NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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(1)
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Basis of Presentation and Informational Disclosures
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Northwest Bancshares, Inc. (the “Company” or “NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking. Northwest operates 178 community-banking offices throughout Pennsylvania, Western New York, and eastern Ohio.
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, and The Bert Company (doing business as Northwest Insurance Services). The unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The consolidated financial statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 updated, as required, for any new pronouncements or changes.
Certain items previously reported have been reclassified to conform to the current year's reporting format.
The results of operations for the quarter ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other period.
Stock-Based Compensation
Stock-based compensation expense of $1.5 million and $1.2 million for the quarters ended March 31, 2020 and 2019, respectively, was recognized in compensation expense relating to our stock benefit plans. At March 31, 2020, there was compensation expense of $3.3 million to be recognized for awarded but unvested stock options and $16.3 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 March 31, 2020, we had no liability for unrecognized tax benefits.
We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income. We recognize penalties (if any) in other expenses. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2019, 2018, 2017 and 2016.
Recently Adopted Accounting Standards
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which eliminated the probable initial recognition threshold for credit losses and instead requires that all financial assets (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. This guidance also applies to certain off-balance sheet credit exposures such as unfunded commitments and non-derivative financial guarantees. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. ASC 326 requires credit losses to be presented as an allowance, rather than a write-down, on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
We adopted ASC 326 using the modified retrospective transition approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required ASC 326 disclosures for periods before the date of adoption (i.e., January 1, 2020).
As a result of the adoption of ASU 2016-13, we recognized an increase to the allowance for credit losses of $10.8 million, an increase to our reserve for off-balance sheet exposures of $2.3 million, an increase in deferred tax assets of $2.9 million and a cumulative-effect adjustment to retained earnings of $9.6 million, net of taxes, on the Consolidated Statements of Financial Condition as of January 1, 2020, with no impact on our Consolidated Statement of Income or Consolidated Statement of Cash Flows. Additionally, the adoption of CECL did not impact our held-to-maturity or our available-for-sale securities portfolio, which are primarily comprised of agency-backed mortgage securities.
We also adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with ASC 326, we did not reassess whether PCI assets met the criteria for PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $517,000 of allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.
We have elected to phase the estimated impact of CECL into regulatory capital in accordance with the interim final rule of the FRB and other U.S. banking agencies that became effective on March 31, 2020. As a result, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the interim final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in allowance during the two-year deferral period.
Adoption of this standard resulted to changes in our Investment Securities, Loans Receivable and Allowance for Credit Loss and Provision for Credit Losses accounting policies as presented below. Refer to Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K regarding additional significant accounting policies, including policies in effect prior to the adoption of the CECL standard.
Investment Securities
We classify marketable securities at the time of purchase as held-to-maturity, available-for-sale, or trading. Securities for which management has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts on a level yield basis (amortized cost). If it is management’s intent at the time of purchase to hold securities for an indefinite period of time and/or to use such securities as part of its asset/ liability management strategy, the securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of tax. Securities classified as available-for-sale include securities that may be sold in response to changes in interest rates, resultant prepayment risk, or other market factors. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with changes in fair value included in earnings. The cost of securities sold is determined on a specific identification basis. We held no securities classified as trading at or during the quarter ended March 31, 2020.
On a quarterly basis, we measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type and all of our held-to-maturity debt securities are residential mortgage-backed securities. Accrued interest receivable on held-to-maturity debt securities totaled $1.3 million and $1.5 million at March 31, 2020 and December 31, 2019, respectively, and is excluded from estimated credit losses. All of our residential mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.
For available-for-sale debt securities in an unrealized loss position, on at least a quarterly basis, we review our investments for impairment. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. We consider both our intent to sell and the likelihood that we will not have to sell the investment securities before recovery of their amortized cost basis during our evaluation. If we intend to sell the investment security or if it is more likely than not that we will be required to sell the investment security, the entire impairment is recorded in earnings. For available-for-sale debt securities that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment we consider the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security, among other factors. Also, we may evaluate the business and financial outlook of the issuer, as well as broader economic performance indicators. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security is confirmed or when there is an intent or requirement to sell the security.
Accrued interest receivable on available-for-sale debt securities totaled $1.0 million and $900,000 at March 31, 2020 and December 31, 2019, respectively, and is excluded from the estimate of credit losses.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. The receivable for interest income that is accrued but not collected is reversed against interest income when the debt security is placed on nonaccrual status.
Loans Receivable
Our portfolio segments are based on the class of financing receivable. Additionally, the class of financing receivables are based on several factors including the method for monitoring and assessing credit risk and the risk characteristics of the financing receivables. Based on evaluation of the nature of our financing receivables, along with the nature and extent of exposure to credit risk arising from these receivables, our portfolio segments were determined to be Personal Banking and Business Banking loans.
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Personal Banking loans consist of the following classes of financing receivables:
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Residential mortgage loans - fixed and adjustable rate mortgage loans
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Home equity loans - first and second mortgage loans and home equity lines of credit
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Vehicle loans - direct and indirect automobile and motorcycle loans
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Consumer loans - unsecured lines of credit, credit card loans, and other consumer loans
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Business Banking loans consist of the following classes of financing receivables:
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Commercial real estate - multi-family commercial real estate loans are secured by multi-family residences, such as rental properties and loans secured by nonresidential properties such as hotels, commercial offices, medical buildings, manufacturing facilities and retail establishments, excluding owner-occupied loans, and including small business commercial real estate loans.
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Commercial real estate - owner-occupied loans - commercial real estate loans secured by residential or nonresidential properties
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Commercial loans - other commercial loans, including small business commercial loans.
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Loans are reported at amortized cost. Amortized cost is the principal balance outstanding, net of any deferred purchased premiums and discounts, deferred origination fees or costs and the allowance for credit losses. Accrued interest receivable totaled $23.2 million and $23.3 million at March 31, 2020 and December 31, 2019, respectively, and was reported in accrued interest receivable on the Consolidated Statements of Financial Position. Accrued interest receivable is excluded from the amortized cost basis of loans and from the estimate of allowance for credit losses. Interest income on loans is credited to income as earned. Interest earned on loans for which no payments were received during the month is accrued at month end.
Accrued interest on loans more than 90 days delinquent is reversed and such loans are placed on nonaccrual status. All loans are placed on nonaccrual status when principal or interest is 90 days or more delinquent or when there is reasonable doubt that interest or principal will not be collected in accordance with the contractual terms. Interest receipts on all nonaccrual loans are recognized as interest income when it has been determined that all principal and interest will be collected or are applied to principal when collectability of contractual principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and a period of performance has been established in accordance with the contractual terms, typically six months.
A loan is considered to be a troubled debt restructuring loan ("TDR") when the borrower is experiencing financial difficulties and the restructuring constitutes a concession. TDRs may include modifications of terms of loans, receipts of assets from borrowers in partial or full satisfaction of loans, or a combination thereof. A modified loan is determined to be a TDR based on the contractual terms as specified by the original loan agreement or the most recent modification. Once classified as a TDR, a loan is removed from such classification under three circumstances: (1) the loan is paid off, (2) the loan is charged off, or (3) if, at the beginning of the current fiscal year, the loan has performed in accordance with the modified terms for a minimum of six consecutive months and at the time of modification the loan’s interest rate represented a then current market interest rate for a loan of similar risk.
Loan delinquency is measured based on the number of days since the payment due date. Past due status is measured using the loan’s contractual maturity date.
Personal Banking loans are charged-off or charged down when they become 180 days delinquent, unless the borrower has filed for bankruptcy. Business Banking loans are charged-off or charged down when, in our opinion, they are no longer collectible or when it has been determined that the collateral value no longer supports the carrying value of the loan for loans that are collateral dependent.
Loan fees and certain direct loan origination costs are deferred and the net deferred fee or cost is then recognized using the level-yield method over the contractual life of the loan as an adjustment to interest income.
We identify certain residential mortgage loans which will be sold prior to maturity as loans held-for-sale. These loans are recorded at the lower of amortized cost or fair value less estimated cost to sell. At March 31, 2020 and 2019, there were $6.4 million and no residential mortgage loans classified as held-for-sale, respectively.
Acquired loans that are not considered PCD are initially measured at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.
Acquired loans may be classified as PCD loans upon acquisition if they have experienced more than insignificant credit deterioration since origination. Loans are considered to have experienced more than insignificant credit deterioration if they are greater than 30 days past due, classified special mention or worse or on non-accrual status. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loans, purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Upon adoption of ASC 326, we assessed our legacy loans that were previously accounted for under ASC 310-30 to determine whether they share similar risk characteristics and whether some or all of the assets should be assessed collectively with other loans that share similar risk characteristics. Upon adoption, an allowance for credit losses was determined for each loan and added to the loan's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the loan and the new amortized cost is the noncredit premium or discount which will be amortized into interest income over the remaining life of the loan. Changes to the allowance for credit losses after adoption are recorded through provision expense.
Allowance for Credit Losses and Provision for Credit Losses
The allowance for credit losses is deducted from, or added to, the loan’s amortized cost basis to present the net amount expected to be collected on our lending portfolios. We estimate the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Loans are charged off against the allowance when we believe the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments. The contractual term excludes expected extensions, renewals and modifications unless we had a reasonable expectation at the reporting date that a TDR will be executed for an individual borrower or the extension or renewal option is included in the contract and is not unconditionally cancellable by the Company.
Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, we first estimate the future cash flows expected to be received and then apply those expected future cash flows to the credit card balance. Expected credit losses for credit cards are determined by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting date and applying those principal payments against the balance outstanding as of the reporting period until the expected payments have been fully allocated. The allowance for credit losses is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. For the purpose of calculating portfolio-level reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate owner-occupied and commercial loans. The allowance for credit losses is measured at the loan-level wherever possible, but it is sometimes measured at the portfolio level when there is no added benefit to being measured at the loan-level. We use a twenty four month forecasting period and revert to historical average loss rates thereafter. Reversion to the mean takes place over a twelve month period. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.
Mortgage and Home Equity Loans
The allowance for credit losses within the mortgage and home equity loan classes is calculated at the loan-level using a proprietary statistical model developed by an external third-party. These classes are further divided into smaller pools of loans with similar risk characteristics such as: lines versus loans, fixed versus variable, senior lien position versus junior lien position, among other things.
For each pool, the models project default rates, prepayment rates, and severity rates. The models accept as inputs key risk drivers such as: current balance, original credit bureau score, original loan-to-value ratio, type of collateral, location of collateral, delinquency status, loan age, among other characteristics. They also utilize macroeconomic forecasts of home price indices, unemployment rates, gross domestic product, and others.
Vehicle Loans
The allowance for credit losses within the vehicle loan portfolio is calculated at the portfolio-level using a proprietary statistical model developed internally with the assistance of an external third-party. The allowance for vehicle loans utilizes a vintage analysis to project portfolio-level net charge-off rates. The class is further divided into short term versus long term loans, prime versus subprime borrowers, and origination vintage. This model uses current balance, original credit bureau score, original debt-to-income ratio, loan term, loan age, and other product characteristics as key risk drivers.
The model used for vehicle loans is not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework.
Consumer Loans
The allowance for losses within the consumer loan portfolio is calculated at the portfolio-level using a suite of proprietary statistical models developed internally with the assistance of an external third-party. This class of financing receivables is further divided into credit cards, unsecured lines of credit and other consumer loans.
The allowance for credit cards and unsecured lines of credit is calculated using two transition matrix models to project portfolio-level net charge-off rates. Both models use current balance and delinquency status as key risk drivers. These models are not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework.
For other consumer loans, a regression model is used to project portfolio-level net charge-off rates. This model uses borrower information and macroeconomic forecasts as key inputs.
Commercial Real Estate Loans
The commercial real estate loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial real estate loans and small business commercial real estate loans.
The allowance for credit losses for the commercial real estate loan portfolio is calculated at loan-level using a proprietary statistical model developed by an external third-party. This model projects default and severity rates. The model accepts as inputs key risk drivers such as: current balance, original loan-to-value-ratio, type of collateral, location of collateral, delinquency status, loan age, obligor financial statement information, and expected prepayment rates, among other characteristics. It also utilizes macroeconomic forecasts of commercial real estate price indices, unemployment rates, gross domestic product and others.
The allowance for credit losses is calculated for commercial real estate small business loans at the portfolio-level using a proprietary statistical model. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs.
Commercial Loans and Commercial Real Estate - Owner Occupied Loans
The allowance for credit losses for the commercial loan portfolio and the commercial real estate - owner occupied loan portfolio is calculated at loan-level using a proprietary statistical model developed by an external third-party. The commercial loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial loans and commercial small business loans.
The commercial loan portfolio and the commercial real estate owner occupied loan portfolio the models project default and severity rates. The model accepts as inputs key risk drivers such as the obligor financial statement information, collateral type, the
obligor’s primary industry, expected prepayment rates, among other characteristics. It also utilizes macroeconomic forecasts of unemployment rates, gross domestic product, corporate bond spreads, and others.
The allowance for credit losses for commercial small business loans is calculated at the portfolio-level using a proprietary statistical model. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When we determine that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. If this criteria is not met, a discounted cash flow method is used to determine the allowance for credit losses. All changes in the discounted cash flow method over time are reported in the allowance for credit losses.
The allowance calculation is also supplemented with qualitative reserves that takes into consideration current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.
The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except when the value of the concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan.
For off-balance sheet credit exposures, we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The liability for credit losses on off-balance sheet credit exposures is adjusted through a provision for credit loss expense and is included within "other expenses". We estimate the liability balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The estimate includes a consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Off-balance-sheet exposures that are not unconditionally cancellable have been identified for the home equity, commercial real estate, and commercial loan portfolios.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes, modifies and adds disclosure requirements for fair value measurements. On January 1, 2020, the Company adopted ASU 2018-13 on a prospective basis for the new and modified disclosures, and on a retrospective basis for disclosures that have been eliminated. The adoption of this standard did not have any effect on our results of operations or financial position. Refer to Note 9, "Disclosures About Fair Value of Financial Instruments".
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This guidance aligns the requirements for capitalization of implementation costs incurred in a hosting arrangement that is a service contract with the existing guidance for internal-use software. On January 1, 2020, the Company adopted ASU 2018-15 on a prospective basis which will be applied to relevant implementation costs incurred after the date of adoption. The adoption of this standard is not expected to have a material prospective impact on our financial statements.
(2) Marketable Securities
The following table shows the portfolio of marketable securities available-for-sale at March 31, 2020 (in thousands):
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Amortized
cost
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Gross
unrealized
holding
gains
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Gross
unrealized
holding
losses
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Fair
value
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Debt issued by government sponsored enterprises:
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Due in less than one year
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$
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50,761
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475
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—
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51,236
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Due in one year through five years
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25,227
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284
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—
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25,511
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Due in five years through ten years
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3,411
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114
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(103
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)
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3,422
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Municipal securities:
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Due in less than one year
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812
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3
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—
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815
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Due in one year through five years
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2,897
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68
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—
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2,965
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Due in five years through ten years
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8,903
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178
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—
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9,081
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Due after ten years
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31,400
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436
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—
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31,836
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Residential mortgage-backed securities:
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Fixed rate pass-through
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130,729
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4,453
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(10
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)
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135,172
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Variable rate pass-through
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18,025
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403
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(8
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)
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18,420
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Fixed rate agency CMOs
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423,625
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10,447
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(60
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)
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434,012
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Variable rate agency CMOs
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53,913
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62
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(866
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)
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53,109
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Total residential mortgage-backed securities
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626,292
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15,365
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(944
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)
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640,713
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Total marketable securities available-for-sale
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$
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749,703
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16,923
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(1,047
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)
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765,579
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The following table shows the portfolio of marketable securities available-for-sale at December 31, 2019 (in thousands):
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Amortized
cost
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Gross
unrealized
holding
gains
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Gross
unrealized
holding
losses
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Fair
value
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Debt issued by the U.S. government and agencies:
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Due in less than one year
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$
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14,951
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40
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—
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14,991
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Debt issued by government sponsored enterprises:
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Due in less than one year
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50,777
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|
|
345
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|
|
—
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|
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51,122
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Due in one year through five years
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50,229
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|
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—
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|
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(227
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)
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|
50,002
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Due after ten years
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3,716
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|
|
53
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|
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(109
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)
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3,660
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Municipal securities:
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Due in less than one year
|
809
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|
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4
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|
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—
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|
|
813
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Due in one year through five years
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2,891
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|
|
79
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|
|
—
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|
|
2,970
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Due in five years through ten years
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10,155
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|
|
148
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|
|
—
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|
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10,303
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Due after ten years
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11,695
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|
|
267
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|
|
—
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|
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11,962
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|
|
|
|
Corporate debt issues:
|
|
|
|
|
|
|
|
|
|
|
|
Due in five years through ten years
|
919
|
|
|
—
|
|
|
—
|
|
|
919
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through
|
142,421
|
|
|
1,941
|
|
|
(881
|
)
|
|
143,481
|
|
Variable rate pass-through
|
18,933
|
|
|
749
|
|
|
(4
|
)
|
|
19,678
|
|
Fixed rate agency CMOs
|
452,256
|
|
|
3,518
|
|
|
(1,606
|
)
|
|
454,168
|
|
Variable rate agency CMOs
|
55,743
|
|
|
207
|
|
|
(118
|
)
|
|
55,832
|
|
Total residential mortgage-backed securities
|
669,353
|
|
|
6,415
|
|
|
(2,609
|
)
|
|
673,159
|
|
Total marketable securities available-for-sale
|
$
|
815,495
|
|
|
7,351
|
|
|
(2,945
|
)
|
|
819,901
|
|
The following table shows the portfolio of marketable securities held-to-maturity at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
holding
gains
|
|
Gross
unrealized
holding
losses
|
|
Fair
value
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through
|
$
|
2,096
|
|
|
113
|
|
|
—
|
|
|
2,209
|
|
Variable rate pass-through
|
1,119
|
|
|
15
|
|
|
—
|
|
|
1,134
|
|
Fixed rate agency CMOs
|
13,389
|
|
|
639
|
|
|
—
|
|
|
14,028
|
|
Variable rate agency CMOs
|
604
|
|
|
1
|
|
|
(8
|
)
|
|
597
|
|
Total residential mortgage-backed securities
|
17,208
|
|
|
768
|
|
|
(8
|
)
|
|
17,968
|
|
Total marketable securities held-to-maturity
|
$
|
17,208
|
|
|
768
|
|
|
(8
|
)
|
|
17,968
|
|
The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
holding
gains
|
|
Gross
unrealized
holding
losses
|
|
Fair
value
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through
|
$
|
2,197
|
|
|
83
|
|
|
—
|
|
|
2,280
|
|
Variable rate pass-through
|
1,210
|
|
|
28
|
|
|
—
|
|
|
1,238
|
|
Fixed rate agency CMOs
|
14,016
|
|
|
68
|
|
|
—
|
|
|
14,084
|
|
Variable rate agency CMOs
|
613
|
|
|
8
|
|
|
—
|
|
|
621
|
|
Total residential mortgage-backed securities
|
18,036
|
|
|
187
|
|
|
—
|
|
|
18,223
|
|
Total marketable securities held-to-maturity
|
$
|
18,036
|
|
|
187
|
|
|
—
|
|
|
18,223
|
|
The following table shows the contractual maturity of our marketable securities held-to-maturity at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Fair
value
|
Residential mortgage-backed securities:
|
|
|
|
|
|
Due in less than one year
|
$
|
1
|
|
|
1
|
|
Due in one year through five years
|
599
|
|
|
626
|
|
Due after five years through ten years
|
929
|
|
|
981
|
|
Due after ten years
|
15,679
|
|
|
16,360
|
|
Total residential mortgage-backed securities
|
17,208
|
|
|
17,968
|
|
Total marketable securities held-to-maturity
|
$
|
17,208
|
|
|
17,968
|
|
The following table shows the fair value of and gross unrealized losses on available-for-sale marketable securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Fair value
|
|
Unrealized
loss
|
|
Fair value
|
|
Unrealized
loss
|
|
Fair value
|
|
Unrealized
loss
|
U.S. government sponsored enterprises
|
$
|
—
|
|
|
—
|
|
|
2,320
|
|
|
(103
|
)
|
|
2,320
|
|
|
(103
|
)
|
Residential mortgage-backed securities - agency
|
46,190
|
|
|
(847
|
)
|
|
9,167
|
|
|
(97
|
)
|
|
55,357
|
|
|
(944
|
)
|
Total temporarily impaired securities
|
$
|
46,190
|
|
|
(847
|
)
|
|
11,487
|
|
|
(200
|
)
|
|
57,677
|
|
|
(1,047
|
)
|
The following table shows the fair value of and gross unrealized losses on marketable securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Fair value
|
|
Unrealized
loss
|
|
Fair value
|
|
Unrealized
loss
|
|
Fair value
|
|
Unrealized
loss
|
U.S. government sponsored enterprises
|
$
|
—
|
|
|
—
|
|
|
52,620
|
|
|
(336
|
)
|
|
52,620
|
|
|
(336
|
)
|
Residential mortgage-backed securities - agency
|
173,112
|
|
|
(858
|
)
|
|
109,324
|
|
|
(1,751
|
)
|
|
282,436
|
|
|
(2,609
|
)
|
Total temporarily impaired securities
|
$
|
173,112
|
|
|
(858
|
)
|
|
161,944
|
|
|
(2,087
|
)
|
|
335,056
|
|
|
(2,945
|
)
|
The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of March 31, 2020, which comprised of 83 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies or U.S. government-sponsored agencies. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company doe 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 by U.S. government agencies or U.S. government-sponsored agencies. There securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2020.
The following table presents the credit quality of our held-to-maturity securities, based on latest information available as of March 31, 2020. The credit ratings are sourced from nationally recognized rating agencies, which include Moody's and S&P, or when credit ratings cannot be sourced from the agencies, they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of March 31, 2020.
|
|
|
|
|
|
|
|
|
AA+
|
|
Total
|
Held-to-maturity securities:
|
|
|
|
Residential mortgage-backed securities
|
$
|
17,208
|
|
|
17,208
|
|
Total marketable securities held-to-maturity
|
$
|
17,208
|
|
|
17,208
|
|
(3) Loans Receivable
The following table shows a summary of our loans receivable at amortized cost basis at March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Originated
|
|
Acquired
|
|
Total
|
|
Originated
|
|
Acquired
|
|
Total
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans (1)
|
$
|
2,758,695
|
|
|
76,038
|
|
|
2,834,733
|
|
|
2,785,189
|
|
|
82,938
|
|
|
2,868,127
|
|
Home equity loans
|
1,129,370
|
|
|
231,284
|
|
|
1,360,654
|
|
|
1,100,023
|
|
|
243,404
|
|
|
1,343,427
|
|
Vehicle loans
|
929,204
|
|
|
7,623
|
|
|
936,827
|
|
|
850,804
|
|
|
10,388
|
|
|
861,192
|
|
Consumer loans
|
243,169
|
|
|
6,743
|
|
|
249,912
|
|
|
237,834
|
|
|
25,597
|
|
|
263,431
|
|
Total Personal Banking
|
5,060,438
|
|
|
321,688
|
|
|
5,382,126
|
|
|
4,973,850
|
|
|
362,327
|
|
|
5,336,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
1,953,458
|
|
|
309,540
|
|
|
2,262,998
|
|
|
1,915,949
|
|
|
312,160
|
|
|
2,228,109
|
|
Commercial real estate loans - owner occupied
|
416,283
|
|
|
71,477
|
|
|
487,760
|
|
|
433,099
|
|
|
93,182
|
|
|
526,281
|
|
Commercial loans
|
650,349
|
|
|
53,641
|
|
|
703,990
|
|
|
664,159
|
|
|
53,948
|
|
|
718,107
|
|
Total Commercial Banking
|
3,020,090
|
|
|
434,658
|
|
|
3,454,748
|
|
|
3,013,207
|
|
|
459,290
|
|
|
3,472,497
|
|
Total loans receivable, gross
|
8,080,528
|
|
|
756,346
|
|
|
8,836,874
|
|
|
7,987,057
|
|
|
821,617
|
|
|
8,808,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
(82,431
|
)
|
|
(10,466
|
)
|
|
(92,897
|
)
|
|
(51,439
|
)
|
|
(6,502
|
)
|
|
(57,941
|
)
|
Total loans receivable, net (2)
|
$
|
7,998,097
|
|
|
745,880
|
|
|
8,743,977
|
|
|
7,935,618
|
|
|
815,115
|
|
|
8,750,733
|
|
|
|
(1)
|
Includes $6.4 million and $7.7 million of loans held-for-sale at March 31, 2020 and December 31, 2019, respectively.
|
|
|
(2)
|
Includes $44.7 million and $40.2 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at March 31, 2020 and December 31, 2019, respectively.
|
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 March 31, 2020 and includes the cumulative effect of adopting ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2020
|
|
Current
period provision
|
|
Charge-offs
|
|
Recoveries
|
|
Cumulative effect of ASU 2016-13*
|
|
Balance as of
December 31, 2019
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
10,673
|
|
|
894
|
|
|
(343
|
)
|
|
107
|
|
|
7,441
|
|
|
2,574
|
|
Home equity loans
|
9,786
|
|
|
895
|
|
|
(289
|
)
|
|
205
|
|
|
5,786
|
|
|
3,189
|
|
Vehicle loans
|
11,994
|
|
|
5,359
|
|
|
(1,843
|
)
|
|
344
|
|
|
842
|
|
|
7,292
|
|
Consumer loans
|
5,166
|
|
|
3,518
|
|
|
(1,645
|
)
|
|
416
|
|
|
(2,424
|
)
|
|
5,301
|
|
Total Personal Banking
|
37,619
|
|
|
10,666
|
|
|
(4,120
|
)
|
|
1,072
|
|
|
11,645
|
|
|
18,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
29,380
|
|
|
11,269
|
|
|
(310
|
)
|
|
290
|
|
|
2,288
|
|
|
15,843
|
|
Commercial real estate loans - owner occupied
|
8,374
|
|
|
1,365
|
|
|
(21
|
)
|
|
7
|
|
|
1,278
|
|
|
5,745
|
|
Commercial loans
|
17,524
|
|
|
4,337
|
|
|
(815
|
)
|
|
424
|
|
|
(4,419
|
)
|
|
17,997
|
|
Total Commercial Banking
|
55,278
|
|
|
16,971
|
|
|
(1,146
|
)
|
|
721
|
|
|
(853
|
)
|
|
39,585
|
|
Total
|
$
|
92,897
|
|
|
27,637
|
|
|
(5,266
|
)
|
|
1,793
|
|
|
10,792
|
|
|
57,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses -
off-balance sheet exposure
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans
|
34
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
(293
|
)
|
|
323
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(402
|
)
|
|
402
|
|
Total Personal Banking
|
34
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
(695
|
)
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
3,294
|
|
|
1,283
|
|
|
—
|
|
|
—
|
|
|
1,934
|
|
|
77
|
|
Commercial real estate loans - owner occupied
|
95
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
3
|
|
Commercial loans
|
1,281
|
|
|
189
|
|
|
—
|
|
|
—
|
|
|
923
|
|
|
169
|
|
Total Commercial Banking
|
4,670
|
|
|
1,476
|
|
|
—
|
|
|
—
|
|
|
2,945
|
|
|
249
|
|
Total off-balance sheet exposure
|
$
|
4,704
|
|
|
1,480
|
|
|
—
|
|
|
—
|
|
|
2,250
|
|
|
974
|
|
* Includes the impact of the initial allowance on PCD loans of $517,000.
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 March 31, 2019, prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
|
Current
period provision
|
|
Charge-offs
|
|
Recoveries
|
|
Balance as of
December 31, 2018
|
Originated loans
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
4,005
|
|
|
186
|
|
|
(349
|
)
|
|
114
|
|
|
4,054
|
|
Home equity loans
|
3,062
|
|
|
(35
|
)
|
|
(112
|
)
|
|
25
|
|
|
3,184
|
|
Consumer loans
|
11,535
|
|
|
2,822
|
|
|
(2,988
|
)
|
|
621
|
|
|
11,080
|
|
Total Personal Banking
|
18,602
|
|
|
2,973
|
|
|
(3,449
|
)
|
|
760
|
|
|
18,318
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
25,470
|
|
|
(464
|
)
|
|
(569
|
)
|
|
124
|
|
|
26,379
|
|
Commercial loans
|
7,639
|
|
|
874
|
|
|
(457
|
)
|
|
168
|
|
|
7,054
|
|
Total Commercial Banking
|
33,109
|
|
|
410
|
|
|
(1,026
|
)
|
|
292
|
|
|
33,433
|
|
Total originated loans
|
51,711
|
|
|
3,383
|
|
|
(4,475
|
)
|
|
1,052
|
|
|
51,751
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
92
|
|
|
8
|
|
|
(8
|
)
|
|
9
|
|
|
83
|
|
Home equity loans
|
399
|
|
|
45
|
|
|
(42
|
)
|
|
48
|
|
|
348
|
|
Consumer loans
|
454
|
|
|
34
|
|
|
(32
|
)
|
|
33
|
|
|
419
|
|
Total Personal Banking
|
945
|
|
|
87
|
|
|
(82
|
)
|
|
90
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,467
|
|
|
255
|
|
|
(35
|
)
|
|
251
|
|
|
1,996
|
|
Commercial loans
|
598
|
|
|
2,742
|
|
|
(2,813
|
)
|
|
52
|
|
|
617
|
|
Total Commercial Banking
|
3,065
|
|
|
2,997
|
|
|
(2,848
|
)
|
|
303
|
|
|
2,613
|
|
Total acquired loans
|
4,010
|
|
|
3,084
|
|
|
(2,930
|
)
|
|
393
|
|
|
3,463
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
55,721
|
|
|
6,467
|
|
|
(7,405
|
)
|
|
1,445
|
|
|
55,214
|
|
During the quarter ended March 31, 2020, we sold $50 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.
The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at March 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
|
$
|
2,834,733
|
|
|
10,673
|
|
|
11,651
|
|
|
—
|
|
|
7,183
|
|
|
865
|
|
|
—
|
|
Home equity loans
|
1,360,654
|
|
|
9,786
|
|
|
7,106
|
|
|
31
|
|
|
1,906
|
|
|
467
|
|
|
26
|
|
Vehicle loans
|
936,827
|
|
|
11,994
|
|
|
3,231
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer loans
|
249,912
|
|
|
5,166
|
|
|
936
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
5,382,126
|
|
|
37,619
|
|
|
22,924
|
|
|
31
|
|
|
9,089
|
|
|
1,332
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,262,998
|
|
|
29,380
|
|
|
26,384
|
|
|
—
|
|
|
12,460
|
|
|
1,010
|
|
|
71
|
|
Commercial real estate loans - owner occupied
|
487,760
|
|
|
8,374
|
|
|
15,887
|
|
|
—
|
|
|
6,511
|
|
|
625
|
|
|
5
|
|
Commercial loans
|
703,990
|
|
|
17,524
|
|
|
20,236
|
|
|
—
|
|
|
5,292
|
|
|
1,981
|
|
|
559
|
|
Total Commercial Banking
|
3,454,748
|
|
|
55,278
|
|
|
62,507
|
|
|
—
|
|
|
24,263
|
|
|
3,616
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
8,836,874
|
|
|
92,897
|
|
|
85,431
|
|
|
31
|
|
|
33,352
|
|
|
4,948
|
|
|
661
|
|
|
|
(1)
|
Includes $17.4 million of nonaccrual TDRs.
|
The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2019, prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
receivable
|
|
Allowance for
credit losses
|
|
Nonaccrual
loans (1)
|
|
Loans 90 days past due and accruing
|
|
TDRs
|
|
Allowance
related to
TDRs
|
|
Additional
commitments
to customers
with loans
classified as
TDRs
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
2,868,127
|
|
|
2,574
|
|
|
14,476
|
|
|
—
|
|
|
7,550
|
|
|
560
|
|
|
—
|
|
Home equity loans
|
1,342,918
|
|
|
3,189
|
|
|
6,745
|
|
|
32
|
|
|
1,973
|
|
|
393
|
|
|
26
|
|
Consumer loans
|
1,125,132
|
|
|
12,593
|
|
|
4,226
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
5,336,177
|
|
|
18,356
|
|
|
25,447
|
|
|
32
|
|
|
9,523
|
|
|
953
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,754,390
|
|
|
21,588
|
|
|
34,864
|
|
|
—
|
|
|
19,358
|
|
|
1,384
|
|
|
476
|
|
Commercial loans
|
718,107
|
|
|
17,997
|
|
|
8,559
|
|
|
—
|
|
|
3,118
|
|
|
665
|
|
|
64
|
|
Total Commercial Banking
|
3,472,497
|
|
|
39,585
|
|
|
43,423
|
|
|
—
|
|
|
22,476
|
|
|
2,049
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
8,808,674
|
|
|
57,941
|
|
|
68,870
|
|
|
32
|
|
|
31,999
|
|
|
3,002
|
|
|
566
|
|
|
|
(1)
|
Includes $9.0 million of nonaccrual TDRs.
|
Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, we present the amortized cost of our loans on nonaccrual status including such loans with no allowance. The following table presents the amortized cost of our loans on nonaccrual status as of the beginning and end of the quarter ended March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans at January 1, 2020
|
|
Nonaccrual loans at March 31, 2020 with an allowance
|
|
Nonaccrual loans with no allowance
|
|
Loans 90 days past due and accruing
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
14,476
|
|
|
11,651
|
|
|
—
|
|
|
—
|
|
Home equity loans
|
6,745
|
|
|
7,106
|
|
|
—
|
|
|
31
|
|
Vehicle loans
|
3,147
|
|
|
3,231
|
|
|
—
|
|
|
—
|
|
Consumer loans
|
1,079
|
|
|
936
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
25,447
|
|
|
22,924
|
|
|
—
|
|
|
31
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
18,832
|
|
|
22,730
|
|
|
3,654
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
16,032
|
|
|
12,136
|
|
|
3,751
|
|
|
—
|
|
Commercial loans
|
8,559
|
|
|
18,838
|
|
|
1,398
|
|
|
—
|
|
Total Commercial Banking
|
43,423
|
|
|
53,704
|
|
|
8,803
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
68,870
|
|
|
76,628
|
|
|
8,803
|
|
|
31
|
|
During the three months ended March 31, 2020, we recognized $217,000 of interest income on nonaccrual loans.
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
Equipment
|
|
Other
|
|
Total
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
6,677
|
|
|
—
|
|
|
—
|
|
|
6,677
|
|
Home equity loans
|
99
|
|
|
—
|
|
|
—
|
|
|
99
|
|
Vehicle loans
|
—
|
|
|
—
|
|
|
1,569
|
|
|
1,569
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
6,776
|
|
|
—
|
|
|
1,569
|
|
|
8,345
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
13,922
|
|
|
—
|
|
|
—
|
|
|
13,922
|
|
Commercial real estate loans - owner occupied
|
5,841
|
|
|
—
|
|
|
—
|
|
|
5,841
|
|
Commercial loans
|
3,927
|
|
|
11,717
|
|
|
—
|
|
|
15,644
|
|
Total Commercial Banking
|
23,690
|
|
|
11,717
|
|
|
—
|
|
|
35,407
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
30,466
|
|
|
11,717
|
|
|
1,569
|
|
|
43,752
|
|
The following table provides information related to the composition of originated impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2019, prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans 90 or
more days
delinquent
|
|
Nonaccrual
loans less
than 90
days
delinquent
|
|
Loans less
than 90
days
delinquent
reviewed for
impairment
|
|
TDRs less
than 90
days
delinquent
not included
elsewhere
|
|
Total
impaired
loans
|
|
Average
recorded
investment
in impaired
loans
|
|
Interest
income
recognized
on impaired
loans
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
12,682
|
|
|
1,794
|
|
|
—
|
|
|
6,817
|
|
|
21,293
|
|
|
19,767
|
|
|
688
|
|
Home equity loans
|
5,635
|
|
|
1,110
|
|
|
—
|
|
|
1,654
|
|
|
8,399
|
|
|
8,571
|
|
|
368
|
|
Consumer loans
|
3,610
|
|
|
616
|
|
|
—
|
|
|
—
|
|
|
4,226
|
|
|
3,842
|
|
|
179
|
|
Total Personal Banking
|
21,927
|
|
|
3,520
|
|
|
—
|
|
|
8,471
|
|
|
33,918
|
|
|
32,180
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
25,014
|
|
|
9,850
|
|
|
933
|
|
|
10,329
|
|
|
46,126
|
|
|
46,284
|
|
|
1,490
|
|
Commercial loans
|
4,739
|
|
|
3,820
|
|
|
15,916
|
|
|
1,474
|
|
|
25,949
|
|
|
10,179
|
|
|
345
|
|
Total Commercial Banking
|
29,753
|
|
|
13,670
|
|
|
16,849
|
|
|
11,803
|
|
|
72,075
|
|
|
56,463
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
51,680
|
|
|
17,190
|
|
|
16,849
|
|
|
20,274
|
|
|
105,993
|
|
|
88,643
|
|
|
3,070
|
|
The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at December 31, 2019 prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
Loans individually evaluated for impairment
|
|
Loans individually evaluated for impairment for which there is a related impairment reserve
|
|
Related
impairment
reserve
|
|
Loans individually evaluated for impairment for which there is no related reserve
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
2,860,026
|
|
|
8,101
|
|
|
8,101
|
|
|
560
|
|
|
—
|
|
Home equity loans
|
1,340,944
|
|
|
1,974
|
|
|
1,974
|
|
|
393
|
|
|
—
|
|
Consumer loans
|
1,125,123
|
|
|
9
|
|
|
9
|
|
|
3
|
|
|
—
|
|
Total Personal Banking
|
5,326,093
|
|
|
10,084
|
|
|
10,084
|
|
|
956
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,718,855
|
|
|
35,535
|
|
|
29,578
|
|
|
2,679
|
|
|
5,957
|
|
Commercial loans
|
694,424
|
|
|
23,683
|
|
|
18,337
|
|
|
8,127
|
|
|
5,346
|
|
Total Commercial Banking
|
3,413,279
|
|
|
59,218
|
|
|
47,915
|
|
|
10,806
|
|
|
11,303
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
8,739,372
|
|
|
69,302
|
|
|
57,999
|
|
|
11,762
|
|
|
11,303
|
|
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, a joint statement was 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.
The following table provides a roll forward of troubled debt restructurings for the periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31,
|
|
2020
|
|
2019
|
|
Number of
contracts
|
|
Amount
|
|
Number of
contracts
|
|
Amount
|
Beginning TDR balance:
|
176
|
|
|
$
|
31,999
|
|
|
195
|
|
|
$
|
33,608
|
|
New TDRs
|
2
|
|
|
2,518
|
|
|
—
|
|
|
—
|
|
Re-modified TDRs
|
2
|
|
|
2,076
|
|
|
—
|
|
|
—
|
|
Net paydowns
|
—
|
|
|
(2,841
|
)
|
|
—
|
|
|
(796
|
)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity loans
|
1
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
Vehicle loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Paid-off loans:
|
|
|
|
|
|
|
|
Residential mortgage loans
|
2
|
|
|
(330
|
)
|
|
—
|
|
|
—
|
|
Home equity loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vehicle loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate loans
|
1
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial loans
|
3
|
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
Ending TDR balance:
|
171
|
|
|
$
|
33,352
|
|
|
195
|
|
|
$
|
32,812
|
|
|
|
|
|
|
|
|
|
Accruing TDRs
|
|
|
|
$
|
15,977
|
|
|
|
|
$
|
17,861
|
|
Non-accrual TDRs
|
|
|
|
17,375
|
|
|
|
|
14,951
|
|
The following tables provide information related to TDRs (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2020
|
|
Number of contracts
|
|
Recorded
investment
at the time of
modification
|
|
Current
recorded
investment
|
|
Current
allowance
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Home equity loans
|
1
|
|
|
19
|
|
|
18
|
|
|
—
|
|
Vehicle loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
1
|
|
|
19
|
|
|
18
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
Commercial real estate loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
2
|
|
|
2,077
|
|
|
2,076
|
|
|
176
|
|
Commercial loans
|
1
|
|
|
2,500
|
|
|
2,500
|
|
|
1,628
|
|
Total Commercial Banking
|
3
|
|
|
4,577
|
|
|
4,576
|
|
|
1,804
|
|
|
|
|
|
|
|
|
|
Total
|
4
|
|
|
$
|
4,596
|
|
|
4,594
|
|
|
1,804
|
|
The following table provides information as of March 31, 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 March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of modification
|
|
|
|
Number of contracts
|
|
Rate
|
|
Payment
|
|
Maturity date
|
|
Other
|
|
Total
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity loans
|
1
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Vehicle loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Personal Banking
|
1
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
2
|
|
|
—
|
|
|
—
|
|
|
2,076
|
|
|
—
|
|
|
2,076
|
|
Commercial loans
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
2,500
|
|
Total Commercial Banking
|
3
|
|
|
—
|
|
|
—
|
|
|
2,076
|
|
|
2,500
|
|
|
4,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
4
|
|
|
$
|
—
|
|
|
—
|
|
|
2,094
|
|
|
2,500
|
|
|
4,594
|
|
During the quarter-ended March 31, 2019 there were no new TDRs. Additionally, no TDR's modified within the previous 12 months of March 31, 2019 or March 31, 2020 subsequently defaulted.
The following table provides information related to the amortized cost basis of loan payment delinquencies at March 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
(1)
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
35,322
|
|
|
522
|
|
|
10,538
|
|
|
46,382
|
|
|
2,788,351
|
|
|
2,834,733
|
|
|
—
|
|
Home equity loans
|
7,064
|
|
|
2,682
|
|
|
5,960
|
|
|
15,706
|
|
|
1,344,948
|
|
|
1,360,654
|
|
|
31
|
|
Vehicle loans
|
6,896
|
|
|
2,254
|
|
|
2,787
|
|
|
11,937
|
|
|
924,890
|
|
|
936,827
|
|
|
—
|
|
Consumer loans
|
3,251
|
|
|
809
|
|
|
960
|
|
|
5,020
|
|
|
244,892
|
|
|
249,912
|
|
|
—
|
|
Total Personal Banking
|
52,533
|
|
|
6,267
|
|
|
20,245
|
|
|
79,045
|
|
|
5,303,081
|
|
|
5,382,126
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
10,829
|
|
|
2,426
|
|
|
17,919
|
|
|
31,175
|
|
|
2,231,823
|
|
|
2,262,998
|
|
|
—
|
|
Commercial real estate loans - owner occupied
|
2,094
|
|
|
568
|
|
|
7,597
|
|
|
10,259
|
|
|
477,501
|
|
|
487,760
|
|
|
—
|
|
Commercial loans
|
7,548
|
|
|
315
|
|
|
16,860
|
|
|
24,723
|
|
|
679,267
|
|
|
703,990
|
|
|
—
|
|
Total Commercial Banking
|
20,471
|
|
|
3,309
|
|
|
42,376
|
|
|
66,157
|
|
|
3,388,591
|
|
|
3,454,748
|
|
|
—
|
|
Total loans
|
$
|
73,004
|
|
|
9,576
|
|
|
62,621
|
|
|
145,202
|
|
|
8,691,672
|
|
|
8,836,874
|
|
|
31
|
|
The following table provides information related to loan payment delinquencies at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
delinquent
|
|
60-89 days
delinquent
|
|
90 days or
greater
delinquent
|
|
Total
delinquency
|
|
Current
|
|
Total loans
receivable
|
|
90 days or
greater
delinquent
and accruing
(1)
|
Originated loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
20,447
|
|
|
5,572
|
|
|
11,080
|
|
|
37,099
|
|
|
2,748,090
|
|
|
2,785,189
|
|
|
—
|
|
Home equity loans
|
5,119
|
|
|
2,096
|
|
|
4,573
|
|
|
11,788
|
|
|
1,088,136
|
|
|
1,100,023
|
|
|
—
|
|
Consumer loans
|
8,969
|
|
|
3,198
|
|
|
3,467
|
|
|
15,634
|
|
|
1,073,103
|
|
|
1,088,638
|
|
|
—
|
|
Total Personal Banking
|
34,535
|
|
|
10,866
|
|
|
19,120
|
|
|
64,521
|
|
|
4,909,329
|
|
|
4,973,850
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
5,598
|
|
|
1,387
|
|
|
17,959
|
|
|
24,944
|
|
|
2,324,104
|
|
|
2,349,048
|
|
|
—
|
|
Commercial loans
|
987
|
|
|
6,360
|
|
|
4,296
|
|
|
11,643
|
|
|
652,516
|
|
|
664,159
|
|
|
—
|
|
Total Commercial Banking
|
6,585
|
|
|
7,747
|
|
|
22,255
|
|
|
36,587
|
|
|
2,976,620
|
|
|
3,013,207
|
|
|
—
|
|
Total originated loans
|
41,120
|
|
|
18,613
|
|
|
41,375
|
|
|
101,108
|
|
|
7,885,949
|
|
|
7,987,057
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
2,849
|
|
|
121
|
|
|
1,695
|
|
|
4,665
|
|
|
78,273
|
|
|
82,938
|
|
|
93
|
|
Home equity loans
|
1,350
|
|
|
309
|
|
|
1,115
|
|
|
2,774
|
|
|
240,630
|
|
|
243,404
|
|
|
53
|
|
Consumer loans
|
239
|
|
|
104
|
|
|
144
|
|
|
487
|
|
|
35,498
|
|
|
35,985
|
|
|
1
|
|
Total Personal Banking
|
4,438
|
|
|
534
|
|
|
2,954
|
|
|
7,926
|
|
|
354,401
|
|
|
362,327
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,323
|
|
|
303
|
|
|
7,055
|
|
|
9,681
|
|
|
395,661
|
|
|
405,342
|
|
|
—
|
|
Commercial loans
|
200
|
|
|
43
|
|
|
443
|
|
|
686
|
|
|
53,262
|
|
|
53,948
|
|
|
—
|
|
Total Commercial Banking
|
2,523
|
|
|
346
|
|
|
7,498
|
|
|
10,367
|
|
|
448,923
|
|
|
459,290
|
|
|
—
|
|
Total acquired loans
|
6,961
|
|
|
880
|
|
|
10,452
|
|
|
18,293
|
|
|
803,324
|
|
|
821,617
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
48,081
|
|
|
19,493
|
|
|
51,827
|
|
|
119,401
|
|
|
8,689,273
|
|
|
8,808,674
|
|
|
147
|
|
(1) Represents acquired loans that were originally recorded at fair value upon acquisition. These loans are considered to be accruing because we can reasonably estimate future cash flows and expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value and their expected cash flows into interest income.
Credit Quality Indicators: For Commercial Banking loans we categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass:
Special Mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics. A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations. Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring.
Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.
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 — A homogeneous loan that is less than 90 days past due from the required payment date at month-end.
Substandard — A homogeneous loan that is greater than 90 days past due from the required payment date at month-end, is a TDR or is a PCD loan. A homogenous retail loan that is greater than 180 days past due from the requirement payment date at month-end that has been written down to the value of underlying collateral, less costs to sell.
Doubtful — A homogeneous loan that is 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.
Based on the most recent analysis performed, the amortized cost basis by risk category of loans by class of loans by origination year is as follows as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD March 31, 2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Revolving Loans
|
|
Revolving loans converted to term loans
|
|
Total loans
receivable
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
123,025
|
|
|
475,573
|
|
|
288,056
|
|
|
293,228
|
|
|
229,808
|
|
|
1,405,981
|
|
|
—
|
|
|
—
|
|
|
2,815,671
|
|
Substandard
|
—
|
|
|
—
|
|
|
108
|
|
|
564
|
|
|
216
|
|
|
18,174
|
|
|
—
|
|
|
—
|
|
|
19,062
|
|
Total residential mortgage loans
|
123,025
|
|
|
475,573
|
|
|
288,163
|
|
|
293,792
|
|
|
230,024
|
|
|
1,424,155
|
|
|
—
|
|
|
—
|
|
|
2,834,733
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
62,841
|
|
|
221,783
|
|
|
111,767
|
|
|
103,107
|
|
|
97,444
|
|
|
262,224
|
|
|
456,600
|
|
|
36,305
|
|
|
1,352,071
|
|
Substandard
|
—
|
|
|
25
|
|
|
112
|
|
|
185
|
|
|
764
|
|
|
4,300
|
|
|
1,532
|
|
|
1,666
|
|
|
8,583
|
|
Total home equity loans
|
62,841
|
|
|
221,808
|
|
|
111,879
|
|
|
103,292
|
|
|
98,207
|
|
|
266,524
|
|
|
458,132
|
|
|
37,971
|
|
|
1,360,654
|
|
Vehicle loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
126,861
|
|
|
428,865
|
|
|
246,493
|
|
|
80,750
|
|
|
36,919
|
|
|
14,147
|
|
|
—
|
|
|
—
|
|
|
934,035
|
|
Substandard
|
—
|
|
|
783
|
|
|
702
|
|
|
723
|
|
|
318
|
|
|
266
|
|
|
—
|
|
|
—
|
|
|
2,792
|
|
Total vehicle loans
|
126,861
|
|
|
429,648
|
|
|
247,195
|
|
|
81,473
|
|
|
37,237
|
|
|
14,413
|
|
|
—
|
|
|
—
|
|
|
936,827
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
25,967
|
|
|
96,581
|
|
|
29,891
|
|
|
13,869
|
|
|
5,552
|
|
|
5,559
|
|
|
68,590
|
|
|
2,942
|
|
|
248,951
|
|
Substandard
|
—
|
|
|
252
|
|
|
61
|
|
|
79
|
|
|
19
|
|
|
28
|
|
|
430
|
|
|
92
|
|
|
961
|
|
Total consumer loans
|
25,967
|
|
|
96,833
|
|
|
29,952
|
|
|
13,948
|
|
|
5,571
|
|
|
5,587
|
|
|
69,020
|
|
|
3,034
|
|
|
249,912
|
|
Total Personal Banking
|
338,694
|
|
|
1,223,862
|
|
|
677,189
|
|
|
492,505
|
|
|
371,039
|
|
|
1,710,679
|
|
|
527,152
|
|
|
41,005
|
|
|
5,382,126
|
|
Business Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
72,226
|
|
|
303,571
|
|
|
260,769
|
|
|
276,681
|
|
|
197,330
|
|
|
767,889
|
|
|
228,723
|
|
|
5,952
|
|
|
2,113,142
|
|
Special Mention
|
105
|
|
|
2,063
|
|
|
7,209
|
|
|
35,698
|
|
|
6,297
|
|
|
8,888
|
|
|
4,989
|
|
|
801
|
|
|
66,051
|
|
Substandard
|
349
|
|
|
336
|
|
|
3,696
|
|
|
11,695
|
|
|
6,629
|
|
|
52,992
|
|
|
4,091
|
|
|
4,017
|
|
|
83,805
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate loans
|
72,680
|
|
|
305,971
|
|
|
271,674
|
|
|
324,074
|
|
|
210,256
|
|
|
829,769
|
|
|
237,803
|
|
|
10,770
|
|
|
2,262,998
|
|
Commercial real estate loans - owner occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
2,615
|
|
|
65,489
|
|
|
93,389
|
|
|
79,888
|
|
|
45,873
|
|
|
121,067
|
|
|
11,180
|
|
|
3,440
|
|
|
422,940
|
|
Special Mention
|
—
|
|
|
1,337
|
|
|
1,230
|
|
|
2,682
|
|
|
1,417
|
|
|
3,535
|
|
|
26
|
|
|
30
|
|
|
10,258
|
|
Substandard
|
—
|
|
|
2,709
|
|
|
3,914
|
|
|
12,117
|
|
|
7,711
|
|
|
23,734
|
|
|
1,094
|
|
|
3,284
|
|
|
54,562
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate loans - owner occupied
|
2,615
|
|
|
69,535
|
|
|
98,533
|
|
|
94,686
|
|
|
55,001
|
|
|
148,336
|
|
|
12,300
|
|
|
6,754
|
|
|
487,760
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
18,210
|
|
|
93,726
|
|
|
61,621
|
|
|
59,597
|
|
|
53,671
|
|
|
39,638
|
|
|
273,335
|
|
|
9,735
|
|
|
609,533
|
|
Special Mention
|
—
|
|
|
5,811
|
|
|
1,922
|
|
|
551
|
|
|
6,981
|
|
|
717
|
|
|
26,634
|
|
|
418
|
|
|
43,034
|
|
Substandard
|
373
|
|
|
1,174
|
|
|
7,216
|
|
|
1,573
|
|
|
795
|
|
|
2,734
|
|
|
27,552
|
|
|
10,006
|
|
|
51,423
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
18,583
|
|
|
100,711
|
|
|
70,759
|
|
|
61,721
|
|
|
61,446
|
|
|
43,089
|
|
|
327,521
|
|
|
20,159
|
|
|
703,990
|
|
Total Business Banking
|
93,878
|
|
|
476,217
|
|
|
440,965
|
|
|
480,482
|
|
|
326,703
|
|
|
1,021,194
|
|
|
577,624
|
|
|
37,683
|
|
|
3,454,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
$
|
432,572
|
|
|
1,700,079
|
|
|
1,118,154
|
|
|
972,987
|
|
|
697,742
|
|
|
2,731,873
|
|
|
1,104,776
|
|
|
78,688
|
|
|
8,836,874
|
|
For the three months ended March 31, 2020, $4.7 million of revolving loans were converted to term loans.
The following table sets forth information about credit quality indicators as of December 31, 2019, prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special
mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total loans
receivable
|
Originated loans
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
2,776,971
|
|
|
—
|
|
|
8,218
|
|
|
—
|
|
|
—
|
|
|
2,785,189
|
|
Home equity loans
|
1,093,874
|
|
|
—
|
|
|
5,640
|
|
|
—
|
|
|
—
|
|
|
1,099,514
|
|
Consumer loans
|
1,084,986
|
|
|
—
|
|
|
4,161
|
|
|
—
|
|
|
—
|
|
|
1,089,147
|
|
Total Personal Banking
|
4,955,831
|
|
|
—
|
|
|
18,019
|
|
|
—
|
|
|
—
|
|
|
4,973,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
2,188,823
|
|
|
70,327
|
|
|
89,898
|
|
|
—
|
|
|
—
|
|
|
2,349,048
|
|
Commercial loans
|
571,011
|
|
|
42,352
|
|
|
50,796
|
|
|
—
|
|
|
—
|
|
|
664,159
|
|
Total Commercial Banking
|
2,759,834
|
|
|
112,679
|
|
|
140,694
|
|
|
—
|
|
|
—
|
|
|
3,013,207
|
|
Total originated loans
|
7,715,665
|
|
|
112,679
|
|
|
158,713
|
|
|
—
|
|
|
—
|
|
|
7,987,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
81,611
|
|
|
—
|
|
|
1,327
|
|
|
—
|
|
|
—
|
|
|
82,938
|
|
Home equity loans
|
242,237
|
|
|
—
|
|
|
1,167
|
|
|
—
|
|
|
—
|
|
|
243,404
|
|
Consumer loans
|
35,746
|
|
|
—
|
|
|
239
|
|
|
—
|
|
|
—
|
|
|
35,985
|
|
Total Personal Banking
|
359,594
|
|
|
—
|
|
|
2,733
|
|
|
—
|
|
|
—
|
|
|
362,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
349,993
|
|
|
10,243
|
|
|
45,106
|
|
|
—
|
|
|
—
|
|
|
405,342
|
|
Commercial loans
|
45,972
|
|
|
28
|
|
|
7,948
|
|
|
—
|
|
|
—
|
|
|
53,948
|
|
Total Commercial Banking
|
395,965
|
|
|
10,271
|
|
|
53,054
|
|
|
—
|
|
|
—
|
|
|
459,290
|
|
Total acquired loans
|
755,559
|
|
|
10,271
|
|
|
55,787
|
|
|
—
|
|
|
—
|
|
|
821,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
$
|
8,471,224
|
|
|
122,950
|
|
|
214,500
|
|
|
—
|
|
|
—
|
|
|
8,808,674
|
|
Prior to the adoption of ASU 2016-13, acquired loans were initially measured at fair value and subsequently accounted for under either ASC Topic 310-30 or ASC Topic 310-20. The following table provides information related to the outstanding principal balance and related carrying value of acquired loans for the dates indicated (in thousands):
|
|
|
|
|
|
|
|
December 31, 2019
|
Acquired loans evaluated individually for future credit losses:
|
|
|
Outstanding principal balance
|
|
$
|
7,187
|
|
Carrying value
|
|
4,975
|
|
|
|
|
Acquired loans evaluated collectively for future credit losses:
|
|
|
Outstanding principal balance
|
|
826,412
|
|
Carrying value
|
|
816,642
|
|
|
|
|
Total acquired loans:
|
|
|
Outstanding principal balance
|
|
833,599
|
|
Carrying value
|
|
821,617
|
|
The following table provides information related to the changes in the accretable discount, which includes income recognized from contractual cash flows for the dates indicated prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
Total
|
Balance at December 31, 2018
|
$
|
755
|
|
Accretion
|
(551
|
)
|
Net reclassification from nonaccretable yield
|
966
|
|
Balance at December 31, 2019
|
$
|
1,170
|
|
The following table provides information related to acquired impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2019 prior to the adoption of ASU 2016-13 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
value
|
|
Outstanding
principal
balance
|
|
Related
impairment
reserve
|
|
Average
recorded
investment
in impaired
loans
|
|
Interest
income
recognized
|
Personal Banking:
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans
|
$
|
742
|
|
|
1,232
|
|
|
7
|
|
|
866
|
|
|
147
|
|
Home equity loans
|
715
|
|
|
1,569
|
|
|
25
|
|
|
861
|
|
|
114
|
|
Consumer loans
|
7
|
|
|
34
|
|
|
1
|
|
|
18
|
|
|
12
|
|
Total Personal Banking
|
1,464
|
|
|
2,835
|
|
|
33
|
|
|
1,745
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
3,433
|
|
|
4,268
|
|
|
6
|
|
|
3,509
|
|
|
273
|
|
Commercial loans
|
78
|
|
|
84
|
|
|
1
|
|
|
78
|
|
|
5
|
|
Total Commercial Banking
|
3,511
|
|
|
4,352
|
|
|
7
|
|
|
3,587
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
$
|
4,975
|
|
|
7,187
|
|
|
40
|
|
|
5,332
|
|
|
551
|
|
|
|
(4)
|
Goodwill and Other Intangible Assets
|
The following table provides information for intangible assets subject to amortization at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Amortizable intangible assets:
|
|
|
|
|
|
Core deposit intangibles - gross
|
$
|
71,183
|
|
|
71,183
|
|
Less: accumulated amortization
|
(52,357
|
)
|
|
(50,934
|
)
|
Core deposit intangibles - net
|
18,826
|
|
|
20,249
|
|
Customer and Contract intangible assets - gross
|
12,775
|
|
|
12,775
|
|
Less: accumulated amortization
|
(10,176
|
)
|
|
(9,948
|
)
|
Customer and Contract intangible assets - net
|
2,599
|
|
|
2,827
|
|
Total intangible assets - net
|
$
|
21,425
|
|
|
23,076
|
|
The following table shows the actual aggregate amortization expense for the quarters ended March 31, 2020 and 2019, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):
|
|
|
|
|
For the quarter ended March 31, 2020
|
$
|
1,651
|
|
For the quarter ended March 31, 2019
|
1,447
|
|
For the year ending December 31, 2020
|
6,237
|
|
For the year ending December 31, 2021
|
5,058
|
|
For the year ending December 31, 2022
|
3,976
|
|
For the year ending December 31, 2023
|
3,016
|
|
For the year ending December 31, 2024
|
2,249
|
|
For the year ending December 31, 2025
|
1,510
|
|
The following table provides information for the changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
|
Total
|
Balance at December 31, 2018
|
$
|
307,420
|
|
Goodwill acquired
|
38,683
|
|
Balance at December 31, 2019
|
346,103
|
|
Goodwill acquired
|
—
|
|
Balance at March 31, 2020
|
$
|
346,103
|
|
We performed our annual goodwill impairment test as of June 30, 2019 in accordance with ASC 350, as updated by ASU 2017-04, ("Step 0") and concluded that goodwill was not impaired. Quarterly, the Company evaluates whether there are any triggering events that would require an update to our previous goodwill assessment. During the current quarter, the Company determined the COVID-19 pandemic and its negative effect on the global economy to be a triggering event. As a result, the Company, with the assistance of a third-party specialist, performed a “Step 1” quantitative impairment analysis in accordance with ASU 2017-04 as of March 31, 2020. This analysis indicated the aggregate fair value of Northwest Bank, the sole reporting unit of Northwest Bancshares, Inc., exceeded the carrying value and therefore goodwill was not impaired.
(5) Borrowed Funds
(a) Borrowings
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Amount
|
|
Average rate
|
Term notes payable to the FHLB of Pittsburgh:
|
|
|
|
|
|
Due within one year
|
$
|
100,000
|
|
|
0.74
|
%
|
Total term notes payable to FHLB of Pittsburgh
|
100,000
|
|
|
|
|
Collateralized borrowings, due within one year
|
91,599
|
|
|
0.30
|
%
|
Total borrowed funds
|
$
|
191,599
|
|
|
|
|
Borrowings from the Federal Home Loan Bank of Pittsburgh ("FHLB") are secured by our residential first mortgage and other qualifying loans. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment.
The revolving line of credit with the FHLB carries a commitment of $250.0 million. The rate is adjusted daily by the FHLB, and any borrowings on this line may be repaid at any time without penalty. The revolving line of credit has no balance as of March 31, 2020 and $153.6 million at December 31, 2019.
At March 31, 2020 and December 31, 2019, collateralized borrowings due within one year were $91.6 million and $92.7 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB.
Term notes payable to the FHLB of Pittsburgh at March 31, 2020 totaled $100.0 million. This total is made up of four fixed rate advances: $30.0 million at 0.91% maturing June 16, 2020; $25.0 million at 0.70% maturing June 22, 2020; $25.0 million at 0.70% maturing June 22, 2020; and $20.0 million at 0.59% maturing June 26, 2020.
(b) Trust Preferred Securities
The Company has five statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust, LNB Trust II, a Delaware statutory business trust, Union National Capital Trust I ("UNCT I"), a Delaware statutory business trust, and Union National Capital Trust II ("UNCT II"); a Delaware statutory business trust (the Trusts). 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. Northwest Bancorp Capital Trust III issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 5, 2005 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 30, 2035 and a floating rate of interest, which is reset quarterly, equal to three-month LIBOR plus 1.38%. Northwest Bancorp Statutory Trust IV issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 15, 2005 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 15, 2035 and a floating rate of interest, which is reset quarterly, equal to three-month LIBOR plus 1.38%. LNB Trust II has 7,875 cumulative trust preferred securities outstanding (liquidation value of $1,000 per preferred security or $7,875,000) with a stated maturity of June 15, 2037 and a floating rate of interest, which resets quarterly, equal to three-month LIBOR plus 1.48%. UNCT I has 8,000 cumulative trust preferred securities outstanding (liquidation value of $1,000 per preferred security or $8,000,000) with a stated maturity of January 23, 2034 and a floating interest rate, which resets quarterly, equal to three-month LIBOR plus 2.85%. UNCT II has 3,000 cumulative trust preferred securities outstanding (liquidation value of $1,000 per preferred security or $3,000,000) with a stated maturity of November 23, 2034 and a floating interest rate, which resets quarterly, equal to three-month LIBOR plus 2.00%. 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 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. Northwest Bancorp Capital Trust III holds $51,547,000 of the Company’s junior subordinated debentures due December 30, 2035 with a floating rate of interest, reset quarterly, of three-month LIBOR plus 1.38%. The rate in effect at March 31, 2020 was 2.75%. Northwest Bancorp Statutory Trust IV holds $51,547,000 of the Company’s junior subordinated debentures due December 15, 2035 with a floating rate of interest, reset quarterly, of three-month LIBOR plus 1.38%. The rate in effect at March 31, 2020 was 2.12%. LNB Trust II holds $8,119,000 of the Company's junior subordinated debentures due June 15, 2037, with a floating rate of interest, reset quarterly, of three-month LIBOR plus 1.48%. The rate in effect at March 31, 2020 was 2.22%. UNCT I holds $8,248,000 of junior subordinated debentures due January 23, 2034 with a floating rate of interest, reset quarterly, of three-month LIBOR plus 2.85%. The rate effect at March 31, 2020 was 4.62%. UNCT II holds $3,093,000 of junior subordinated debentures due November 23, 2034 with a floating rate of interest, reset quarterly, of three-month LIBOR plus 2.00%. The rate effect at March 31, 2020 was 3.68%. These subordinated debentures are the sole assets of the Trusts.
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 trust to become subject to federal income tax or to certain other taxes or governmental charges;
|
|
|
•
|
the trust to register as an investment company; or
|
|
|
•
|
the preferred securities do not qualify as Tier I capital.
|
We may, at any time, dissolve any of the Trusts and distribute the debentures to the trust security holders, subject to receipt of any required regulatory approval.
We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At March 31, 2020, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was $37.9 million, of which $33.7 million is fully collateralized. At March 31, 2020, we had a liability which represents deferred income of $449,000 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. During the quarter ended March 31, 2020, 2,033,345 stock options were not included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $14.62. All stock options outstanding during the quarter ended March 31, 2019 were included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $17.74.
The following table sets forth the computation of basic and diluted EPS (in thousands, except share data and per share amounts):
|
|
|
|
|
|
|
|
|
Quarter ended March 31,
|
|
2020
|
|
2019
|
Net income available to common shareholders
|
$
|
7,939
|
|
|
25,044
|
|
|
|
|
|
Weighted average common shares outstanding
|
105,882,553
|
|
|
103,101,789
|
|
Dilutive potential shares due to effect of stock options
|
265,694
|
|
|
1,394,803
|
|
Total weighted average common shares and dilutive potential shares
|
$
|
106,148,247
|
|
|
104,496,592
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.08
|
|
|
0.24
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.07
|
|
|
0.24
|
|
(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 March 31,
|
|
Pension benefits
|
|
Other post-retirement benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
2,098
|
|
|
1,274
|
|
|
—
|
|
|
—
|
|
Interest cost
|
1,714
|
|
|
1,827
|
|
|
7
|
|
|
11
|
|
Expected return on plan assets
|
(3,091
|
)
|
|
(2,759
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
(581
|
)
|
|
(581
|
)
|
|
—
|
|
|
—
|
|
Amortization of the net loss
|
924
|
|
|
855
|
|
|
5
|
|
|
17
|
|
Net periodic cost
|
$
|
1,064
|
|
|
616
|
|
|
12
|
|
|
28
|
|
We anticipate making a contribution to our defined benefit pension plan of $2.0 million to $4.0 million during the year ending December 31, 2020.
|
|
(9)
|
Disclosures About Fair Value of Financial Instruments
|
We are required to disclose fair value information about financial instruments whether or not recognized in the consolidated statement of financial condition. Fair value information of certain financial instruments and all nonfinancial instruments is not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for using a three-level hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. This hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used.
Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:
|
|
•
|
Level 1 - Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.
|
|
|
•
|
Level 2 - Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing.
|
|
|
•
|
Level 3 - Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:
|
|
|
◦
|
Quotes from brokers or other external sources that are not considered binding;
|
|
|
◦
|
Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price;
|
|
|
◦
|
Quotes and other information from brokers or other external sources where the inputs are not deemed observable.
|
We are responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. We perform due diligence to understand the inputs used or how the data was calculated or derived. We also corroborate the reasonableness of external inputs in the valuation process.
The carrying amounts reported in the Consolidated Statement of Financial Condition approximate fair value for the following financial instruments: cash and cash equivalents, marketable securities available-for-sale, accrued interest receivable, interest rate lock commitments, forward commitments, interest rate swaps, savings and checking deposits and accrued interest payable.
Marketable Securities
Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.
Debt Securities — available-for-sale - Generally, debt securities are valued using pricing for similar securities, recently executed
transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and U.S. government obligations. 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 the 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 deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity.
Borrowed Funds
Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost. The carrying amount of collateralized borrowings approximates the fair value.
Junior Subordinated Debentures
The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest.
Interest Rate Lock Commitments and Forward Commitments
The fair value of interest rate lock commitments is based on the value of underlying loans held-for-sale which is based on quoted prices for similar loans in the secondary market. This value is then adjusted based on the probability of the loan closing (i.e., the “pull-through” amount, a significant unobservable input). The fair value of forward sale commitments is based on quoted prices from the secondary market based on the settlement date of the contracts.
Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements
The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using LIBOR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable. The fair value of the foreign exchange swap is derived from proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions we believe to be reasonable.
Off-Balance Sheet Financial Instruments
These financial instruments generally are not sold or traded and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At March 31, 2020 and December 31, 2019, there was no significant unrealized appreciation or depreciation on these financial instruments.
The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount
|
|
Estimated
fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
276,454
|
|
|
276,454
|
|
|
276,454
|
|
|
—
|
|
|
—
|
|
Securities available-for-sale
|
765,579
|
|
|
765,579
|
|
|
—
|
|
|
765,579
|
|
|
—
|
|
Securities held-to-maturity
|
17,208
|
|
|
17,968
|
|
|
—
|
|
|
17,968
|
|
|
—
|
|
Loans receivable, net
|
8,737,551
|
|
|
8,751,479
|
|
|
—
|
|
|
—
|
|
|
8,751,479
|
|
Residential mortgage loans held-for-sale
|
6,426
|
|
|
6,426
|
|
|
—
|
|
|
—
|
|
|
6,426
|
|
Accrued interest receivable
|
25,531
|
|
|
25,531
|
|
|
25,531
|
|
|
—
|
|
|
—
|
|
Interest rate lock commitments
|
507
|
|
|
507
|
|
|
—
|
|
|
—
|
|
|
507
|
|
Forward commitments
|
197
|
|
|
197
|
|
|
—
|
|
|
197
|
|
|
—
|
|
Interest rate swaps
|
54,656
|
|
|
54,656
|
|
|
—
|
|
|
54,656
|
|
|
—
|
|
FHLB stock
|
13,131
|
|
|
13,131
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total financial assets
|
$
|
9,897,240
|
|
|
9,911,928
|
|
|
301,985
|
|
|
838,400
|
|
|
8,758,412
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and checking deposits
|
$
|
7,298,979
|
|
|
7,298,979
|
|
|
7,298,979
|
|
|
—
|
|
|
—
|
|
Time deposits
|
1,493,756
|
|
|
1,514,631
|
|
|
—
|
|
|
—
|
|
|
1,514,631
|
|
Borrowed funds
|
191,599
|
|
|
194,224
|
|
|
194,224
|
|
|
—
|
|
|
—
|
|
Junior subordinated debentures
|
121,813
|
|
|
117,557
|
|
|
—
|
|
|
—
|
|
|
117,557
|
|
Interest rate swaps
|
55,376
|
|
|
55,376
|
|
|
—
|
|
|
55,376
|
|
|
—
|
|
Risk participation agreements
|
120
|
|
|
120
|
|
|
—
|
|
|
120
|
|
|
—
|
|
Accrued interest payable
|
834
|
|
|
834
|
|
|
834
|
|
|
—
|
|
|
—
|
|
Total financial liabilities
|
$
|
9,162,477
|
|
|
9,181,721
|
|
|
7,494,037
|
|
|
55,496
|
|
|
1,632,188
|
|
The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount
|
|
Estimated
fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
60,846
|
|
|
60,846
|
|
|
60,846
|
|
|
—
|
|
|
—
|
|
Securities available-for-sale
|
819,901
|
|
|
819,901
|
|
|
—
|
|
|
819,901
|
|
|
—
|
|
Securities held-to-maturity
|
18,036
|
|
|
18,223
|
|
|
—
|
|
|
18,223
|
|
|
—
|
|
Loans receivable, net
|
8,743,024
|
|
|
8,666,149
|
|
|
—
|
|
|
—
|
|
|
8,666,149
|
|
Residential mortgage loans held-for-sale
|
7,709
|
|
|
7,709
|
|
|
—
|
|
|
—
|
|
|
7,709
|
|
Accrued interest receivable
|
25,755
|
|
|
25,755
|
|
|
25,755
|
|
|
—
|
|
|
—
|
|
Interest rate lock commitments
|
559
|
|
|
559
|
|
|
—
|
|
|
—
|
|
|
559
|
|
Forward commitments
|
145
|
|
|
145
|
|
|
—
|
|
|
145
|
|
|
—
|
|
Interest rate swaps
|
20,889
|
|
|
20,889
|
|
|
—
|
|
|
20,889
|
|
|
—
|
|
FHLB stock
|
14,740
|
|
|
14,740
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total financial assets
|
$
|
9,711,604
|
|
|
9,634,916
|
|
|
86,601
|
|
|
859,158
|
|
|
8,674,417
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and checking accounts
|
$
|
7,022,597
|
|
|
7,022,597
|
|
|
7,022,597
|
|
|
—
|
|
|
—
|
|
Time deposits
|
1,569,410
|
|
|
1,574,063
|
|
|
—
|
|
|
—
|
|
|
1,574,063
|
|
Borrowed funds
|
246,336
|
|
|
246,341
|
|
|
246,341
|
|
|
—
|
|
|
—
|
|
Junior subordinated debentures
|
121,800
|
|
|
115,518
|
|
|
—
|
|
|
—
|
|
|
115,518
|
|
Interest rate swaps
|
20,952
|
|
|
20,952
|
|
|
—
|
|
|
20,952
|
|
|
—
|
|
Risk participation agreements
|
39
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
—
|
|
Accrued interest payable
|
1,142
|
|
|
1,142
|
|
|
1,142
|
|
|
—
|
|
|
—
|
|
Total financial liabilities
|
$
|
8,982,276
|
|
|
8,980,652
|
|
|
7,270,080
|
|
|
20,991
|
|
|
1,689,581
|
|
Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both March 31, 2020 and December 31, 2019.
The following table represents assets and liabilities measured at fair value on a recurring basis at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total assets at
fair value
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored enterprises
|
$
|
—
|
|
|
80,169
|
|
|
—
|
|
|
80,169
|
|
States and political subdivisions
|
—
|
|
|
44,697
|
|
|
—
|
|
|
44,697
|
|
Total debt securities
|
—
|
|
|
124,866
|
|
|
—
|
|
|
124,866
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
—
|
|
|
23,167
|
|
|
—
|
|
|
23,167
|
|
FNMA
|
—
|
|
|
81,823
|
|
|
—
|
|
|
81,823
|
|
FHLMC
|
—
|
|
|
48,113
|
|
|
—
|
|
|
48,113
|
|
Non-agency
|
—
|
|
|
489
|
|
|
—
|
|
|
489
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
—
|
|
|
202,997
|
|
|
—
|
|
|
202,997
|
|
FNMA
|
—
|
|
|
175,080
|
|
|
—
|
|
|
175,080
|
|
FHLMC
|
—
|
|
|
109,044
|
|
|
—
|
|
|
109,044
|
|
Total mortgage-backed securities
|
—
|
|
|
640,713
|
|
|
—
|
|
|
640,713
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
—
|
|
|
—
|
|
|
507
|
|
|
507
|
|
Forward commitments
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
Interest rate swaps
|
—
|
|
|
54,656
|
|
|
—
|
|
|
54,656
|
|
Total assets
|
$
|
—
|
|
|
820,432
|
|
|
507
|
|
|
820,939
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
55,376
|
|
|
—
|
|
|
55,376
|
|
Risk participation agreements
|
—
|
|
|
120
|
|
|
—
|
|
|
120
|
|
Total liabilities
|
$
|
—
|
|
|
55,496
|
|
|
—
|
|
|
55,496
|
|
The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total assets at
fair value
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
14,991
|
|
|
—
|
|
|
14,991
|
|
Government sponsored enterprises
|
—
|
|
|
104,784
|
|
|
—
|
|
|
104,784
|
|
States and political subdivisions
|
—
|
|
|
26,048
|
|
|
—
|
|
|
26,048
|
|
Corporate
|
—
|
|
|
919
|
|
|
—
|
|
|
919
|
|
Total debt securities
|
—
|
|
|
146,742
|
|
|
—
|
|
|
146,742
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
—
|
|
|
23,264
|
|
|
—
|
|
|
23,264
|
|
FNMA
|
—
|
|
|
89,259
|
|
|
—
|
|
|
89,259
|
|
FHLMC
|
—
|
|
|
50,139
|
|
|
—
|
|
|
50,139
|
|
Non-agency
|
—
|
|
|
497
|
|
|
—
|
|
|
497
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
|
—
|
|
|
207,016
|
|
|
—
|
|
|
207,016
|
|
FNMA
|
—
|
|
|
184,682
|
|
|
—
|
|
|
184,682
|
|
FHLMC
|
—
|
|
|
118,302
|
|
|
—
|
|
|
118,302
|
|
Total mortgage-backed securities
|
—
|
|
|
673,159
|
|
|
—
|
|
|
673,159
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
—
|
|
|
—
|
|
|
559
|
|
|
559
|
|
Forward commitments
|
—
|
|
|
145
|
|
|
—
|
|
|
145
|
|
Interest rate swaps
|
—
|
|
|
20,889
|
|
|
—
|
|
|
20,889
|
|
Total assets
|
$
|
—
|
|
|
840,935
|
|
|
559
|
|
|
841,494
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
20,952
|
|
|
—
|
|
|
20,952
|
|
Risk participation agreements
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
Total liabilities
|
$
|
—
|
|
|
20,991
|
|
|
—
|
|
|
20,991
|
|
The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
For the quarter ended March 31,
|
|
2020
|
|
2019
|
Beginning balance January 1,
|
$
|
559
|
|
|
—
|
|
|
|
|
|
Total gains or losses:
|
|
|
|
Included in net income
|
—
|
|
|
—
|
|
Included in other comprehensive income
|
—
|
|
|
—
|
|
|
|
|
|
Purchases
|
—
|
|
|
—
|
|
Sales
|
52
|
|
|
—
|
|
Transfers from Level 3
|
—
|
|
|
—
|
|
Transfers into Level 3
|
—
|
|
|
—
|
|
|
|
|
|
Ending balance March 31,
|
$
|
507
|
|
|
—
|
|
Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans individually assessed, mortgage servicing rights and real estate owned.
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 March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total assets at
fair value
|
Loans individually assessed
|
$
|
—
|
|
|
—
|
|
|
47,240
|
|
|
47,240
|
|
Real estate owned, net
|
—
|
|
|
—
|
|
|
1,075
|
|
|
1,075
|
|
Total assets
|
$
|
—
|
|
|
—
|
|
|
48,315
|
|
|
48,315
|
|
The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total assets at
fair value
|
Loans individually assessed
|
$
|
—
|
|
|
—
|
|
|
46,238
|
|
|
46,238
|
|
Real estate owned, net
|
—
|
|
|
—
|
|
|
950
|
|
|
950
|
|
Total assets
|
$
|
—
|
|
|
—
|
|
|
47,188
|
|
|
47,188
|
|
Individually Assessed Loans - A loan is considered to be individually assessed as described in Note 1 as part of the adoption of ASU 2016-13 . We classify loans individually assessed as nonrecurring Level 3.
Real Estate Owned - Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify real estate owned as nonrecurring Level 3.
The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
Valuation
techniques
|
|
Significant
unobservable inputs
|
|
Range
(weighted average)
|
Loans individually assessed
|
$
|
47,240
|
|
|
Appraisal value (1)
|
|
Estimated cost to sell
|
|
10.0%
|
|
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
4.25% to 11.0% (7.50%)
|
|
|
|
|
|
|
|
|
Real estate owned, net
|
$
|
1,075
|
|
|
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 from three to five years. Our risk management objective and strategy for these interest rate swaps is to reduce our exposure to variability in interest-related cash outflows attributable to changes in the USD-LIBOR swap rate, or its commercially accepted replacement, the designated benchmark interest rate being hedged. Based upon our contemporaneous quantitative analysis at the inception of each interest rate swap, we have determined these interest rate swaps qualify for hedge accounting in accordance with ASC 815, Derivatives and Hedging.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
Derivatives Not Designated as Hedging Instruments
We act as an interest rate or foreign exchange swap counterparty for certain commercial borrowers in the normal course of servicing our customers, which are accounted for at fair value. We manage our exposure to such interest rate or foreign exchange swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the swaps we have with the commercial borrowers. These positions (referred to as “customer swaps”) directly offset each other and our exposure is the fair value of the derivatives due to changes in credit risk of our commercial borrowers and third parties. Customer swaps are recorded within other assets or other liabilities on the consolidated statement of financial condition at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statement of income.
We enter into interest rate lock commitments for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative financial instruments under applicable accounting guidance. Interest rate lock commitments on loans held-for-sale are carried at fair value in other assets on the consolidated statement of financial condition. Northwest sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis commit us to deliver a specific principal amount of mortgage loans to an investor at a specified price, by a specified date, or the commitment must be paired off. These forward commitments entered into on a mandatory delivery basis meet the definition of a derivative financial instrument. All closed loans to be sold on a mandatory delivery basis are classified as held-for-sale on the consolidated statement of financial condition. Changes to the fair value of the interest rate lock commitments and the forward commitments are recorded in mortgage banking income in the consolidated statements of income.
We enter into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution.
The following table presents information regarding our derivative financial instruments for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
Liability derivatives
|
|
Notional amount
|
|
Fair value
|
|
Notional amount
|
|
Fair value
|
At March 31, 2020
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
$
|
—
|
|
|
—
|
|
|
100,000
|
|
|
558
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
446,598
|
|
|
54,656
|
|
|
446,598
|
|
|
54,818
|
|
Interest rate lock commitments
|
80,158
|
|
|
507
|
|
|
—
|
|
|
—
|
|
Forward commitments
|
5,465
|
|
|
197
|
|
|
—
|
|
|
—
|
|
Risk participation agreements
|
—
|
|
|
—
|
|
|
41,123
|
|
|
120
|
|
Total Derivatives
|
$
|
532,221
|
|
|
55,360
|
|
|
587,721
|
|
|
55,496
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
$
|
391,502
|
|
|
20,889
|
|
|
391,502
|
|
|
20,952
|
|
Interest rate lock commitments
|
24,373
|
|
|
559
|
|
|
—
|
|
|
—
|
|
Forward commitments
|
5,151
|
|
|
145
|
|
|
—
|
|
|
—
|
|
Risk participation agreements
|
—
|
|
|
—
|
|
|
41,164
|
|
|
39
|
|
Total derivatives
|
$
|
421,026
|
|
|
21,593
|
|
|
432,666
|
|
|
20,991
|
|
The following table presents income or expense recognized on derivatives for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
For the quarter ended March 31,
|
|
2020
|
|
2019
|
Hedging derivatives:
|
|
|
|
Decrease in interest expense
|
$
|
(12
|
)
|
|
—
|
|
|
|
|
|
Non-hedging swap derivatives:
|
|
|
|
Decrease in other income
|
(177
|
)
|
|
—
|
|
Increase in mortgage banking income
|
1
|
|
|
—
|
|
The following table presents the key characteristics of the Company's interest rate derivative transactions designated as cash flow hedges of interest rate risk as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
Effective rate
|
|
Estimated increase/(decrease) to interest expense in the next twelve months
|
|
Maturity Date
|
|
Remaining term
(in months)
|
Interest rate products:
|
|
|
|
|
|
|
|
|
|
Issued March 16, 2020
|
$
|
30,000
|
|
|
0.81
|
%
|
|
200
|
|
|
3/17/2025
|
|
60
|
Issued March 20, 2020
|
25,000
|
|
|
0.15
|
%
|
|
205
|
|
|
3/20/2023
|
|
36
|
Issued March 20, 2020
|
25,000
|
|
|
0.18
|
%
|
|
197
|
|
|
3/20/2024
|
|
48
|
Issued March 26, 2020
|
20,000
|
|
|
(0.07
|
)%
|
|
166
|
|
|
9/26/2024
|
|
54
|
Total
|
$
|
100,000
|
|
|
|
|
768
|
|
|
|
|
|
(11) Legal Proceedings
We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of March 31, 2020, we do not anticipate that the aggregate ultimate liability arising out of any pending or threatened legal proceedings will be material to our Consolidated Financial Statements. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings.
During the year-ended December 31, 2018, Northwest and our subsidiary, Northwest Insurance Services (“NWIS”), were involved in a lawsuit against, among others, First National Bank of Pennsylvania (“FNB”) and their insurance subsidiary, First National Insurance Agency, LLC (“FNIA”). All counterclaims against Northwest were discontinued and, in December 2018, a verdict was rendered in favor of NWIS on several of its claims. Post-trial proceedings have continued throughout the current year and, due to the inherent uncertainties with respect to these proceedings, we have not accrued any awards associated with this verdict within our Consolidated Financial Statements as of March 31, 2020.
(12) Changes in Accumulated Other Comprehensive Income
The following tables show the changes in accumulated other comprehensive income/(loss) by component for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2020
|
|
Unrealized
gains and
(losses) on
securities
available-
for-sale
|
|
Change in
fair value
of interest
rate swaps
|
|
Change in
defined
benefit
pension
plans
|
|
Total
|
Balance as of December 31, 2019
|
$
|
3,147
|
|
|
—
|
|
|
(40,088
|
)
|
|
(36,941
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) before reclassification adjustments (1) (2)
|
8,157
|
|
|
(409
|
)
|
|
—
|
|
|
7,748
|
|
Amounts reclassified from accumulated other comprehensive income (3), (4)
|
37
|
|
|
—
|
|
|
249
|
|
|
286
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income/(loss)
|
8,194
|
|
|
(409
|
)
|
|
249
|
|
|
8,034
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2020
|
$
|
11,341
|
|
|
(409
|
)
|
|
(39,839
|
)
|
|
(28,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2019
|
|
Unrealized
gains and
(losses) on
securities
available-
for-sale
|
|
Change in
fair value
of interest
rate swaps
|
|
Change in
defined
benefit
pension
plans
|
|
Total
|
Balance as of December 31, 2018
|
$
|
(6,832
|
)
|
|
—
|
|
|
(32,864
|
)
|
|
(39,696
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassification adjustments (5)
|
4,452
|
|
|
—
|
|
|
—
|
|
|
4,452
|
|
Amounts reclassified from accumulated other comprehensive income (6), (7)
|
—
|
|
|
—
|
|
|
209
|
|
|
209
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
4,452
|
|
|
—
|
|
|
209
|
|
|
4,661
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
$
|
(2,380
|
)
|
|
—
|
|
|
(32,655
|
)
|
|
(35,035
|
)
|
|
|
(1)
|
Consists of unrealized holding loss, net of tax of $3,277.
|
|
|
(2)
|
Change in fair value of interest rate swaps, net of tax $(162).
|
|
|
(3)
|
Consists of realized gain on securities (gain on sales of investments, net) of $(51), net of tax (income tax expense) of $14.
|
|
|
(4)
|
Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net actuarial loss (compensation and employee benefits) of $(929), net of tax (income tax expense) of $99.
|
|
|
(5)
|
Consists of unrealized holding loss, net of tax $1,781.
|
|
|
(6)
|
There were no realized gains on securities reclassified from accumulated other comprehensive income.
|
|
|
(7)
|
Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net actuarial loss (compensation and employee benefits) of $(872), net of tax (income tax expense) of $82.
|
(13) Subsequent Events
On April 24, 2020, the Company completed the merger with MutualFirst Financial, Inc. (“MutualFirst Financial”), the holding company for MutualBank for total consideration of $213.4 million. The Company is currently in the process of finalizing the purchase accounting of this transaction.
Under the terms of the Merger Agreement, each share of common stock of MutualFirst Financial converted into the right to receive 2.4 shares of the Company’s common stock or a total of 20,659,087 shares of common stock of the Company valued at $213.4 million, based on the $10.33 per share closing price of the Company's stock on April 24, 2020. Cash was paid in lieu of fractional shares at a rate of $10.71 per whole share of the Company's common stock.
The transaction has resulted in a bank with approximately $12.8 billion in total assets, providing banking services through 214 branch locations and 273 ATMs in four states. The transaction expanded the Company's franchise by 36 full-service offices located in Indiana.