Northwest Bancshares, Inc. - Quarter Report: 2021 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

☐ 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), 126,562,556 shares outstanding as of October 31, 2021.

Tabl e of Contents

NORTHWEST BANCSHARES, INC.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Financial Condition at September 30, 2021 and December 31, 2020 (Unaudited)

Consolidated Statements of Income for the quarter and nine months ended September 30, 2021 and 2020 (Unaudited)

Consolidated Statements of Comprehensive Income for the quarter and nine months ended September 30, 2021 and 2020 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the quarter and nine months ended Se ptember 30, 2021 and 2020 (Unaudited)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (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, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	1,090,485	736,277


Marketable securities available-for-sale (amortized cost of $1,587,105 and $1,375,685, respectively)	1,583,715		1,398,941
Marketable securities held-to-maturity (fair value of $609,777 and $179,666, respectively)	618,395		178,887
Total cash and cash equivalents and marketable securities	3,292,595		2,314,105


Loans held-for-sale	27,411		58,786








Loans held for investment	10,171,557		10,522,063

Allowance for credit losses	(109,767)		(134,427)
Loans receivable, net	10,089,201		10,446,422


FHLB stock, at cost	14,567		21,748
Accrued interest receivable	26,995		35,554
Real estate owned, net	809		2,232
Premises and equipment, net	155,740		161,538
Bank-owned life insurance	254,871		253,951
Goodwill	380,997		382,279
Other intangible assets, net	14,041		19,936
Other assets	159,419		168,503
Total assets	$	14,389,235	13,806,268

Liabilities and shareholders’ equity
Liabilities:
Noninterest-bearing demand deposits	$	3,052,115	2,716,224
Interest-bearing demand deposits	2,926,351		2,755,950
Money market deposit accounts	2,584,424		2,437,539
Savings deposits	2,271,496		2,047,424
Time deposits	1,387,827		1,642,096
Total deposits	12,222,213		11,599,233


Borrowed funds	126,496		159,715
Subordinated debt	123,486		123,329
Junior subordinated debentures	128,989		128,794
Advances by borrowers for taxes and insurance	26,951		45,230
Accrued interest payable	589		2,054
Other liabilities	198,743		209,210
Total liabilities	12,827,467		12,267,565

Shareholders’ equity:
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	—		—
Common stock, $0.01 par value: 500,000,000 shares authorized, 126,521,344 and 127,019,452 shares issued and outstanding, respectively	1,265		1,270
Additional paid-in capital	1,008,099		1,015,502
Retained earnings	604,787		555,480

Accumulated other comprehensive loss	(52,383)		(33,549)
Total shareholders’ equity	1,561,768		1,538,703
Total liabilities and shareholders’ equity	$	14,389,235	13,806,268

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except share data)


	Quarter ended September 30,			Nine months ended September 30,
	2021		2020	2021	2020
Interest income:
Loans receivable	$	97,475	107,241	295,048	305,226
Mortgage-backed securities	5,840		4,652	15,720	12,865
Taxable investment securities	649		427	1,976	1,514
Tax-free investment securities	628		655	1,797	1,404
FHLB stock dividends	71		218	325	789
Interest-earning deposits	352		221	727	541
Total interest income	105,015		113,414	315,593	322,339
Interest expense:
Deposits	4,540		8,443	14,827	29,182
Borrowed funds	2,056		1,437	6,160	4,317
Total interest expense	6,596		9,880	20,987	33,499
Net interest income	98,419		103,534	294,606	288,840
Provision for credit losses	(4,354)		6,818	(9,974)	86,205
Net interest income after provision for credit losses	102,773		96,716	304,580	202,635
Noninterest income:
Gain/(loss) on sale of investments	(46)		(12)	(172)	161
Gain on sale of loans	—		—	—	1,302
Service charges and fees	13,199		14,354	38,337	42,539


Trust and other financial services income	7,182		5,376	21,101	15,200
Insurance commission income	44		2,331	3,633	7,098
Gain/(loss) on real estate owned, net	247		(32)	371	(220)
Income from bank-owned life insurance	1,332		1,576	4,707	3,860
Mortgage banking income	3,941		11,055	13,772	24,271
Gain on sale of insurance business	—		—	25,327	—
Other operating income	3,287		2,022	8,771	5,931
Total noninterest income	29,186		36,670	115,847	100,142
Noninterest expense:
Compensation and employee benefits	49,063		47,371	145,196	130,166
Premises and occupancy costs	7,745		8,342	23,969	23,008
Office operations	4,143		4,626	10,625	11,719
Collections expense	411		1,264	1,330	2,382
Processing expenses	13,517		15,042	42,124	37,864
Marketing expenses	2,102		2,147	6,183	5,701
Federal deposit insurance premiums	1,184		1,498	3,844	3,116
Professional services	4,295		3,246	13,108	8,883
Amortization of intangible assets	1,321		1,781	4,348	5,192
Real estate owned expense	94		111	254	295
Merger, asset disposition and restructuring expense	—		1,414	641	13,551

Other expenses	2,227		27	7,003	12,766
Total noninterest expense	86,102		86,869	258,625	254,643
Income before income taxes	45,857		46,517	161,802	48,134
Federal and state income taxes expense	10,794		8,467	37,535	8,345
Net income	$	35,063	38,050	124,267	39,789
Basic earnings per share	$	0.28	0.30	0.98	0.34
Diluted earnings per share	$	0.27	0.30	0.97	0.34

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)


	Quarter ended September 30,			Nine months ended September 30,
	2021		2020	2021	2020
Net income	$	35,063	38,050	124,267	39,789
Other comprehensive income net of tax:
Net unrealized holding gains/(losses) on marketable securities:
Unrealized holding gains/(losses), net of tax of $2,076, ($107), $6,812, and ($5,286), respectively	(6,455)		676	(19,554)	13,623
Reclassification adjustment for (gains)/losses included in net income, net of tax of $24, $1, $89, and $0, respectively	(69)		(1)	(280)	1
Net unrealized holding gains/(losses) on marketable securities	(6,524)		675	(19,834)	13,624

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

Defined benefit plan:
Actuarial reclassification adjustments for prior period service costs and actuarial losses included in net income, net of tax of ($128), ($99), ($386), and ($297) respectively	333		250	1,000	748



Other comprehensive income/(loss)	(6,191)		1,871	(18,834)	14,372

Total comprehensive income	$	28,872	39,921	105,433	54,161

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

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, 2021	Shares	Amount
Beginning balance at June 30, 2021	127,907,885	$	1,279	1,025,174	595,100	(46,192)	1,575,361



Comprehensive income:
Net income	—	—		—	35,063	—	35,063

Other comprehensive loss, net of tax of $1,972	—	—		—	—	(6,191)	(6,191)

Total comprehensive income/(loss)	—	—		—	35,063	(6,191)	28,872





Exercise of stock options	57,142	—		688	—	—	688

Stock-based compensation expense	1,139	—		1,046	—	—	1,046



Share repurchases	(1,425,120)	(14)		(18,809)	—	—	(18,823)

Stock-based compensation forfeited	(19,702)	—		—	—	—	—



Dividends paid ($0.20 per share)	—	—		—	(25,376)	—	(25,376)

Ending balance at September 30, 2021	126,521,344	$	1,265	1,008,099	604,787	(52,383)	1,561,768


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive income/(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

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

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, 2021	Shares	Amount
Beginning balance at December 31, 2020	127,019,452	$	1,270	1,015,502	555,480	(33,549)	1,538,703

Comprehensive income:
Net income	—	—		—	124,267	—	124,267

Other comprehensive loss, net of tax of $6,515	—	—		—	—	(18,834)	(18,834)

Total comprehensive income/(loss)	—	—		—	124,267	(18,834)	105,433





Exercise of stock options	1,043,487	10		12,711	—	—	12,721

Stock-based compensation expense	323,824	3		3,722	—	—	3,725

Share repurchases	(1,813,132)	(18)		(23,836)	—	—	(23,854)



Stock-based compensation forfeited	(52,287)	—		—	—	—	—

Dividends paid ($0.59 per share)	—	—		—	(74,960)	—	(74,960)

Ending balance at September 30, 2021	126,521,344	$	1,265	1,008,099	604,787	(52,383)	1,561,768


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive income/(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

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine months ended September 30,
	2021		2020
Operating activities:
Net income	$	124,267	39,789
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(9,974)		86,205
Net gain on sale of assets	(970)		(2,322)
Mortgage banking activity	(17,321)		(16,676)
Gain on sale of insurance business	(25,327)		—

Net depreciation, amortization and accretion	(271)		6,625
(Increase)/decrease in other assets	19,248		(28,825)
Increase/(decrease) in other liabilities	(10,545)		79,299
Net amortization on marketable securities	5,830		2,240
Noncash compensation expense related to stock benefit plans	3,725		3,769
Noncash write-down of real estate owned	173		272


Deferred income tax (benefit)/expense	1,889		(15,812)

Origination of loans held-for-sale	(605,947)		(472,121)
Proceeds from sale of loans held-for-sale	652,770		471,367

Net cash provided by operating activities	137,547		153,810

Investing activities:
Purchase of marketable securities held-to-maturity	(479,165)		—
Purchase of marketable securities available-for-sale	(619,987)		(730,096)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity	38,974		2,694
Proceeds from maturities and principal reductions of marketable securities available-for-sale	341,121		284,532
Proceeds from sale of marketable securities available-for-sale	62,127		8
Proceeds from bank-owned life insurance	3,984		596
Loan originations	(3,063,998)		(3,640,293)
Proceeds from loan maturities and principal reductions	3,413,907		3,132,329
Proceeds from sale of loans held for investment	—		50,791
Net proceeds of FHLB stock	7,181		4,684
Proceeds from sale of real estate owned	2,440		1,062
Proceeds from sale of real estate owned for investment, net	229		455
Purchase of premises and equipment	(3,728)		(10,808)
Proceeds from the sale of insurance business	28,238		—
Acquisitions, net of cash received	—		261,712
Net cash used in investing activities	(268,677)		(642,334)

Tabl e of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)


	Nine months ended September 30,
	2021		2020
Financing activities:
Net increase in deposits	$	622,980	1,247,573
Proceeds from long-term borrowings	—		123,247
Repayments of long-term borrowings	(22,105)		(112,253)
Net decrease in short-term borrowings	(11,165)		(89,504)
Increase in advances by borrowers for taxes and insurance	(18,279)		(16,790)
Cash dividends paid on common stock	(74,960)		(68,852)
Purchase of common stock for retirement	(23,854)		—
Proceeds from stock options exercised	12,721		1,006

Net cash provided by financing activities	485,338		1,084,427

Net increase in cash and cash equivalents	$	354,208	595,903

Cash and cash equivalents at beginning of period	$	736,277	60,846
Net increase in cash and cash equivalents	354,208		595,903
Cash and cash equivalents at end of period	$	1,090,485	656,749







Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $14,631 and $27,668, respectively)	$	22,452	33,639
Income taxes	28,961		21,800

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

Non-cash activities:
Loan foreclosures and repossessions	$	3,848	4,216
Sale of real estate owned financed by the Company	54		—

See accompanying notes to unaudited Consolidated Financial Statements.

Tabl e of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Basis of Presentation and Informational Disclosures

Northwest Bancshares, Inc. (the “Company” or “NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a bank holding company regulated by the Board of Governors of the Federal Reserve System ("FRB"). The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking. Northwest operates 170 community-banking offices throughout Pennsylvania, Western New York, Eastern Ohio, and Indiana.

The accompanying unaudited Consolidated Financial Statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Capital Group, Inc., Allegheny Services, Inc., Great Northwest Corporation, The Bert Company (doing business as Northwest Insurance Services, which was sold April 30, 2021) and MutualFirst Investment Company, Inc. The unaudited Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The Consolidated Financial Statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 updated, as required, for any new pronouncements or changes.

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

The results of operations for the quarter and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period.

Stock-Based Compensation

On May 25, 2021, the Company awarded employees 621,972 stock options and directors 72,000 stock options with an exercise price of $13.68 and grant date fair value of $0.64 per stock option, and the Company awarded employees 293,755 restricted common shares and directors 27,000 restricted common shares with a grant date fair value of $13.68. Awarded stock options and common shares vest over a five-year period with the first vesting occurring on the grant date. Stock-based compensation expense of $1.0 million and $743,000 for the quarters ended September 30, 2021 and 2020, respectively, was recognized in compensation expense relating to our stock benefit plans. At September 30, 2021, there was compensation expense of $1.9 million to be recognized for awarded but unvested stock options and $10.7 million for unvested restricted common shares.

Income Taxes-Uncertain Tax Positions

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. At September 30, 2021, we had $336,000 of liability for unrecognized tax benefits.

We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income. We recognize penalties (if any) in other expenses. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2020, 2019, 2018 and 2017.

Recently Adopted Accounting Standards

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

Tabl e of Contents

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

(2) Marketable Securities

The following table shows the portfolio of marketable securities available-for-sale at September 30, 2021 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S government and agencies:
Due after ten years	$	58,537	—	(1,545)	56,992

Debt issued by government-sponsored enterprises:
Due in less than one year	191		1	—	192

Due in five years through ten years	47,516		87	(1,133)	46,470




Municipal securities:
Due in less than one year	1,151		18	—	1,169
Due in one year through five years	1,647		31	—	1,678
Due in five years through ten years	21,722		583	(93)	22,212
Due after ten years	99,832		2,385	(747)	101,470





Residential mortgage-backed securities:
Fixed rate pass-through	283,015		3,278	(2,325)	283,968
Variable rate pass-through	12,115		356	(15)	12,456

Fixed rate agency CMOs	1,017,472		4,800	(9,335)	1,012,937
Variable rate agency CMOs	43,907		294	(30)	44,171
Total residential mortgage-backed securities	1,356,509		8,728	(11,705)	1,353,532
Total marketable securities available-for-sale	$	1,587,105	11,833	(15,223)	1,583,715

Tabl e of Contents

The following table shows the portfolio of marketable securities available-for-sale at December 31, 2020 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S. government and agencies:
Due after ten years	$	40,761	211	(55)	40,917

Debt issued by government-sponsored enterprises:
Due in less than one year	24,976		159	—	25,135
Due in one year through five years	238		3	—	241

Due in five years through ten years	68,973		238	(80)	69,131



Municipal securities:
Due in less than one year	4,008		14	—	4,022
Due in one year through five years	2,803		63	(2)	2,864
Due in five years through ten years	16,045		429	(5)	16,469
Due after ten years	89,778		3,752	(72)	93,458





Residential mortgage-backed securities:
Fixed rate pass-through	339,406		7,125	(86)	346,445
Variable rate pass-through	14,778		431	(20)	15,189

Fixed rate agency CMOs	723,586		11,758	(1,093)	734,251
Variable rate agency CMOs	50,333		519	(33)	50,819
Total residential mortgage-backed securities	1,128,103		19,833	(1,232)	1,146,704
Total marketable securities available-for-sale	$	1,375,685	24,702	(1,446)	1,398,941

The following table shows the portfolio of marketable securities held-to-maturity at September 30, 2021 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by government-sponsored enterprises:
Due in one year through five years	$	16,478	—	(49)	16,429
Due in five years through ten years	107,972		—	(3,636)	104,336

Residential mortgage-backed securities:
Fixed rate pass-through	192,976		248	(1,104)	192,120
Variable rate pass-through	716		24	—	740
Fixed rate agency CMOs	299,650		476	(4,595)	295,531
Variable rate agency CMOs	603		18	—	621
Total residential mortgage-backed securities	493,945		766	(5,699)	489,012
Total marketable securities held-to-maturity	$	618,395	766	(9,384)	609,777

Tabl e of Contents

The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2020 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by government-sponsored enterprises:
Due in five years through ten years	$	67,990	12	(123)	67,879


Residential mortgage-backed securities:
Fixed rate pass-through	1,723		131	—	1,854
Variable rate pass-through	919		30	—	949
Fixed rate agency CMOs	107,651		716	(2)	108,365
Variable rate agency CMOs	604		15	—	619
Total residential mortgage-backed securities	110,897		892	(2)	111,787
Total marketable securities held-to-maturity	$	178,887	904	(125)	179,666

The following table shows the contractual maturity of our residential mortgage-backed securities available-for-sale at September 30, 2021 (in thousands):


	Amortized cost		Fair value




Residential mortgage-backed securities:
Due in less than one year	$	453	455
Due in one year through five years	39,580		40,067
Due after five years through ten years	230,932		232,244
Due after ten years	1,085,544		1,080,766
Total residential mortgage-backed securities	$	1,356,509	1,353,532

The following table shows the contractual maturity of our residential mortgage-backed securities held-to-maturity at September 30, 2021 (in thousands):


	Amortized cost		Fair value




Residential mortgage-backed securities:

Due in one year through five years	$	890	948
Due after five years through ten years	212,525		210,946
Due after ten years	280,530		277,118
Total residential mortgage-backed securities	$	493,945	489,012

The following table shows the fair value of and gross unrealized losses on marketable securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2021 (in thousands):


	Less than 12 months			12 months or more		Total
	Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss
U.S. government-sponsored enterprises	$	216,233	(6,055)	6,916	(308)	223,149	(6,363)
Municipal securities	34,492		(840)	—	—	34,492	(840)


Residential mortgage-backed securities - agency	1,106,779		(14,455)	103,690	(2,949)	1,210,469	(17,404)

Total	$	1,357,504	(21,350)	110,606	(3,257)	1,468,110	(24,607)

Tabl e of Contents


	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	$	67,809	(179)	1,923	(80)	69,732	(259)


Municipal securities	4,257		(79)	—	—	4,257	(79)
Residential mortgage-backed securities - agency	300,767		(1,202)	5,533	(31)	306,300	(1,233)
Total	$	372,833	(1,460)	7,456	(111)	380,289	(1,571)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2021, which were comprised of 216 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies or U.S. government-sponsored enterprises. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company does not have the intent to sell these investment securities and it is likely that we will not be required to sell these securities before their anticipated recovery, which may be at maturity.

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

The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of September 30, 2021 (in thousands). The credit ratings are sourced from nationally recognized rating agencies, which include Moody's and S&P, or when credit ratings cannot be sourced from the agencies, they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of September 30, 2021.


	AA+		Total




Held-to-maturity securities (at amortized cost):
Debt issued by government-sponsored enterprises	$	124,450	124,450
Residential mortgage-backed securities	493,945		493,945
Total marketable securities held-to-maturity	$	618,395	618,395

Tabl e of Contents

(3) Loans Receivable

The following table shows a summary of our loans receivable at amortized cost basis at September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021				December 31, 2020
	Originated		Acquired	Total	Originated	Acquired	Total
Personal Banking:

Residential mortgage loans (1)	$	2,756,383	233,138	2,989,521	2,753,593	314,528	3,068,121
Home equity loans	1,122,611		227,737	1,350,348	1,175,703	292,033	1,467,736
Vehicle loans	1,350,278		110,912	1,461,190	995,040	157,633	1,152,673
Consumer loans	305,549		50,097	355,646	288,066	67,254	355,320
Total Personal Banking	5,534,821		621,884	6,156,705	5,212,402	831,448	6,043,850

Commercial Banking:
Commercial real estate loans	2,258,953		477,531	2,736,484	2,223,108	624,873	2,847,981
Commercial real estate loans - owner occupied	335,461		90,606	426,067	344,016	153,892	497,908
Commercial loans	786,111		93,601	879,712	1,019,482	171,628	1,191,110
Total Commercial Banking	3,380,525		661,738	4,042,263	3,586,606	950,393	4,536,999
Total loans receivable, gross	8,915,346		1,283,622	10,198,968	8,799,008	1,781,841	10,580,849

Allowance for credit losses	(87,222)		(22,545)	(109,767)	(102,874)	(31,553)	(134,427)
Total loans receivable, net (2)	$	8,828,124	1,261,077	10,089,201	8,696,134	1,750,288	10,446,422

(1) Includes fair value of $27.4 million and $58.8 million of loans held-for-sale at September 30, 2021 and December 31, 2020, respectively.

(2) Includes $57.6 million and $40.9 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at September 30, 2021 and December 31, 2020, respectively.

Tabl e 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, 2021 (in thousands):


	Balance as of September 30, 2021		Current period provision	Charge-offs	Recoveries	Balance as of June 30, 2021
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	7,987	1,939	(1,263)	64	7,247
Home equity loans	6,293		291	(1,474)	237	7,239
Vehicle loans	12,457		82	(1,112)	599	12,888
Consumer loans	3,074		949	(1,036)	360	2,801
Total Personal Banking	29,811		3,261	(4,885)	1,260	30,175

Commercial Banking:
Commercial real estate loans	58,451		(5,103)	(1,581)	555	64,580
Commercial real estate loans - owner occupied	3,246		(1,487)	—	4	4,729
Commercial loans	18,259		(1,025)	(412)	1,850	17,846
Total Commercial Banking	79,956		(7,615)	(1,993)	2,409	87,155
Total	$	109,767	(4,354)	(6,878)	3,669	117,330

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

Residential mortgage loans	$	2	—	—	—	2
Home equity loans	40		(2)	—	—	42

Total Personal Banking	42		(2)	—	—	44

Commercial Banking:
Commercial real estate loans	2,647		715	—	—	1,932
Commercial real estate loans - owner occupied	140		(41)	—	—	181
Commercial loans	1,333		101	—	—	1,232
Total Commercial Banking	4,120		775	—	—	3,345
Total off-balance sheet exposure	$	4,162	773	—	—	3,389

Tabl e 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	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

Tabl e 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, 2021 (in thousands):


	Balance as of September 30, 2021		Current period provision	Charge-offs	Recoveries	Balance as of December 31, 2020
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	7,987	3,269	(2,888)	340	7,266
Home equity loans	6,293		1,892	(2,081)	490	5,992
Vehicle loans	12,457		(341)	(4,017)	1,990	14,825
Consumer loans	3,074		2,291	(3,135)	1,047	2,871
Total Personal Banking	29,811		7,111	(12,121)	3,867	30,954

Commercial Banking:
Commercial real estate loans	58,451		(12,859)	(9,281)	1,210	79,381
Commercial real estate loans - owner occupied	3,246		(6,392)	(890)	9	10,518
Commercial loans	18,259		2,166	(1,627)	4,147	13,574
Total Commercial Banking	79,956		(17,085)	(11,798)	5,366	103,473
Total	$	109,767	(9,974)	(23,919)	9,233	134,427

Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans	$	2	—	—	—	2
Home equity loans	40		5	—	—	35

Total Personal Banking	42		5	—	—	37

Commercial Banking:
Commercial real estate loans	2,647		(802)	—	—	3,449
Commercial real estate loans - owner occupied	140		(186)	—	—	326
Commercial loans	1,333		(1,218)	—	—	2,551
Total Commercial Banking	4,120		(2,206)	—	—	6,326
Total off-balance sheet exposure	$	4,162	(2,201)	—	—	6,363

Tabl e of Contents


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

Tabl e of Contents

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at September 30, 2021 (in thousands):


	Total loans receivable		Allowance for credit losses	Nonaccrual loans (1)	Loans 90 days past due and accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	2,989,521	7,987	10,710	—	7,007	1,792	—
Home equity loans	1,350,348		6,293	6,482	—	1,821	709	—
Vehicle loans	1,461,190		12,457	2,977	—	—	—	—
Consumer loans	355,646		3,074	1,115	386	—	—	—
Total Personal Banking	6,156,705		29,811	21,284	386	8,828	2,501	—

Commercial Banking:
Commercial real estate loans	2,736,484		58,451	135,902	—	14,032	845	499
Commercial real estate loans - owner occupied	426,067		3,246	1,359	—	326	55	—
Commercial loans	879,712		18,259	18,397	—	3,336	187	296
Total Commercial Banking	4,042,263		79,956	155,658	—	17,694	1,087	795

Total	$	10,198,968	109,767	176,942	386	26,522	3,588	795

(1)Includes $12.9 million of nonaccrual TDRs.

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2020 (in thousands):


	Total loans receivable		Allowance for credit losses	Nonaccrual loans (1)	Loans 90 days past due and accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	3,068,121	7,266	15,924	—	8,431	560	—
Home equity loans	1,467,736		5,992	9,123	—	2,058	381	26
Vehicle loans	1,152,673		14,825	5,533	1	—	—	—
Consumer loans	355,320		2,871	1,031	584	1	—	—
Total Personal Banking	6,043,850		30,954	31,611	585	10,490	941	26

Commercial Banking:
Commercial real estate loans	2,847,981		79,381	44,092	—	18,430	787	471
Commercial real estate loans - owner occupied	497,908		10,518	3,642	—	761	123	—
Commercial loans	1,191,110		13,574	23,487	—	2,454	165	362
Total Commercial Banking	4,536,999		103,473	71,221	—	21,645	1,075	833

Total	$	10,580,849	134,427	102,832	585	32,135	2,016	859

(1)Includes $10.7 million of nonaccrual TDRs.

Tabl e of Contents

We present the amortized cost of our loans on nonaccrual status including such loans with no allowance. The following table presents the amortized cost of our loans on nonaccrual status as of September 30, 2021 and December 31, 2020 (in thousands):


	Nonaccrual loans at December 31, 2020		Nonaccrual loans at September 30, 2021 with an allowance	Nonaccrual loans at September 30, 2021 with no allowance	Loans at September 30, 2021 90 days past due and accruing
Personal Banking:
Residential mortgage loans	$	15,924	10,710	—	—
Home equity loans	9,123		6,270	212	—
Vehicle loans	5,533		2,964	13	—
Consumer loans	1,031		1,114	1	386
Total Personal Banking	31,611		21,058	226	386

Commercial Banking:
Commercial real estate loans	44,092		80,831	55,071	—
Commercial real estate loans - owner occupied	3,642		1,359	—	—
Commercial loans	23,487		14,726	3,671	—
Total Commercial Banking	71,221		96,916	58,742	—

Total	$	102,832	117,974	58,968	386

During the three and nine months ended September 30, 2021, we recognized $138,000 and $664,000 of interest income on nonaccrual and troubled debt restructuring loans.

The following table presents the amortized cost of our loans on nonaccrual status as of the year ended December 31, 2020 and December 21, 2019 (in thousands):


	Nonaccrual loans at December 31, 2019		Nonaccrual loans at December 31, 2020 with an allowance	Nonaccrual loans at December 31, 2020 with no allowance	Loans at December 31, 2020 90 days past due and accruing
Personal Banking:
Residential mortgage loans	$	14,476	15,923	—	—
Home equity loans	6,745		8,872	252	—
Vehicle loans	3,147		5,377	156	1
Consumer loans	1,079		1,030	1	584
Total Personal Banking	25,447		31,202	409	585

Commercial Banking:
Commercial real estate loans	18,832		27,079	17,013	—
Commercial real estate loans - owner occupied	16,032		3,642	—	—
Commercial loans	8,559		18,069	5,418	—
Total Commercial Banking	43,423		48,790	22,431	—

Total	$	68,870	79,992	22,840	585

During the year ended December 31, 2020, we recognized $842,000 of interest income on nonaccrual and troubled debt restructuring loans.

Tabl e of Contents

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021 (in thousands):


	Real estate		Equipment	Other	Total
Personal Banking:
Residential mortgage loans	$	—	—	583	583
Home equity loans	—		—	99	99


Total Personal Banking	—		—	682	682

Commercial Banking:
Commercial real estate loans	123,975		1,778	—	125,753

Commercial loans	4,301		9,576	1,211	15,088
Total Commercial Banking	128,276		11,354	1,211	140,841

Total	$	128,276	11,354	1,893	141,523

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020 (in thousands):


	Real estate		Equipment	Other	Total
Personal Banking:
Residential mortgage loans	$	1,269	—	—	1,269
Home equity loans	99		—	—	99


Total Personal Banking	1,368		—	—	1,368

Commercial Banking:
Commercial real estate loans	79,392		1,997	1,703	83,092

Commercial loans	3,313		197	11,069	14,579
Total Commercial Banking	82,705		2,194	12,772	97,671

Total	$	84,073	2,194	12,772	99,039

Tabl e 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. This TDR relief under the CARES Act was extended by the Consolidated Appropriations Act, 2021 ("CAA"), signed into law on December 27, 2020. Under the CAA, such relief will continue until the earlier of 60 days after the date the COVID-19 national emergency comes to an end or January 1, 2022. Certain loan modifications made during the year were done in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. Accordingly, these loans and leases were not categorized as TDRs.

Tabl e of Contents

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


	For the quarter ended September 30,
	2021			2020
	Number of contracts	Amount		Number of contracts	Amount
Beginning TDR balance:	158	$	27,431	167	$	35,450
New TDRs	3	345		7	803
Re-modified TDRs	3	4,490		3	6,679
Net paydowns	—	(4,702)		—	(8,127)
Charge-offs:

Home equity loans	1	(29)		—	—

Commercial real estate loans	2	(53)		—	—
Commercial real estate loans - owner occupied	1	(105)		—	—
Commercial loans	5	(139)		—	—
Paid-off loans:
Residential mortgage loans	5	(307)		—	—
Home equity loans	4	(122)		—	—

Commercial real estate loans	4	(287)		—	—

Commercial loans	—	—		1	(1)
Ending TDR balance:	139	$	26,522	173	$	34,804
Accruing TDRs		$	13,664		$	17,684
Nonaccrual TDRs		12,858			17,120


	For the nine months ended September 30,
	2021			2020
	Number of contracts	Amount		Number of contracts	Amount
Beginning TDR balance:	170	$	32,135	176	$	31,999
New TDRs	5	2,608		10	889
Re-modified TDRs	8	5,701		5	9,720
Net paydowns	—	(8,713)		—	(7,192)
Charge-offs:

Home equity loans	1	(29)		1	(10)

Commercial real estate loans	2	(53)		—	—
Commercial real estate loans - owner occupied	1	(105)		—	—
Commercial loans	5	(139)		—	—
Paid-off loans:
Residential mortgage loans	9	(1,033)		2	(330)
Home equity loans	5	(133)		2	(3)

Commercial real estate loans	9	(2,973)		1	(26)
Commercial real estate loans - owner occupied	1	(47)		1	(25)
Commercial loans	3	(697)		6	(218)
Ending TDR balance:	139	$	26,522	173	$	34,804
Accruing TDRs		$	13,664		$	17,684
Nonaccrual TDRs		12,858			17,120

Tabl e of Contents

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


	For the quarter ended September 30, 2021					For the nine months ended September 30, 2021
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance

Personal Banking:
Residential mortgage loans	—	$	—	—	—	1	$	125	115	16
Home equity loans	2	153		36	17	3	156		36	17


Total Personal Banking	2	153		36	17	4	281		151	33

Commercial Banking:
Commercial real estate loans	3	4,840		4,490	65	6	6,723		5,586	207

Commercial loans	1	330		309	—	3	2,726		2,572	—
Total Commercial Banking	4	5,170		4,799	65	9	9,449		8,158	207

Total	6	$	5,323	4,835	82	13	$	9,730	8,309	240


	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


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

Tabl e of Contents

The following table provides information as of September 30, 2021 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended September 30, 2021 (in thousands):


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:

Home equity loans	2	$	—	30	6	—	36


Total Personal Banking	2	—		30	6	—	36

Commercial Banking:
Commercial real estate loans	3	378		—	4,112	—	4,490

Commercial loans	1	—		—	309	—	309
Total Commercial Banking	4	378		—	4,421	—	4,799

Total	6	$	378	30	4,427	—	4,835

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


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



Total Personal Banking	1	—		—	89	—	89

Commercial Banking:
Commercial real estate loans	5	—		—	6,755	285	7,040

Commercial loans	4	—		114	239	—	353
Total Commercial Banking	9	—		114	6,994	285	7,393

Total	10	$	—	114	7,083	285	7,482

Tabl e of Contents


		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residential mortgage loans	1	$	115	—	—	—	115
Home equity loans	3	—		30	6	—	36


Total Personal Banking	4	115		30	6	—	151

Commercial Banking:
Commercial real estate loans	6	378		—	5,136	72	5,586

Commercial loans	3	—		—	2,572	—	2,572
Total Commercial Banking	9	378		—	7,708	72	8,158

Total	13	$	493	30	7,714	72	8,309


		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


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

Tabl e of Contents

The following table provides information related to troubled debt restructurings modified within the previous twelve months

of September 30, 2021 that subsequently defaulted:


	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance








Commercial Banking:
Commercial real estate loans	3	4,167		3,951	2


Total Commercial Banking	3	$	4,167	3,951	2

Total	3	$	4,167	3,951	2

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

The following table provides information related to the amortized cost basis of loan payment delinquencies at September 30, 2021 (in thousands):


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

Personal Banking:
Residential mortgage loans	$	765	4,907	8,069	13,741	2,975,780	2,989,521	—
Home equity loans	3,351		1,024	4,745	9,120	1,341,228	1,350,348	—
Vehicle loans	4,795		1,345	1,198	7,338	1,453,852	1,461,190	—
Consumer loans	1,351		412	1,370	3,133	352,513	355,646	386
Total Personal Banking	10,262		7,688	15,382	33,332	6,123,373	6,156,705	386

Commercial Banking:
Commercial real estate loans	1,743		1,170	25,420	28,333	2,708,151	2,736,484	—
Commercial real estate loans - owner occupied	261		—	142	403	425,664	426,067	—
Commercial loans	692		170	1,104	1,966	877,746	879,712	—
Total Commercial Banking	2,696		1,340	26,666	30,702	4,011,561	4,042,263	—















Total loans	$	12,958	9,028	42,048	64,034	10,134,934	10,198,968	386

The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2020 (in thousands):


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

Personal Banking:
Residential mortgage loans	$	28,797	5,083	14,489	48,369	3,019,752	3,068,121	—
Home equity loans	4,763		1,656	8,441	14,860	1,452,876	1,467,736	—
Vehicle loans	7,707		1,776	4,599	14,082	1,138,592	1,152,674	1
Consumer loans	2,867		966	1,459	5,292	350,027	355,319	584
Total Personal Banking	44,134		9,481	28,988	82,603	5,961,247	6,043,850	585

Commercial Banking:
Commercial real estate loans	6,692		1,615	23,307	31,614	2,816,366	2,847,980	—
Commercial real estate loans - owner occupied	4,231		—	1,980	6,211	491,698	497,909	—
Commercial loans	6,405		864	7,325	14,594	1,176,516	1,191,110	—
Total Commercial Banking	17,328		2,479	32,612	52,419	4,484,580	4,536,999	—
Total originated loans	$	61,462	11,960	61,600	135,022	10,445,827	10,580,849	585

Tabl e of Contents

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

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

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

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

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

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

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

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

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

Tabl e of Contents

The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator for each portfolio segment as of September 30, 2021 (in thousands):


	YTD September 30, 2021		2020	2019	2018	2017	Prior	Revolving loans	Revolving loans converted to term loans	Total loans receivable
Personal Banking:
Residential mortgage loans
Pass	$	487,627	627,031	327,054	169,600	186,866	1,174,311	—	—	2,972,489
Substandard	—		495	205	565	946	14,821	—	—	17,032
Total residential mortgage loans	487,627		627,526	327,259	170,165	187,812	1,189,132	—	—	2,989,521
Home equity loans
Pass	122,912		225,366	150,967	69,938	67,057	228,689	437,098	40,452	1,342,479
Substandard	—		66	539	65	361	4,116	1,440	1,282	7,869
Total home equity loans	122,912		225,432	151,506	70,003	67,418	232,805	438,538	41,734	1,350,348
Vehicle loans
Pass	679,196		330,014	235,766	139,654	41,199	32,385	—	—	1,458,214
Substandard	196		233	1,056	885	405	201	—	—	2,976
Total vehicle loans	679,392		330,247	236,822	140,539	41,604	32,586	—	—	1,461,190
Consumer loans
Pass	97,143		91,731	54,194	23,280	11,168	13,248	61,703	1,679	354,146
Substandard	145		151	328	180	132	144	410	10	1,500
Total consumer loans	97,288		91,882	54,522	23,460	11,300	13,392	62,113	1,689	355,646
Total Personal Banking	1,387,219		1,275,087	770,109	404,167	308,134	1,467,915	500,651	43,423	6,156,705
Business Banking:
Commercial real estate loans
Pass	231,278		449,316	415,206	280,005	238,909	757,071	29,551	10,509	2,411,845
Special Mention	811		2,653	34,758	1,177	4,149	10,891	708	25	55,172
Substandard	—		33,671	27,741	49,665	59,169	92,974	1,233	5,014	269,467


Total commercial real estate loans	232,089		485,640	477,705	330,847	302,227	860,936	31,492	15,548	2,736,484
Commercial real estate loans - owner occupied
Pass	65,945		24,876	56,170	69,834	59,792	105,531	2,851	2,748	387,747
Special Mention	—		—	1,729	784	2,963	1,770	616	—	7,862
Substandard	—		—	2,783	1,195	9,072	16,542	98	768	30,458


Total commercial real estate loans - owner occupied	65,945		24,876	60,682	71,813	71,827	123,843	3,565	3,516	426,067
Commercial loans
Pass	245,021		111,415	79,383	32,820	37,961	80,850	215,455	10,760	813,665
Special Mention	108		5,578	806	1,384	52	646	2,402	—	10,976
Substandard	401		5,215	5,852	5,840	3,828	3,717	15,032	15,186	55,071


Total commercial loans	245,530		122,208	86,041	40,044	41,841	85,213	232,889	25,946	879,712
Total Business Banking	543,564		632,724	624,428	442,704	415,895	1,069,992	267,946	45,010	4,042,263

Total loans	$	1,930,783	1,907,811	1,394,537	846,871	724,029	2,537,907	768,597	88,433	10,198,968

For the nine months ended September 30, 2021, $23.0 million of revolving loans were converted to term loans.

Tabl e of Contents

The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator for each portfolio segment as of December 31, 2020 (in thousands):


	2020		2019	2018	2017	2016	Prior	Revolving loans	Revolving loans converted to term loans	Total loans receivable
Personal Banking:
Residential mortgage loans
Pass	$	641,963	418,057	229,477	247,426	215,893	1,289,728	—	—	3,042,544
Substandard	—		68	1,293	1,674	1,091	21,451	—	—	25,577
Total residential mortgage loans	641,963		418,125	230,770	249,100	216,984	1,311,179	—	—	3,068,121
Home equity loans
Pass	273,076		193,439	94,757	87,717	81,212	219,061	465,453	40,759	1,455,474
Substandard	—		210	318	281	876	5,158	3,509	1,910	12,262
Total home equity loans	273,076		193,649	95,075	87,998	82,088	224,219	468,962	42,669	1,467,736
Vehicle loans
Pass	448,746		352,661	218,372	70,122	31,197	24,791	—	—	1,145,889
Substandard	343		1,958	2,087	1,210	667	519	—	—	6,784
Total vehicle loans	449,089		354,619	220,459	71,332	31,864	25,310	—	—	1,152,673
Consumer loans
Pass	128,809		83,419	35,183	17,439	7,848	11,757	66,965	1,695	353,115
Substandard	133		399	139	192	36	619	686	1	2,205
Total consumer loans	128,942		83,818	35,322	17,631	7,884	12,376	67,651	1,696	355,320
Total Personal Banking	1,493,070		1,050,211	581,626	426,061	338,820	1,573,084	536,613	44,365	6,043,850
Business Banking:
Commercial real estate loans
Pass	417,390		473,115	316,045	264,702	195,168	709,459	36,980	29,755	2,442,614
Special Mention	584		3,381	20,180	24,675	15,424	15,817	597	3,048	83,706
Substandard	7,426		4,007	57,694	56,991	24,056	140,147	2,240	29,100	321,661


Total commercial real estate loans	425,400		480,503	393,919	346,368	234,648	865,423	39,817	61,903	2,847,981
Commercial real estate loans - owner occupied
Pass	24,895		67,162	87,497	71,626	46,760	100,081	4,422	7,648	410,091
Special Mention	—		4,371	4,514	3,643	4,276	3,689	3,822	—	24,315
Substandard	—		21,627	1,903	12,898	4,013	21,777	874	410	63,502


Total commercial real estate loans - owner occupied	24,895		93,160	93,914	88,167	55,049	125,547	9,118	8,058	497,908
Commercial loans
Pass	479,436		99,877	50,915	51,858	58,597	49,178	286,467	16,170	1,092,498
Special Mention	5,828		2,751	5,579	4,588	162	190	16,512	5,668	41,278
Substandard	1,660		3,343	2,932	2,016	2,266	3,003	27,988	14,126	57,334


Total commercial loans	486,924		105,971	59,426	58,462	61,025	52,371	330,967	35,964	1,191,110
Total Business Banking	937,219		679,634	547,259	492,997	350,722	1,043,341	379,902	105,925	4,536,999

Total loans	$	2,430,289	1,729,845	1,128,885	919,058	689,542	2,616,425	916,515	150,290	10,580,849

For the year ended December 31, 2020, $23.1 million of revolving loans were converted to term loans.

Tabl e of Contents

(4) Goodwill and Other Intangible Assets

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


	September 30, 2021		December 31, 2020
Amortizable intangible assets:
Core deposit intangibles - gross	$	74,899	71,182
Acquisitions	—		3,717
Less: accumulated amortization	(60,974)		(56,896)
Core deposit intangibles - net	$	13,925	18,003
Customer and Contract intangible assets - gross	$	12,775	12,775

Customer list intangible assets disposed of due to sale of insurance business	(1,591)		—
Less: accumulated amortization	(11,068)		(10,842)
Customer and Contract intangible assets - net	116		1,933
Total intangible assets - net	$	14,041	19,936

The following table shows the actual aggregate amortization expense for the quarters ended September 30, 2021 and 2020, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):


For the quarter ended September 30, 2021	$	1,321
For the quarter ended September 30, 2020	1,781
For the nine months ended September 30, 2021	4,348
For the nine months ended September 30, 2020	5,192
For the year ending December 31, 2021	5,509
For the year ending December 31, 2022	4,277
For the year ending December 31, 2023	3,270
For the year ending December 31, 2024	2,452
For the year ending December 31, 2025	1,662
For the year ending December 31, 2026	871

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


	Total
Balance at December 31, 2019	$	346,103
Goodwill acquired	36,176

Balance at December 31, 2020	382,279
Purchase accounting adjustment	77
Goodwill disposed of due to sale of insurance business	(1,359)
Balance at September 30, 2021	$	380,997

We performed our annual goodwill impairment test as of June 30, 2021 in accordance with ASC 350, as updated by ASU 2017-04 ("Step 0"), and concluded that goodwill was not impaired. As of September 30, 2021, there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment of goodwill.

Tabl e of Contents

(5) Borrowed Funds

(a) Borrowings


	September 30, 2021
	Amount		Average rate






Collateralized borrowings, due within one year	$	126,496	0.19	%

Total borrowed funds	$	126,496

Borrowings from the Federal Home Loan Banks ("FHLB") of Pittsburgh and Indianapolis, if any, are secured by our residential first mortgage and other qualifying loans. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment. During the year ended September 30, 2021, $2.0 million of term notes payable to the FHLB of Indianapolis matured.

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

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

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

(b) Trust Preferred Securities

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

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

The following table sets forth a summary of the cumulative trust preferred securities and the junior subordinated debt held by the Trust as of September 30, 2021.


	Maturity date	Interest rate	Capital debt securities		September 30, 2021
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
UNCT I (1)	January 23, 2034	3-month LIBOR plus 2.85%	8,000		7,944
UNCT II (1)	November 23, 2034	3-month LIBOR plus 2.00%	3,000		2,734
MFBC Statutory Trust I (1)	September 15, 2035	3-month LIBOR plus 1.70%	5,000		3,554
Universal Preferred Trust (1)	October 7, 2035	3-month LIBOR plus 1.69%	5,000		3,544
					$	128,989

(1) Net of discounts due to the fair value adjustment made at the time of acquisition.

Tabl e of Contents

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

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

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

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

•the trusts to register as an investment company; or

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

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

(6) Guarantees

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

(7) Earnings Per Share

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

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


	Quarter ended September 30,			Nine months ended September 30,
	2021		2020	2021	2020
Net income	$	35,063	38,050	124,267	39,789
Less: Dividends and undistributed earnings allocated to participating securities	237		—	841	—
Net income available to common shareholders	$	34,826	38,050	123,426	39,789

Weighted average common shares outstanding	126,111,774		126,855,810	126,333,290	118,088,122
Add: Participating shares outstanding	856,206		—	856,206	—
Total weighted average common shares and dilutive potential shares	126,967,980		126,855,810	127,189,496	118,088,122

Basic earnings per share	$	0.28	0.30	0.98	0.34

Diluted earnings per share	$	0.27	0.30	0.97	0.34

Tabl e of Contents

(8) Pension and Other Post-Retirement Benefits

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


	Quarter ended September 30,
	Pension benefits			Other post-retirement benefits
	2021		2020	2021	2020
Service cost	$	2,860	2,097	—	—
Interest cost	1,517		1,713	4	7
Expected return on plan assets	(3,464)		(3,090)	—	—
Amortization of prior service cost	(580)		(580)	—	—
Amortization of the net loss	1,038		925	3	4
Net periodic cost	$	1,371	1,065	7	11


	Nine months ended September 30,
	Pension benefits			Other post-retirement benefits
	2021		2020	2021	2020
Service cost	$	8,580	6,293	—	—
Interest cost	4,552		5,141	13	20
Expected return on plan assets	(10,394)		(9,272)	—	—
Amortization of prior service cost	(1,741)		(1,742)	—	—
Amortization of the net loss	3,117		2,773	10	13
Net periodic cost	$	4,114	3,193	23	33

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

(9) Disclosures About Fair Value of Financial Instruments

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

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

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

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

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

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

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

Tabl e of Contents

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

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

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

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

Marketable Securities

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

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

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

Loans Receivable

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

Loans Held-for-Sale

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

Loans Held for Investment

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

FHLB Stock

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

Deposit Liabilities

The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these

Tabl e of Contents

deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity.

Borrowed Funds

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

Subordinated Debentures

The fair value of our subordinated debentures is calculated using the discounted cash flows at rates observable for other similarly traded liabilities.

Junior Subordinated Debentures

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

Interest Rate Lock Commitments and Forward Commitments

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

Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements

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

Off-Balance Sheet Financial Instruments

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

Tabl e of Contents

The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at September 30, 2021 (in thousands):


	Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	1,090,485	1,090,485	1,090,485	—	—
Securities available-for-sale	1,583,715		1,583,715	—	1,583,715	—
Securities held-to-maturity	618,395		609,777	—	609,777	—
Loans receivable, net	10,061,790		10,012,659	—	—	10,012,659
Residential mortgage loans held-for-sale	27,411		27,411	—	—	27,411
Accrued interest receivable	26,995		26,995	26,995	—	—
Interest rate lock commitments	3,137		3,137	—	—	3,137
Forward commitments	518		518	—	518	—
Foreign exchange swaps	1,399		1,399	—	1,399	—
Interest rate swaps not designated as hedging instruments	34,983		34,983	—	34,983	—
FHLB stock	14,567		14,567	—	—	—
Total financial assets	$	13,463,395	13,405,646	1,117,480	2,230,392	10,043,207

Financial liabilities:
Savings and checking deposits	$	10,834,386	10,834,386	10,834,386	—	—
Time deposits	1,387,827		1,402,858	—	—	1,402,858

Borrowed funds	126,496		126,496	126,496	—	—
Subordinated debt	123,486		129,421	—	129,421	—
Junior subordinated debentures	128,989		121,571	—	—	121,571
Foreign exchange swaps	961		961	—	961	—

Interest rate swaps not designated as hedging instruments	35,152		35,152	—	35,152	—
Risk participation agreements	71		71	—	71	—
Accrued interest payable	589		589	589	—	—
Total financial liabilities	$	12,637,957	12,651,505	10,961,471	165,605	1,524,429

Tabl e of Contents

The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2020 (in thousands):


	Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	736,277	736,277	736,277	—	—
Securities available-for-sale	1,398,941		1,398,941	—	1,398,941	—
Securities held-to-maturity	178,887		179,666	—	179,666	—
Loans receivable, net	10,387,636		10,334,521	—	—	10,334,521
Residential mortgage loans held-for-sale	58,786		58,786	—	—	58,786
Accrued interest receivable	35,554		35,554	35,554	—	—
Interest rate lock commitments	6,465		6,465	—	—	6,465
Forward commitments	1,105		1,105	—	1,105	—
Interest rate swaps not designated as hedging instruments	53,863		53,863	—	53,863	—
FHLB stock	21,748		21,748	—	—	—
Total financial assets	$	12,879,262	12,826,926	771,831	1,633,575	10,399,772

Financial liabilities:
Savings and checking accounts	$	9,957,137	9,957,137	9,957,137	—	—
Time deposits	1,642,096		1,669,546	—	—	1,669,546

Borrowed funds	159,715		159,745	159,745	—	—
Subordinated debt	123,329		123,329	—	123,329	—
Junior subordinated debentures	128,794		121,106	—	—	121,106
Interest rate swaps not designated as hedging instruments	54,579		54,579	—	54,579	—
Risk participation agreements	86		86	—	86	—
Accrued interest payable	2,054		2,054	2,054	—	—
Total financial liabilities	$	12,067,790	12,087,582	10,118,936	177,994	1,790,652

Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both September 30, 2021 and December 31, 2020.

Tabl e of Contents

The following table represents assets and liabilities measured at fair value on a recurring basis at September 30, 2021 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value


Debt securities:
U.S. government and agencies	$	—	56,992	—	56,992
Government-sponsored enterprises	—		46,662	—	46,662
States and political subdivisions	—		126,529	—	126,529

Total debt securities	—		230,183	—	230,183

Residential mortgage-backed securities:
GNMA	—		18,029	—	18,029
FNMA	—		171,926	—	171,926
FHLMC	—		106,027	—	106,027
Non-agency	—		442	—	442
Collateralized mortgage obligations:
GNMA	—		490,548	—	490,548
FNMA	—		277,829	—	277,829
FHLMC	—		288,731	—	288,731


Total mortgage-backed securities	—		1,353,532	—	1,353,532

Interest rate lock commitments	—		—	3,137	3,137
Forward commitments	—		518	—	518
Foreign exchange swaps	—		1,399	—	1,399
Interest rate swaps not designated as hedging instruments	—		34,983	—	34,983
Total assets	$	—	1,620,615	3,137	1,623,752


Foreign exchange swaps	$	—	961	—	961
Interest rate swaps not designated as hedging instruments	—		35,152	—	35,152
Risk participation agreements	—		71	—	71
Total liabilities	$	—	36,184	—	36,184

Tabl e of Contents

The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2020 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value


Debt securities:
U.S. government and agencies	$	—	40,917	—	40,917
Government-sponsored enterprises	—		94,507	—	94,507
States and political subdivisions	—		116,813	—	116,813

Total debt securities	—		252,237	—	252,237

Residential mortgage-backed securities:
GNMA	—		23,026	—	23,026
FNMA	—		203,571	—	203,571
FHLMC	—		134,572	—	134,572
Non-agency	—		465	—	465
Collateralized mortgage obligations:
GNMA	—		343,409	—	343,409
FNMA	—		262,109	—	262,109
FHLMC	—		179,552	—	179,552


Total mortgage-backed securities	—		1,146,704	—	1,146,704

Interest rate lock commitments	—		—	6,465	6,465
Forward commitments	—		1,105	—	1,105
Interest rate swaps not designated as hedging instruments	—		53,863	—	53,863
Total assets	$	—	1,453,909	6,465	1,460,374

Interest rate swaps not designated as hedging instruments	$	—	54,579	—	54,579
Risk participation agreements	—		86	—	86

Total liabilities	$	—	54,665	—	54,665

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


	For the quarter ended September 30,			For the nine months ended September 30,
	2021		2020	2021	2020
Beginning balance	$	3,608	7,416	6,465	559

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

Interest rate lock commitments:

Net activity	(471)		792	(3,328)	7,649
Transfers from Level 3	—		—	—	—
Transfers into Level 3	—		—	—	—

Ending balance	$	3,137	8,208	3,137	8,208

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

Tabl e of Contents

The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of September 30, 2021 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	$	—	—	65,835	65,835

Mortgage servicing rights	—		—	2,333	2,333
Real estate owned, net	—		—	809	809
Total assets	$	—	—	68,977	68,977

The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2020 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	$	—	—	95,303	95,303

Real estate owned, net	—		—	2,232	2,232

Total assets	$	—	—	97,535	97,535

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

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

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 2021 (in thousands):

Fair
value

Valuation
techniques

Significant
unobservable inputs

Range
(weighted average)

Loans individually assessed

65,835

Appraisal value (1)

Estimated cost to sell

10.0%

Discounted cash flow

Discount rate

10.92% to 15.4% (13.26%)

Mortgage servicing rights

2,333

Discounted cash flow

Annual service cost

$84

Prepayment rates

7.0% to 24.6% (11.2%)

Expected life (months)

40.1 to 103.9 (73.2)

Option adjusted spread

750 basis points

Forward yield curve

0.09% to 1.32%

Real estate owned, net

809

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.

(10) Derivative Financial Instruments

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

Derivatives Designated as Hedging Instruments

During March 2020, the Company entered into four separate pay-fixed interest rate swaps in order to synthetically convert short-term three month FHLB advances to fixed-rate term funding with an aggregate value of $100 million with maturities ranging

Tabl e of Contents

from three to five years. Our risk management objective and strategy for these interest rate swaps at such time was to reduce our exposure to variability in interest-related cash outflows attributable to changes in the USD-LIBOR swap rate, the designated benchmark interest rate being hedged. Based upon our contemporaneous quantitative analysis at the inception of each interest rate swap, we have determined these interest rate swaps to qualify for hedge accounting in accordance with ASC 815, Derivatives and Hedging.

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

Derivatives Not Designated as Hedging Instruments

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

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

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

Tabl e of Contents

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, 2021


Derivatives not designated as hedging instruments:
Interest rate swap agreements	$	632,709	34,983	632,709	35,152
Foreign exchange swap agreements	20,027		1,399	2,824	961
Interest rate lock commitments	100,695		3,137	—	—
Forward commitments	17,135		518	—	—
Risk participation agreements	—		—	81,888	71
Total derivatives	$	770,566	40,037	717,421	36,184

At December 31, 2020


Derivatives not designated as hedging instruments:
Interest rate swap agreements	$	599,300	53,863	599,300	54,579

Interest rate lock commitments	171,357		6,465	—	—
Forward commitments	25,474		1,105	—	—
Risk participation agreements	—		—	77,532	86
Total derivatives	$	796,131	61,433	676,832	54,665

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


	For the quarter ended September 30,			For the nine months ended September 30,
	2021		2020	2021	2020
Hedging derivatives:
Decrease in interest expense	$	—	67	—	(35)

Non-hedging swap derivatives:
Increase/(decrease) in other income	590		(353)	1,087	(875)
Increase in mortgage banking income	345		315	3,915	8,563

(11) Legal Proceedings

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

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

Tabl e of Contents

(12) Changes in Accumulated Other Comprehensive Income

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


	For the quarter ended September 30, 2021
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of June 30, 2021	$	3,533	—	(49,725)	(46,192)



Other comprehensive loss before reclassification adjustments (1)	(6,455)		—	—	(6,455)
Amounts reclassified from accumulated other comprehensive income (2) (3)	(69)		—	333	264

Net other comprehensive income/(loss)	(6,524)		—	333	(6,191)

Balance as of September 30, 2021	$	(2,991)	—	(49,392)	(52,383)


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



Other comprehensive income before reclassification adjustments (4)	676		—	—	676
Amounts reclassified from accumulated other comprehensive income (5) (6) (7)	(1)		946	250	1,195

Net other comprehensive income	675		946	250	1,871

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

(1)Consists of unrealized holding losses, net of tax of ($2,076).

(2)Consists of realized losses, net of tax of ($24).

(3)Consists of realized gains, net of tax of $128.

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

(5)Consists of realized gains on securities, net of tax ($1).

(6)Consists of realized losses, net of tax of $375.

(7)Consists of realized gains, net of tax of $99.


	For the nine months ended September 30, 2021
	Unrealized gains/(losses) on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of December 31, 2020	$	16,843	—	(50,392)	(33,549)



Other comprehensive loss before reclassification adjustments (1)	(19,554)		—	—	(19,554)
Amounts reclassified from accumulated other comprehensive income (2) (3)	(280)		—	1,000	720

Net other comprehensive income/(loss)	(19,834)		—	1,000	(18,834)

Balance as of September 30, 2021	$	(2,991)	—	(49,392)	(52,383)

Tabl e of Contents


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



Other comprehensive income/(loss) before reclassification adjustments (4) (5)	13,623		(946)	—	12,677
Amounts reclassified from accumulated other comprehensive income (6) (7) (8)	1		946	748	1,695

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

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

(1)Consists of unrealized holding losses, net of tax of ($6,812).

(2)Consists of realized losses, net of tax of ($89).

(3)Consists of realized gains, net of tax of $386.

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

(5)Consists of realized holding losses, net of tax ($209).

(6)Consists of realized gains, net of tax of $0.

(7)Consists of realized losses, net of tax of $375.

(8)Consists of realized gains, net of tax of $297.

Tabl e of Contents

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

Forward-Looking Statements

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

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

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

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

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

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

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

• adverse changes in the securities and credit markets;

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

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

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

• competition among depository and other financial institutions;

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

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

• changes in consumer spending, borrowing and savings habits;

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

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

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

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

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

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

Overview of Critical Accounting Policies Involving Estimates

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

Recently Issued Accounting Standards

The following accounting standard updates issued by the FASB have not yet been adopted.

In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The

Tabl e of Contents

guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective as of March 12, 2020 through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact on our financial statements.

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

Comparison of Financial Condition

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

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

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

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

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

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

Regulatory Capital

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

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

Tabl e of Contents

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


	At September 30, 2021
					Minimum capital				Well capitalized
	Actual				requirements (1)				requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,683,307	16.850	%	$	1,048,922	10.500	%	$	998,974	10.000	%
Northwest Bank	1,526,216		15.292	%	1,047,946		10.500	%	998,044		10.000	%

Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,469,178		14.707	%	849,127		8.500	%	799,179		8.000	%
Northwest Bank	1,435,573		14.384	%	848,337		8.500	%	798,435		8.000	%

CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,344,178		13.456	%	699,281		7.000	%	649,333		6.500	%
Northwest Bank	1,435,573		14.384	%	698,630		7.000	%	648,728		6.500	%

Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,469,178		9.531	%	616,557		4.000	%	770,697		5.000	%
Northwest Bank	1,435,573		10.101	%	568,480		4.000	%	710,601		5.000	%

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


	At December 31, 2020
					Minimum capital				Well capitalized
	Actual				requirements (1)				requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,654,198	16.642	%	$	1,043,693	10.500	%	$	993,993	10.000	%
Northwest Bank	1,478,310		14.887	%	1,042,655		10.500	%	993,004		10.000	%

Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,406,321		14.148	%	844,894		8.500	%	795,195		8.000	%
Northwest Bank	1,354,028		13.636	%	844,054		8.500	%	794,403		8.000	%

CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,281,516		12.893	%	695,795		7.000	%	646,096		6.500	%
Northwest Bank	1,354,028		13.636	%	695,103		7.000	%	645,453		6.500	%

Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,406,321		10.145	%	554,501		4.000	%	693,126		5.000	%
Northwest Bank	1,354,028		9.903	%	546,905		4.000	%	683,631		5.000	%

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

Tabl e of Contents

Liquidity

We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking and Securities during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). Northwest Bank’s liquidity ratio at September 30, 2021 was 20.4%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At September 30, 2021, Northwest had $3.511 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit which had no balance at September 30, 2021, as well as $79.5 million of borrowing capacity available with the Federal Reserve Bank and $110.0 million with three correspondent banks.

Dividends

We paid $25.4 million and $24.3 million in cash dividends during the quarters ended September 30, 2021 and 2020, respectively. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 74.1% and 63.3% for the quarters ended September 30, 2021 and September 30, 2020, respectively, on dividends of $0.20 per share for the quarter ended September 30, 2021 and $0.19 per share for the quarter ended September 30, 2020. On October 25, 2021, the Board of Directors declared a cash dividend of $0.20 per share payable on November 15, 2021 to shareholders of record as of November 5, 2021. This represents the 108th consecutive quarter we have paid a cash dividend.

Nonperforming Assets

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


	September 30, 2021			December 31, 2020
	(in thousands)
Nonaccrual loans 90 days or more past due:
Residential mortgage loans	$	8,069		14,489
Home equity loans	4,745			8,441
Consumer loans	2,184			5,473
Commercial real estate loans	25,562			25,287
Commercial loans	1,104			7,325
Total nonaccrual loans 90 days or more past due	41,664			61,015
Total REO, net	$	809		2,232
Total loans 90 days or more past due and REO	42,473			63,247
Total loans 90 days or more past due to net loans receivable	0.41		%	0.58	%
Total loans 90 days or more past due and REO to total assets	0.30		%	0.46	%
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due	41,664			61,015
Nonaccrual loans - loans less than 90 days past due	135,278			41,817
Loans 90 days or more past due and still accruing	386			585
Total nonperforming loans	177,328			103,417
Total nonperforming assets	$	178,137		105,649
Nonaccrual TDR loans (1)	$	12,858		10,704
Accruing TDR loans	13,664			21,431
Total TDR loans	$	26,522		32,135

(1)Included in nonaccrual loans above.

Tabl e of Contents

Allowance for Credit Losses

We adopted CECL on January 1, 2020, as further described in Note 1(f) of the Notes to the Consolidated Financial Statements in Item 8 of Part II of our 2020 Annual Report on Form 10-K. Our Board of Directors has adopted an “Allowance for Credit Losses” policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period. This methodology was developed to provide a consistent process to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

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

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

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

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

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

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

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

Tabl e of Contents

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

We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of September 30, 2021, we considered the most recent economic conditions and forecasts available which incorporated the impact of COVID-19. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL decreased by $24.7 million, or 18.3%, to $109.8 million, or 1.08% of total loans at September 30, 2021 from $134.4 million, or 1.27% of total loans, at December 31, 2020. Total classified loans decreased $105.0 million, or 21.4%, to $384.4 million at September 30, 2021 from $489.3 million at December 31, 2020. This decrease was primarily due to the upgrade and payoff of loans in our commercial real estate portfolio during the year.

We also consider how the levels of nonaccrual loans and historical charge-offs have influenced the required amount of allowance for credit losses. Nonaccrual loans of $176.9 million, or 1.73% of total loans receivable at September 30, 2021, increased by $74.1 million, or 72.1%, from $102.8 million, or 0.97% of total loans receivable at December 31, 2020. This increase was primarily related to loans within the hospitality industry as they were judgmentally placed on nonaccrual after the end of their deferral periods. As a percentage of average loans, annualized net charge-offs decreased to 0.12% for the quarter ended September 30, 2021 compared to 0.13% for the year ended December 31, 2020.

Comparison of Operating Results for the Quarters Ended September 30, 2021 and 2020

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

Interest Income

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

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

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

Interest income on investment securities increased by $195,000, or 18.0%, for the quarter ended September 30, 2021 to $1.3 million from $1.1 million for the quarter ended September 30, 2020. This increase was due to an increase in the average balance of investment securities by $132.5 million, or 61.3%, to $348.6 million for the quarter ended September 30, 2021 from $216.1 million for the quarter ended September 30, 2020. The average balance of investment securities increased due to the utilization of excess funds

Tabl e of Contents

from deposit growth. Partially offsetting this increase was a decrease in the average yield on investment securities which decreased to 1.47% for the quarter ended September 30, 2021 from 2.00% for the quarter ended September 30, 2020 due to new investment purchases at yields lower than the existing portfolio.

Dividends on FHLB stock decreased by $147,000, or 67.4%, to $71,000 for the quarter ended September 30, 2021 from $218,000 for the quarter ended September 30, 2020. This decrease was due to both the decrease in average yield on FHLB stock and the decrease in the average balance of FHLB stock. The average yield decreased to 1.31% for the quarter ended September 30, 2021 from 3.39% for the quarter ended September 30, 2020 as the FHLB of Pittsburgh recently decreased yields on required stock holdings in reaction to lower market interest rates. The average balance of FHLB stock decreased by $4.0 million, or 15.6%, to $21.6 million for the quarter ended September 30, 2021 from $25.6 million for the quarter ended September 30, 2020. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $131,000, or 59.3%, to $352,000 for the quarter ended September 30, 2021 from $221,000 for the quarter ended September 30, 2020. The average balance of interest-earning deposits increased by $113.5 million, or 14.3%, to $905.1 million for the quarter ended September 30, 2021 from $791.6 million for the quarter ended September 30, 2020 due to excess liquidity from recent deposit inflows. Also contributing to this increase was an increase in the average yield on interest-earning deposits to 0.15% for the quarter ended September 30, 2021 from 0.11% for the quarter ended September 30, 2020.

Interest Expense

Interest expense decreased by $3.3 million, or 33.2%, to $6.6 million for the quarter ended September 30, 2021 from $9.9 million for the quarter ended September 30, 2020. This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities, which decreased to 0.27% for the quarter ended September 30, 2021 from 0.42% for the quarter ended September 30, 2020. This decrease resulted from decreases in the interest rate paid on deposits and junior subordinated debentures in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $159.1 million, or 1.7%, to $9.534 billion for the quarter ended September 30, 2021 from $9.375 billion for the quarter ended September 30, 2020. This increase in average balance resulted from internal growth in deposits. In addition, on September 9, 2020, the Company issued $125 million of fixed-to-floating subordinated debt with an initial five-year fixed interest rate of 4.00%.

Net Interest Income

Net interest income decreased by $5.1 million, or 4.9%, to $98.4 million for the quarter ended September 30, 2021 from $103.5 million for the quarter ended September 30, 2020. This decrease is attributable to the factors discussed above. Our interest rate spread decreased to 2.86% for the quarter ended September 30, 2021 from 3.10% for the quarter ended September 30, 2020 and our net interest margin decreased to 2.95% for the quarter ended September 30, 2021 from 3.23% for the quarter ended September 30, 2020 primarily due to declining interest-earning asset yields.

Provision for Credit Losses

The provision for credit losses decreased by $11.2 million, or 163.9%, to a current period credit of $4.4 million for the quarter ended September 30, 2021 compared to a provision expense of $6.8 million for the quarter ended September 30, 2020. The prior year was impacted by COVID-19 and the uncertainty surrounding the possible negative effect on the economy. As such, the provision in the prior year was driven by the estimated increase in possible future loan losses. The current period decrease in provision was driven by continued improvements in economic forecasts compared to the uncertainty that existed last year due to COVID-19.

In determining the amount of the current period provision, we considered current and forecasted economic conditions, including but not limited to improvements in unemployment levels, expected economic growth, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses." The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2021.

Noninterest Income

Noninterest income decreased by $7.5 million, or 20.4%, to $29.2 million for the quarter ended September 30, 2021 from $36.7 million for the quarter ended September 30, 2020. This decrease was primarily due to a decrease in mortgage banking income of $7.1 million, or 64.4%, to $3.9 million for the quarter ended September 30, 2021 from $11.1 million for the quarter ended

Tabl e of Contents

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

Noninterest Expense

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

Income Taxes

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

Comparison of Operating Results for the Nine Months Ended September 30, 2021 and 2020

Net income for the nine months ended September 30, 2021 was $124.3 million, or $0.97 per diluted share, an increase of $84.5 million, or 212.3%, from $39.8 million, or $0.34 per diluted share, for the nine months ended September 30, 2020. The increase in net income resulted primarily from a decrease in provision for credit losses of $96.2 million, or 111.6%, as well as an increase in noninterest income of $15.7 million, or 15.7%, and an increase in net interest income of $5.8 million, or 2.0%. Partially offsetting these factors were an increase of $4.0 million, or 1.6%, in noninterest expense and an increase in income tax expense of $29.2 million. Net income for the nine months ended September 30, 2021 represents annualized returns on average equity and average assets of 10.67% and 1.17%, respectively, compared to 3.33% and 0.42% for the nine months ended September 30, 2020. A further discussion of notable changes follows.

Interest Income

Total interest income decreased by $6.7 million, or 2.1%, to $315.6 million for the nine months ended September 30, 2021 from $322.3 million for the nine months ended September 30, 2020. This decrease is the result of a decrease in the average yield earned on interest-earning assets to 3.20% for the nine months ended September 30, 2021 from 3.78% for the nine months ended September 30, 2020. This decrease in average yield is attributed to a decline in overall market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-earning assets of $1.759 billion, or 15.4%, to $13.158 billion for the nine months ended September 30, 2021 from $11.400 billion for the nine months ended September 30, 2020 due primarily to the investment of excess cash from deposit growth.

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

Tabl e of Contents

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

Interest income on investment securities increased by $855,000, or 29.3%, to $3.8 million for the nine months ended September 30, 2021 from $2.9 million for the nine months ended September 30, 2020. This increase is primarily attributable to an increase in the average balance of investment securities of $171.2 million, or 96.7%, to $348.2 million for the nine months ended September 30, 2021 from $177.0 million for the nine months ended September 30, 2020. The average balance of investments increased due to the utilization of excess funds from deposit growth. Partially offsetting this increase was a decrease in the average yield on investment securities to 1.44% for the nine months ended September 30, 2021 from 2.20% for the nine months ended September 30, 2020.

Dividends on FHLB stock decreased by $464,000, or 58.8%, to $325,000 for the nine months ended September 30, 2021 from $789,000 for the nine months ended September 30, 2020. This decrease was due to a decrease in the average yield on FHLB stock to 1.95% for the nine months ended September 30, 2021 from 4.96% for the nine months ended September 30, 2020 as the FHLB of Pittsburgh decreased yields on required stock holdings due to lower market interest rates. Partially offsetting this decrease was an increase of $919,000, or 4.3%, in the average balance of FHLB stock to $22.2 million for the nine months ended September 30, 2021 from $21.3 million for the nine months ended September 30, 2020. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $186,000, or 34.4%, to $727,000 for the nine months ended September 30, 2021 from $541,000 for the nine months ended September 30, 2020. This increase is attributable to an increase in the average balance of interest-earning deposits which increased by $355.6 million, or 73.6%, to $839.0 million for the nine months ended September 30, 2021 from $483.4 million for the nine months ended September 30, 2020 due to excess liquidity from steady deposit inflows. Partially offsetting this increase was a decrease in the average yield on interest-earning deposits to 0.11% for the nine months ended September 30, 2021 from 0.15% for the nine months ended September 30, 2020, as a result of decreases in the targeted federal funds rate by the Federal Reserve.

Interest Expense

Interest expense decreased by $12.5 million, or 37.4%, to $21.0 million for the nine months ended September 30, 2021 from $33.5 million for the nine months ended September 30, 2020. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 0.30% for the nine months ended September 30, 2021 from 0.53% for the nine months ended September 30, 2020. This decrease resulted from decreases in the interest rate paid on deposits and junior subordinated debentures in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities which increased by $976.1 million, or 11.5%, to $9.475 billion for the nine months ended September 30, 2021 from $8.499 billion for the nine months ended September 30, 2020. This increase resulted from internal growth in deposits. In addition, on September 9, 2020, the Company issued $125 million of fixed-to-floating subordinated debt with an initial five year fixed interest rate of 4.00%.

Net Interest Income

Net interest income increased by $5.8 million, or 2.0%, to $294.6 million for the nine months ended September 30, 2021 from $288.8 million for the nine months ended September 30, 2020. This increase is attributable to the factors discussed above. Despite the overall increase in net interest income due primarily to balance sheet growth and the accretion of net PPP fees, our interest rate spread and net interest margin both decreased. Our interest rate spread decreased to 2.91% for the nine months ended September 30, 2021 from 3.25% for the nine months ended September 30, 2020 and our net interest margin decreased to 2.99% for the nine months ended September 30, 2021 from 3.38% for the nine months ended September 30, 2020. These decreases were primarily due to declining interest-earning asset yields. Contributing to the decline in asset yields was an increase in average cash balances of $355.6 million, earning just 0.11%, due to deposit growth associated with the PPP loan funds and consumer stimulus checks.

Provision for Credit Losses

The provision for credit losses decreased by $96.2 million, or 111.6%, to a current period credit of $10.0 million for the nine months ended September 30, 2021 from a provision expense of $86.2 million for the nine months ended September 30, 2020. The

Tabl e of Contents

prior year provision was impacted by COVID-19 and the uncertainty surrounding the possible negative effect on economic forecasts. As such, the outsized provision in the prior year was driven by the estimated increase in possible future loan losses due to COVID-19. The current period decrease was primarily due to continued improvements in economic forecasts compared to the uncertainty that existed in the prior year.

Annualized net charge-offs to average loans decreased to 0.19% for the nine months ended September 30, 2021 from 0.32% for the nine months ended September 30, 2020. Additionally, classified assets declined by $73.4 million, or 16.0%, to $384.4 million, or 3.8% of loans outstanding at September 30, 2021 from $457.8 million, or 4.2% of loans outstanding at September 30, 2020.

In determining the amount of the current period provision, we considered current economic conditions, including but not limited to unemployment levels, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses." The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2021.

Noninterest Income

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

Noninterest Expense

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

Income Taxes

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

Tabl e of Contents

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,
	2021					2020
	Average balance		Interest	Avg. yield/ cost (i)		Average balance		Interest	Avg. yield/ cost (i)
Assets
Interest-earning assets:
Residential mortgage loans	$	2,959,794	25,398	3.43	%	$	3,176,436	28,769	3.62	%
Home equity loans	1,356,131		11,993	3.51	%	1,479,429		13,732	3.69	%
Consumer loans	1,728,563		16,220	3.72	%	1,437,828		15,851	4.39	%

Commercial real estate loans	3,205,839		35,305	4.31	%	3,306,386		36,887	4.37	%
Commercial loans	975,603		9,096	3.65	%	1,377,223		12,603	3.58	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $537 and $600, respectively)	10,225,930		98,012	3.80	%	10,777,302		107,842	3.98	%
Mortgage-backed securities (c)	1,832,876		5,840	1.27	%	1,004,803		4,651	1.85	%
Investment securities (c) (d) (includes FTE adjustments of $189 and $254, respectively)	348,619		1,466	1.68	%	216,081		1,336	2.47	%
FHLB stock, at cost	21,607		71	1.31	%	25,595		218	3.39	%
Other interest-earning deposits	905,130		352	0.15	%	791,601		221	0.11	%
Total interest-earning assets (includes FTE adjustments of $726 and $854, respectively)	13,334,162		105,741	3.15	%	12,815,382		114,268	3.55	%
Noninterest-earning assets (e)	1,074,122					1,088,273

Total assets	$	14,408,284				$	13,903,655

Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits	$	2,271,365	603	0.11	%	$	2,015,604	648	0.13	%
Interest-bearing demand deposits	2,890,905		414	0.06	%	2,680,591		763	0.11	%
Money market deposit accounts	2,565,159		637	0.10	%	2,347,097		1,347	0.23	%
Time deposits	1,423,041		2,886	0.80	%	1,782,350		5,685	1.27	%
Borrowed funds (f)	131,199		154	0.47	%	419,375		411	0.55	%
Subordinated debentures (g)	123,513		1,277	4.10	%	1,340		306	N/M
Junior subordinated debentures	128,946		625	1.90	%	128,658		720	2.19	%
Total interest-bearing liabilities	9,534,128		6,596	0.27	%	9,375,015		9,880	0.42	%
Noninterest-bearing demand deposits (h)	3,058,819					2,703,266
Noninterest-bearing liabilities	244,402					284,440

Total liabilities	12,837,349					12,362,721

Shareholders’ equity	1,570,935					1,540,934

Total liabilities and shareholders’ equity	$	14,408,284				$	13,903,655

Net interest income/Interest rate spread			99,145	2.87	%			104,388	3.13	%

Net interest-earning assets/Net interest margin	$	3,800,034		2.97	%	$	3,440,367		3.26	%

Ratio of interest-earning assets to interest-bearing liabilities	1.40X					1.37X

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

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

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

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

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

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

(g)On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity of September 15, 2030.

(h)Average cost of deposits were 0.15% and 0.29%, respectively.

(i)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 3.79% and 3.96%, respectively; investment securities — 1.47% and 2.00%, respectively; interest-earning assets — 3.13% and 3.52%, respectively. GAAP basis net interest rate spreads were 2.86% and 3.10%, respectively; and GAAP basis net interest margins were 2.95% and 3.23%, respectively.

Tabl e of Contents

Rate/Volume Analysis

(in thousands)

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


	For the quarter ended September 30, 2021 vs. 2020
	Increase/(decrease) due to			Total increase/(decrease)
	Rate		Volume
Interest-earning assets:
Loans receivable	$	(4,841)	(4,989)	(9,830)
Mortgage-backed securities	(1,449)		2,638	1,189
Investment securities	(428)		558	130
FHLB stock, at cost	(133)		(14)	(147)
Other interest-earning deposits	87		44	131
Total interest-earning assets	(6,764)		(1,763)	(8,527)

Interest-bearing liabilities:
Savings deposits	(115)		70	(45)
Interest-bearing demand deposits	(382)		33	(349)
Money market deposit accounts	(768)		58	(710)
Time deposits	(2,085)		(714)	(2,799)
Borrowed funds	81		(338)	(257)
Subordinated debt	(292)		1,263	971
Junior subordinated debentures	(97)		2	(95)
Total interest-bearing liabilities	(3,658)		374	(3,284)

Net change in net interest income	$	(3,106)	(2,137)	(5,243)

Tabl e of Contents

Average Balance Sheet

(in thousands)


	Nine months ended September 30,
	2021					2020
	Average balance		Interest	Avg. yield/ cost (i)		Average balance		Interest	Avg. yield/ cost (i)
Assets
Interest-earning assets:
Residential mortgage loans	$	2,967,248	77,373	3.48	%	$	3,038,712	85,850	3.77	%
Home equity loans	1,389,367		37,039	3.55	%	1,424,580		42,340	3.97	%
Consumer loans	1,594,834		45,341	3.79	%	1,302,282		43,004	4.41	%

Commercial real estate loans	3,258,785		107,124	4.32	%	3,071,047		102,918	4.40	%
Commercial loans	1,099,010		29,640	3.54	%	1,084,739		32,727	3.96	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,468 and $1,613, respectively)	10,309,244		296,517	3.83	%	9,921,360		306,839	4.13	%
Mortgage-backed securities (c)	1,639,749		15,720	1.28	%	796,739		12,865	2.15	%
Investment securities (c) (d) (includes FTE adjustments of $540 and $543, respectively)	348,193		4,313	1.65	%	176,991		3,461	2.61	%
FHLB stock, at cost	22,174		325	1.95	%	21,255		789	4.96	%
Other interest-earning deposits	838,997		727	0.11	%	483,390		541	0.15	%
Total interest-earning assets (includes FTE adjustments of $2,008 and $2,156, respectively)	13,158,357		317,602	3.22	%	11,399,735		324,495	3.80	%
Noninterest-earning assets (e)	1,094,117					1,190,283

Total assets	$	14,252,474				$	12,590,018

Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits	$	2,215,553	1,818	0.11	%	$	1,837,624	2,023	0.15	%
Interest-bearing demand deposits	2,838,822		1,250	0.06	%	2,342,748		2,882	0.16	%
Money market deposit accounts	2,533,676		1,914	0.10	%	2,157,212		6,035	0.37	%
Time deposits	1,499,583		9,845	0.87	%	1,691,168		18,243	1.44	%
Borrowed funds (f)	135,369		458	0.45	%	344,007		1,415	0.55	%
Subordinated debentures (g)	123,438		3,799	4.10	%	450		306	N/M
Junior subordinated debentures	128,882		1,903	1.94	%	125,988		2,595	2.71	%
Total interest-bearing liabilities	9,475,323		20,987	0.30	%	8,499,197		33,499	0.53	%
Noninterest-bearing demand deposits (h)	2,967,672					2,250,864
Noninterest-bearing liabilities	252,587					243,705

Total liabilities	12,695,582					10,993,766

Shareholders’ equity	1,556,892					1,596,252

Total liabilities and shareholders’ equity	$	14,252,474				$	12,590,018

Net interest income/Interest rate spread			296,615	2.92	%			290,996	3.27	%

Net interest-earning assets/Net interest margin	$	3,683,034		3.01	%	$	2,900,538		3.40	%

Ratio of interest-earning assets to interest-bearing liabilities	1.39X					1.34X

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

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

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

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

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

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

(g)On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity of September 15, 2030.

(h)Average cost of deposits were 0.16% and 0.38%, respectively.

(i)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 3.82% and 4.11%, respectively; investment securities — 1.44% and 2.20%, respectively; interest-earning assets — 3.20% and 3.78%, respectively. GAAP basis net interest rate spreads were 2.91% and 3.25%, respectively; and GAAP basis net interest margins were 2.99% and 3.38%, respectively.

Tabl e of Contents

Rate/Volume Analysis

(in thousands)


	For the nine months ended September 30, 2021 vs. 2020
	Increase/(decrease) due to			Total increase/(decrease)
	Rate		Volume
Interest-earning assets:
Loans receivable	$	(22,258)	11,936	(10,322)
Mortgage-backed securities	(5,227)		8,082	2,855
Investment securities	(1,269)		2,121	852
FHLB stock, at cost	(479)		15	(464)
Other interest-earning deposits	(122)		308	186
Total interest-earning assets	(29,355)		22,462	(6,893)

Interest-bearing liabilities:
Savings deposits	(519)		314	(205)
Interest-bearing demand deposits	(1,852)		220	(1,632)
Money market deposit accounts	(4,406)		285	(4,121)
Time deposits	(7,164)		(1,234)	(8,398)
Borrowed funds	(251)		(706)	(957)
Subordinated debt	(291)		3,784	3,493
Junior subordinated debentures	(732)		40	(692)
Total interest-bearing liabilities	(15,215)		2,703	(12,512)

Net change in net interest income	$	(14,140)	19,759	5,619

Tabl e of Contents

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

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

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

The following table illustrates the simulated impact of a 100 bps, 200 bps or 300 bps upward or a 100 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at September 30, 2021 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from September 30, 2021 levels.


	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	1.1		%	1.4		%	1.4		%	(2.7		%)
Projected percentage increase/(decrease) in net income	3.4		%	4.6		%	5.0		%	(8.0		%)
Projected increase/(decrease) in return on average equity	3.3		%	4.4		%	4.9		%	(7.8		%)
Projected increase/(decrease) in earnings per share	$	0.03		$	0.04		$	0.04		$	(0.06)
Projected percentage decrease in market value of equity	(2.9		%)	(7.8		%)	(14.4		%)	(12.2		%)

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

Tabl e of Contents

Item 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective.

There were no changes in the internal controls over financial reporting during the period covered by this report or in other factors that have materially affected, or are reasonably likely to materially affect the internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

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

Tabl e of Contents

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

a) Not applicable.

b) Not applicable.

c) On December 13, 2012, the Board of Directors approved a program that authorizes the repurchase of approximately 5,000,000 shares of common stock. This program does not have an expiration date. During the quarter ended September 30, 2021, we repurchased 1,425,120 shares and there are a maximum of 2,261,130 remaining shares that can be purchased under the current repurchase program.


Month	Number of shares purchased	Average price paid per share		Total number of shares purchased as part of a publicly announced repurchase plan	Maximum number of shares yet to be purchased under the plan
July	1,065,540	$	13.35	1,065,540	2,620,710
August	—	—		—	2,620,710
September	359,580	12.69		359,580	2,261,130
	1,425,120

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Tabl e of Contents

Item 6. EXHIBITS


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

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

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


101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document.
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			XBRL Taxonomy Extension Label Linkbase.
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.
104			The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.

Tabl e of Contents

Signature

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


NORTHWEST BANCSHARES, INC.
(Registrant)


Date:	November 4, 2021	By:	/s/ Ronald J. Seiffert
			Ronald J. Seiffert
			Chairman, President and Chief Executive Officer
			(Duly Authorized Officer)


Date:	November 4, 2021	By:	/s/ Jeffrey R. White
			Jeffrey R. White
			Senior Vice President and Controller
			(Principal Accounting Officer)