
Unrealized holding losses on interest rate swaps, net of tax of $0, $0, $209, and $0, respectively	—		—	(946)	—
Reclassification adjustment for losses included in net income, net of tax of $(375), $0, $(375), and $0	946		—	946	—
Net change in fair value of interest rate swaps	946		—	—	—

Defined benefit plan:
Actuarial reclassification adjustments for prior period service costs and actuarial losses included in net income, net of tax of $(99), $(83), $(297), and $(250), respectively	250		208	748	626



Other comprehensive income	1,871		1,522	14,372	11,999

Total comprehensive income	$	39,921	34,936	54,161	96,840

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, expect share data)


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Total shareholders’ equity
	Common stock
Quarter ended September 30, 2020	Shares	Amount
Beginning balance at June 30, 2020	127,838,400	$	1,278	1,023,083	530,928	(24,440)	1,530,849



Comprehensive income:
Net income	—	—		—	38,050	—	38,050

Other comprehensive income, net of tax of $(581)	—	—		—	—	1,871	1,871

Total comprehensive income	—	—		—	38,050	1,871	39,921







Stock-based compensation expense	—	—		743	—	—	743





Stock-based compensation forfeited	(37,103)	—		1	—	—	1



Dividends paid ($0.19 per share)	—	—		—	(24,283)	—	(24,283)

Ending balance at September 30, 2020	127,801,297	$	1,278	1,023,827	544,695	(22,569)	1,547,231


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Total shareholders’ equity
	Common stock
Quarter ended September 30, 2019	Shares	Amount
Beginning balance at June 30, 2019	106,614,607	$	1,066	798,942	562,799	(29,219)	1,333,588

Comprehensive income:
Net income	—	—		—	33,414	—	33,414

Other comprehensive income, net of tax of $(608)	—	—		—	—	1,522	1,522

Total comprehensive income	—	—		—	33,414	1,522	34,936





Exercise of stock options	61,867	1		756	—	—	757

Stock-based compensation expense	—	—		1,684	—	—	1,684



Stock-based compensation forfeited	(18,407)	—		—	—	—	—

Dividends paid ($0.18 per share)	—	—		—	(19,195)	—	(19,195)

Ending balance at September 30, 2019	106,658,067	$	1,067	801,382	577,018	(27,697)	1,351,770

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, expect share data)


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Total shareholders’ equity
	Common stock
Nine months ended September 30, 2020	Shares	Amount
Beginning balance at December 31, 2019	106,859,088	$	1,069	805,750	583,407	(36,941)	1,353,285

Comprehensive income:
Net income	—	—		—	39,789	—	39,789

Other comprehensive income, net of tax of $(5,749)	—	—		—	—	14,372	14,372

Total comprehensive income	—	—		—	39,789	14,372	54,161

Acquisition of MutualBank	20,658,957	206		213,200	—	—	213,406

Reclassification due to adoption of ASU No. 2016-13	—	—		—	(9,649)	—	(9,649)

Exercise of stock options	87,305	1		1,005	—	—	1,006

Stock-based compensation expense	282,691	3		3,766	—	—	3,769

Stock-based compensation forfeited	(86,744)	(1)		1	—	—	—

Other	—	—		105	—	—	105



Dividends paid ($0.57 per share)	—	—		—	(68,852)	—	(68,852)

Ending balance at September 30, 2020	127,801,297	$	1,278	1,023,827	544,695	(22,569)	1,547,231


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Total shareholders’ equity
	Common stock
Nine months ended September 30, 2019	Shares	Amount
Beginning balance at December 31, 2018	103,354,030	$	1,034	745,926	550,374	(39,696)	1,257,638

Comprehensive income:
Net income	—	—		—	84,841	—	84,841

Other comprehensive income, net of tax of $(4,799)	—	—		—	—	11,999	11,999

Total comprehensive income	—	—		—	84,841	11,999	96,840

Acquisition of Union Community Bank ("UCB")	2,462,373	24		43,264	—	—	43,288

Reclassification due to adoption of ASU No. 2016-02	—	—		—	(1,226)	—	(1,226)

Exercise of stock options	609,722	6		6,777	—	—	6,783

Stock-based compensation expense	281,100	3		5,415	—	—	5,418

Stock-based compensation forfeited	(49,158)	—		—	—	—	—

Dividends paid ($0.54 per share)	—	—		—	(56,971)	—	(56,971)

Ending balance at September 30, 2019	106,658,067	$	1,067	801,382	577,018	(27,697)	1,351,770

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine months ended September 30,
	2020		2019
Operating activities:
Net income	$	39,789	84,841
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	86,205		14,436
Net gain on sale of assets	(2,322)		(490)
Gain on sale of mortgage loans, net	(16,676)		—

Net depreciation and amortization	6,625		927
Increase in other assets	(28,825)		(64,306)
Increase in other liabilities	79,299		74,974
Net amortization on marketable securities	2,240		677
Noncash compensation expense related to stock benefit plans	3,769		5,418
Noncash write-down of real estate owned	272		548


Deferred income tax (benefit)/expense	(15,812)		1,706

Origination of loans held-for-sale	(472,121)		(31,776)
Proceeds from sale of loans held-for-sale	471,367		23,764

Net cash provided by operating activities	153,810		110,719

Investing activities:

Purchase of marketable securities available-for-sale	(730,096)		(123,655)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity	2,694		3,788
Proceeds from maturities and principal reductions of marketable securities available-for-sale	284,532		178,775
Proceeds from sale of marketable securities available-for-sale	8		32,389
Proceeds from bank-owned life insurance	596		2,638
Loan originations	(3,640,293)		(2,724,061)
Proceeds from loan maturities and principal reductions	3,132,329		2,288,521
Proceeds from sale of loans held for investment	50,791		46,783
Net purchases/(proceeds) of Federal Home Loan Bank stock	4,684		(5,313)
Proceeds from sale of real estate owned	1,062		3,274
Proceeds from sale of real estate owned for investment, net	455		456
Purchase of premises and equipment	(10,808)		(9,302)
Acquisitions, net of cash received	261,712		(25,834)
Net cash used in investing activities	(642,334)		(331,541)

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)


	Nine months ended September 30,
	2020		2019
Financing activities:
Net increase in deposits	$	1,247,573	307,942
Proceeds from long-term borrowings	123,247		—
Repayments of long-term borrowings	(112,253)		—
Net increase/(decrease) in short-term borrowings	(89,504)		20,868
Increase in advances by borrowers for taxes and insurance	(16,790)		(18,987)
Cash dividends paid on common stock	(68,852)		(56,971)

Proceeds from stock options exercised	1,006		6,783

Net cash provided by financing activities	1,084,427		259,635

Net increase in cash and cash equivalents	$	595,903	38,813

Cash and cash equivalents at beginning of period	$	60,846	68,789
Net increase in cash and cash equivalents	595,903		38,813
Cash and cash equivalents at end of period	$	656,749	107,602







Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $27,668 and $32,893, respectively)	$	33,639	39,632
Income taxes	21,800		15,052

Business acquisitions:
Fair value of assets acquired	$	2,090,599	580,407
Northwest Bancshares, Inc. common stock issued	(213,406)		(43,288)
Net cash paid	—		(42,500)
Liabilities assumed	$	1,877,193	494,619

Non-cash activities:
Loan foreclosures and repossessions	$	4,216	4,349
Sale of real estate owned financed by the Company	—		44

See accompanying notes to unaudited Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Basis of Presentation and Informational Disclosures

Northwest Bancshares, Inc. (the “Company” or “NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking. Northwest operates 213 community-banking offices throughout Pennsylvania, Western New York, Eastern Ohio, and Indiana.

The accompanying unaudited Consolidated Financial Statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Capital Group, Inc., Allegheny Services, Inc., Great Northwest Corporation, The Bert Company (doing business as Northwest Insurance Services) and MutualFirst Investment Company, Inc. The unaudited Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The Consolidated Financial Statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 updated, as required, for any new pronouncements or changes.

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

The results of operations for the quarter ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other period.

Stock-Based Compensation

On May 20, 2020, the Company awarded employees 556,476 stock options and directors 57,600 stock options with an exercise price of $9.71 and grant date fair value of $0.13 per stock option, and the Company awarded employees 261,091 restricted common shares and directors 21,600 restricted common shares with a grant date fair value of $9.71. Awarded stock options and common shares vest over a seven-year period with the first vesting occurring on the grant date. Stock-based compensation expense of $743,000 and $1.7 million for the quarters ended September 30, 2020 and 2019, and $3.8 million and $5.4 million for the nine months ended September 30, 2020 and 2019, respectively, was recognized in compensation expense relating to our stock benefit plans. At September 30, 2020, there was compensation expense of $2.5 million to be recognized for awarded but unvested stock options and $12.7 million for unvested restricted common shares.

Income Taxes-Uncertain Tax Positions

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. At September 30, 2020, we had no liability for unrecognized tax benefits.

We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income. We recognize penalties (if any) in other expenses. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2019, 2018, and 2017.

Recently Adopted Accounting Standards

On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which eliminated the probable initial recognition threshold for credit losses and instead requires that all financial assets (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. This guidance also applies to certain off-balance sheet credit exposures such as unfunded commitments and non-derivative financial guarantees. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. ASC 326 requires credit

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losses to be presented as an allowance, rather than a write-down, on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

We adopted ASC 326 using the modified retrospective transition approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required ASC 326 disclosures for periods before the date of adoption (i.e., January 1, 2020).

As a result of the adoption of ASU 2016-13, referred to as Current Expected Credit Losses ("CECL"), we recognized an increase to the allowance for credit losses of $10.8 million, an increase to our reserve for off-balance sheet exposures of $2.3 million, an increase in deferred tax assets of $2.9 million and a cumulative-effect adjustment to retained earnings of $9.6 million, net of taxes, on the Consolidated Statements of Financial Condition as of January 1, 2020, with no impact on our Consolidated Statement of Income or Consolidated Statement of Cash Flows. Additionally, the adoption of CECL did not impact our held-to-maturity or our available-for-sale securities portfolio, which are primarily comprised of agency-backed mortgage securities.

We also adopted ASC 326 using the prospective transition approach for financial assets Purchased with Credit Deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with ASC 326, we did not reassess whether PCI assets met the criteria for PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $517,000 of allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

We have elected to phase the estimated impact of CECL into regulatory capital in accordance with the interim final rule of the Board of Governors of the Federal Reserve System (FRB) and other U.S. banking agencies that became effective on March 31, 2020. As a result, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the interim final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in allowance during the two-year deferral period.

Adoption of this standard resulted to changes in our Investment Securities, Loans Receivable and Allowance for Credit Loss and Provision for Credit Losses accounting policies as presented below. Refer to Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K regarding additional significant accounting policies, including policies in effect prior to the adoption of the CECL standard.

Investment Securities

We classify marketable securities at the time of purchase as held-to-maturity, available-for-sale, or trading. Securities for which management has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts on a level yield basis (amortized cost). If it is management’s intent at the time of purchase to hold securities for an indefinite period of time and/or to use such securities as part of its asset/liability management strategy, the securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of tax. Securities classified as available-for-sale include securities that may be sold in response to changes in interest rates, resultant prepayment risk, or other market factors. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with changes in fair value included in earnings. The cost of securities sold is determined on a specific identification basis. We held no securities classified as trading at or during the quarter ended September 30, 2020.

On a quarterly basis, we measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type and all of our held-to-maturity debt securities are residential mortgage-backed securities. Accrued interest receivable on held-to-maturity debt securities totaled $1.4 million and $1.5 million at September 30, 2020 and December 31, 2019, respectively, and is excluded from estimated credit losses. All of our residential mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.

For available-for-sale debt securities in an unrealized loss position, on at least a quarterly basis, we review our investments for impairment. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. We consider both our intent to sell and the likelihood that we will not have to sell the investment securities before recovery of their amortized cost basis during our evaluation. If we intend to sell the investment security or if it is more likely than not that we will be

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required to sell the investment security, the entire impairment is recorded in earnings. For available-for-sale debt securities that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment we consider the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security, among other factors. Also, we may evaluate the business and financial outlook of the issuer, as well as broader economic performance indicators. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security is confirmed or when there is an intent or requirement to sell the security.

Accrued interest receivable on available-for-sale debt securities totaled $1.7 million and $900,000 at September 30, 2020 and December 31, 2019, respectively, and is excluded from the estimate of credit losses.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. The receivable for interest income that is accrued but not collected is reversed against interest income when the debt security is placed on nonaccrual status.

Loans Receivable

Our portfolio segments are based on the class of financing receivable. Additionally, the class of financing receivables are based on several factors including the method for monitoring and assessing credit risk and the risk characteristics of the financing receivables. Based on evaluation of the nature of our financing receivables, along with the nature and extent of exposure to credit risk arising from these receivables, our portfolio segments were determined to be Personal Banking and Business Banking loans.

•Personal Banking loans consist of the following classes of financing receivables:

◦Residential mortgage loans - fixed and adjustable rate mortgage loans

◦Home equity loans - first and second mortgage loans and home equity lines of credit

◦Vehicle loans - direct and indirect automobile and motorcycle loans

◦Consumer loans - unsecured lines of credit, credit card loans, and other consumer loans

•Business Banking loans consist of the following classes of financing receivables:

◦Commercial real estate - multi-family commercial real estate loans are secured by multi-family residences, such as rental properties and loans secured by nonresidential properties such as hotels, commercial offices, medical buildings, manufacturing facilities and retail establishments, excluding owner-occupied loans, and including small business commercial real estate loans.

◦Commercial real estate - owner-occupied loans - commercial real estate loans secured by residential or non-residential properties

◦Commercial loans - other commercial loans, including small business commercial loans.

Loans are reported at amortized cost. Amortized cost is the principal balance outstanding, net of any deferred purchased premiums and discounts, deferred origination fees or costs and the allowance for credit losses. Accrued interest receivable totaled $33.5 million and $23.3 million at September 30, 2020 and December 31, 2019, respectively, and was reported in accrued interest receivable on the Consolidated Statements of Financial Position. Accrued interest receivable is excluded from the amortized cost basis of loans and from the estimate of allowance for credit losses, except for loans that received six-month deferrals as a result of COVID-19. Accrued interest receivable on loans that received six-month deferrals was $4.4 million at September 30, 2020. The accrual status of these loans will be re-assessed at the end of their deferral period. Interest income on loans is credited to income as earned. Interest earned on loans for which no payments were received during the month is accrued at month end.

Accrued interest on loans more than 90 days delinquent is reversed and such loans are placed on nonaccrual status. All loans are placed on nonaccrual status when principal or interest is 90 days or more delinquent or when there is reasonable doubt that interest or principal will not be collected in accordance with the contractual terms. Interest receipts on all nonaccrual loans are recognized as interest income when it has been determined that all principal and interest will be collected or are applied to principal when collectability of contractual principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and a period of performance has been established in accordance with the contractual terms, typically six months.

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A loan is considered to be a troubled debt restructuring loan ("TDR") when the borrower is experiencing financial difficulties and the restructuring constitutes a concession. TDRs may include modifications of terms of loans, receipts of assets from borrowers in partial or full satisfaction of loans, or a combination thereof. A modified loan is determined to be a TDR based on the contractual terms as specified by the original loan agreement or the most recent modification. Once classified as a TDR, a loan is removed from such classification under three circumstances: (1) the loan is paid off, (2) the loan is charged off, or (3) if, at the beginning of the current fiscal year, the loan has performed in accordance with the modified terms for a minimum of six consecutive months and at the time of modification the loan’s interest rate represented a then current market interest rate for a loan of similar risk.

Loan delinquency is measured based on the number of days since the payment due date. Past due status is measured using the loan’s contractual maturity date.

Personal Banking loans are charged-off or charged down when they become 180 days delinquent, unless the borrower has filed for bankruptcy. Business Banking loans are charged-off or charged down when, in our opinion, they are no longer collectible or when it has been determined that the collateral value no longer supports the carrying value of the loan for loans that are collateral dependent.

Loan fees and certain direct loan origination costs are deferred and the net deferred fee or cost is then recognized using the level-yield method over the contractual life of the loan as an adjustment to interest income.

We identify certain residential mortgage loans which will be sold prior to maturity as loans held-for-sale. These loans are recorded at fair value. At September 30, 2020 and December 31, 2019, there were $25.1 million and $7.7 million of residential mortgage loans classified as held-for-sale, respectively.

Acquired loans that are not considered PCD are initially measured at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

Acquired loans may be classified as PCD loans upon acquisition if they have experienced more than insignificant credit deterioration since origination. Loans are considered to have experienced more than insignificant credit deterioration if they are greater than 30 days past due, classified special mention or worse or on nonaccrual status. An allowance for credit losses on day 1 is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”. There is no credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

Upon adoption of ASC 326, we assessed our legacy loans that were previously accounted for under ASC 310-30 to determine whether they share similar risk characteristics and whether some or all of the assets should be assessed collectively with other loans that share similar risk characteristics. Upon adoption, an allowance for credit losses was determined for each loan and added to the loan's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the loan and the new amortized cost is the noncredit premium or discount which will be amortized into interest income over the remaining life of the loan. Changes to the allowance for credit losses after adoption are recorded through provision expense.

Allowance for Credit Losses and Provision for Credit Losses

The allowance for credit losses is deducted from, or added to, the loan’s amortized cost basis to present the net amount expected to be collected on our lending portfolios. We estimate the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Loans are charged off against the allowance when we believe the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments. The contractual term excludes expected extensions, renewals and modifications unless we had a reasonable expectation at the reporting date that a TDR will be executed for an individual borrower or the extension or renewal option is included in the contract and is not unconditionally cancellable by the Company.

Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, we first estimate the future cash flows expected to be received and then apply those expected future cash flows to the credit card balance. Expected credit losses for credit cards are determined by estimating the amount and timing of principal payments expected to be

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received as payment for the balance outstanding as of the reporting date and applying those principal payments against the balance outstanding as of the reporting period until the expected payments have been fully allocated. The allowance for credit losses is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. For the purpose of calculating portfolio-level reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate owner-occupied and commercial loans. The allowance for credit losses is measured at the loan-level wherever possible, but it is sometimes measured at the portfolio level when there is no added benefit to being measured at the loan-level. We use a twelve-month forecasting period and revert to historical average loss rates thereafter. Reversion to the mean takes place over a twelve month period. Historical average loss rates are calculated using historical data beginning in 2009 through the current period.

Mortgage and Home Equity Loans

The allowance for credit losses within the mortgage and home equity loan classes is calculated at the loan-level using a proprietary statistical model developed by an external third-party. These classes are further divided into smaller pools of loans with similar risk characteristics such as: lines versus loans, fixed versus variable, senior lien position versus junior lien position, among other things.

For each pool, the models project default rates, prepayment rates, and severity rates. The models accept as inputs key risk drivers such as: current balance, original credit bureau score, original loan-to-value ratio, type of collateral, location of collateral, delinquency status, loan age, among other characteristics. They also utilize macroeconomic forecasts of home price indices, unemployment rates, gross domestic product, and others.

Vehicle Loans

The allowance for credit losses within the vehicle loan portfolio is calculated at the portfolio-level using a proprietary statistical model developed internally with the assistance of an external third-party. The allowance for vehicle loans utilizes a vintage analysis to project portfolio-level net charge-off rates. The class is further divided into short term versus long term loans, prime versus subprime borrowers, and origination vintage. This model uses current balance, original credit bureau score, original debt-to-income ratio, loan term, loan age, and other product characteristics as key risk drivers.

The model used for vehicle loans is not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework.

Consumer Loans

The allowance for losses within the consumer loan portfolio is calculated at the portfolio-level using a suite of proprietary statistical models developed internally with the assistance of an external third-party. This class of financing receivables is further divided into credit cards, unsecured lines of credit and other consumer loans.

The allowance for credit cards and unsecured lines of credit is calculated using two transition matrix models to project portfolio-level net charge-off rates. Both models use current balance and delinquency status as key risk drivers. These models are not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework.

For other consumer loans, a regression model is used to project portfolio-level net charge-off rates. This model uses borrower information and macroeconomic forecasts as key inputs.

Commercial Real Estate Loans

The commercial real estate loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial real estate loans and small business commercial real estate loans.

The allowance for credit losses for the commercial real estate loan portfolio is calculated at loan-level using a proprietary statistical model developed by an external third-party. This model projects default and severity rates. The model accepts as inputs key risk drivers such as: current balance, original loan-to-value-ratio, type of collateral, location of collateral, delinquency status, loan age, obligor financial statement information, and expected prepayment rates, among other characteristics. It also utilizes macroeconomic forecasts of commercial real estate price indices, unemployment rates, gross domestic product and others.

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The allowance for credit losses is calculated for commercial real estate small business loans at the portfolio-level using a proprietary statistical model. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs.

Commercial Loans and Commercial Real Estate - Owner Occupied Loans

The allowance for credit losses for the commercial loan portfolio and the commercial real estate - owner occupied loan portfolio is calculated at loan-level using a proprietary statistical model developed by an external third-party. The commercial loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial loans and commercial small business loans.

The commercial loan portfolio and the commercial real estate owner occupied loan portfolio the models project default and severity rates. The model accepts as inputs key risk drivers such as the obligor financial statement information, collateral type, the obligor’s primary industry, expected prepayment rates, among other characteristics. It also utilizes macroeconomic forecasts of unemployment rates, gross domestic product, corporate bond spreads, and others.

The allowance for credit losses for commercial small business loans is calculated at the portfolio-level using a proprietary statistical model. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When we determine that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. If this criteria is not met, a discounted cash flow method is used to determine the allowance for credit losses. All changes in the discounted cash flow method over time are reported in the allowance for credit losses.

The allowance calculation is also supplemented with qualitative reserves that takes into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.

The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except when the value of the concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan.

For off-balance sheet credit exposures, we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The liability for credit losses on off-balance sheet credit exposures is adjusted through a provision for credit loss expense and is included within "other expenses". We estimate the liability balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The estimate includes a consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Off-balance-sheet exposures that are not unconditionally cancellable have been identified for the home equity, commercial real estate, and commercial loan portfolios.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes, modifies and adds disclosure requirements for fair value measurements. On January 1, 2020, the Company adopted ASU 2018-13 on a prospective basis for the new and modified disclosures, and on a retrospective basis for disclosures that have been eliminated. The adoption of this standard did not have any effect on our results of operations or financial position. Refer to Note 10, "Disclosures About Fair Value of Financial Instruments".

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This guidance aligns the requirements for capitalization of implementation costs incurred in a hosting arrangement that is a service contract with the existing guidance for internal-use software. On January 1, 2020, the Company adopted ASU 2018-15 on a prospective basis which will be applied to relevant implementation costs incurred after the date of adoption. The adoption of this standard is not expected to have a material prospective impact on our financial statements.

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(2) Acquisition

On April 24, 2020, the Company completed the merger with MutualFirst Financial, Inc., the holding company for MutualBank (collectively referred to as "MutualBank"), for total consideration of $213.4 million. The transaction has expanded Northwest’s franchise by 36 offices in Indiana. The result of MutualBank's operations are included in the Consolidated Statements of Income from the date of acquisition.

Under the terms of the merger agreement, each share of MutualBank's common stock was converted into 2.4 shares of the Company's common stock, or a total of 20,658,957 shares of common stock of the Company, valued at $213.4 million, based on the $10.33 per share closing price of the Company's stock on April 24, 2020 with cash in lieu of fractional shares paid at a rate of $10.71 per whole share of Northwest Bancshares, Inc. common stock.

The following table shows the assets acquired and the liabilities assumed that were recorded at fair value on the date of acquisition (in thousands):


Consideration paid:
Northwest Bancshares, Inc. common stock issued	$	213,406

Total consideration paid	213,406

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value (1)
Cash and cash equivalents	$	261,712
Investment securities available-for-sale	126,854
Loans, net	1,508,141
Federal Home Loan Bank stock	13,115
Premises and equipment	19,094
Core deposit intangible	3,717
Other assets	118,025
Deposits	(1,617,039)
Borrowings	(232,200)
Junior subordinated debentures	(6,804)
Other liabilities	(21,150)
Total identifiable net assets	$	173,465
Goodwill	$	39,941

(1) Amounts are estimates and subject to adjustment. Actual amounts are not expected to differ materially from the amounts shown.

We estimated the fair value of loans acquired from MutualBank by utilizing a methodology wherein similar loans were aggregated into pools. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on a market rate for similar loans. There was no carryover of MutualBank’s allowance for credit losses associated with the loans we acquired as the loans were initially recorded at fair value. The fair value of loans acquired was $1.508 billion, net of a $14.7 million discount.

The core deposit intangible asset recognized as part of the MutualBank merger is being amortized over its estimated useful life of seven years utilizing an accelerated method. The goodwill, which is not amortized for book purposes, was assigned to our Community Banking segment and is not deductible for tax purposes. The fair values of savings and transaction deposit accounts acquired from MutualBank were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by projecting out the expected cash flows based on the contractual terms of the certificates of deposit. These cash flows were discounted based on a market rate for a certificate of deposit with a corresponding maturity.

Direct costs related to the MutualBank merger were expensed as incurred and were $12.1 million during the nine months ended September 30, 2020, which included technology and communications costs, professional services, marketing and advertising, and other noninterest expenses.

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(3) Marketable Securities

The following table shows the portfolio of marketable securities available-for-sale at September 30, 2020 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S government and agencies:
Due after ten years	$	34,000	176	—	34,176

Debt issued by government sponsored enterprises:
Due in less than one year	35,731		284	—	36,015
Due in one year through five years	253		4	—	257
Due in five years through ten years	69,135		170	(178)	69,127




Municipal securities:
Due in less than one year	4,241		18	—	4,259
Due in one year through five years	3,343		73	(2)	3,414
Due in five years through ten years	11,077		312	—	11,389
Due after ten years	92,530		2,930	—	95,460





Residential mortgage-backed securities:
Fixed rate pass-through	356,898		6,467	(102)	363,263
Variable rate pass-through	15,798		538	(18)	16,318

Fixed rate agency CMOs	710,620		13,035	(722)	722,933
Variable rate agency CMOs	52,209		369	(39)	52,539
Total residential mortgage-backed securities	1,135,525		20,409	(881)	1,155,053
Total marketable securities available-for-sale	$	1,385,835	24,376	(1,061)	1,409,150

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The following table shows the portfolio of marketable securities available-for-sale at December 31, 2019 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S. government and agencies:
Due in less than one year	$	14,951	40	—	14,991

Debt issued by government sponsored enterprises:
Due in less than one year	50,777		345	—	51,122
Due in one year through five years	50,229		—	(227)	50,002

Due after ten years	3,716		53	(109)	3,660



Municipal securities:
Due in less than one year	809		4	—	813
Due in one year through five years	2,891		79	—	2,970
Due in five years through ten years	10,155		148	—	10,303
Due after ten years	11,695		267	—	11,962

Corporate debt issues:

Due in five years through ten years	919		—	—	919

Residential mortgage-backed securities:
Fixed rate pass-through	142,421		1,941	(881)	143,481
Variable rate pass-through	18,933		749	(4)	19,678

Fixed rate agency CMOs	452,256		3,518	(1,606)	454,168
Variable rate agency CMOs	55,743		207	(118)	55,832
Total residential mortgage-backed securities	669,353		6,415	(2,609)	673,159
Total marketable securities available-for-sale	$	815,495	7,351	(2,945)	819,901

The following table shows the portfolio of marketable securities held-to-maturity at September 30, 2020 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value




Residential mortgage-backed securities:
Fixed rate pass-through	$	1,823	128	—	1,951
Variable rate pass-through	970		33	—	1,003
Fixed rate agency CMOs	11,936		659	—	12,595
Variable rate agency CMOs	604		15	—	619
Total residential mortgage-backed securities	15,333		835	—	16,168
Total marketable securities held-to-maturity	$	15,333	835	—	16,168

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The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2019 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value




Residential mortgage-backed securities:
Fixed rate pass-through	$	2,197	83	—	2,280
Variable rate pass-through	1,210		28	—	1,238
Fixed rate agency CMOs	14,016		68	—	14,084
Variable rate agency CMOs	613		8	—	621
Total residential mortgage-backed securities	18,036		187	—	18,223
Total marketable securities held-to-maturity	$	18,036	187	—	18,223

The following table shows the contractual maturity of our marketable securities held-to-maturity at September 30, 2020 (in thousands):


	Amortized cost		Fair value




Residential mortgage-backed securities:

Due in one year through five years	$	1,256	1,330

Due after ten years	14,077		14,838
Total residential mortgage-backed securities	15,333		16,168
Total marketable securities held-to-maturity	$	15,333	16,168

The following table shows the fair value of and gross unrealized losses on available-for-sale marketable securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2020 (in thousands):


	Less than 12 months			12 months or more		Total
	Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss
U.S. government sponsored enterprises	$	44,892	(93)	2,081	(85)	46,973	(178)
Municipal securities	178		(2)	—	—	178	(2)


Residential mortgage-backed securities - agency	236,675		(845)	6,132	(36)	242,807	(881)

Total temporarily impaired securities	$	281,745	(940)	8,213	(121)	289,958	(1,061)

The following table shows the fair value of and gross unrealized losses on marketable securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2019 (in thousands):


	Less than 12 months			12 months or more		Total
	Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss
U.S. government sponsored enterprises	$	—	—	52,620	(336)	52,620	(336)



Residential mortgage-backed securities - agency	173,112		(858)	109,324	(1,751)	282,436	(2,609)
Total temporarily impaired securities	$	173,112	(858)	161,944	(2,087)	335,056	(2,945)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2020, which were comprised of 106 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies or U.S. government-sponsored agencies. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company does not have the intent to sell these investment securities and it is likely that we will not be required to sell these securities before their anticipated recovery, which may be at maturity.

All of the Company's held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored agencies. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating

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agencies and have a long history of no credit losses. Additionally, all held-to-maturity debt securities were in an unrealized gain position as of September 30, 2020. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2020.

The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of September 30, 2020. The credit ratings are sourced from nationally recognized rating agencies, which include Moody's and S&P, or when credit ratings cannot be sourced from the agencies, they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of September 30, 2020.


	AA+		Total




Held-to-maturity securities:
Residential mortgage-backed securities	$	15,333	15,333
Total marketable securities held-to-maturity	$	15,333	15,333

(4) Loans Receivable

The following table shows a summary of our loans receivable at amortized cost basis at September 30, 2020 and December 31, 2019 (in thousands):


	September 30, 2020				December 31, 2019
	Originated		Acquired	Total	Originated	Acquired	Total
Personal Banking:

Residential mortgage loans (1)	$	2,794,489	348,880	3,143,369	2,785,189	82,938	2,868,127
Home equity loans	1,169,709		314,656	1,484,365	1,099,514	243,404	1,342,918
Vehicle loans	960,178		172,662	1,132,840	850,804	10,388	861,192
Consumer loans	282,042		72,201	354,243	238,343	25,597	263,940
Total Personal Banking	5,206,418		908,399	6,114,817	4,973,850	362,327	5,336,177

Commercial Banking:
Commercial real estate loans	2,123,387		644,501	2,767,888	1,915,949	312,160	2,228,109
Commercial real estate loans - owner occupied	365,580		186,275	551,855	433,099	93,182	526,281
Commercial loans	1,147,492		199,800	1,347,292	664,159	53,948	718,107
Total Commercial Banking	3,636,459		1,030,576	4,667,035	3,013,207	459,290	3,472,497
Total loans receivable, gross	8,842,877		1,938,975	10,781,852	7,987,057	821,617	8,808,674

Allowance for credit losses	(109,580)		(30,629)	(140,209)	(51,439)	(6,502)	(57,941)
Total loans receivable, net (2)	$	8,733,297	1,908,346	10,641,643	7,935,618	815,115	8,750,733

(1) Includes $25.1 million and $7.7 million of loans held-for-sale at September 30, 2020 and December 31, 2019, respectively.

(2) Includes $34.2 million and $40.2 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at September 30, 2020 and December 31, 2019, respectively.

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended September 30, 2020 and includes the cumulative effect of adopting ASU 2016-13 (in thousands):


	Balance as of September 30, 2020		Current period provision	Charge-offs	Recoveries	Initial ACL on loans purchased with credit deterioration	Balance as of June 30, 2020
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	12,036	268	(129)	189	—	11,708
Home equity loans	9,585		183	(88)	127	—	9,363
Vehicle loans	16,713		4,111	(1,763)	530	—	13,835
Consumer loans	3,147		1,871	(1,593)	363	—	2,506
Total Personal Banking	41,481		6,433	(3,573)	1,209	—	37,412

Commercial Banking:
Commercial real estate loans	73,410		780	(470)	267	—	72,833
Commercial real estate loans - owner occupied	13,570		(1,205)	(62)	10	—	14,827
Commercial loans	11,748		810	(4,892)	316	—	15,514
Total Commercial Banking	98,728		385	(5,424)	593	—	103,174
Total	$	140,209	6,818	(8,997)	1,802	—	140,586

Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:

Residential mortgage loans	$	3	3	—	—	—	—
Home equity loans	40		2	—	—	—	38

Total Personal Banking	43		5	—	—	—	38

Commercial Banking:
Commercial real estate loans	2,423		(2,712)	—	—	—	5,135
Commercial real estate loans - owner occupied	469		(157)	—	—	—	626
Commercial loans	3,312		(1,072)	—	—	—	4,384
Total Commercial Banking	6,204		(3,941)	—	—	—	10,145
Total off-balance sheet exposure	$	6,247	(3,936)	—	—	—	10,183

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended September 30, 2019, prior to the adoption of ASU 2016-13 (in thousands):


	Balance as of September 30, 2019		Current period provision	Charge-offs	Recoveries	Balance as of June 30, 2019
Originated loans
Personal Banking:
Residential mortgage loans	$	2,507	(1,361)	(109)	68	3,909
Home equity loans	2,791		(81)	(176)	58	2,990

Consumer loans	12,175		3,779	(2,975)	605	10,766
Total Personal Banking	17,473		2,337	(3,260)	731	17,665

Commercial Banking:
Commercial real estate loans	20,215		(1,206)	(261)	720	20,962
Commercial loans	9,729		958	(1,118)	87	9,802
Total Commercial Banking	29,944		(248)	(1,379)	807	30,764
Total originated loans	47,417		2,089	(4,639)	1,538	48,429

Acquired loans
Personal Banking:
Residential mortgage loans	92		41	(81)	28	104
Home equity loans	295		220	(290)	21	344
Consumer loans	554		63	(103)	83	511
Total Personal Banking	941		324	(474)	132	959

Commercial Banking:
Commercial real estate loans	3,622		1,155	(128)	24	2,571
Commercial loans	879		(266)	(33)	30	1,148
Total Commercial Banking	4,501		889	(161)	54	3,719
Total acquired loans	5,442		1,213	(635)	186	4,678

Total	$	52,859	3,302	(5,274)	1,724	53,107

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the nine months ended September 30, 2020 and includes the cumulative effect of adopting ASU 2016-13 (in thousands):


	Balance as of September 30, 2020		Current period provision	Charge-offs	Recoveries	Initial ACL on loans purchased with credit deterioration	Cumulative effect of ASU 2016-13*	Balance as of December 31, 2019
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	12,036	1,132	(510)	304	1,095	7,441	2,574
Home equity loans	9,585		536	(550)	408	216	5,786	3,189
Vehicle loans	16,713		12,419	(5,369)	1,294	235	842	7,292
Consumer loans	3,147		3,600	(4,666)	1,179	157	(2,424)	5,301
Total Personal Banking	41,481		17,687	(11,095)	3,185	1,703	11,645	18,356

Commercial Banking:
Commercial real estate loans	73,410		50,018	(1,470)	1,011	5,720	2,288	15,843
Commercial real estate loans - owner occupied	13,570		5,642	(83)	25	963	1,278	5,745
Commercial loans	11,748		12,858	(16,056)	909	459	(4,419)	17,997
Total Commercial Banking	98,728		68,518	(17,609)	1,945	7,142	(853)	39,585
Total	$	140,209	86,205	(28,704)	5,130	8,845	10,792	57,941

Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:

Residential mortgage loans	$	3	3	—	—	—	—	—
Home equity loans	40		10	—	—	—	(293)	323
Consumer loans	—		—	—	—	—	(402)	402
Total Personal Banking	43		13	—	—	—	(695)	725

Commercial Banking:
Commercial real estate loans	2,423		412	—	—	—	1,934	77
Commercial real estate loans - owner occupied	469		378	—	—	—	88	3
Commercial loans	3,312		2,220	—	—	—	923	169
Total Commercial Banking	6,204		3,010	—	—	—	2,945	249
Total off-balance sheet exposure	$	6,247	3,023	—	—	—	2,250	974

* Includes the impact of the initial allowance on PCD loans of $517,000.

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

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the nine months ended September 30, 2019, prior to the adoption of ASU 2016-13 (in thousands):


	Balance as of September 30, 2019		Current period provision	Charge-offs	Recoveries	Balance as of December 31, 2018
Originated loans
Personal Banking:
Residential mortgage loans	$	2,507	(991)	(847)	291	4,054
Home equity loans	2,791		36	(536)	107	3,184

Consumer loans	12,175		7,737	(8,492)	1,850	11,080
Total Personal Banking	17,473		6,782	(9,875)	2,248	18,318

Commercial Banking:
Commercial real estate loans	20,215		(2,177)	(4,978)	991	26,379
Commercial loans	9,729		4,769	(2,449)	355	7,054
Total Commercial Banking	29,944		2,592	(7,427)	1,346	33,433
Total originated loans	47,417		9,374	(17,302)	3,594	51,751

Acquired loans
Personal Banking:
Residential mortgage loans	92		50	(97)	56	83
Home equity loans	295		249	(472)	170	348
Consumer loans	554		131	(173)	177	419
Total Personal Banking	941		430	(742)	403	850

Commercial Banking:
Commercial real estate loans	3,622		1,432	(382)	576	1,996
Commercial loans	879		3,200	(3,059)	121	617
Total Commercial Banking	4,501		4,632	(3,441)	697	2,613
Total acquired loans	5,442		5,062	(4,183)	1,100	3,463

Total	$	52,859	14,436	(21,485)	4,694	55,214

Table of Contents

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at September 30, 2020 (in thousands):


	Total loans receivable		Allowance for credit losses	Nonaccrual loans (1)	Loans 90 days past due and accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	3,143,369	12,036	16,514	—	8,464	891	—
Home equity loans	1,484,365		9,585	9,274	—	2,090	578	26
Vehicle loans	1,132,840		16,713	5,659	—	—	—	—
Consumer loans	354,243		3,147	938	495	1	—	—
Total Personal Banking	6,114,817		41,481	32,385	495	10,555	1,469	26

Commercial Banking:
Commercial real estate loans	2,767,888		73,410	57,794	—	18,599	1,625	71
Commercial real estate loans - owner occupied	551,855		13,570	3,749	—	920	186	349
Commercial loans	1,347,292		11,748	12,870	—	4,730	195	236
Total Commercial Banking	4,667,035		98,728	74,413	—	24,249	2,006	656

Total	$	10,781,852	140,209	106,798	495	34,804	3,475	682

(1)Includes $17.1 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, 2019, prior to the adoption of ASU 2016-13 (in thousands):


	Total loans receivable		Allowance for credit losses	Nonaccrual loans (1)	Loans 90 days past due and accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	2,868,127	2,574	14,476	—	7,550	560	—
Home equity loans	1,342,918		3,189	6,745	32	1,973	393	26

Consumer loans	1,125,132		12,593	4,226	—	—	—	—
Total Personal Banking	5,336,177		18,356	25,447	32	9,523	953	26

Commercial Banking:
Commercial real estate loans	2,754,390		21,588	34,864	—	19,358	1,384	476
Commercial loans	718,107		17,997	8,559	—	3,118	665	64
Total Commercial Banking	3,472,497		39,585	43,423	—	22,476	2,049	540

Total	$	8,808,674	57,941	68,870	32	31,999	3,002	566

(1)Includes $9.0 million of nonaccrual TDRs.

Table of Contents

Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, we present the amortized cost of our loans on nonaccrual status including such loans with no allowance. The following table presents the amortized cost of our loans on nonaccrual status as of the beginning and end of the nine months ended September 30, 2020 (in thousands):


	Nonaccrual loans at January 1, 2020		Nonaccrual loans at September 30, 2020 with an allowance	Nonaccrual loans with no allowance	Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans	$	14,476	16,514	—	—
Home equity loans	6,745		8,818	456	—
Vehicle loans	3,147		5,562	97	—
Consumer loans	1,079		927	11	495
Total Personal Banking	25,447		31,821	564	495

Commercial Banking:
Commercial real estate loans	18,832		40,123	17,671	—
Commercial real estate loans - owner occupied	16,032		3,748	1	—
Commercial loans	8,559		8,790	4,080	—
Total Commercial Banking	43,423		52,661	21,752	—

Total	$	68,870	84,482	22,316	495

During the three and nine months ended September 30, 2020, we recognized $186,000 and $574,000 of interest income on nonaccrual loans.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2020 (in thousands):


	Real estate		Equipment	Other	Total
Personal Banking:
Residential mortgage loans	$	1,338	—	—	1,338
Home equity loans	100		—	—	100


Total Personal Banking	1,438		—	—	1,438

Commercial Banking:
Commercial real estate loans	32,390		—	2,080	34,470

Commercial loans	4,280		2,003	1,575	7,858
Total Commercial Banking	36,670		2,003	3,655	42,328

Total	$	38,108	2,003	3,655	43,766

Table of Contents

The following table provides information related to the composition of originated impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2019, prior to the adoption of ASU 2016-13 (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:
Residential mortgage loans	$	12,682	1,794	—	6,817	21,293	19,767	688
Home equity loans	5,635		1,110	—	1,654	8,399	8,571	368
Consumer loans	3,610		616	—	—	4,226	3,842	179
Total Personal Banking	21,927		3,520	—	8,471	33,918	32,180	1,235

Commercial Banking:
Commercial real estate loans	25,014		9,850	933	10,329	46,126	46,284	1,490
Commercial loans	4,739		3,820	15,916	1,474	25,949	10,179	345
Total Commercial Banking	29,753		13,670	16,849	11,803	72,075	56,463	1,835

Total	$	51,680	17,190	16,849	20,274	105,993	88,643	3,070

The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at December 31, 2019 prior to the adoption of ASU 2016-13 (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:
Residential mortgage loans	$	2,860,026	8,101	8,101	560	—
Home equity loans	1,340,944		1,974	1,974	393	—

Consumer loans	1,125,123		9	9	3	—
Total Personal Banking	5,326,093		10,084	10,084	956	—

Commercial Banking:
Commercial real estate loans	2,718,855		35,535	29,578	2,679	5,957
Commercial loans	694,424		23,683	18,337	8,127	5,346
Total Commercial Banking	3,413,279		59,218	47,915	10,806	11,303

Total	$	8,739,372	69,302	57,999	11,762	11,303

Table of Contents

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

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

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

In March 2020 and August 2020, joint statements were issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification. For borrowers who are 30 days or more past due when enrolling in a loan modification program related to the COVID-19 pandemic, we evaluate the loan modifications under our existing TDR framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest.

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


	For the quarter ended September 30,
	2020			2019
	Number of contracts	Amount		Number of contracts	Amount
Beginning TDR balance:	167	$	35,450	183	$	31,269
New TDRs	7	803		3	520
Re-modified TDRs	3	6,679		8	4,773
Net paydowns	—	(8,127)		—	(5,668)
Charge-offs:
Residential mortgage loans	—	—		—	—
Home equity loans	—	—		—	—
Vehicle loans	—	—		—	—
Commercial real estate loans	—	—		—	—
Commercial real estate loans - owner occupied	—	—		—	—
Commercial loans	—	—		2	(235)
Paid-off loans:
Residential mortgage loans	—	—		—	—
Home equity loans	—	—		3	(68)
Vehicle loans	—	—		—	—
Commercial real estate loans	—	—		3	(289)
Commercial real estate loans - owner occupied	—	—		—	—
Commercial loans	1	(1)		1	(2)
Ending TDR balance:	173	$	34,804	177	$	30,300
Accruing TDRs		$	17,684		$	21,162
Nonaccrual TDRs		17,120			9,138


	For the nine months ended September 30,
	2020			2019
	Number of contracts	Amount		Number of contracts	Amount
Beginning TDR balance:	176	$	31,999	195	$	33,608
New TDRs	10	889		5	826
Re-modified TDRs	5	9,720		8	4,773
Net paydowns	—	(7,192)		—	(6,454)
Charge-offs:
Residential mortgage loans	—	—		—	—
Home equity loans	1	(10)		—	—
Vehicle loans	—	—		—	—
Commercial real estate loans	—	—		—	—
Commercial real estate loans - owner occupied	—	—		—	—
Commercial loans	—	—		2	(235)
Paid-off loans:
Residential mortgage loans	2	(330)		4	(180)
Home equity loans	2	(3)		7	(143)
Vehicle loans	—	—		—	—
Commercial real estate loans	1	(26)		9	(1,893)
Commercial real estate loans - owner occupied	1	(25)		—	—
Commercial loans	6	(218)		1	(2)
Ending TDR balance:	173	$	34,804	177	$	30,300
Accruing TDRs		$	17,684		$	21,162
Nonaccrual TDRs		17,120			9,138

Table of Contents

The following tables provide information related to TDRs (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (in thousands):


	For the quarter ended September 30, 2020					For the nine months ended September 30, 2020
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance

Personal Banking:
Residential mortgage loans	1	$	90	89	1	1	$	90	89	1
Home equity loans	—	—		—	—	2	86		81	14
Vehicle loans	—	—		—	—	—	—		—	—
Consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	1	90		89	1	3	176		170	15

Commercial Banking:
Commercial real estate loans	5	7,096		7,040	816	5	7,096		7,040	816
Commercial real estate loans - owner occupied	—	—		—	—	1	58		51	10
Commercial loans	4	444		353	—	5	2,944		2,354	2
Total Commercial Banking	9	7,540		7,393	816	11	10,098		9,445	828

Total	10	$	7,630	7,482	817	14	$	10,274	9,615	843


	For the quarter ended September 30, 2019					For the nine months ended September 30, 2019
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance

Personal Banking:
Residential mortgage loans	1	$	121	121	8	1	$	121	121	8
Home equity loans	1	12		11	2	1	12		11	2
Vehicle loans	—	—		—	—	—	—		—	—
Consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	2	133		132	10	2	133		132	10

Commercial Banking:
Commercial real estate loans	8	6,014		5,120	549	9	6,314		5,417	581
Commercial real estate loans - owner occupied	—	—		—	—	—	—		—	—
Commercial loans	1	55		41	4	2	65		50	5
Total Commercial Banking	9	6,069		5,161	553	11	6,379		5,467	586

Total	11	$	6,202	5,293	563	13	$	6,512	5,599	596

Table of Contents

The following table provides information as of September 30, 2020 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended September 30, 2020 (in thousands):


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residential mortgage loans	1	$	—	—	89	—	89
Home equity loans	—	—		—	—	—	—
Vehicle loans	—	—		—	—	—	—
Consumer loans	—	—		—	—	—	—
Total Personal Banking	1	—		—	89	—	89

Commercial Banking:
Commercial real estate loans	5	—		—	6,755	285	7,040
Commercial real estate loans - owner occupied	—	—		—	—	—	—
Commercial loans	4	—		114	239	—	353
Total Commercial Banking	9	—		114	6,994	285	7,393

Total	10	$	—	114	7,083	285	7,482

The following table provides information as of September 30, 2019 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended September 30, 2019 (in thousands):


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residential mortgage loans	1	$	—	—	121	—	121
Home equity loans	1	—		—	11	—	11
Vehicle loans	—	—		—	—	—	—
Consumer loans	—	—		—	—	—	—
Total Personal Banking	2	—		—	132	—	132

Commercial Banking:
Commercial real estate loans	8	—		222	4,898	—	5,120
Commercial real estate loans - owner occupied	—	—		—	—	—	—
Commercial loans	1	—		—	41	—	41
Total Commercial Banking	9	—		222	4,939	—	5,161

Total	11	$	—	222	5,071	—	5,293

Table of Contents


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residential mortgage loans	1	$	—	—	89	—	89
Home equity loans	2	66		—	15	—	81
Vehicle loans	—	—		—	—	—	—
Consumer loans	—	—		—	—	—	—
Total Personal Banking	3	66		—	104	—	170

Commercial Banking:
Commercial real estate loans	5	—		—	6,755	285	7,040
Commercial real estate loans - owner occupied	1	—		—	51	—	51
Commercial loans	5	—		114	239	2,001	2,354
Total Commercial Banking	11	—		114	7,045	2,286	9,445

Total	14	$	66	114	7,149	2,286	9,615


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residential mortgage loans	1	$	—	—	121	—	121
Home equity loans	1	—		—	11	—	11
Vehicle loans	—	—		—	—	—	—
Consumer loans	—	—		—	—	—	—
Total Personal Banking	2	—		—	132	—	132

Commercial Banking:
Commercial real estate loans	9	—		519	4,898	—	5,417
Commercial real estate loans - owner occupied	—	—		—	—	—	—
Commercial loans	2	—		—	50	—	50
Total Commercial Banking	11	—		519	4,948	—	5,467

Total	13	$	—	519	5,080	—	5,599

No TDRs modified within the previous 12 months of September 30, 2020 subsequently defaulted.

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The following table provides information related to troubled debt restructurings modified within the previous twelve months of September 30, 2019 that subsequently defaulted:


	For the quarter ended September 30, 2019					For the nine months ended September 30, 2019
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance
Personal Banking:
Residential mortgage loans	—	$	—	—	—	—	$	—	—	—
Home equity loans	—	—		—	—	—	—		—	—
Other consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	—	—		—	—	—	—		—	—

Business Banking:
Commercial real estate loans	—	—		—	—	2	2,785		2,775	5
Commercial loans	1	134		126	104	2	284		276	104
Total Business Banking	1	134		126	104	4	3,069		3,051	109

Total	1	$	134	126	104	4	$	3,069	3,051	109

The following table provides information related to the amortized cost basis of loan payment delinquencies at September 30, 2020 (in thousands):


	30-59 days delinquent		60-89 days delinquent	90 days or greater delinquent	Total delinquency	Current	Total loans receivable	90 days or greater delinquent and accruing

Personal Banking:
Residential mortgage loans	$	736	4,788	14,750	20,274	3,123,095	3,143,369	—
Home equity loans	4,984		1,860	7,845	14,689	1,469,676	1,484,365	—
Vehicle loans	5,980		2,281	4,530	12,791	1,120,048	1,132,839	—
Consumer loans	2,606		768	1,317	4,691	349,553	354,244	495
Total Personal Banking	14,306		9,697	28,442	52,445	6,062,372	6,114,817	495

Commercial Banking:
Commercial real estate loans	3,463		4,212	33,509	41,184	2,726,704	2,767,888	—
Commercial real estate loans - owner occupied	1,627		—	1,987	3,614	548,241	551,855	—
Commercial loans	1,797		357	6,310	8,464	1,338,828	1,347,292	—
Total Commercial Banking	6,887		4,569	41,806	53,262	4,613,773	4,667,035	—















Total loans	$	21,193	14,266	70,248	105,707	10,676,145	10,781,852	495

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The following table provides information related to loan payment delinquencies at December 31, 2019 (in thousands):


	30-59 days delinquent		60-89 days delinquent	90 days or greater delinquent	Total delinquency	Current	Total loans receivable	90 days or greater delinquent and accruing (1)
Originated loans
Personal Banking:
Residential mortgage loans	$	20,447	5,572	11,080	37,099	2,748,090	2,785,189	—
Home equity loans	5,119		2,096	4,573	11,788	1,088,136	1,100,023	—

Consumer loans	8,969		3,198	3,467	15,634	1,073,103	1,088,638	—
Total Personal Banking	34,535		10,866	19,120	64,521	4,909,329	4,973,850	—

Commercial Banking:
Commercial real estate loans	5,598		1,387	17,959	24,944	2,324,104	2,349,048	—
Commercial loans	987		6,360	4,296	11,643	652,516	664,159	—
Total Commercial Banking	6,585		7,747	22,255	36,587	2,976,620	3,013,207	—
Total originated loans	41,120		18,613	41,375	101,108	7,885,949	7,987,057	—

Acquired loans
Personal Banking:
Residential mortgage loans	2,849		121	1,695	4,665	78,273	82,938	93
Home equity loans	1,350		309	1,115	2,774	240,630	243,404	53
Consumer loans	239		104	144	487	35,498	35,985	1
Total Personal Banking	4,438		534	2,954	7,926	354,401	362,327	147

Commercial Banking:
Commercial real estate loans	2,323		303	7,055	9,681	395,661	405,342	—
Commercial loans	200		43	443	686	53,262	53,948	—
Total Commercial Banking	2,523		346	7,498	10,367	448,923	459,290	—
Total acquired loans	6,961		880	10,452	18,293	803,324	821,617	147

Total	$	48,081	19,493	51,827	119,401	8,689,273	8,808,674	147

(1) Represents acquired loans that were originally recorded at fair value upon acquisition. These loans are considered to be accruing because we can reasonably

estimate future cash flows and expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value and their expected cash flows into interest income.

Credit Quality Indicators: For Commercial Banking loans we categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass:

Special Mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics. A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations. Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

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Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, those weaknesses make collection or liquidation in full highly questionable and improbable. A loan classified as doubtful exhibits discernible loss potential, but a complete loss seems very unlikely. The possibility of a loss on a doubtful loan is high, but because of certain important and reasonably specific pending factors that may strengthen the loan, its classification as an estimated loss is deferred until a more exact status can be determined.

Loss — Loans classified as loss are considered uncollectible and of such value that the continuance as a loan is not warranted. A loss classification does not mean that the loan has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off all or a portion of a basically worthless loan even though partial recovery may be possible in the future.

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

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

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

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

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Based on the most recent analysis performed, the amortized cost basis by risk category of loans by class of loans by origination year is as follows as of September 30, 2020 (in thousands):


	Year to date September 30, 2020		2019	2018	2017	2016	Prior	Revolving loans	Revolving loans converted to term loans	Total loans receivable
Personal Banking:
Residential mortgage loans
Pass	$	533,214	460,757	258,525	277,416	233,974	1,353,556	—	—	3,117,442
Substandard	—		—	714	1,060	511	23,642	—	—	25,927
Total residential mortgage loans	533,214		460,757	259,239	278,476	234,485	1,377,198	—	—	3,143,369
Home equity loans
Pass	215,458		210,955	103,761	96,142	88,061	239,862	478,598	39,082	1,471,919
Substandard	—		161	283	231	885	5,328	3,517	2,041	12,446
Total home equity loans	215,458		211,116	104,044	96,373	88,946	245,190	482,115	41,123	1,484,365
Vehicle loans
Pass	339,078		392,873	246,281	81,517	37,416	28,701	—	—	1,125,866
Substandard	165		2,008	2,058	1,406	702	635	—	—	6,974
Total vehicle loans	339,243		394,881	248,339	82,923	38,118	29,336	—	—	1,132,840
Consumer loans
Pass	110,146		93,152	39,398	19,837	8,990	13,010	65,388	2,322	352,243
Substandard	108		393	119	137	49	597	565	32	2,000
Total consumer loans	110,254		93,545	39,517	19,974	9,039	13,607	65,953	2,354	354,243
Total Personal Banking	1,198,169		1,160,299	651,139	477,746	370,588	1,665,331	548,068	43,477	6,114,817
Business Banking:
Commercial real estate loans
Pass	280,895		473,395	336,430	281,719	208,590	751,165	37,879	12,005	2,382,078
Special Mention	637		4,429	14,314	35,233	17,234	8,964	862	856	82,529
Substandard	33,637		1,126	59,756	49,370	20,786	133,612	2,196	2,798	303,281


Total commercial real estate loans	315,169		478,950	410,500	366,322	246,610	893,741	40,937	15,659	2,767,888
Commercial real estate loans - owner occupied
Pass	19,864		76,063	97,694	85,894	57,933	122,450	6,905	1,730	468,533
Special Mention	—		6,217	5,280	862	3,888	7,740	3,557	—	27,544
Substandard	—		18,285	899	13,094	4,063	17,735	1,284	418	55,778


Total commercial real estate loans - owner occupied	19,864		100,565	103,873	99,850	65,884	147,925	11,746	2,148	551,855
Commercial loans
Pass	587,698		114,419	65,990	66,647	57,539	52,649	294,346	15,967	1,255,255
Special Mention	5,003		1,228	1,547	2,063	6,300	170	24,320	—	40,631
Substandard	1,411		2,870	3,767	1,154	1,280	7,760	25,353	7,811	51,406


Total commercial loans	594,112		118,517	71,304	69,864	65,119	60,579	344,019	23,778	1,347,292
Total Business Banking	929,145		698,032	585,677	536,036	377,613	1,102,245	396,702	41,585	4,667,035

Total loans	$	2,127,314	1,858,331	1,236,816	1,013,782	748,201	2,767,576	944,770	85,062	10,781,852

For the nine months ended September 30, 2020, $17.2 million of revolving loans were converted to term loans.

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The following table sets forth information about credit quality indicators as of December 31, 2019, prior to the adoption of ASU 2016-13 (in thousands):


	Pass		Special mention	Substandard	Doubtful	Loss	Total loans receivable
Originated loans
Personal Banking:
Residential mortgage loans	$	2,776,971	—	8,218	—	—	2,785,189
Home equity loans	1,093,874		—	5,640	—	—	1,099,514
Consumer loans	1,084,986		—	4,161	—	—	1,089,147

Total Personal Banking	4,955,831		—	18,019	—	—	4,973,850

Commercial Banking:
Commercial real estate loans	2,188,823		70,327	89,898	—	—	2,349,048
Commercial loans	571,011		42,352	50,796	—	—	664,159
Total Commercial Banking	2,759,834		112,679	140,694	—	—	3,013,207
Total originated loans	7,715,665		112,679	158,713	—	—	7,987,057

Acquired loans
Personal Banking:
Residential mortgage loans	81,611		—	1,327	—	—	82,938
Home equity loans	242,237		—	1,167	—	—	243,404
Consumer loans	35,746		—	239	—	—	35,985
Total Personal Banking	359,594		—	2,733	—	—	362,327

Commercial Banking:
Commercial real estate loans	349,993		10,243	45,106	—	—	405,342
Commercial loans	45,972		28	7,948	—	—	53,948
Total Commercial Banking	395,965		10,271	53,054	—	—	459,290
Total acquired loans	755,559		10,271	55,787	—	—	821,617

Total loans	$	8,471,224	122,950	214,500	—	—	8,808,674

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During the nine months ending September 30, 2020 we purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of these loans is as follows (in thousands):


	Total
Purchase price of loans at acquisition	$	244,546
Allowance for credit losses at acquisition	(8,845)
Non-credit premium at acquisition	4,154
Par value of acquired loans at acquisition	$	239,855

Prior to the adoption of ASU 2016-13, acquired loans were initially measured at fair value and subsequently accounted for under either ASC Topic 310-30 or ASC Topic 310-20. The following table provides information related to the outstanding principal balance and related carrying value of acquired loans for the dates indicated (in thousands):


	December 31, 2019
Acquired loans evaluated individually for future credit losses:
Outstanding principal balance	$	7,187
Carrying value	4,975

Acquired loans evaluated collectively for future credit losses:
Outstanding principal balance	826,412
Carrying value	816,642

Total acquired loans:
Outstanding principal balance	833,599
Carrying value	821,617

The following table provides information related to the changes in the accretable discount, which includes income recognized from contractual cash flows for the dates indicated prior to the adoption of ASU 2016-13 (in thousands):


	Total
Balance at December 31, 2018	$	755
Accretion	(551)
Net reclassification from nonaccretable yield	966
Balance at December 31, 2019	$	1,170

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The following table provides information related to acquired impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2019 prior to the adoption of ASU 2016-13 (in thousands):


	Carrying value		Outstanding principal balance	Related impairment reserve	Average recorded investment in impaired loans	Interest income recognized
Personal Banking:
Residential mortgage loans	$	742	1,232	7	866	147
Home equity loans	715		1,569	25	861	114
Consumer loans	7		34	1	18	12
Total Personal Banking	1,464		2,835	33	1,745	273

Commercial Banking:
Commercial real estate loans	3,433		4,268	6	3,509	273
Commercial loans	78		84	1	78	5
Total Commercial Banking	3,511		4,352	7	3,587	278

Total loans	$	4,975	7,187	40	5,332	551

(5) Goodwill and Other Intangible Assets

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


	September 30, 2020		December 31, 2019
Amortizable intangible assets:
Core deposit intangibles - gross	$	71,183	71,183
Acquisitions	3,717		—
Less: accumulated amortization	(55,448)		(50,934)
Core deposit intangibles - net	19,452		20,249
Customer and Contract intangible assets - gross	12,775		12,775

Less: accumulated amortization	(10,626)		(9,948)
Customer and Contract intangible assets - net	2,149		2,827
Total intangible assets - net	$	21,601	23,076

The following table shows the actual aggregate amortization expense for the quarters ended September 30, 2020 and 2019, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):


For the quarter ended September 30, 2020	$	1,781
For the quarter ended September 30, 2019	1,702
For the nine months ended September 30, 2020	5,192
For the nine months ended September 30, 2019	4,909
For the year ending December 31, 2020	6,856
For the year ending December 31, 2021	5,902
For the year ending December 31, 2022	4,681
For the year ending December 31, 2023	3,592
For the year ending December 31, 2024	2,692
For the year ending December 31, 2025	1,819

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


	Total
Balance at December 31, 2018	$	307,420
Goodwill acquired	38,683


Balance at December 31, 2019	346,103
Goodwill acquired	39,941

Balance at September 30, 2020	$	386,044

Quarterly, the Company evaluates whether there are any triggering events that would require an update to our previous goodwill assessment. During the first quarter of 2020, the Company determined the COVID-19 pandemic and its negative effect on the global economy to be a triggering event. As a result, the Company, with the assistance of a third-party specialist, performed a quantitative impairment analysis in accordance with ASU 2017-04 as of March 31, 2020. This analysis indicated the aggregate fair value of Northwest Bank, the sole reporting unit of Northwest Bancshares, Inc., exceeded the carrying value and therefore goodwill was not impaired. Given the results of the quantitative goodwill analysis performed during the first quarter and the absence of any significant changes in the economic environment that would indicate a change in the conclusion of the quantitative analysis performed, the Company elected to perform a qualitative goodwill impairment test as of June 30, 2020 in accordance with ASC 350, as updated by ASU 2017-04, and concluded that goodwill was not impaired as of June 30, 2020. As of September 30, 2020, there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment in goodwill.

(6) Borrowed Funds

(a) Borrowings


	September 30, 2020
	Amount		Average rate
Term notes payable to the Federal Home Loan Bank (FHLB):
Payable to FHLB of Pittsburgh	$	30,000	0.40	%
Payable to the FHLB of Indianapolis acquired from MutualFirst	118,107		1.70	%
Total term notes payable to the FHLB	148,107


Collateralized borrowings, due within one year	126,832		0.19	%
Subordinated debentures, net of issuance costs	123,277		4.00	%
Total borrowed funds	$	398,216

Borrowings from the FHLB of Pittsburgh are secured by our residential first mortgage and other qualifying loans. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment.

The revolving line of credit with the FHLB of Pittsburgh carries a commitment of $250.0 million. The rate is adjusted daily by the FHLB of Pittsburgh, and any borrowings on this line may be repaid at any time without penalty. The revolving line of credit had no balance as of September 30, 2020 and $153.6 million at December 31, 2019.

At September 30, 2020 and December 31, 2019, collateralized borrowings due within one year were $126.8 million and $92.7 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB.

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

(b) Trust Preferred Securities

Prior to our merger with MutualBank on April 24, 2020, the Company had five statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust, LNB Trust II, a Delaware statutory business trust, Union National Capital Trust I ("UNCT I"), a Delaware statutory business trust, and Union National Capital Trust II ("UNCT II"), a Delaware statutory business trust (the Trusts). As a result of the merger with MutualBank, we acquired two additional statutory business trusts: MFBC Statutory Trust I and Universal Preferred Trust; both are

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Delaware statutory trusts. The Trusts exist solely to issue preferred securities to third parties for cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed.

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

The following table sets forth a summary of the cumulative trust preferred securities and the junior subordinated debt held by the Trust as of September 30, 2020.


	Maturity date	Interest rate	Trust preferred securities		Junior subordinated debentures
Northwest Bancorp Capital Trust III	December 30, 2035	3-month LIBOR plus 1.38%	$	50,000	$	51,547
Northwest Bancorp Statutory Trust IV	December 15, 2035	3-month LIBOR plus 1.38%	50,000		51,547
LNB Trust II	June 15, 2037	3-month LIBOR plus 1.48%	7,875		8,119
Union National Capital Trust I	January 23, 2034	3-month LIBOR plus 2.85%	8,000		7,919
Union National Capital Trust II	November 23, 2034	3-month LIBOR plus 2.00%	3,000		2,707
MFBC Statutory Trust I	September 15, 2035	3-month LIBOR plus 1.70%	5,000		3,450
Universal Preferred Trust	October 7, 2035	3-month LIBOR plus 1.69%	5,000		3,440
					$	128,729

Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts. We have the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust securities also are deferred. To date there have been no interest deferrals. Interest on the subordinated debentures and distributions on the trust securities is cumulative. Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.

The Trusts must redeem the preferred securities when the debentures are paid at maturity or upon an earlier redemption of the debentures to the extent the debentures are redeemed. All or part of the debentures may be redeemed at any time. Also, the debentures may be redeemed at any time if existing laws or regulations, or the interpretation or application of these laws or regulations, change causing:

•the interest on the debentures to no longer be deductible by the Company for federal income tax purposes;

•the trusts to become subject to federal income tax or to certain other taxes or governmental charges;

•the trusts to register as an investment company; or

•the preferred securities to no longer qualify as Tier I capital.

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

(7) Guarantees

We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At September 30, 2020, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was $44.1 million, of which $39.7 million is fully collateralized. At September 30, 2020, we had a liability which represents deferred income of $449,000 related to the standby letters of credit.

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(8) 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. During the quarter ended September 30, 2020, 4,828,192 stock options were not included in the computation of diluted earnings per share because the stock options’ exercise price was more than the average market price of the common shares of $9.88. All stock options outstanding during the quarter ended September 30, 2019 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 $16.69. For the nine months ended September 30, 2020, 4,828,192 stock options were not included in the computation of diluted earnings per share because the stock options’ exercise price was more than the average market price of the common shares of $11.59. All stock options outstanding during the nine months ended September 30, 2019 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 $17.19.

The following table sets forth the computation of basic and diluted EPS (in thousands, except share data and per share amounts):


	Quarter ended September 30,			Nine months ended September 30,
	2020		2019	2020	2019
Net income available to common shareholders	$	38,050	33,414	39,789	84,841

Weighted average common shares outstanding	126,855,810		105,517,707	118,088,122	104,626,560
Dilutive potential shares due to effect of stock options	—		752,837	—	1,055,055
Total weighted average common shares and dilutive potential shares	$	126,855,810	106,270,544	118,088,122	105,681,615

Basic earnings per share	$	0.30	0.32	0.34	0.81

Diluted earnings per share	$	0.30	0.31	0.34	0.80

(9) Pension and Other Post-Retirement Benefits

The following table sets forth the net periodic costs for the defined benefit pension plans and post-retirement healthcare plans for the periods indicated (in thousands):


	Quarter ended September 30,
	Pension benefits			Other post-retirement benefits
	2020		2019	2020	2019
Service cost	$	2,097	1,487	—	—
Interest cost	1,713		1,839	7	13
Expected return on plan assets	(3,090)		(2,759)	—	—
Amortization of prior service cost	(580)		(581)	—	—
Amortization of the net loss	925		856	4	17
Net periodic cost	$	1,065	842	11	30


	Nine months ended September 30,
	Pension benefits			Other post-retirement benefits
	2020		2019	2020	2019
Service cost	$	6,293	4,462	—	—
Interest cost	5,141		5,515	20	39
Expected return on plan assets	(9,272)		(8,278)	—	—
Amortization of prior service cost	(1,742)		(1,742)	—	—
Amortization of the net loss	2,773		2,568	13	51
Net periodic cost	$	3,193	2,525	33	90

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We anticipate making a contribution to our defined benefit pension plan of $2.0 million to $4.0 million during the year ending December 31, 2020.

(10) Disclosures About Fair Value of Financial Instruments

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

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

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

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

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

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

◦Quotes from brokers or other external sources that are not considered binding;

◦Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price;

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

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

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

Marketable Securities

Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Debt Securities — available-for-sale - Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and U.S. government obligations.

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

Loans Receivable

Loans with comparable characteristics including collateral and re-pricing structures are segregated for valuation purposes. Each loan pool is separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows are discounted to present

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value using a market rate for comparable loans, which is not considered an exit price. Characteristics of comparable loans include remaining term, coupon interest, and estimated prepayment speeds. Delinquent loans are separately evaluated given the impact delinquency has on the projected future cash flow of the loan including the approximate discount or market rate, which is not considered an exit price.

Loans Held-for-Sale

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

Loans Held for Investment

The fair value of loans held for investment is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk.

FHLB Stock

Due to the restrictions placed on transferability of FHLB stock, it is not practical to determine the fair value. The fair value presented, therefore, is equal to the carrying amount.

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.

Interest Rate Lock Commitments and Forward Commitments

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

Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using LIBOR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable. The fair value of the foreign exchange swap is derived from proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions we believe to be reasonable.

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Off-Balance Sheet Financial Instruments

These financial instruments generally are not sold or traded and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At September 30, 2020 and December 31, 2019, 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 September 30, 2020 (in thousands):


	Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	656,749	656,749	656,749	—	—
Securities available-for-sale	1,409,150		1,409,150	—	1,409,150	—
Securities held-to-maturity	15,333		16,168	—	16,168	—
Loans receivable, net	10,616,503		10,644,954	—	—	10,644,954
Residential mortgage loans held-for-sale	25,140		25,140	—	—	25,140
Accrued interest receivable	36,916		36,916	36,916	—	—
Interest rate lock commitments	8,208		8,208	—	—	8,208
Forward commitments	1,059		1,059	—	1,059	—
Interest rate swaps not designated as hedging instruments	60,941		60,941	—	60,941	—
FHLB stock	23,171		23,171	—	—	—
Total financial assets	$	12,853,170	12,882,456	693,665	1,487,318	10,678,302

Financial liabilities:
Savings and checking deposits	$	9,724,597	9,724,597	9,724,597	—	—
Time deposits	1,732,022		1,762,167	—	—	1,762,167

Borrowed funds	398,216		398,246	276,733	121,513	—
Junior subordinated debentures	128,729		130,233	—	—	130,233


Interest rate swaps not designated as hedging instruments	61,694		61,694	—	61,694	—
Risk participation agreements	224		224	—	224	—
Accrued interest payable	1,002		1,002	1,002	—	—
Total financial liabilities	$	12,046,484	12,078,163	10,002,332	183,431	1,892,400

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The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2019 (in thousands):


	Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	60,846	60,846	60,846	—	—
Securities available-for-sale	819,901		819,901	—	819,901	—
Securities held-to-maturity	18,036		18,223	—	18,223	—
Loans receivable, net	8,743,024		8,666,149	—	—	8,666,149
Residential mortgage loans held-for-sale	7,709		7,709	—	—	7,709
Accrued interest receivable	25,755		25,755	25,755	—	—
Interest rate lock commitments	559		559	—	—	559
Forward commitments	145		145	—	145	—
Interest rate swaps	20,889		20,889	—	20,889	—
FHLB stock	14,740		14,740	—	—	—
Total financial assets	$	9,711,604	9,634,916	86,601	859,158	8,674,417

Financial liabilities:
Savings and checking accounts	$	7,022,597	7,022,597	7,022,597	—	—
Time deposits	1,569,410		1,574,063	—	—	1,574,063

Borrowed funds	246,336		246,341	246,341	—	—
Junior subordinated debentures	121,800		115,518	—	—	115,518
Interest rate swaps	20,952		20,952	—	20,952	—
Risk participation agreements	39		39	—	39	—
Accrued interest payable	1,142		1,142	1,142	—	—
Total financial liabilities	$	8,982,276	8,980,652	7,270,080	20,991	1,689,581

Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both September 30, 2020 and December 31, 2019.

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The following table represents assets and liabilities measured at fair value on a recurring basis at September 30, 2020 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value


Debt securities:
U.S. government and agencies	$	—	34,176	—	34,176
Government sponsored enterprises	—		105,399	—	105,399
States and political subdivisions	—		114,522	—	114,522

Total debt securities	—		254,097	—	254,097

Residential mortgage-backed securities:
GNMA	—		25,964	—	25,964
FNMA	—		212,314	—	212,314
FHLMC	—		143,783	—	143,783
Non-agency	—		474	—	474
Collateralized mortgage obligations:
GNMA	—		336,896	—	336,896
FNMA	—		250,637	—	250,637
FHLMC	—		201,153	—	201,153


Total mortgage-backed securities	—		1,171,221	—	1,171,221

Interest rate lock commitments	—		—	8,208	8,208
Forward commitments	—		1,059	—	1,059
Interest rate swaps not designated as hedging instruments	—		60,941	—	60,941
Total assets	$	—	1,487,318	8,208	1,495,526


Interest rate swaps not designated as hedging instruments	$	—	61,694	—	61,694
Risk participation agreements	—		224	—	224

Total liabilities	$	—	61,918	—	61,918

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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2019 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value


Debt securities:
U.S. government and agencies	$	—	14,991	—	14,991
Government sponsored enterprises	—		104,784	—	104,784
States and political subdivisions	—		26,048	—	26,048
Corporate	—		919	—	919
Total debt securities	—		146,742	—	146,742

Residential mortgage-backed securities:
GNMA	—		23,264	—	23,264
FNMA	—		89,259	—	89,259
FHLMC	—		50,139	—	50,139
Non-agency	—		497	—	497
Collateralized mortgage obligations:
GNMA	—		207,016	—	207,016
FNMA	—		184,682	—	184,682
FHLMC	—		118,302	—	118,302


Total mortgage-backed securities	—		673,159	—	673,159

Interest rate lock commitments	—		—	559	559
Forward commitments	—		145	—	145
Interest rate swaps	—		20,889	—	20,889
Total assets	$	—	840,935	559	841,494

Interest rate swaps	$	—	20,952	—	20,952
Risk participation agreements	—		39	—	39

Total liabilities	$	—	20,991	—	20,991

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):


	For the quarter ended September 30,			For the nine months ended September 30,
	2020		2019	2020	2019
Beginning balance	$	7,416	—	559	—

Total gains or losses:
Included in net income	—		—	—	—
Included in other comprehensive income	—		—	—	—

Interest rate lock commitments:
Net activity	792		505	7,649	505

Transfers from Level 3	—		—	—	—
Transfers into Level 3	—		—	—	—

Ending balance	$	8,208	505	8,208	505

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans individually assessed, mortgage servicing rights and real estate owned.

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The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of September 30, 2020 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	$	—	—	53,277	53,277


Real estate owned, net	—		—	2,575	2,575
Total assets	$	—	—	55,852	55,852

The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2019 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	$	—	—	46,238	46,238

Real estate owned, net	—		—	950	950

Total assets	$	—	—	47,188	47,188

Individually Assessed Loans - A loan is considered to be individually assessed as described in Note 1 as part of the adoption of ASU 2016-13 . We classify loans individually assessed as nonrecurring Level 3.

Real Estate Owned - Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify real estate owned as nonrecurring Level 3.

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 2020 (in thousands):

Fair value

Valuation
techniques

Significant
unobservable inputs

Range
(weighted average)

Loans individually assessed

53,277

Appraisal value (1)

Estimated cost to sell

10.0%

Discounted cash flow

Discount rate

6.00% to 19.8% (14.24%)

Real estate owned, net

2,575

Appraisal value (1)

Estimated cost to sell

10.0%

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

(11) Derivative Financial Instruments

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

Derivatives Designated as Hedging Instruments

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the current quarter, the Company discontinued these cash flow hedges and, as a result, reclassified a $1.3 million loss into earnings as of September 30, 2020.

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Derivatives Not Designated as Hedging Instruments

We act as an interest rate or foreign exchange swap counterparty for certain commercial borrowers in the normal course of servicing our customers, which are accounted for at fair value. We manage our exposure to such interest rate or foreign exchange swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the swaps we have with the commercial borrowers. These positions (referred to as “customer swaps”) directly offset each other and our exposure is the fair value of the derivatives due to changes in credit risk of our commercial borrowers and third parties. Customer swaps are recorded within other assets or other liabilities on the consolidated statement of financial condition at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statement of income.

We enter into interest rate lock commitments for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative financial instruments under applicable accounting guidance. Interest rate lock commitments on loans held-for-sale are carried at fair value in other assets on the consolidated statement of financial condition. Northwest sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis commit us to deliver a specific principal amount of mortgage loans to an investor at a specified price, by a specified date, or the commitment must be paired off. These forward commitments entered into on a mandatory delivery basis meet the definition of a derivative financial instrument. All closed loans to be sold on a mandatory delivery basis are classified as held-for-sale on the consolidated statement of financial condition. Changes to the fair value of the interest rate lock commitments and the forward commitments are recorded in mortgage banking income in the consolidated statements of income.

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

The following table presents information regarding our derivative financial instruments for the periods indicated (in thousands):


	Asset derivatives			Liability derivatives
	Notional amount		Fair value	Notional amount	Fair value
At September 30, 2020


Derivatives not designated as hedging instruments:
Interest rate swap agreements	$	553,699	60,941	553,699	61,694
Interest rate lock commitments	196,335		8,208	—	—
Forward commitments	24,081		1,059	—	—
Risk participation agreements	—		—	77,532	224
Total Derivatives	$	774,115	70,208	631,231	61,918

At December 31, 2019


Derivatives not designated as hedging instruments:
Interest rate swap agreements	$	391,502	20,889	391,502	20,952
Interest rate lock commitments	24,373		559	—	—
Forward commitments	5,151		145	—	—
Risk participation agreements	—		—	41,164	39
Total derivatives	$	421,026	21,593	432,666	20,991

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The following table presents income or expense recognized on derivatives for the periods indicated (in thousands):


	For the quarter ended September 30,			For the nine months ended September 30,
	2020		2019	2020	2019
Hedging derivatives:
Increase/(decrease) in interest expense	$	67	—	(35)	—

Non-hedging swap derivatives:
Decrease in other income	(353)		(125)	(875)	(195)
Increase in mortgage banking income	315		720	8,563	720

(12) Legal Proceedings

We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of September 30, 2020, we do not anticipate that the aggregate ultimate liability arising out of any pending or threatened legal proceedings will be material to our Consolidated Financial Statements. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings.

During the year-ended December 31, 2018, Northwest and our subsidiary, Northwest Insurance Services (“NWIS”), were involved in a lawsuit against, among others, First National Bank of Pennsylvania (“FNB”) and their insurance subsidiary, First National Insurance Agency, LLC (“FNIA”). All counterclaims against Northwest were discontinued and, in December 2018, a verdict was rendered in favor of NWIS on several of its claims. Post-trial proceedings have continued throughout the current year and, due to the inherent uncertainties with respect to these proceedings, we have not accrued any awards associated with this verdict within our Consolidated Financial Statements as of September 30, 2020.

(13) Changes in Accumulated Other Comprehensive Income

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


	For the quarter ended September 30, 2020
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of June 30, 2020	$	16,096	(946)	(39,590)	(24,440)



Other comprehensive income before reclassification adjustments (1)	676		—	—	676
Amounts reclassified from accumulated other comprehensive income (2) (3) (4)	(1)		946	250	1,195

Net other comprehensive income	675		946	250	1,871

Balance as of September 30, 2020	$	16,771	—	(39,340)	(22,569)


	For the quarter ended September 30, 2019
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of June 30, 2019	$	3,227	—	(32,446)	(29,219)



Other comprehensive income before reclassification adjustments (5)	1,315		—	—	1,315
Amounts reclassified from accumulated other comprehensive income (6) (7)	(1)		—	208	207

Net other comprehensive income	1,314		—	208	1,522

Balance as of September 30, 2019	$	4,541	—	(32,238)	(27,697)

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(1)Consists of unrealized holding gains, net of tax of $107.

(2)Consists of realized gains on securities (gain on sales of investments, net) of $2, net of tax (income tax expense) of $(1).

(3)Consists of realized losses on interest rate swaps, net of tax $375.

(4)Consists of amortization of prior service cost (compensation and employee benefits) of $580 and amortization of net actuarial loss (compensation and employee benefits) of $(929), net of tax (income tax expense) of $99.

(5)Consists of unrealized holding gains, net of tax $525.

(6)Consists of realized gains on securities (gain on sales of investments, net) of $(1), net of tax (income tax expense) of $0.

(7)Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net actuarial loss (compensation and employee benefits) of $(871), net of tax (income tax expense) of $83.


	For the nine months ended September 30, 2020
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of December 31, 2019	$	3,147	—	(40,088)	(36,941)



Other comprehensive income before reclassification adjustments (1) (2)	13,623		(946)	—	12,677
Amounts reclassified from accumulated other comprehensive income (3) (4) (5)	1		946	748	1,695

Net other comprehensive income	13,624		—	748	14,372

Balance as of September 30, 2020	$	16,771	—	(39,340)	(22,569)


	For the nine months ended September 30, 2019
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of December 31, 2018	$	(6,832)	—	(32,864)	(39,696)



Other comprehensive income before reclassification adjustments (6)	11,376		—	—	11,376
Amounts reclassified from accumulated other comprehensive income (7) (8)	(3)		—	626	623

Net other comprehensive income	11,373		—	626	11,999

Balance as of September 30, 2019	$	4,541	—	(32,238)	(27,697)

(1)Consists of unrealized holding gains, net of tax of $5,286.

(2)Consists of unrealized holding losses, net of tax $(209).

(3)Consists of realized gains on securities (gain on sales of investments, net) of $(1), net of tax (income tax expense) of $0.

(4)Consists of realized losses on interest rate swaps, net of tax of $375.

(5)Consists of amortization of prior service cost (compensation and employee benefits) of $1,741 and amortization of net actuarial loss (compensation and employee benefits) of $(2,786), net of tax (income tax expense) of $297.

(6)Consists of unrealized holding gains, net of tax $4,549.

(7)Consists of realized gains on securities (gain on sales of investments, net) of $4, net of tax (income tax expense) of $1.

(8)Consists of amortization of prior service cost (compensation and employee benefits) of $1,742 and amortization of net actuarial loss (compensation and employee benefits) of $(2,618), net of tax (income tax expense) of $250.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this document may contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

Important factors that might cause such a difference include, but are not limited to:

• the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the recent outbreak of coronavirus, or COVID-19, and the significant impact that such outbreak has had and may have on our growth, operations and earnings;

•changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic;

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

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

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

• adverse changes in the securities and credit markets;

• cyber-security concerns, including an interruption or breach in the security of our website or other information systems;

• technological changes that may be more difficult or expensive than expected;

• the ability of third-party providers to perform their obligations to us;

• competition among depository and other financial institutions;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• managing our internal growth and our ability to successfully integrate acquired entities, businesses or branch offices;

• changes in consumer spending, borrowing and savings habits;

• our ability to continue to increase and manage our commercial and personal loans;

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

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

• our ability to receive regulatory approvals for proposed transactions or new lines of business;

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

• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the 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 2019 Annual Report on Form 10-K.

Recently Issued Accounting Standards

The following accounting standard updates issued by the Financial Accounting Standards Board have not yet been adopted.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” This guidance removes and adds disclosure requirements for defined benefit pension or other post-retirement plans. This guidance is effective for

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annual periods beginning after December 15, 2020, with early adoption permitted, and requires retrospective adoption for all periods presented. We do not expect this guidance to have a material impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." This guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those years, with early adoption permitted. We do not expect this guidance to have a material impact on our financial statements.

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

Comparison of Financial Condition

On April 24, 2020, we acquired all of the outstanding common shares of MutualFirst Financial, Inc., the holding company for MutualBank, for total consideration of $213.4 million, and thereby acquired MutualBank's 36 branch locations throughout the state of Indiana. As a result, we acquired assets with a fair value of $2.091 billion, including loans with a fair value of $1.517 billion, and we assumed deposits of $1.617 billion. Under the terms of the Merger Agreement, each share of common stock of MutualBank converted into the right to receive 2.4 shares of the Company's common stock.

Total assets at September 30, 2020 were $13.789 billion, an increase of $3.295 billion, or 31.4%, from $10.494 billion at December 31, 2019. This increase in assets was largely due to the addition of $2.091 billion, at fair value, of assets related to the acquisition of MutualBank.

Total cash and cash equivalents increased by $595.9 million to $656.7 million at September 30, 2020 from $60.8 million at December 31, 2019. This increase was primarily due to the increase in customer deposit balances associated with the Paycheck Protection Program ("PPP") loan funds and consumer stimulus checks as well as an increase of $261.7 million from the acquisition of MutualBank.

Total loans receivable increased by $1.973 billion, or 22.4%, to $10.782 billion at September 30, 2020, from $8.809 billion at December 31, 2019. This increase was primarily due to the addition of $1.517 billion of loans acquired from MutualBank, at fair value. Additionally, our legacy commercial loan portfolio increased $420.5 million, or 58.6%, primarily due to the origination of approximately $500.0 million of PPP loans during the second quarter.

Total deposits increased by $2.865 billion, or 33.3%, to $11.457 billion at September 30, 2020 from $8.592 billion at December 31, 2019 due to both the MutualBank acquisition, which added $1.617 billion in total deposits, as well as from organic deposit growth of $1.248 billion. The organic deposit growth was associated with the PPP loan funds and consumer stimulus checks and primarily impacted our noninterest-bearing demand deposits, which increased by $698.3 million, or 43.4%, to $2.308 billion at September 30, 2020 from $1.610 billion at December 31, 2019.

Total shareholders’ equity at September 30, 2020 was $1.547 billion, or $12.11 per share, an increase of $193.9 million, or 14.3%, from $1.353 billion, or $12.66 per share, at December 31, 2019. This increase was primarily the result of the issuance of 20,658,957 shares of our common stock at $10.33 per share for the MutualBank acquisition as well as year-to-date earnings of $39.5 million. Partially offsetting this increase was the payment of cash dividends of $68.9 million for the nine months ended September 30, 2020.

Regulatory Capital

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

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amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.

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

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


	At September 30, 2020
					Minimum capital				Well capitalized
	Actual				requirements (1)				requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,655,949	16.607	%	$	1,046,981	10.500	%	$	997,125	10.000	%
Northwest Bank	1,445,508		14.512	%	1,045,896		10.500	%	996,092		10.000	%

Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,521,913		15.263	%	847,556		8.500	%	797,700		8.000	%
Northwest Bank	1,311,472		13.166	%	846,678		8.500	%	796,873		8.000	%

CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,273,896		12.776	%	697,988		7.000	%	648,131		6.500	%
Northwest Bank	1,311,472		13.166	%	697,264		7.000	%	647,460		6.500	%

Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,521,913		10.977	%	554,608		4.000	%	693,260		5.000	%
Northwest Bank	1,311,472		9.522	%	550,907		4.000	%	688,634		5.000	%

(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).


	At December 31, 2019
					Minimum capital				Well capitalized
	Actual				requirements (1)				requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,300,321	15.701	%	$	869,585	10.500	%	$	828,176	10.000	%
Northwest Bank	1,146,641		13.858	%	868,768		10.500	%	827,398		10.000	%

Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,242,380		15.001	%	703,950		8.500	%	662,541		8.000	%
Northwest Bank	1,087,727		13.146	%	703,288		8.500	%	661,918		8.000	%

CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,124,259		13.575	%	579,723		7.000	%	538,314		6.500	%
Northwest Bank	1,087,727		13.146	%	579,178		7.000	%	537,809		6.500	%

Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,242,380		11.913	%	417,143		4.000	%	521,428		5.000	%
Northwest Bank	1,087,727		10.515	%	413,772		4.000	%	517,216		5.000	%

(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).

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Liquidity

We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking and Securities during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). Northwest’s liquidity ratio at September 30, 2020 was 16.2%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At September 30, 2020, Northwest had $3.755 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit which had no balance, as well as $103.0 million of borrowing capacity available with the Federal Reserve Bank and $110.0 million with three correspondent banks.

Dividends

We paid $24.3 million and $19.2 million in cash dividends during the quarters ended September 30, 2020 and 2019, respectively. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 63.3% and 58.1% for the quarters ended September 30, 2020 and 2019, respectively, on dividends of $0.19 per share for the quarter ended September 30, 2020 and $0.18 per share for the quarter ended September 30, 2019. On October 26, 2020, the Board of Directors declared a cash dividend of $0.19 per share payable on November 16, 2020 to shareholders of record as of November 5, 2020. This represents the 104th consecutive quarter we have paid a cash dividend.

Nonperforming Assets

The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan is 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well-secured loans that are in the process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.


	September 30, 2020			December 31, 2019
	(in thousands)
Loans 90 days or more delinquent
Residential mortgage loans	$	14,750		12,775
Home equity loans	7,845			5,688
Consumer loans	5,847			3,611
Commercial real estate loans	35,496			25,014
Commercial loans	6,310			4,739
Total loans 90 days or more delinquent	$	70,248		51,827
Total real estate owned, net (REO)	$	2,575		950
Total loans 90 days or more delinquent and REO	72,823			52,777
Total loans 90 days or more delinquent to net loans receivable	0.66		%	0.59	%
Total loans 90 days or delinquent and REO to total assets	0.53		%	0.50	%
Nonperforming loans:
Nonaccrual loans - loans 90 days or more delinquent	69,753			51,680
Nonaccrual loans - loans less than 90 days delinquent	37,045			17,190
Loans 90 days or more past due and still accruing	495			32
Total nonperforming loans	107,293			68,902
Total nonperforming assets	$	109,868		69,852
Nonaccrual TDR loans (1)	$	17,120		9,043
Accruing TDR loans	17,684			22,956
Total TDR loans	$	34,804		31,999

(1)Included in nonaccrual loans above.

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Allowance for Credit Losses

We adopted CECL on January 1, 2020, as further described in Note 1. Our Board of Directors has adopted an “Allowance for Credit Losses” policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each region to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss.” Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” have all the weakness inherent in those classified as "doubtful" and considered uncollectible.

Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.

If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.

If a substandard or doubtful loan is not considered individually for impairment, it is grouped with other loans that possess common characteristics for impairment evaluation and analysis. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models. We use a twelve month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.

The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Loss Committee ("ACL Committee") monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee's review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.

In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and/or the Pennsylvania Department of Banking and Securities perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.

We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information

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previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.

We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of September 30, 2020, we considered the most recent economic conditions and forecasts available which incorporated the impact of COVID-19. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by $82.3 million, or 142.0%, to $140.2 million, or 1.30% of total loans at September 30, 2020 from $57.9 million, or 0.66% of total loans, at December 31, 2019. Due to the adoption of CECL, our allowance increased $10.8 million. In addition, our allowance increased $8.8 million as a result of recording the initial allowance on the purchased credit deteriorated loans acquired from MutualBank. The non-purchased credit deteriorated loans acquired from MutualBank resulted in a credit mark of $28.1 million and an additional allowance of $18.2 million, as required by CECL. The estimated economic impact of COVID-19 caused us to increase our provision for credit loss expense by approximately $46.5 million for the nine months ended September 30, 2020. Loans classified as substandard increased $243.3 million to $457.8 million at September 30, 2020 from $214.5 million at December 31, 2019 this increase was primarily due to the downgrade of commercial loans in certain industries hit the hardest by COVID-19 and the addition of MutualBank loans. Loans classified as special mention decreased $33.7 million to $150.7 million at September 30, 2020 from $117.0 million at December 31, 2019.

We also consider how the levels of nonaccrual loans and historical charge-offs have influenced the required amount of allowance for credit losses. Nonaccrual loans of $106.8 million, or 0.99% of total loans receivable at September 30, 2020, increased by $37.9 million, or 55.1%, from $68.9 million, or 0.78% of total loans receivable, at December 31, 2019. As a percentage of average loans, annualized net charge-offs increased to 0.32% for the nine months ended September 30, 2020 compared to 0.23% for the year ended December 31, 2019. The increase in net charge-offs was largely impacted by a $9.1 million charge-off on one commercial loan which was previously downgraded and reserved for prior to the onset of COVID-19.

Comparison of Operating Results for the Quarters Ended September 30, 2020 and 2019

Net income for the quarter ended September 30, 2020 was $38.1 million, or $0.30 per diluted share, an increase of $4.6 million, or 13.9%, from net income of $33.4 million, or $0.31 per diluted share, for the quarter ended September 30, 2019. The increase in net income resulted from an increase in net interest income of $12.6 million, or 13.9%, an increase in noninterest income of $10.5 million, or 40.1%, and a decrease in income tax expense of $1.3 million, or 13.5%. Partially offsetting these changes were an increase in the provision for credit losses of $3.5 million, or 106.5%, and an increase in noninterest expense of $16.3 million, or 23.1%. Net income for the quarter ended September 30, 2020 represents annualized returns on average equity and average assets of 9.82% and 1.09%, respectively, compared to 9.90% and 1.25% for the same quarter last year. A further discussion of notable changes follows.

Interest Income

Total interest income increased $6.5 million, or 6.1%, to $113.4 million for the quarter ended September 30, 2020 from $106.9 million for the quarter ended September 30, 2019. This increase is due to an increase in the average balance of interest-earning assets which increased by $3.164 billion, or 32.8%, to $12.815 billion for the quarter ended September 30, 2020 from $9.651 billion for the quarter ended September 30, 2019. This increase is due primarily to internal loan growth as well as the MutualBank acquisition. Offsetting this increase in average balance was a decrease in the average yield earned on interest-earning assets to 3.52% for the quarter ended September 30, 2020 from 4.39% for the quarter ended September 30, 2019 due to a decline in overall market interest rates.

Interest income on loans receivable increased by $6.2 million, or 6.1%, to $107.2 million for the quarter ended September 30, 2020 compared to $101.1 million for the quarter ended September 30, 2019. This increase is primarily due to the increase in the average balance of loans receivable of $2.031 billion, or 23.2%, to $10.777 billion for the quarter ended September 30, 2020 from $8.747 billion for the quarter ended September 30, 2019. This increase is primarily due to organic loan growth of $412.8 million during the last twelve months as well as loans of $1.517 billion from the MutualBank acquisition. It should also be noted that included in loan interest income for the current quarter is $2.2 million of accretion related to MutualBank loan purchase accounting and $1.8 million of accretion related to PPP fees, net or origination costs. Partially offsetting this increase in average balance was a decrease in the average yield on loans receivable to 3.96% for the quarter ended September 30, 2020 from 4.59% for the quarter ended September 30, 2019, again due to the decrease in market interest rates as well as the addition of approximately $500.0 million of PPP loans with coupon rates of 1.00%.

Interest income on mortgage-backed securities increased by $464,000, or 11.1%, to $4.7 million for the quarter ended September 30, 2020 from $4.2 million for the quarter ended September 30, 2019. This increase was due to an increase in the average balance of mortgage-backed securities of $363.7 million, or 56.7%, to $1.005 billion for the quarter ended September 30, 2020 from

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$641.1 million for the quarter ended September 30, 2019. This increase was primarily a result of investment securities received as part of the MutualBank acquisition as well as additional purchases utilizing excess cash from deposit growth during the current year. Partially offsetting this increase was a decrease in the average yield on mortgage-backed securities to 1.85% for the quarter ended September 30, 2020 from 2.61% for the quarter ended September 30, 2019. This decrease in yield was primarily due to the assumption of mortgage-backed securities from MutualBank with market yields lower than the existing legacy Northwest portfolio due to mark-to-market purchase accounting adjustments.

Interest income on investment securities remained flat at $1.1 million for both the quarter ended September 30, 2020 and for the quarter ended September 30, 2019. The average balance of investment securities decreased by $2.7 million, or 1.2% to $216.1 million for the quarter ended September 30, 2020 from $218.8 million for the quarter ended September 30, 2019 primarily due to the maturity or call of government agency securities and the average yield on investment securities decreased slightly to 2.00% for the quarter ended September 30, 2020 from 2.03% for the quarter ended September 30, 2019.

Dividends on FHLB stock decreased by $89,000, or 29.0%, to $218,000 for the quarter ended September 30, 2020 from $307,000 for the quarter ended September 30, 2019. This decrease was primarily due to the decrease in average yield on FHLB stock. The average yield decreased to 3.39% for the quarter ended September 30, 2020 from 7.47% for the quarter ended September 30, 2019 as the FHLB of Pittsburgh recently decreased yields on required stock holdings in reaction to lower market interest rates. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $49,000, or 28.5%, to $221,000 for the quarter ended September 30, 2020 from $172,000 for the quarter ended September 30, 2019. The average balance of interest-earning deposits increased by $762.8 million to $791.6 million for the quarter ended September 30, 2020 from $28.8 million for the quarter ended September 30, 2019 due to excess liquidity from recent deposit inflows. This increase in average balance was offset by the decrease in the average yield on interest-earning deposits to 0.11% for the quarter ended September 30, 2020 from 2.33% for the quarter ended September 30, 2019 as the Federal Reserve decreased their targeted federal funds rate.

Interest Expense

Interest expense decreased by $6.1 million, or 38.0%, to $9.9 million for the quarter ended September 30, 2020 from $15.9 million for the quarter ended September 30, 2019. This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities which decreased to 0.42% for the quarter ended September 30, 2020 from 0.89% for the quarter ended September 30, 2019. This decrease resulted from decreases in the interest rate paid on deposits and borrowed funds in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $2.278 billion, or 32.1%, to $9.375 billion for the quarter ended September 30, 2020 from $7.097 billion for the quarter ended September 30, 2019. This increase in average balance resulted from both internal growth in deposits and borrowings as well as the addition of $1.617 billion of deposits and $232.2 million of borrowed funds from the acquisition of MutualBank.

Net Interest Income

Net interest income increased by $12.6 million, or 13.9%, to $103.5 million for the quarter ended September 30, 2020 from $90.9 million for the quarter ended September 30, 2019. This increase is attributable to the factors discussed above. Despite the overall increase in net interest income due primarily to balance sheet growth and the accretion of loan purchase accounting and PPP fees, our interest rate spread decreased to 3.10% for the quarter ended September 30, 2020 from 3.50% for the quarter ended September 30, 2019 and our net interest margin decreased to 3.23% for the quarter ended September 30, 2020 from 3.77% for the quarter ended September 30, 2019 primarily due to declining interest-earning asset yields. Contributing to the decline in asset yields was an increase in average cash balances of $762.8 million, earning just 0.11%, due to deposit growth associated with the PPP loan funds and consumer stimulus checks. In addition, PPP loan balances of approximately $500.0 million with coupon rates of 1.00%, have negatively impacted overall interest-earning asset yields.

Provision for Credit Losses

The provision for credit losses increased by $3.5 million, or 106.5%, to $6.8 million for the quarter ended September 30, 2020 from $3.3 million for the quarter ended September 30, 2019. During the current year, the Company adopted ASU 2016-13, referred to as Current Expected Credit Losses ("CECL"), which requires that all financial assets measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity's current estimate of all lifetime expected credit losses. In addition, the estimated economic impact of COVID-19 caused us to increase our provision expense for the quarter by approximately $1.5 million. Also contributing to this increase were the effects of an increase in annualized net charge-offs to average loans to 0.27% for the quarter ended September 30, 2020 from 0.16% for the quarter ended September 30, 2019. Lastly, total classified loans

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increased by $251.9 million to $457.8 million, or 4.25% of total loans, at September 30, 2020 from $205.9 million, or 2.33% of total loans at September 30, 2019 largely due to downgrades in the hotel/hospitality industry as second deferral requests were considered.

In determining the amount of the current period provision, we considered current economic conditions, including but not limited to unemployment levels, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses." The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2020.

Noninterest Income

Noninterest income increased by $10.5 million, or 40.1%, to $36.7 million for the quarter ended September 30, 2020 from $26.2 million for the quarter ended September 30, 2019. This increase was primarily due to an increase in mortgage banking income of $9.1 million to $11.1 million for the quarter ended September 30, 2020 from $1.9 million for the quarter ended September 30, 2019 due to continued efforts to expand our secondary market sales capabilities over the last year, as well as an interest rate environment conducive to refinance activity and attractive secondary market pricing. In addition, there was a $796,000, or 5.9%, increase in service charges and fees and a $767,000, or 16.6%, increase in trust and other financial services income, both primarily due to additional fee income as a result of the MutualBank acquisition.

Noninterest Expense

Noninterest expense increased by $16.3 million, or 23.1%, to $86.9 million for the quarter ended September 30, 2020 from $70.6 million for the quarter ended September 30, 2019. This increase resulted primarily from an increase of $6.6 million, or 16.1%, in compensation and employee benefits to $47.4 million for the quarter ended September 30, 2020 from $40.8 million for the quarter ended September 30, 2019 primarily due to both internal growth in compensation and staff as well as the addition of MutualBank employees. In addition, processing expenses increased by $3.9 million, or 35.2%, to $15.0 million for the quarter ended September 30, 2020 from $11.1 million for the quarter ended September 30, 2019 as we continue to invest in technology and infrastructure and as activity driven utilization fees for online and mobile banking and loan origination platforms has increased. Lastly, FDIC insurance premiums increased by $2.2 million due to assessment credits received in the previous year.

Income Taxes

The provision for income taxes decreased by $1.3 million, or 13.5%, to $8.5 million for the quarter ended September 30, 2020 from $9.8 million for the quarter ended September 30, 2019. This decrease was primarily due to a lower annual effective tax rate as a result of the lower year-to-date income before taxes in the current year as well as a change in state tax apportionment. We anticipate our effective tax rate to be between 17.0% and 21.0% for the year ending December 31, 2020.

Comparison of Operating Results for the Nine Months Ended September 30, 2020 and 2019

Net income for the nine months ended September 30, 2020 was $39.8 million, or $0.34 per diluted share, a decrease of $45.1 million, or 53.1%, from $84.8 million, or $0.80 per diluted share, for the nine months ended September 30, 2019. The decrease in net income resulted primarily from an increase in provision for credit losses of $71.8 million, or 497.2%, as well as an increase of $35.1 million, or 16.0%, in noninterest expense. Partially offsetting these factors were an increase in noninterest income of $28.9 million, or 40.7%, an increase in net interest income of $17.3 million, or 6.4%, and a decrease in income tax expense of $15.6 million, or 65.1%. Net income for the nine months ended September 30, 2020 represents annualized returns on average equity and average assets of 3.33% and 0.42%, respectively, compared to 8.65% and 1.10% for the nine months ended September 30, 2019. A further discussion of notable changes follows.

Interest Income

Total interest income increased by $8.4 million, or 2.7%, to $322.3 million for the nine months ended September 30, 2020 from $314.0 million for the nine months ended September 30, 2019. This increase is the result of an increase in the average balance of interest-earning assets of $2.009 billion, or 21.4%, to $11.400 billion for the nine months ended September 30, 2020 from $9.391 billion for the nine months ended September 30, 2019 due primarily to internal growth as well as the MutualBank acquisition. Offsetting this increase was a decrease in the average yield earned on interest-earning assets to 3.78% for the nine months ended September 30, 2020 from 4.47% for the nine months ended September 30, 2019. This decrease in average yield is attributed to a decline in overall market interest rates.

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Interest income on loans receivable increased by $8.3 million, or 2.8%, to $305.2 million for the nine months ended September 30, 2020 from $296.9 million for the nine months ended September 30, 2019. This increase is attributed to an increase in the average balance of loans receivable of $1.420 billion, or 16.7%, to $9.921 billion for the nine months ended September 30, 2020 from $8.501 billion for the nine months ended September 30, 2019. This increase is due to organic loan growth of $412.8 million during the last twelve months as well as loans of $1.517 billion from the MutualBank acquisition. It should also be noted that included in loan interest income for the current nine month period is $4.5 million of accretion related to MutualBank loan purchase accounting and $2.9 million of accretion related to PPP fees, net or origination costs. Partially offsetting this increase was a decrease in the average yield on loans receivable to 4.11% for the nine months ended September 30, 2020 from 4.67% for the nine months ended September 30, 2019 primarily as a result of the decrease in market interest rates as well as the addition of approximately $500.0 million of PPP loans with coupon rates of 1.00%.

Interest income on mortgage-backed securities increased by $432,000, or 3.5%, to $12.9 million for the nine months ended September 30, 2020 from $12.4 million for the nine months ended September 30, 2019. This increase is attributed to an increase in the average balance of mortgage-backed securities by $166.5 million, or 26.4%, to $796.7 million for the nine months ended September 30, 2020 from $630.3 million for the nine months ended September 30, 2019. This increase is due primarily to the addition of the MutualBank portfolio. Partially offsetting this increase was a decrease in the average yield on mortgage-backed securities to 2.15% for the nine months ended September 30, 2020 from 2.63% for the nine months ended September 30, 2019. This decrease in yield was primarily due to the assumption of mortgage-backed securities from MutualBank with market yields lower than the existing legacy Northwest portfolio due to mark-to-market purchase accounting adjustments.

Interest income on investment securities decreased by $443,000, or 13.2%, to $2.9 million for the nine months ended September 30, 2020 from $3.4 million for the nine months ended September 30, 2019. This decrease is primarily attributable to a decrease in the average balance of investment securities of $47.1 million, or 21.0%, to $177.0 million for the nine months ended September 30, 2020 from $224.1 million for the nine months ended September 30, 2019. This decrease is due primarily to the maturity or call of government agency securities. Slightly offsetting this decrease was an increase in the average yield on investment securities to 2.20% for the nine months ended September 30, 2020 from 2.00% for the nine months ended September 30, 2019.

Dividends on FHLB stock remained relatively flat, decreasing by just $5,000, or 0.6%, to $789,000 for the nine months ended September 30, 2020 from $794,000 for the nine months ended September 30, 2019. This decrease was due to a decrease in the average yields on FHLB stock to 4.96% for the nine months ended September 30, 2020 from 7.15% for the nine months ended September 30, 2019 as the FHLB of Pittsburgh recently decreased yields on required stock holdings due to lower market interest rates. Partially offsetting this decrease was an increase of $6.4 million, or 43.2%, in the average balance of FHLB stock to $21.3 million for the nine months ended September 30, 2020 from $14.8 million for the nine months ended September 30, 2019. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $110,000, or 25.5%, to $541,000 for the nine months ended September 30, 2020 from $431,000 for the nine months ended September 30, 2019. This increase is attributable to an increase in the average balance of interest-earning deposits, which increased by $462.9 million, to $483.4 million for the nine months ended September 30, 2020 from $20.5 million for the nine months ended September 30, 2019 due to excess liquidity from recent deposit inflows. Partially offsetting this increase was a decrease in the average yield on interest-earning deposits to 0.15% for the nine months ended September 30, 2020 from 2.77% for the nine months ended September 30, 2019, as a result of decreases in the targeted federal funds rate by the Federal Reserve.

Interest Expense

Interest expense decreased by $8.9 million, or 21.1%, to $33.5 million for the nine months ended September 30, 2020 from $42.4 million for the nine months ended September 30, 2019. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 0.53% for the nine months ended September 30, 2020 from 0.82% for the nine months ended September 30, 2019. This decrease resulted from decreases in the interest rate paid on deposits and borrowed funds in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities which increased by $1.589 billion, or 23.0%, to $8.499 billion for the nine months ended September 30, 2020 from $6.910 billion for the nine months ended September 30, 2019. This increase resulted from both internal growth of deposits and borrowings as well as the addition of $1.617 billion in deposits and $232.2 million in borrowed funds acquired with the MutualBank acquisition.

Net Interest Income

Net interest income increased by $17.3 million, or 6.4%, to $288.8 million for the nine months ended September 30, 2020 from $271.5 million for the nine months ended September 30, 2019. This increase is attributable to the factors discussed above. Despite the overall increase in net interest income due primarily to balance sheet growth and the accretion of loan purchase accounting

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and net PPP fees, our interest rate spread and net interest margin both decreased. Our interest rate spread decreased to 3.25% for the nine months ended September 30, 2020 from 3.65% for the nine months ended September 30, 2019 and our net interest margin decreased to 3.38% for the nine months ended September 30, 2020 from 3.86% for the nine months ended September 30, 2019. These decreases were primarily due to declining interest-earning asset yields. Contributing to the decline in asset yields was an increase in average cash balances of $462.9 million, earning just 0.15%, due to deposit growth associated with the PPP loan funds and consumer stimulus checks, as well as the addition of approximately $500.0 million of PPP loan balances with coupon rates of 1.00%.

Provision for Credit Losses

The provision for credit losses increased by $71.8 million to $86.2 million for the nine months ended September 30, 2020 from $14.4 million for the nine months ended September 30, 2019. During the current year, the Company adopted ASU 2016-13, referred to as CECL, which requires that all financial assets measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity's current estimate of all lifetime expected credit losses. In addition, the estimated economic impact of COVID-19 caused us to increase our provision expense by approximately $46.5 million during the nine months ended September 30, 2020 as well as additional provision expense of approximately $18.2 million as a result of the integration of MutualBank loans.

Total nonaccrual loans increased by $41.1 million to $106.8 million, or 0.99% of total loans, at September 30, 2020 from $65.7 million, or 0.74% of total loans at September 30, 2019. Annualized net charge-offs to average loans increased to 0.32% for the nine months ended September 30, 2020 from 0.26% for the nine months ended September 30, 2019.

Noninterest Income

Noninterest income increased by $28.9 million, or 40.7%, to $100.1 million for the nine months ended September 30, 2020 from $71.2 million for the nine months ended September 30, 2019. This increase was primarily due to a $21.9 million increase in mortgage banking income due to continued efforts to expand our secondary market sales capabilities, as well as an interest rate environment conducive to refinance activity and attractive secondary market pricing. Additionally, service charges and fees increased by $3.6 million, or 9.2%, as a result of recent changes to per item fee structures and increased customer activity from the MutualBank acquisition and trust and other financial services income increased by $2.0 million, or 14.7%, due to the additional trust fee income as a result of the MutualBank acquisition.

Noninterest Expense

Noninterest expense increased by $35.1 million, or 16.0%, to $254.6 million for the nine months ended September 30, 2020, from $219.5 million for the nine months ended September 30, 2019 as almost every expense category increased due to the addition of MutualBank which was acquired on April 24, 2020. Acquisition and branch optimization expense increased $10.5 million due to expenses incurred as part of the MutualBank acquisition as well as expenses incurred due to the recently announced branch optimization to be completed in December of this year. In addition, compensation and employee benefits expense increased $9.2 million, or 7.6%, to $130.2 million for the nine months ended September 30, 2020 from $121.0 million for the nine months ended September 30, 2019 primarily due to internal growth in compensation and staff as well as the addition of MutualBank employees. Additionally, processing expenses increased by $5.7 million, or 17.6%, to $37.9 million for the nine months ended September 30, 2020 from $32.2 million for the nine months ended September 30, 2019 as we continue to invest in technology and infrastructure and as activity-driven utilization fees for online and mobile banking and loan origination platforms has increased. Other expenses increased by $3.9 million, or 44.4%, primarily due to the increase in the reserve for unfunded commitments as a result of an increase in unfunded commitments and the estimated economic impact of COVID-19. Lastly, FDIC insurance premiums increased by $2.4 million due to assessment credits received in the previous year.

Income Taxes

The provision for income taxes decreased by $15.6 million, or 65.1%, to $8.3 million for the nine months ended September 30, 2020 from $23.9 million for the nine months ended September 30, 2019. This decrease was primarily due to the decrease in income before tax of $60.6 million, or 55.7%. Our effective tax rate for the nine months ended September 30, 2020 was 17.3% compared to 22.0% for the nine months ended September 30, 2019. We anticipate our effective tax rate to be between 17.0% and 21.0% for the year ending December 31, 2020.

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Average Balance Sheet

(in thousands)

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are calculated using daily averages.


	Quarter ended September 30,
	2020					2019
	Average balance		Interest	Avg. yield/ cost (h)		Average balance		Interest	Avg. yield/ cost (h)
Assets
Interest-earning assets:
Residential mortgage loans	$	3,176,436	28,769	3.62	%	$	2,894,716	28,991	4.01	%
Home equity loans	1,479,429		13,732	3.69	%	1,316,033		16,131	4.86	%
Consumer loans	1,437,828		15,851	4.39	%	1,028,579		11,916	4.60	%

Commercial real estate loans	3,306,386		36,887	4.37	%	2,796,351		34,441	4.82	%
Commercial loans	1,377,223		12,603	3.58	%	710,847		9,949	5.48	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $600 and $336, respectively)	10,777,302		107,842	3.98	%	8,746,526		101,428	4.60	%
Mortgage-backed securities (c)	1,004,803		4,651	1.85	%	641,085		4,188	2.61	%
Investment securities (c) (d) (includes FTE adjustments of $254 and $60, respectively)	216,081		1,336	2.47	%	218,753		1,168	2.14	%
FHLB stock, at cost	25,595		218	3.39	%	16,302		307	7.47	%
Other interest-earning deposits	791,601		221	0.11	%	28,832		172	2.33	%
Total interest-earning assets (includes FTE adjustments of $854 and $396, respectively)	12,815,382		114,268	3.55	%	9,651,498		107,263	4.41	%
Noninterest-earning assets (e)	1,088,273					916,781

Total assets	$	13,903,655				$	10,568,279

Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits	$	2,015,604	648	0.13	%	$	1,658,670	788	0.19	%
Interest-bearing demand deposits	2,680,591		763	0.11	%	1,655,952		1,711	0.41	%
Money market deposit accounts	2,347,097		1,347	0.23	%	1,798,175		3,772	0.83	%
Time deposits	1,782,350		5,685	1.27	%	1,618,591		7,423	1.82	%
Borrowed funds (f)	420,715		717	0.68	%	243,960		1,002	1.63	%
Junior subordinated debentures	128,658		720	2.19	%	121,767		1,235	3.97	%
Total interest-bearing liabilities	9,375,015		9,880	0.42	%	7,097,115		15,931	0.89	%
Noninterest-bearing demand deposits (g)	2,703,266					1,915,392
Noninterest-bearing liabilities	284,440					216,433

Total liabilities	12,362,721					9,228,940

Shareholders’ equity	1,540,934					1,339,339

Total liabilities and shareholders’ equity	$	13,903,655				$	10,568,279

Net interest income/Interest rate spread			104,388	3.13	%			91,332	3.52	%

Net interest-earning assets/Net interest margin	$	3,440,367		3.26	%	$	2,554,383		3.79	%

Ratio of interest-earning assets to interest-bearing liabilities	1.37X					1.36X

(a)Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.

(b)Interest income includes accretion/amortization of deferred loan fees/expenses, which were not material.

(c)Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(d)Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent ("FTE") basis.

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

(f)Average balances include FHLB borrowings, collateralized borrowings and subordinated debt.

(g)Average cost of deposits were 0.29% and 0.63%, respectively.

(h)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 3.96% and 4.59%, respectively; investment securities — 2.00% and 2.03%, respectively; interest-earning assets — 3.52% and 4.39%, respectively. GAAP basis net interest rate spreads were 3.10% and 3.50%, respectively; and GAAP basis net interest margins were 3.23% and 3.77%, respectively.

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Rate/Volume Analysis

(in thousands)

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


	For the quarter ended September 30, 2020 vs. 2019
	Increase/(decrease) due to			Total increase/(decrease)
	Rate		Volume
Interest-earning assets:
Loans receivable	$	(13,630)	20,045	6,415
Mortgage-backed securities	(1,221)		1,684	463
Investment securities	185		(18)	167
FHLB stock, at cost	(166)		77	(89)
Other interest-earning deposits	(164)		213	49
Total interest-earning assets	(14,996)		22,001	7,005

Interest-bearing liabilities:
Savings deposits	(253)		113	(140)
Interest-bearing demand deposits	(1,235)		287	(948)
Money market deposit accounts	(2,729)		304	(2,425)
Time deposits	(2,240)		502	(1,738)
Borrowed funds	(583)		298	(285)
Junior subordinated debentures	(554)		39	(515)
Total interest-bearing liabilities	(7,594)		1,543	(6,051)

Net change in net interest income	$	(7,402)	20,458	13,056

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Average Balance Sheet

(in thousands)


	Nine months ended September 30,
	2020					2019
	Average balance		Interest	Avg. yield/ cost (h)		Average balance		Interest	Avg. yield/ cost (h)
Assets
Interest-earning assets:
Residential mortgage loans	$	3,038,712	85,850	3.77	%	$	2,865,091	87,572	4.08	%
Home equity loans	1,424,580		42,340	3.97	%	1,300,537		48,868	5.02	%
Consumer loans	1,302,282		43,004	4.41	%	949,303		32,844	4.60	%

Commercial real estate loans	3,071,047		102,918	4.40	%	2,720,435		99,930	4.84	%
Commercial loans	1,084,739		32,727	3.96	%	665,867		28,724	5.69	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,613 and $994, respectively)	9,921,360		306,839	4.13	%	8,501,233		297,938	4.69	%
Mortgage-backed securities (c)	796,739		12,865	2.15	%	630,279		12,433	2.63	%
Investment securities (c) (d) (includes FTE adjustments of $543 and $171, respectively)	176,991		3,461	2.61	%	224,111		3,532	2.10	%
FHLB stock, at cost	21,255		789	4.96	%	14,840		794	7.15	%
Other interest-earning deposits	483,390		541	0.15	%	20,531		431	2.77	%
Total interest-earning assets (includes FTE adjustments of $2,156 and $1,165, respectively)	11,399,735		324,495	3.80	%	9,390,994		315,128	4.49	%
Noninterest-earning assets (e)	1,190,283					898,459

Total assets	$	12,590,018				$	10,289,453

Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits	$	1,837,624	2,023	0.15	%	$	1,668,806	2,323	0.19	%
Interest-bearing demand deposits	2,342,748		2,882	0.16	%	1,611,554		4,442	0.37	%
Money market deposit accounts	2,157,212		6,035	0.37	%	1,756,251		9,784	0.74	%
Time deposits	1,691,168		18,243	1.44	%	1,538,113		19,774	1.72	%
Borrowed funds (f)	344,457		1,721	0.67	%	216,160		2,421	1.50	%
Junior subordinated debentures	125,988		2,595	2.71	%	119,417		3,698	4.08	%
Total interest-bearing liabilities	8,499,197		33,499	0.53	%	6,910,301		42,442	0.82	%
Noninterest-bearing demand deposits (g)	2,250,864					1,847,344
Noninterest-bearing liabilities	243,705					219,806

Total liabilities	10,993,766					8,977,451

Shareholders’ equity	1,596,252					1,312,002

Total liabilities and shareholders’ equity	$	12,590,018				$	10,289,453

Net interest income/Interest rate spread			290,996	3.27	%			272,686	3.67	%

Net interest-earning assets/Net interest margin	$	2,900,538		3.40	%	$	2,480,693		3.87	%

Ratio of interest-earning assets to interest-bearing liabilities	1.34X					1.36X

(a)Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.

(b)Interest income includes accretion/amortization of deferred loan fees/expenses, which were not material.

(c)Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(d)Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent ("FTE") basis.

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

(f)Average balances include FHLB borrowings, collateralized borrowings, and subordinated debt.

(g)Average cost of deposits were 0.38% and 0.58%, respectively.

(h)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 4.11% and 4.67%, respectively; investment securities — 2.20% and 2.00%, respectively; interest-earning assets — 3.78% and 4.47%, respectively. GAAP basis net interest rate spreads were 3.25% and 3.65%, respectively; and GAAP basis net interest margins were 3.38% and 3.86%, respectively.

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Rate/Volume Analysis

(in thousands)


	For the nine months ended September 30, 2020 vs. 2019
	Increase/(decrease) due to			Total increase/(decrease)
	Rate		Volume
Interest-earning assets:
Loans receivable	$	(35,294)	44,195	8,901
Mortgage-backed securities	(2,256)		2,688	432
Investment securities	850		(921)	(71)
FHLB stock, at cost	(244)		239	(5)
Other interest-earning deposits	(410)		520	110
Total interest-earning assets	(37,354)		46,721	9,367

Interest-bearing liabilities:
Savings deposits	(488)		188	(300)
Interest-bearing demand deposits	(2,464)		904	(1,560)
Money market deposit accounts	(4,880)		1,131	(3,749)
Time deposits	(3,200)		1,669	(1,531)
Borrowed funds	(1,343)		643	(700)
Junior subordinated debentures	(1,252)		149	(1,103)
Total interest-bearing liabilities	(13,627)		4,684	(8,943)

Net change in net interest income	$	(23,727)	42,037	18,310

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the holding company for a savings bank, one of our primary market risks is interest rate risk. Interest rate risk is the sensitivity of net interest income to variations in interest rates over a specified time period. The sensitivity results from differences in the time periods in which interest rate sensitive assets and liabilities mature or re-price. We attempt to control interest rate risk by matching, within acceptable limits, the re-pricing periods of assets and liabilities. We have attempted to limit our exposure to interest sensitivity by increasing core deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. We also have the ability to sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, we purchase shorter term or adjustable-rate investment securities and mortgage-backed securities.

We have an Asset/Liability Committee consisting of members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest-earning assets and interest-bearing liabilities and the balance sheet structure. On a quarterly basis, this Committee also reviews the interest rate risk position and cash flow projections.

The Board of Directors has a Risk Management Committee which meets quarterly and reviews interest rate risk and trends, our interest sensitivity position, the liquidity position and the market risk inherent in the investment portfolio.

In an effort to assess interest rate risk and market risk, we utilize a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of equity. Certain assumptions are made regarding loan prepayments and decay rates of savings and interest-bearing demand accounts. Because it is difficult to accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest rates on these assumptions may differ from simulated results. We have established the following guidelines for assessing interest rate risk:

Net interest income simulation. Given a parallel shift of 100 basis points (“bps”), 200 bps and 300 bps in interest rates, the estimated net income may not decrease by more than 5%, 10% and 15%, respectively, within a one-year period.

Net income simulation. Given a parallel shift of 100 bps, 200 bps and 300 bps in interest rates, the estimated net income may not decrease by more than 10%, 20% and 30%, respectively, within a one-year period.

Market value of equity simulation. The market value of equity is the present value of assets and liabilities. Given a parallel shift of 100 bps, 200 bps and 300 bps in interest rates, the market value of equity may not decrease by more than 15%, 30% and 35%, respectively, from the computed economic value at current interest rate levels.

The following table illustrates the simulated impact of a 100 bps, 200 bps or 300 bps upward or a 100 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at September 30, 2020 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from September 30, 2020 levels.


	Increase									Decrease
Parallel shift in interest rates over the next 12 months	100 bps			200 bps			300 bps			100 bps
Projected percentage increase/(decrease) in net interest income	1.4		%	1.8		%	1.7		%	(2.2)		%
Projected percentage increase/(decrease) in net income	3.9		%	5.2		%	5.2		%	(6.1)		%
Projected increase/(decrease) in return on average equity	3.7		%	4.9		%	5.0		%	(6.0)		%
Projected increase/(decrease) in earnings per share	$	0.04		$	0.05		$	0.05		$	(0.05)
Projected percentage decrease in market value of equity	2.1		%	1.8		%	(0.9)		%	(7.3)		%

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

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Item 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of 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 controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are subject to a number of asserted and unasserted claims encountered in the normal course of business. We believe that any additional liability, other than that which has already been accrued, that may result from such potential litigation will not have a material adverse effect on the financial statements. However, we cannot presently determine whether or not any claims against us will have a material adverse effect on our results of operations in any future reporting period. Refer to Note 12.

Item 1A. RISK FACTORS

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC, and as updated in our quarterly reports. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

There is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that may directly affect financial institutions and the global economy.

2020 is a presidential election year. Changes in federal policy, including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate entities. The nature, timing and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain. Uncertainty surrounding future changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth prospects.

Economic, social and political conditions or civil unrest in the United States, may affect the markets in which we operate, our customers, our ability to provide customer service, and could have a material adverse impact on our business, results of operations, or financial condition.

Our business may be adversely affected by instability, disruption or destruction in the markets in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including storm or other events beyond our control, such as the COVID-19 pandemic, which has resulted in the imposition of related public health measures and travel restrictions, and civil unrest, such as those in the United States that began in late May 2020 in response to reported incidents of police violence. Such events can increase levels of political and economic unpredictability, result in property damage and business closures within in our markets and increase the volatility of the financial markets. Any of these effects could have a material and adverse impact on our business and results of operations. These events also pose significant risks to the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.

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

a) Not applicable.

b) Not applicable.

c) During the quarter ending September 30, 2020, there were no shares of common stock repurchased.

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Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

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Item 6. EXHIBITS


31.1			Certification of the Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			XBRL Taxonomy Extension Label Linkbase.
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.
104			The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.


NORTHWEST BANCSHARES, INC.
(Registrant)


Date:	November 6, 2020	By:	/s/ Ronald J. Seiffert
			Ronald J. Seiffert
			Chairman, President and Chief Executive Officer
			(Duly Authorized Officer)


Date:	November 6, 2020	By:	/s/ Jeffrey R. White
			Jeffrey R. White
			Senior Vice President and Controller
			(Principal Accounting Officer)