e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2010
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from
to
Commission File Number 001-34582
Northwest Bancshares, Inc.
(Exact name of registrant as specified in its charter)
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Maryland
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27-0950358 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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100 Liberty Street, Warren, Pennsylvania
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16365 |
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(Address of principal executive offices)
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(Zip Code) |
(814) 726-2140
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large Accelerated Filer o
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Accelerated Filer þ
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Non-Accelerated Filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
Common Stock ($0.01 par value) 110,776,506 shares outstanding as of August 2, 2010
NORTHWEST BANCSHARES, INC.
INDEX
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
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(Unaudited) |
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June 30, |
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December 31, |
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2010 |
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2009 |
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Assets |
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Cash and due from banks |
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$ |
60,647 |
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69,265 |
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Interest-earning deposits in other financial institutions |
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745,781 |
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1,037,893 |
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Federal funds sold and other short-term investments |
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632 |
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632 |
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Marketable securities available-for-sale (amortized cost of $813,761 and $1,059,177) |
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832,432 |
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1,067,089 |
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Marketable securities held-to-maturity (fair value of $417,962 and $0) |
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415,303 |
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Total cash and investments |
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2,054,795 |
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2,174,879 |
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Loans held for sale |
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22,259 |
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1,164 |
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Mortgage loans one- to four- family |
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2,443,698 |
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2,334,538 |
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Home equity loans |
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1,095,495 |
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1,067,584 |
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Consumer loans |
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266,151 |
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286,292 |
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Commercial real estate loans |
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1,326,879 |
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1,238,217 |
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Commercial business loans |
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390,426 |
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371,670 |
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Total loans |
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5,544,908 |
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5,299,465 |
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Allowance for loan losses |
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(75,417 |
) |
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(70,403 |
) |
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Total loans, net |
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5,469,491 |
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5,229,062 |
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Federal Home Loan Bank stock, at cost |
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63,242 |
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63,242 |
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Accrued interest receivable |
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27,191 |
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25,780 |
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Real estate owned, net |
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22,191 |
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20,257 |
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Premises and equipment, net |
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125,843 |
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124,316 |
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Bank owned life insurance |
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130,625 |
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128,270 |
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Goodwill |
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171,682 |
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171,363 |
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Other intangible assets |
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5,138 |
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4,678 |
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Other assets |
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65,935 |
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83,451 |
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Total assets |
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$ |
8,136,133 |
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8,025,298 |
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Liabilities and Shareholders equity |
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Liabilities: |
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Noninterest-bearing demand deposits |
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$ |
534,461 |
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487,036 |
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Interest-bearing demand deposits |
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781,677 |
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768,110 |
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Savings deposits |
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1,966,880 |
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1,744,537 |
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Time deposits |
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2,445,961 |
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2,624,741 |
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Total deposits |
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5,728,979 |
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5,624,424 |
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Borrowed funds |
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897,557 |
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897,326 |
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Junior subordinated deferrable interest debentures held by trusts that issued
guaranteed capital debt securities |
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103,094 |
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103,094 |
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Advances by borrowers for taxes and insurance |
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30,703 |
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22,034 |
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Accrued interest payable |
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4,333 |
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4,493 |
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Other liabilities |
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60,744 |
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57,412 |
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Total liabilities |
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6,825,410 |
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6,708,783 |
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Shareholders equity: |
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Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued |
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Common stock, $0.01 par value: 500,000,000 shares authorized, 110,775,014 and
110,641,858 shares issued, respectively |
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1,108 |
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1,106 |
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Paid-in capital |
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829,686 |
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828,195 |
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Retained earnings |
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516,005 |
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508,842 |
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Unallocated common stock of employee stock ownership plan |
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(28,851 |
) |
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(11,651 |
) |
Accumulated other comprehensive loss |
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(7,225 |
) |
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(9,977 |
) |
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1,310,723 |
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1,316,515 |
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Total liabilities and shareholders equity |
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$ |
8,136,133 |
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8,025,298 |
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See accompanying notes to consolidated financial statements unaudited
1
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share amounts)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Interest income: |
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Loans receivable |
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$ |
81,734 |
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79,660 |
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162,480 |
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160,368 |
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Mortgage-backed securities |
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6,706 |
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6,873 |
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12,851 |
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14,278 |
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Taxable investment securities |
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599 |
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1,350 |
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1,597 |
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2,896 |
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Tax-free investment securities |
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2,853 |
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2,728 |
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5,537 |
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5,660 |
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Interest-earning deposits |
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512 |
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123 |
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1,077 |
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162 |
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Total interest income |
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92,404 |
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90,734 |
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183,542 |
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183,364 |
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Interest expense: |
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Deposits |
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18,973 |
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24,446 |
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40,377 |
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|
49,083 |
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Borrowed funds |
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9,704 |
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10,115 |
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19,404 |
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20,304 |
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Total interest expense |
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28,677 |
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34,561 |
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59,781 |
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69,387 |
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Net interest income |
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63,727 |
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56,173 |
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123,761 |
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113,977 |
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Provision for loan losses |
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7,896 |
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|
11,736 |
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16,697 |
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17,517 |
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Net interest income after provision for loan losses |
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55,831 |
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44,437 |
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107,064 |
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96,460 |
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Noninterest income: |
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Impairment losses on securities |
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(1,824 |
) |
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(8,690 |
) |
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(1,921 |
) |
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(8,690 |
) |
Noncredit related losses on securities not expected to be
sold (recognized in other comprehensive income) |
|
|
1,606 |
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|
4,400 |
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|
1,606 |
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|
4,400 |
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Net impairment losses |
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(218 |
) |
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(4,290 |
) |
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(315 |
) |
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(4,290 |
) |
Gain on sale of investments, net |
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94 |
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|
238 |
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|
2,177 |
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|
280 |
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Service charges and fees |
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|
9,902 |
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|
8,508 |
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|
18,804 |
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|
16,379 |
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Trust and other financial services income |
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|
1,912 |
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|
1,505 |
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|
3,745 |
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|
2,853 |
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Insurance commission income |
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|
1,293 |
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|
759 |
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|
2,435 |
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|
1,308 |
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(Loss)/ gain on real estate owned, net |
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(255 |
) |
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7 |
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(279 |
) |
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(3,872 |
) |
Income from bank owned life insurance |
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1,474 |
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|
|
1,201 |
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|
2,640 |
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|
2,388 |
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Mortgage banking income |
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29 |
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|
3,300 |
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21 |
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|
5,114 |
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Other operating income |
|
|
1,314 |
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|
986 |
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|
2,174 |
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|
1,691 |
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|
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|
|
|
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Total noninterest income |
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|
15,545 |
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|
12,214 |
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|
|
31,402 |
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|
21,851 |
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|
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|
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Noninterest expense: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Compensation and employee benefits |
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|
24,960 |
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|
22,739 |
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|
50,816 |
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|
46,665 |
|
Premises and occupancy costs |
|
|
5,340 |
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|
5,224 |
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|
11,342 |
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|
|
11,202 |
|
Office operations |
|
|
2,934 |
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|
3,292 |
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|
6,171 |
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|
6,305 |
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Processing expenses |
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|
5,552 |
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|
4,954 |
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|
11,248 |
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|
10,262 |
|
Marketing expenses |
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|
3,294 |
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|
2,015 |
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|
|
4,737 |
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|
|
2,944 |
|
Federal deposit insurance premiums |
|
|
2,148 |
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|
|
1,890 |
|
|
|
4,296 |
|
|
|
3,780 |
|
FDIC special assessment |
|
|
|
|
|
|
3,288 |
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|
|
|
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|
3,288 |
|
Professional services |
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|
583 |
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|
590 |
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|
|
1,311 |
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|
|
1,231 |
|
Amortization of other intangible assets |
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|
759 |
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|
|
826 |
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|
1,541 |
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|
|
1,670 |
|
Real estate owned expense |
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|
712 |
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|
499 |
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|
|
1,611 |
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|
|
932 |
|
Other expenses |
|
|
1,875 |
|
|
|
1,687 |
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|
|
3,688 |
|
|
|
2,991 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
48,157 |
|
|
|
47,004 |
|
|
|
96,761 |
|
|
|
91,270 |
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|
|
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|
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|
|
|
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Income before income taxes |
|
|
23,219 |
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|
|
9,647 |
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|
|
41,705 |
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|
|
27,041 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Federal and state income taxes |
|
|
7,078 |
|
|
|
2,356 |
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|
|
12,411 |
|
|
|
7,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
16,141 |
|
|
|
7,291 |
|
|
|
29,294 |
|
|
|
19,593 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Basic earnings per share |
|
$ |
0.15 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.15 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
2
NORTHWEST BANCSHARES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
(dollars in thousands)
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|
|
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|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders |
|
Three months ended June 30, 2009 |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income/ (loss) |
|
|
Stock |
|
|
Equity |
|
Beginning balance at March 31, 2009 |
|
|
109,067,161 |
|
|
$ |
5,125 |
|
|
|
218,830 |
|
|
|
498,677 |
|
|
|
(28,804 |
) |
|
|
(69,423 |
) |
|
|
624,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
principle adoption of FSP SFAS 115-2 and
SFAS 124-2, net of tax of $903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,676 |
|
|
|
(1,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,291 |
|
|
|
|
|
|
|
|
|
|
|
7,291 |
|
Change in fair value of interest rate
swaps, net of tax of $(2,104) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,907 |
|
|
|
|
|
|
|
3,907 |
|
Change in unrealized loss on securities,
net of tax of $(317) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589 |
|
|
|
|
|
|
|
589 |
|
Reclassification of previously recognized
OTTI on investment securities recorded in OCI
to net income, net of tax of $(1,426) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,649 |
|
|
|
|
|
|
|
2,649 |
|
Other-than-temporary impairment on securities
recorded in other comprehensive income,
net of tax of $1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,860 |
) |
|
|
|
|
|
|
(2,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,291 |
|
|
|
4,285 |
|
|
|
|
|
|
|
11,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
18,830 |
|
|
|
1 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.10 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,952 |
) |
|
|
|
|
|
|
|
|
|
|
(3,952 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2009 |
|
|
109,085,991 |
|
|
$ |
5,126 |
|
|
|
219,335 |
|
|
|
503,692 |
|
|
|
(26,195 |
) |
|
|
(69,423 |
) |
|
|
632,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
common stock |
|
|
Shareholders |
|
Three months ended June 30, 2010 |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income/ (loss) |
|
|
of ESOP |
|
|
Equity |
|
Beginning balance at March 31, 2010 |
|
|
110,680,962 |
|
|
$ |
1,107 |
|
|
|
828,623 |
|
|
|
510,932 |
|
|
|
(9,731 |
) |
|
|
(28,851 |
) |
|
|
1,302,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
16,141 |
|
Change in fair value of interest rate
swaps, net of tax of $1,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,741 |
) |
|
|
|
|
|
|
(2,741 |
) |
Change in unrealized loss on securities,
net of tax of $(2,746) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,100 |
|
|
|
|
|
|
|
5,100 |
|
Reclassification of previously recognized
OTTI on investment securities recorded in OCI
to net income, net of tax of $(71) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,141 |
|
|
|
2,506 |
|
|
|
|
|
|
|
18,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
94,052 |
|
|
|
1 |
|
|
|
838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.10 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,068 |
) |
|
|
|
|
|
|
|
|
|
|
(11,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2010 |
|
|
110,775,014 |
|
|
$ |
1,108 |
|
|
|
829,686 |
|
|
|
516,005 |
|
|
|
(7,225 |
) |
|
|
(28,851 |
) |
|
|
1,310,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
3
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders |
|
Six months ended June 30, 2009 |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income/ (loss) |
|
|
Stock |
|
|
Equity |
|
Beginning balance at December 31, 2008 |
|
|
109,052,887 |
|
|
$ |
5,124 |
|
|
|
218,332 |
|
|
|
490,326 |
|
|
|
(30,575 |
) |
|
|
(69,423 |
) |
|
|
613,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
principle adoption of FSP SFAS 115-2 and
SFAS 124-2, net of tax of $903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,676 |
|
|
|
(1,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,593 |
|
|
|
|
|
|
|
|
|
|
|
19,593 |
|
Change in fair value of interest rate
swaps, net of tax of $(2,717) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,045 |
|
|
|
|
|
|
|
5,045 |
|
Change in unrealized loss on securities,
net of tax of $(658) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,222 |
|
|
|
|
|
|
|
1,222 |
|
Reclassification of previously recognized
OTTI on investment securities recorded in OCI
to net income, net of tax of $(1,426) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,649 |
|
|
|
|
|
|
|
2,649 |
|
Other-than-temporary impairment on securities
recorded in other comprehensive income,
net of tax of $1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,860 |
) |
|
|
|
|
|
|
(2,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,593 |
|
|
|
6,056 |
|
|
|
|
|
|
|
25,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
33,104 |
|
|
|
2 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,903 |
) |
|
|
|
|
|
|
|
|
|
|
(7,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2009 |
|
|
109,085,991 |
|
|
$ |
5,126 |
|
|
|
219,335 |
|
|
|
503,692 |
|
|
|
(26,195 |
) |
|
|
(69,423 |
) |
|
|
632,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
common stock |
|
|
Shareholders |
|
Six months ended June 30, 2010 |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income/ (loss) |
|
|
of ESOP |
|
|
Equity |
|
Beginning balance at December 31, 2009 |
|
|
110,641,858 |
|
|
$ |
1,106 |
|
|
|
828,195 |
|
|
|
508,842 |
|
|
|
(9,977 |
) |
|
|
(11,651 |
) |
|
|
1,316,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,294 |
|
|
|
|
|
|
|
|
|
|
|
29,294 |
|
Change in fair value of interest rate
swaps, net of tax of $2,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,583 |
) |
|
|
|
|
|
|
(3,583 |
) |
Change in unrealized loss on securities,
net of tax of $(3,300) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,130 |
|
|
|
|
|
|
|
6,130 |
|
Reclassification of previously recognized
OTTI on investment securities recorded in OCI
to net income, net of tax of $(110) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205 |
|
|
|
|
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,294 |
|
|
|
2,752 |
|
|
|
|
|
|
|
32,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
133,156 |
|
|
|
2 |
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
costs associated with common stock offering |
|
|
|
|
|
|
|
|
|
|
(703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock by ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,200 |
) |
|
|
(17,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,131 |
) |
|
|
|
|
|
|
|
|
|
|
(22,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2010 |
|
|
110,775,014 |
|
|
$ |
1,108 |
|
|
|
829,686 |
|
|
|
516,005 |
|
|
|
(7,225 |
) |
|
|
(28,851 |
) |
|
|
1,310,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
4
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
29,294 |
|
|
|
19,593 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
16,697 |
|
|
|
17,517 |
|
Net gain on sale of assets |
|
|
(302 |
) |
|
|
(4,769 |
) |
Net depreciation, amortization and accretion |
|
|
7,092 |
|
|
|
8,797 |
|
Decrease/ (increase) in other assets |
|
|
5,084 |
|
|
|
(6,645 |
) |
(Decrease)/ increase in other liabilities |
|
|
(2,703 |
) |
|
|
10,342 |
|
Net amortization of premium/ (discount) on
marketable securities |
|
|
(1,101 |
) |
|
|
(1,939 |
) |
Deferred income tax expense/ (benefit) |
|
|
2,133 |
|
|
|
(585 |
) |
Noncash impairment losses on investment securities |
|
|
315 |
|
|
|
4,290 |
|
Noncash impairment of REO |
|
|
|
|
|
|
3,862 |
|
Origination of loans held for sale |
|
|
(27,494 |
) |
|
|
(383,800 |
) |
Proceeds from sale of loans held for sale |
|
|
15,348 |
|
|
|
388,843 |
|
Noncash compensation expense related to stock benefit plans |
|
1,028 |
|
|
889 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
45,391 |
|
|
|
56,395 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of marketable securities held-to-maturity |
|
|
(465,089 |
) |
|
|
|
|
Purchase of marketable securities available-for-sale |
|
|
|
|
|
|
(24,838 |
) |
Proceeds from maturities and principal reductions
of marketable securities available-for-sale |
|
|
191,511 |
|
|
|
154,048 |
|
Proceeds from maturities and principal reductions
of marketable securities held-to-maturity |
|
|
49,789 |
|
|
|
|
|
Proceeds from sale of marketable securities available-for-sale |
|
|
56,865 |
|
|
|
|
|
Loan originations |
|
|
(1,003,830 |
) |
|
|
(732,247 |
) |
Proceeds from loan maturities and principal reductions |
|
|
751,886 |
|
|
|
756,254 |
|
Proceeds from sale of real estate owned |
|
|
5,250 |
|
|
|
2,639 |
|
Sale of real estate owned for investment, net |
|
|
(104 |
) |
|
|
77 |
|
Purchase of premises and equipment |
|
|
(7,697 |
) |
|
|
(10,232 |
) |
|
|
|
|
|
|
|
Net cash (used in)/ provided by investing activities |
|
|
(421,419 |
) |
|
|
145,701 |
|
5
NORTHWEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Increase in deposits, net |
|
$ |
104,555 |
|
|
|
307,528 |
|
Repayments of long-term borrowings |
|
|
(1,532 |
) |
|
|
(4,566 |
) |
Net (decrease) /increase in short-term borrowings |
|
|
1,769 |
|
|
|
(166,205 |
) |
Increase/ (decrease) in advances by borrowers for taxes and insurance |
|
|
8,669 |
|
|
|
4,078 |
|
Cash dividends paid |
|
|
(22,131 |
) |
|
|
(7,903 |
) |
Purchase of common stock for employee stock ownership plan |
|
|
(17,200 |
) |
|
|
|
|
Proceeds from stock options exercised |
|
|
1,168 |
|
|
|
116 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
75,298 |
|
|
|
133,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/ (decrease) in cash and cash equivalents |
|
$ |
(300,730 |
) |
|
|
335,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
$ |
1,107,790 |
|
|
|
79,922 |
|
Net increase/ (decrease) in cash and cash equivalents |
|
|
(300,730 |
) |
|
|
335,144 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
807,060 |
|
|
|
415,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
60,647 |
|
|
|
43,841 |
|
Interest-earning deposits in other financial institutions |
|
|
745,781 |
|
|
|
369,840 |
|
Federal funds sold and other short-term investments |
|
|
632 |
|
|
|
1,385 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
807,060 |
|
|
|
415,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest on
deposits and borrowings (including interest credited to
deposit accounts of $35,291 and $41,429, respectively) |
|
$ |
59,941 |
|
|
|
69,626 |
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
8,042 |
|
|
|
13,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities: |
|
|
|
|
|
|
|
|
Loans transferred to real estate owned |
|
$ |
7,463 |
|
|
|
5,557 |
|
|
|
|
|
|
|
|
Sale of real estate owned financed by the Company |
|
$ |
895 |
|
|
|
232 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited
|
|
|
(1) |
|
Basis of Presentation and Informational Disclosures |
Northwest
Bancshares, Inc. (the Company) (NWBI), a Maryland corporation headquartered in Warren,
Pennsylvania, is a savings and loan holding company regulated by the Office of Thrift Supervision
(OTS). The Company was incorporated to be the successor
to Northwest Bancorp, Inc. (NWSB), upon the
completion of the mutual-to-stock conversion of Northwest Bancorp, MHC. As a result of the
conversion, all share information for periods prior to December 31, 2009, has been revised to
reflect the 2.25-to-one conversion rate. The primary activity of the Company is the ownership of
all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered
savings bank (Northwest). Northwest is regulated by the FDIC and the Pennsylvania Department of
Banking. At June 30, 2010, Northwest operated 171 community-banking offices throughout
Pennsylvania, western New York, eastern Ohio, Maryland and southern Florida.
The accompanying unaudited consolidated financial statements include the accounts of the
Company and its subsidiary, Northwest, and Northwests subsidiaries Northwest Settlement Agency,
LLC, Northwest Consumer Discount Company, Northwest Financial Services, Inc., Northwest Capital
Group, Inc., Boetger & Associates, Inc., Allegheny Services, Inc., Great Northwest Corporation and
Veracity Benefits Design. The unaudited consolidated financial statements of the Company 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 and footnotes required for complete annual
financial statements. In the opinion of management, all adjustments necessary for the fair
presentation of the Companys financial position and results of operations have been included. The
consolidated statements have been prepared using the accounting policies described in the financial
statements included in the Companys Annual Report on Form 10-K for the year ended December 31,
2009 updated, as required, for any new pronouncements or changes.
Certain items previously reported have been reclassified to conform to the current periods
format. The reclassifications had no material effect on the Companys financial condition or
results of operations.
The results of operations for the three months ended and six months ended June 30, 2010 are
not necessarily indicative of the results that may be expected for the year ending December 31,
2010.
Stock-Based Compensation
On January 20, 2010, the Company awarded employees 484,576 stock options and directors 54,000
stock options with an exercise price of $11.49 and a grant date fair value of $1.95 per stock
option. Awarded stock options vest over a seven-year period beginning with the date of issuance.
Stock-based compensation expense of $225,000 and $448,000 for the three months ended June 30, 2010
and 2009, respectively, and $1.0 million and $889,000 for the six months ended June 30, 2010 and
2009, respectively, was recognized in compensation expense relating to the Companys stock benefit
plans.
Included in compensation was our recognition and retention plan which
vested and was expensed over a five year period and ended on March
16, 2010.
At June 30, 2010 there was compensation expense of $1.7 million to be recognized for
awarded but unvested stock options.
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
7
upon ultimate settlement with a taxing authority having full knowledge of all relevant
information. As of June30, 2010 the Company had no liability for unrecognized tax benefits.
The Company recognizes interest accrued related to: (1) unrecognized tax benefits in federal
and state income taxes and (2) refund claims in other operating income. The Company recognizes
penalties (if any) in federal and state income taxes. There is no amount accrued for the payment
of interest or penalties at June 30, 2010. With few exceptions, the Company is no longer subject
to examinations by the Internal Revenue Service, or the Department of Revenue and Taxation in the
states in which it conducts business for the tax years ended prior to December 31, 2006.
Recently Issued Accounting Standards to be Adopted in Future Periods
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2009-16, Transfers and Servicing (Topic 860) Accounting for Transfers of
Financial Assets. This guidance improves the information that we provide in our financial
statements about a transfer of financial assets; the effects of a transfer on our financial
position, financial performance, and cash flows; and our continuing involvement, if any, in
transferred financial assets. Additionally, this ASU eliminates the concept of a qualifying
special-purpose entity. This guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after November 15, 2009, and we were required to apply this guidance
prospectively to transfers of financial assets beginning January 1, 2010. This guidance did not
impact our consolidated financial statements.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820) Improving Disclosures about Fair Value Measurements. This guidance improves
disclosures about fair value of financial instruments and requires additional disclosures regarding fair
value measurements. Specifically, the guidance requires entities to disclose the amounts and
reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy, to
disclose reasons for any transfers in or out of Level 3 and to separately disclose information in
the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and
settlements. In addition, the guidance also clarifies certain existing fair value measurement
disclosure requirements. Except for the requirement to disclose information about purchases, sales,
issuances and settlements in the reconciliation of recurring Level 3 measurements separately, the
amendments are effective for interim and annual reporting periods beginning after December 15,
2009. The adoption of these provisions did not have a material impact on the Companys consolidated
financial statements. The requirement to separately disclose purchases, sales, issuances and
settlements of recurring Level 3 measurements is effective for interim and annual reporting periods
beginning after December 15, 2010. We do not expect the adoption of the remaining provisions will
have a material impact on our consolidated financial statements.
In July 2010, FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.
The objective of this guidance is to provide financial statement users with greater transparency
about an entitys allowance for credit losses and the credit quality of its financing receivables
by providing additional information to assist financial statement users in assessing an entitys
credit risk exposures and evaluating the adequacy of its allowance for credit losses. For public
entities, the disclosures as of the end of a reporting period are effective for interim and annual
reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs
during a reporting period are effective for interim and annual reporting periods beginning on or
after December 15, 2010. We do not expect the adoption of this guidance will have a material
impact on our consolidated financial statements.
8
The Company operates in two reportable business segments: Community Banking and Consumer
Finance. The Community Banking segment provides services traditionally offered by full-service
community banks, including commercial and individual demand, savings and time deposit accounts and
commercial, mortgage and consumer loans, as well as insurance, brokerage and investment management
and trust services. The Consumer Finance segment, which is comprised of Northwest Consumer
Discount Company, a subsidiary of Northwest, operates 52 offices in Pennsylvania and offers
personal installment loans for a variety of consumer and real estate products. This activity is
funded primarily through an intercompany borrowing relationship with Allegheny Services, Inc., a
subsidiary of Northwest. Net income is the primary measure used by management to measure segment
performance. The following tables provide financial information for these reportable segments.
The All Other column represents the parent company and elimination entries necessary to reconcile
to the consolidated amounts presented in the financial statements.
As of or for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Consumer |
|
|
|
|
|
|
|
June
30, 2010 ($ in 000s) |
|
Banking |
|
|
Finance |
|
|
All Other * |
|
|
Consolidated |
|
External interest income |
|
$ |
87,182 |
|
|
|
5,219 |
|
|
|
3 |
|
|
|
92,404 |
|
Intersegment interest income |
|
|
807 |
|
|
|
|
|
|
|
(807 |
) |
|
|
|
|
Interest expense |
|
|
27,822 |
|
|
|
807 |
|
|
|
48 |
|
|
|
28,677 |
|
Provision for loan losses |
|
|
7,000 |
|
|
|
896 |
|
|
|
|
|
|
|
7,896 |
|
Noninterest income |
|
|
14,988 |
|
|
|
544 |
|
|
|
13 |
|
|
|
15,545 |
|
Noninterest expense |
|
|
45,004 |
|
|
|
3,045 |
|
|
|
108 |
|
|
|
48,157 |
|
Income tax expense (benefit) |
|
|
6,986 |
|
|
|
422 |
|
|
|
(330 |
) |
|
|
7,078 |
|
Net income |
|
|
16,165 |
|
|
|
593 |
|
|
|
(617 |
) |
|
|
16,141 |
|
Total assets |
|
$ |
7,996,270 |
|
|
|
115,991 |
|
|
|
23,872 |
|
|
|
8,136,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Consumer |
|
|
|
|
|
|
|
June 30, 2009 ($ in 000s) |
|
Banking |
|
|
Finance |
|
|
All Other * |
|
|
Consolidated |
|
External interest income |
|
$ |
85,652 |
|
|
|
5,080 |
|
|
|
2 |
|
|
|
90,734 |
|
Intersegment interest income |
|
|
800 |
|
|
|
|
|
|
|
(800 |
) |
|
|
|
|
Interest expense |
|
|
33,095 |
|
|
|
820 |
|
|
|
646 |
|
|
|
34,561 |
|
Provision for loan losses |
|
|
11,000 |
|
|
|
736 |
|
|
|
|
|
|
|
11,736 |
|
Noninterest income |
|
|
11,586 |
|
|
|
604 |
|
|
|
24 |
|
|
|
12,214 |
|
Noninterest expense |
|
|
44,035 |
|
|
|
2,861 |
|
|
|
108 |
|
|
|
47,004 |
|
Income tax expense (benefit) |
|
|
2,365 |
|
|
|
526 |
|
|
|
(535 |
) |
|
|
2,356 |
|
Net income |
|
|
7,543 |
|
|
|
741 |
|
|
|
(993 |
) |
|
|
7,291 |
|
Total assets |
|
$ |
6,963,326 |
|
|
|
115,381 |
|
|
|
13,584 |
|
|
|
7,092,291 |
|
|
|
|
* |
|
Eliminations consist of intercompany loans, interest income and interest expense. |
9
As of or for the six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Consumer |
|
|
|
|
|
|
|
June 30, 2010 ($ in 000s) |
|
Banking |
|
|
Finance |
|
|
All Other * |
|
|
Consolidated |
|
External interest income |
|
$ |
173,148 |
|
|
|
10,386 |
|
|
|
8 |
|
|
|
183,542 |
|
Intersegment interest income |
|
|
1,614 |
|
|
|
|
|
|
|
(1,614 |
) |
|
|
|
|
Interest expense |
|
|
58,267 |
|
|
|
1,614 |
|
|
|
(100 |
) |
|
|
59,781 |
|
Provision for loan losses |
|
|
15,000 |
|
|
|
1,697 |
|
|
|
|
|
|
|
16,697 |
|
Noninterest income |
|
|
30,435 |
|
|
|
941 |
|
|
|
26 |
|
|
|
31,402 |
|
Noninterest expense |
|
|
90,470 |
|
|
|
6,070 |
|
|
|
221 |
|
|
|
96,761 |
|
Income tax expense (benefit) |
|
|
12,197 |
|
|
|
809 |
|
|
|
(595 |
) |
|
|
12,411 |
|
Net income |
|
|
29,263 |
|
|
|
1,137 |
|
|
|
(1,106 |
) |
|
|
29,294 |
|
Total assets |
|
$ |
7,996,270 |
|
|
|
115,991 |
|
|
|
23,872 |
|
|
|
8,136,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Consumer |
|
|
|
|
|
|
|
June 30, 2009 ($ in 000s) |
|
Banking |
|
|
Finance |
|
|
All Other * |
|
|
Consolidated |
|
External interest income |
|
$ |
173,273 |
|
|
|
10,080 |
|
|
|
11 |
|
|
|
183,364 |
|
Intersegment interest income |
|
|
1,551 |
|
|
|
|
|
|
|
(1,551 |
) |
|
|
|
|
Interest expense |
|
|
66,395 |
|
|
|
1,626 |
|
|
|
1,366 |
|
|
|
69,387 |
|
Provision for loan losses |
|
|
16,000 |
|
|
|
1,517 |
|
|
|
|
|
|
|
17,517 |
|
Noninterest income |
|
|
20,706 |
|
|
|
1,097 |
|
|
|
48 |
|
|
|
21,851 |
|
Noninterest expense |
|
|
85,152 |
|
|
|
5,871 |
|
|
|
247 |
|
|
|
91,270 |
|
Income tax expense (benefit) |
|
|
7,638 |
|
|
|
898 |
|
|
|
(1,088 |
) |
|
|
7,448 |
|
Net income |
|
|
20,345 |
|
|
|
1,265 |
|
|
|
(2,017 |
) |
|
|
19,593 |
|
Total assets |
|
$ |
6,963,326 |
|
|
|
115,381 |
|
|
|
13,584 |
|
|
|
7,092,291 |
|
|
|
|
* |
|
Eliminations consist of intercompany loans, interest income and interest expense. |
10
|
|
|
(3) |
|
Investment securities and impairment of investment securities |
The following table shows the Companys portfolio of investment securities available-for-sale
at June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
Amortized |
|
|
holding |
|
|
holding |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
Debt issued by the U.S. government and agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
72 |
|
|
|
|
|
|
|
(1 |
) |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issued by government sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
1,983 |
|
|
|
134 |
|
|
|
|
|
|
|
2,117 |
|
Due in five years-ten years |
|
|
8,587 |
|
|
|
548 |
|
|
|
|
|
|
|
9,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
954 |
|
|
|
68 |
|
|
|
(88 |
) |
|
|
934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
2,266 |
|
|
|
96 |
|
|
|
|
|
|
|
2,362 |
|
Due in five years-ten years |
|
|
35,901 |
|
|
|
1,272 |
|
|
|
|
|
|
|
37,173 |
|
Due after ten years |
|
|
178,362 |
|
|
|
3,083 |
|
|
|
(1,050 |
) |
|
|
180,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt issues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
100 |
|
Due in one year-five years |
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
Due after ten years |
|
|
25,743 |
|
|
|
194 |
|
|
|
(7,396 |
) |
|
|
18,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through |
|
|
124,676 |
|
|
|
9,283 |
|
|
|
(1 |
) |
|
|
133,958 |
|
Variable rate pass-through |
|
|
195,522 |
|
|
|
8,664 |
|
|
|
(20 |
) |
|
|
204,166 |
|
Fixed rate non-agency CMOs |
|
|
16,743 |
|
|
|
55 |
|
|
|
(1,515 |
) |
|
|
15,283 |
|
Fixed rate agency CMOs |
|
|
16,384 |
|
|
|
1,098 |
|
|
|
|
|
|
|
17,482 |
|
Variable rate non-agency CMOs |
|
|
7,369 |
|
|
|
|
|
|
|
(484 |
) |
|
|
6,885 |
|
Variable rate agency CMOs |
|
|
198,599 |
|
|
|
4,832 |
|
|
|
(101 |
) |
|
|
203,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage-backed securities |
|
|
559,293 |
|
|
|
23,932 |
|
|
|
(2,121 |
) |
|
|
581,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities available-for-sale |
|
$ |
813,761 |
|
|
|
29,327 |
|
|
|
(10,656 |
) |
|
|
832,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The following table shows the Companys portfolio of investment securities
available-for-sale at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
Amortized |
|
|
holding |
|
|
holding |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
Debt issued by the U.S. government and agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
76 |
|
|
|
|
|
|
|
(1 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issued by government sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
1,977 |
|
|
|
153 |
|
|
|
|
|
|
|
2,130 |
|
Due in five years -ten years |
|
|
21,912 |
|
|
|
524 |
|
|
|
|
|
|
|
22,436 |
|
Due after ten years |
|
|
52,667 |
|
|
|
1,128 |
|
|
|
(498 |
) |
|
|
53,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
1,054 |
|
|
|
191 |
|
|
|
(118 |
) |
|
|
1,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
3,146 |
|
|
|
68 |
|
|
|
|
|
|
|
3,214 |
|
Due in five years -ten years |
|
|
41,170 |
|
|
|
1,163 |
|
|
|
|
|
|
|
42,333 |
|
Due after ten years |
|
|
190,812 |
|
|
|
2,774 |
|
|
|
(1,677 |
) |
|
|
191,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt issues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
Due after ten years |
|
|
26,882 |
|
|
|
168 |
|
|
|
(10,549 |
) |
|
|
16,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through |
|
|
145,363 |
|
|
|
6,440 |
|
|
|
(47 |
) |
|
|
151,756 |
|
Variable rate pass-through |
|
|
231,232 |
|
|
|
7,894 |
|
|
|
(85 |
) |
|
|
239,041 |
|
Fixed rate non-agency CMOs |
|
|
18,919 |
|
|
|
48 |
|
|
|
(1,788 |
) |
|
|
17,179 |
|
Fixed rate CMOs |
|
|
19,994 |
|
|
|
982 |
|
|
|
|
|
|
|
20,976 |
|
Variable rate non-agency CMOs |
|
|
9,075 |
|
|
|
|
|
|
|
(1,170 |
) |
|
|
7,905 |
|
Variable rate CMOs |
|
|
294,398 |
|
|
|
2,642 |
|
|
|
(330 |
) |
|
|
296,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage-backed securities |
|
|
718,981 |
|
|
|
18,006 |
|
|
|
(3,420 |
) |
|
|
733,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities available-for-sale |
|
$ |
1,059,177 |
|
|
|
24,175 |
|
|
|
(16,263 |
) |
|
|
1,067,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the Companys portfolio of investment securities
held-to-maturity at June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
Amortized |
|
|
holding |
|
|
holding |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
Debt issued by government sponsored enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year-five years |
|
|
51,500 |
|
|
|
127 |
|
|
|
|
|
|
|
51,627 |
|
|
Municipal securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
60,235 |
|
|
|
229 |
|
|
|
(99 |
) |
|
|
60,365 |
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate pass-through |
|
|
33,568 |
|
|
|
727 |
|
|
|
|
|
|
|
34,295 |
|
Variable rate pass-through |
|
|
10,077 |
|
|
|
85 |
|
|
|
|
|
|
|
10,162 |
|
Fixed rate agency CMOs |
|
|
229,721 |
|
|
|
1,536 |
|
|
|
(390 |
) |
|
|
230,867 |
|
Variable rate agency CMOs |
|
|
30,202 |
|
|
|
444 |
|
|
|
|
|
|
|
30,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage-backed securities |
|
|
303,568 |
|
|
|
2,792 |
|
|
|
(390 |
) |
|
|
305,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities held-to-maturity |
|
$ |
415,303 |
|
|
|
3,148 |
|
|
|
(489 |
) |
|
|
417,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no investments classified as held-to-maturity at December 31, 2009.
12
The Company reviews its investment portfolio on a quarterly basis for indications of
impairment. This review includes analyzing the length of time and the extent to which the fair
value has been lower than the cost, the financial condition and near-term prospects of the issuer,
including any specific events which may influence the operations of the issuer, and the intent to
hold the investments for a period of time sufficient to allow for a
recovery in value. Some
investments are evaluated using the Companys best estimate of future cash flows. If the Companys
estimate of cash flows determines that it is expected an adverse change has occurred,
other-than-temporary impairment would be recognized for the credit loss.
The following table shows the fair value and gross unrealized losses on investment securities,
aggregated by investment category and length of time that the individual securities have been in a
continuous unrealized loss position at June 30, 2010 (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 and agencies |
|
$ |
|
|
|
|
|
|
|
|
37 |
|
|
|
(1 |
) |
|
|
37 |
|
|
|
(1 |
) |
Municipal securities |
|
|
39,319 |
|
|
|
(278 |
) |
|
|
10,711 |
|
|
|
(871 |
) |
|
|
50,030 |
|
|
|
(1,149 |
) |
Corporate issues |
|
|
|
|
|
|
|
|
|
|
15,032 |
|
|
|
(7,396 |
) |
|
|
15,032 |
|
|
|
(7,396 |
) |
Equity securities |
|
|
24 |
|
|
|
(2 |
) |
|
|
143 |
|
|
|
(86 |
) |
|
|
167 |
|
|
|
(88 |
) |
Residential mortgage-
backed securities -non-agency |
|
|
|
|
|
|
|
|
|
|
17,441 |
|
|
|
(1,999 |
) |
|
|
17,441 |
|
|
|
(1,999 |
) |
Residential mortgage-
backed securities -agency |
|
|
20,729 |
|
|
|
(394 |
) |
|
|
8,819 |
|
|
|
(118 |
) |
|
|
29,548 |
|
|
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities |
|
$ |
60,072 |
|
|
|
(674 |
) |
|
|
52,183 |
|
|
|
(10,471 |
) |
|
|
112,255 |
|
|
|
(11,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the fair value and gross unrealized losses on investment
securities, aggregated by investment category and length of time that the individual securities
have been in a continuous unrealized loss position at December 31, 2009 (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 and agencies |
|
$ |
17,051 |
|
|
|
(490 |
) |
|
|
266 |
|
|
|
(9 |
) |
|
|
17,317 |
|
|
|
(499 |
) |
Municipal securities |
|
|
43,897 |
|
|
|
(598 |
) |
|
|
10,505 |
|
|
|
(1,079 |
) |
|
|
54,402 |
|
|
|
(1,677 |
) |
Corporate issues |
|
|
|
|
|
|
|
|
|
|
12,058 |
|
|
|
(10,549 |
) |
|
|
12,058 |
|
|
|
(10,549 |
) |
Equities |
|
|
452 |
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
(118 |
) |
Residential mortgage-
backed securities -non-agency |
|
|
1,194 |
|
|
|
(2 |
) |
|
|
19,451 |
|
|
|
(2,956 |
) |
|
|
20,645 |
|
|
|
(2,958 |
) |
Residential mortgage-
backed securities -agency |
|
|
25,752 |
|
|
|
(181 |
) |
|
|
43,067 |
|
|
|
(281 |
) |
|
|
68,819 |
|
|
|
(462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities |
|
$ |
88,346 |
|
|
|
(1,389 |
) |
|
|
85,347 |
|
|
|
(14,874 |
) |
|
|
173,693 |
|
|
|
(16,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate issues
As of June 30, 2010, the Company had ten investments with a total book value of $19.7 million
and total fair value of $12.2 million, where the book value exceeded the carrying value for more
than 12 months. These investments were four single issuer trust preferred investments and six
pooled trust preferred investments. The single issuer trust preferred investments were evaluated
for other-than-
13
temporary impairment by determining the strength of the underlying issuer. In each case, the
underlying issuer was well-capitalized for regulatory purposes. None of the issuers have
deferred interest payments or announced the intention to defer interest payments, nor have any been
downgraded. The Company believes the decline in fair value is related to the spread over three
month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR is
significantly lower than current market spreads. The Company concluded the impairment of these
investments was considered temporary. In making that determination, the Company also considered
the duration and the severity of the losses. The pooled trust preferred investments were evaluated
for other-than-temporary impairment by considering the duration and severity of the losses, actual
cash flows, projected cash flows, performing collateral, the class of investment owned by the
Company and the amount of additional defaults the structure could withstand prior to the investment
experiencing a disruption in cash flows. None of these investments have experienced a cash flow
disruption. After evaluation, the impairment in five investments was considered temporary, while
the impairment in one investment was considered other-than-temporary. Accordingly, the Company
further evaluated this investment determining that $57,000 of the impairment was credit related
impairment and $257,000 of the impairment was deemed non-credit related impairment.
The following table provides class, book value, fair value and ratings information for the
Companys portfolio of corporate securities that have an unrealized loss as of June 30, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Book |
|
|
Fair |
|
|
Unrealized |
|
|
Moodys/ Fitch |
Description |
|
Class |
|
Value |
|
|
Value |
|
|
Losses |
|
|
Ratings |
|
North Fork Capital (1) |
|
N/A |
|
$ |
1,008 |
|
|
|
1,003 |
|
|
|
(5 |
) |
|
Baa3/ BBB |
Bank Boston Capital Trust (2) |
|
N/A |
|
|
988 |
|
|
|
674 |
|
|
|
(314 |
) |
|
Baa3/ BB |
Reliance Capital Trust |
|
N/A |
|
|
1,000 |
|
|
|
868 |
|
|
|
(132 |
) |
|
Not rated |
Huntington Capital Trust |
|
N/A |
|
|
1,421 |
|
|
|
848 |
|
|
|
(573 |
) |
|
Ba1/ BB+ |
MM Community Funding I |
|
Mezzanine |
|
|
313 |
|
|
|
56 |
|
|
|
(257 |
) |
|
Ca/ C |
MM Community Funding II |
|
Mezzanine |
|
|
382 |
|
|
|
33 |
|
|
|
(349 |
) |
|
Baa2/ BB |
I-PreTSL I |
|
Mezzanine |
|
|
1,500 |
|
|
|
187 |
|
|
|
(1,313 |
) |
|
Not rated/ BB |
I-PreTSL II |
|
Mezzanine |
|
|
1,500 |
|
|
|
187 |
|
|
|
(1,313 |
) |
|
Not rated/ BB |
PreTSL XIX * |
|
Senior A-1 |
|
|
7,223 |
|
|
|
4,991 |
|
|
|
(2,232 |
) |
|
A3/ A |
PreTSL XX * |
|
Senior A-1 |
|
|
4,364 |
|
|
|
3,352 |
|
|
|
(1,012 |
) |
|
Ba2/ A |
|
|
|
|
|
|
|
|
|
|
|
$ |
19,699 |
|
|
|
12,199 |
|
|
|
(7,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
North Fork Bank was acquired by Capital One Financial Corporation. |
|
(2) |
|
Bank Boston was acquired by Bank of America. |
|
* |
|
- Excludes the value of related U.S. Treasury zero coupon bond. |
14
The following table provides collateral information on pooled trust preferred securities
included in the previous table as of June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
defaults before |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
causing an |
|
|
|
Total |
|
|
deferrals |
|
|
Performing |
|
|
interest |
|
Description * |
|
Collateral |
|
|
and defaults |
|
|
Collateral |
|
|
shortfall |
|
| | | | |
I-PreTSL I |
|
$ |
193,500 |
|
|
|
17,500 |
|
|
|
176,000 |
|
|
|
98,500 |
|
I-PreTSL II |
|
|
378,000 |
|
|
|
|
|
|
|
378,000 |
|
|
|
153,000 |
|
PreTSL XIX |
|
|
700,535 |
|
|
|
162,400 |
|
|
|
538,135 |
|
|
|
191,000 |
|
PreTSL XX |
|
|
580,154 |
|
|
|
159,000 |
|
|
|
421,154 |
|
|
|
122,500 |
|
|
|
|
* |
|
similar information for the MM Community Funding I and II is not available. |
Mortgage-backed securities
Mortgage-backed securities include agency (FNMA, FHLMC and GNMA) mortgage-backed securities
and non-agency collateralized mortgage obligations (CMOs). The Company reviews its portfolio of
agency mortgage-backed securities quarterly for impairment. As of June 30, 2010, the
Company believes that the impairment within its portfolio of agency mortgage-backed securities is
temporary. As of June 30, 2010, the Company had 12 non-agency CMOs with a total book value of
$24.1 million and a total fair value of $22.2 million.
The following table shows issuer specific information, book value, fair value, unrealized gain
or loss and other-than-temporary impairment recorded in earnings for the Companys portfolio of
non-agency CMOs as of June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
|
|
Total |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
recorded in |
|
|
impairment |
|
|
|
Book |
|
|
Fair |
|
|
Unrealized |
|
|
current quarter |
|
|
recorded in |
|
Description |
|
Value |
|
|
Value |
|
|
Gain/ (loss) |
|
|
earnings |
|
|
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMAC 2003-6 2A2 |
|
$ |
831 |
|
|
|
837 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
AMAC 2003-6 2A8 |
|
|
1,719 |
|
|
|
1,739 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
AMAC 2003-7 A3 |
|
|
983 |
|
|
|
998 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
BOAMS 2005-11 1A8 |
|
|
4,638 |
|
|
|
4,242 |
|
|
|
(396 |
) |
|
|
|
|
|
|
|
|
CWALT 2005-J14 A3 |
|
|
6,099 |
|
|
|
4,983 |
|
|
|
(1,116 |
) |
|
|
(7 |
) |
|
|
(355 |
) |
CFSB 2003-17 2A2 |
|
|
1,333 |
|
|
|
1,330 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
WAMU 2003-S2 A4 |
|
|
1,140 |
|
|
|
1,153 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
CMLTI 2005-10 1A5B |
|
|
1,300 |
|
|
|
1,071 |
|
|
|
(229 |
) |
|
|
(62 |
) |
|
|
(2,786 |
) |
CSFB 2003-21 1A13 |
|
|
140 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FHASI 2003-8 1A24 |
|
|
3,137 |
|
|
|
3,006 |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
|
SARM 2005-21 4A2 |
|
|
1,522 |
|
|
|
1,517 |
|
|
|
(5 |
) |
|
|
(92 |
) |
|
|
(2,543 |
) |
WFMBS 2003-B A2 |
|
|
1,270 |
|
|
|
1,152 |
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,112 |
|
|
|
22,168 |
|
|
|
(1,944 |
) |
|
|
(161 |
) |
|
|
(5,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Credit related other-than-temporary impairment on debt securities is recognized in
earnings while noncredit related other-than-temporary impairment on debt securities, not expected
to be sold, is recognized in other comprehensive income.
The table below shows a cumulative roll forward of credit losses recognized in earnings for
all debt securities held as of June 30, 2010 and not intended to be sold (in thousands):
|
|
|
|
|
Beginning balance as of Janaury 1, 2010 (a) |
|
$ |
13,998 |
|
Credit losses on debt securities for which other-than-temporary impairment
was not previously recognized |
|
|
|
|
Additional credit losses on debt securities for which other-than-temporary
impairment was previously recognized |
|
|
315 |
|
|
|
|
|
Ending balance as of June 30, 2010 |
|
$ |
14,313 |
|
|
|
|
|
|
|
|
(a) |
|
The beginning balance represents credit losses included in other-than-temporary
impairment charges recognized on debt securities in prior periods. |
(4) Loans receivable
The following table shows a summary of our loans receivable at June 30, 2010 and December 31,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Real estate loans: |
|
|
|
|
|
|
|
|
One- to four-family |
|
$ |
2,496,020 |
|
|
|
2,371,996 |
|
Home equity |
|
|
1,099,203 |
|
|
|
1,080,011 |
|
Multi-family and commercial |
|
|
1,367,367 |
|
|
|
1,292,145 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
4,962,590 |
|
|
|
4,744,152 |
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
|
|
|
|
|
|
Automobile |
|
|
96,404 |
|
|
|
101,046 |
|
Education |
|
|
37,162 |
|
|
|
32,860 |
|
Loans on savings accounts |
|
|
11,588 |
|
|
|
12,209 |
|
Other |
|
|
132,080 |
|
|
|
127,750 |
|
|
|
|
|
|
|
|
Total consumer loans |
|
|
277,234 |
|
|
|
273,865 |
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
417,943 |
|
|
|
403,589 |
|
|
|
|
|
|
|
|
Total loans receivable, gross |
|
|
5,657,767 |
|
|
|
5,421,606 |
|
|
|
|
|
|
|
|
|
|
Deferred loan fees |
|
|
(6,625 |
) |
|
|
(7,030 |
) |
Allowance for loan losses |
|
|
(75,417 |
) |
|
|
(70,403 |
) |
Undisbursed loan proceeds (real estate loans) |
|
|
(106,234 |
) |
|
|
(115,111 |
) |
|
|
|
|
|
|
|
Total loans receivable, net |
|
$ |
5,469,491 |
|
|
|
5,229,062 |
|
|
|
|
|
|
|
|
16
The following table presents the activity in the allowance for loan losses for the three
months and six months ended June 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Balance at beginning of period |
|
$ |
74,836 |
|
|
|
57,487 |
|
|
|
70,403 |
|
|
|
54,929 |
|
Provision for loan losses |
|
|
7,896 |
|
|
|
11,736 |
|
|
|
16,697 |
|
|
|
17,517 |
|
Charge-offs -mortgage |
|
|
(600 |
) |
|
|
(558 |
) |
|
|
(1,265 |
) |
|
|
(883 |
) |
Charge-offs -consumer |
|
|
(2,794 |
) |
|
|
(1,348 |
) |
|
|
(4,665 |
) |
|
|
(2,836 |
) |
Charge-offs -commercial |
|
|
(4,418 |
) |
|
|
(834 |
) |
|
|
(6,752 |
) |
|
|
(2,525 |
) |
Recoveries |
|
|
497 |
|
|
|
294 |
|
|
|
999 |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
75,417 |
|
|
|
66,777 |
|
|
|
75,417 |
|
|
|
66,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details information on our loans as of June 30, 2010 and 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Loans 90 days or more delinquent |
|
$ |
107,464 |
|
|
|
122,557 |
|
Nonaccrual loans |
|
|
130,329 |
|
|
|
122,557 |
|
Aggregate recorded investment of impaired loans
with terms modified through a troubled
debt restructuring |
|
|
37,391 |
|
|
|
|
|
(5) Goodwill and Other Intangible Assets
The following table provides information for intangible assets subject to amortization at the
dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
Core deposit intangibles gross |
|
$ |
30,578 |
|
|
|
30,275 |
|
Acquisitions |
|
|
|
|
|
|
303 |
|
Less: accumulated amortization |
|
|
(27,364 |
) |
|
|
(26,108 |
) |
|
|
|
|
|
|
|
Core deposit intangibles net |
|
|
3,214 |
|
|
|
4,470 |
|
|
|
|
|
|
|
|
Customer and Contract intangible assets gross |
|
|
1,731 |
|
|
|
1,731 |
|
Acquisitions -Veracity Benefits Design |
|
|
2,007 |
|
|
|
|
|
Less: accumulated amortization |
|
|
(1,814 |
) |
|
|
(1,523 |
) |
|
|
|
|
|
|
|
Customer and Contract intangible assets net |
|
$ |
1,924 |
|
|
|
208 |
|
|
|
|
|
|
|
|
17
The following table shows the actual aggregate amortization expense for the current
quarter and prior years same quarter, 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 three months ended June 30, 2010 |
|
$ |
759 |
|
For the three months ended June 30, 2009 |
|
|
826 |
|
For the six months ended June 30, 2010 |
|
|
1,541 |
|
For the six months ended June 30, 2009 |
|
|
1,670 |
|
For the year ending December 31, 2010 |
|
|
2,775 |
|
For the year ending December 31, 2011 |
|
|
1,692 |
|
For the year ending December 31, 2012 |
|
|
1,060 |
|
For the year ending December 31, 2013 |
|
|
635 |
|
For the year ending December 31, 2014 |
|
|
313 |
|
For the year ending December 31, 2015 |
|
|
140 |
|
The following table provides information for the changes in the carrying amount of
goodwill (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Consumer |
|
|
|
|
|
|
Banks |
|
|
Finance |
|
|
Total |
|
Balance at December 31, 2008 |
|
$ |
170,050 |
|
|
|
1,313 |
|
|
|
171,363 |
|
Goodwill acquired |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
170,050 |
|
|
|
1,313 |
|
|
|
171,363 |
|
Goodwill acquired |
|
|
219 |
|
|
|
100 |
|
|
|
319 |
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
$ |
170,269 |
|
|
|
1,413 |
|
|
|
171,682 |
|
|
|
|
|
|
|
|
|
|
|
The
Company, through an independent external third party, performed its annual goodwill impairment test as of June 30, 2010 and
concluded that the Companys goodwill was not impaired.
(6) Guarantees
The Company issues 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.
The Company is required to perform under a standby letter of credit when drawn upon by the
guaranteed third party in the case of nonperformance by the Companys 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 managements credit assessment of the customer. At June 30, 2010, the maximum
potential amount of future payments the Company could be required to make under these standby
letters of credit was $50.6 million, of which $49.3 million is fully collateralized. At June 30,
2010, the Company had a liability, which represents deferred income, of
18
$459,000 related to the standby letters of credit. There are no recourse provisions that would enable the Company to
recover any amounts from third parties.
(7) Earnings Per Share
Basic earnings per common share (EPS) is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding for the period, without
considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of the Company. Stock
options to purchase 4,500 shares of common stock with a weighted average exercise price of $12.48
per share were outstanding during the three months and six months ended June 30, 2010 but were not
included in the computation of diluted earnings per share for this period because the options
exercise price was greater than the average market price of the common shares. Stock options to
purchase 2,677,497 shares of common stock with a weighted average exercise price of $10.63 per
share were outstanding during the three months and six months ended June 30, 2009 but were not
included in the computation of diluted earnings per share for this period because the options
exercise price was greater than the average market price of the common shares.
The computation of basic and diluted earnings per share follows (in thousands, except share
data and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Reported net income |
|
$ |
16,141 |
|
|
|
7,291 |
|
|
|
29,294 |
|
|
|
19,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
108,227,678 |
|
|
|
109,039,543 |
|
|
|
108,278,912 |
|
|
|
108,983,408 |
|
Dilutive potential shares due to effect of stock options |
|
|
732,655 |
|
|
|
285,466 |
|
|
|
704,069 |
|
|
|
269,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares
and dilutive potential shares |
|
|
108,960,333 |
|
|
|
109,325,009 |
|
|
|
108,982,981 |
|
|
|
109,253,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
$ |
0.15 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
$ |
0.15 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
(8) Pension and Other Post-retirement Benefits (in thousands):
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
Pension Benefits |
|
|
Other Post-retirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
1,397 |
|
|
|
1,323 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
1,333 |
|
|
|
1,198 |
|
|
|
24 |
|
|
|
25 |
|
Expected return on plan assets |
|
|
(1,379 |
) |
|
|
(967 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(40 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
Amortization of the net loss |
|
|
218 |
|
|
|
458 |
|
|
|
13 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,529 |
|
|
|
1,985 |
|
|
|
37 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
Pension Benefits |
|
|
Other Post-retirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
2,794 |
|
|
|
2,646 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
2,666 |
|
|
|
2,396 |
|
|
|
48 |
|
|
|
50 |
|
Expected return on plan assets |
|
|
(2,758 |
) |
|
|
(1,934 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(80 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
Amortization of the net loss |
|
|
436 |
|
|
|
916 |
|
|
|
26 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,058 |
|
|
|
3,970 |
|
|
|
74 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company made no contribution to its pension or other post-retirement benefit plans
during the six-month period ended June 30, 2010. Once determined, the Company anticipates making a
tax-deductible contribution to its defined benefit pension plan for the year ending December 31,
2010.
(9) Disclosures About Fair Value of Financial Instruments
Fair value information about financial instruments, whether or not recognized in the
consolidated statement of financial condition, is required to be disclosed. These requirements
exclude certain financial instruments and all nonfinancial instruments. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the Company. The carrying
amounts reported in the consolidated statement of financial condition approximate fair value for
the following financial instruments: cash on hand, interest-earning deposits in other institutions,
federal funds sold and other short-term investments, accrued interest receivable, accrued interest
payable, and marketable securities available-for-sale.
Marketable Securities
Where available, market values are based on quoted market prices, dealer quotes, and prices
obtained from independent pricing services. See the Fair Value Measurements section of this
footnote for further detail on how fair values of marketable securities are determined.
Loans Receivable
Loans with comparable characteristics including collateral and repricing structures were
segregated for valuation purposes. Each loan pool was separately valued utilizing a discounted cash
flow analysis. Projected monthly cash flows were discounted to present value using a market rate
for comparable loans,
20
which is not considered an exit price. Characteristics of comparable loans
included remaining term, coupon
interest, and estimated prepayment speeds.
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
The fixed rate advances were valued by comparing their contractual cost to the prevailing
market cost.
Trust-Preferred Securities
The fair value of trust-preferred investments is calculated using the discounted cash flows at
the prevailing rate of interest on similar investments.
Cash flow hedges Interest rate swap agreements (swaps)
The fair value of the swaps is the amount the Company would have expected to pay to terminate
the agreements and is based upon the present value of the expected future cash flows using the
LIBOR swap curve, the basis for the underlying interest rate.
Off-Balance Sheet Financial Instruments
These financial instruments generally are not sold or traded, and estimated fair values are
not readily available. However, the fair value of commitments to extend credit and standby letters
of credit is estimated using the fees currently charged to enter into similar agreements.
Commitments to extend credit issued by the Company are generally short-term in nature and, if drawn
upon, are issued under current market terms. At June 30, 2010 and December 31, 2009, 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 the Companys
financial instruments included in the consolidated statement of financial condition as of June 30,
2010 and December 31, 2009:
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
amount |
|
|
fair value |
|
|
amount |
|
|
fair value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
807,060 |
|
|
|
807,060 |
|
|
|
1,107,790 |
|
|
|
1,107,790 |
|
Securities available-for-sale |
|
|
832,432 |
|
|
|
832,432 |
|
|
|
1,067,089 |
|
|
|
1,067,089 |
|
Securities held-to-maturity |
|
|
415,303 |
|
|
|
417,962 |
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
|
5,469,491 |
|
|
|
5,881,404 |
|
|
|
5,229,062 |
|
|
|
5,509,279 |
|
Accrued interest receivable |
|
|
27,191 |
|
|
|
27,191 |
|
|
|
25,780 |
|
|
|
25,780 |
|
FHLB Stock |
|
|
63,242 |
|
|
|
63,242 |
|
|
|
63,242 |
|
|
|
63,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
|
7,614,719 |
|
|
|
8,029,291 |
|
|
|
7,492,963 |
|
|
|
7,773,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and checking accounts |
|
|
3,283,018 |
|
|
|
3,283,018 |
|
|
|
2,999,683 |
|
|
|
2,999,683 |
|
Time deposits |
|
|
2,445,961 |
|
|
|
2,504,027 |
|
|
|
2,624,741 |
|
|
|
2,689,898 |
|
Borrowed funds |
|
|
897,557 |
|
|
|
922,770 |
|
|
|
897,326 |
|
|
|
893,749 |
|
Junior subordinated debentures |
|
|
103,094 |
|
|
|
113,925 |
|
|
|
103,094 |
|
|
|
108,051 |
|
Cash flow hedges -swaps |
|
|
10,831 |
|
|
|
10,831 |
|
|
|
4,957 |
|
|
|
4,957 |
|
Accrued interest payable |
|
|
4,333 |
|
|
|
4,333 |
|
|
|
4,493 |
|
|
|
4,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
|
|
6,744,794 |
|
|
|
6,838,904 |
|
|
|
6,634,294 |
|
|
|
6,700,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value estimates are made at a point in time, based on relevant market data and
information about the instrument. The following methods and assumptions were used in estimating the
fair value of financial instruments at both June 30, 2010 and December 31, 2009.
Fair Value Measurements
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 valuation technique 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; |
22
|
|
|
Quotes from brokers or other external sources where it can not 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. |
The Company is responsible for the valuation process and as part of this process may use data
from outside sources in establishing fair values. The Company performs due diligence to understand
the inputs used or how the data was calculated or derived. The Company corroborates the
reasonableness of external inputs in the valuation process.
The following table represents assets measured at fair value on a recurring basis as of June
30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
fair value |
|
Equity securities |
|
$ |
714 |
|
|
|
|
|
|
|
220 |
|
|
|
934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
71 |
|
Government sponsored enterprises |
|
|
|
|
|
|
11,252 |
|
|
|
|
|
|
|
11,252 |
|
States and political subdivisions |
|
|
|
|
|
|
219,930 |
|
|
|
|
|
|
|
219,930 |
|
Corporate |
|
|
|
|
|
|
9,734 |
|
|
|
9,407 |
|
|
|
19,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
|
|
|
|
240,987 |
|
|
|
9,407 |
|
|
|
250,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA |
|
|
|
|
|
|
63,389 |
|
|
|
|
|
|
|
63,389 |
|
FNMA |
|
|
|
|
|
|
159,138 |
|
|
|
|
|
|
|
159,138 |
|
FHLMC |
|
|
|
|
|
|
114,834 |
|
|
|
|
|
|
|
114,834 |
|
Non-agency |
|
|
|
|
|
|
763 |
|
|
|
|
|
|
|
763 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA |
|
|
|
|
|
|
49,650 |
|
|
|
|
|
|
|
49,650 |
|
FNMA |
|
|
|
|
|
|
54,039 |
|
|
|
|
|
|
|
54,039 |
|
FHLMC |
|
|
|
|
|
|
117,123 |
|
|
|
|
|
|
|
117,123 |
|
Non-agency |
|
|
|
|
|
|
22,168 |
|
|
|
|
|
|
|
22,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
|
|
|
|
581,104 |
|
|
|
|
|
|
|
581,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
(10,831 |
) |
|
|
|
|
|
|
(10,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
714 |
|
|
|
811,260 |
|
|
|
9,627 |
|
|
|
821,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following table represents assets measured at fair value on a recurring basis as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
fair value |
|
Equity securities |
|
$ |
907 |
|
|
|
|
|
|
|
220 |
|
|
|
1,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
75 |
|
Government sponsored enterprises |
|
|
|
|
|
|
77,863 |
|
|
|
|
|
|
|
77,863 |
|
States and political subdivisions |
|
|
|
|
|
|
237,456 |
|
|
|
|
|
|
|
237,456 |
|
Corporate |
|
|
|
|
|
|
9,616 |
|
|
|
7,385 |
|
|
|
17,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
|
|
|
|
325,010 |
|
|
|
7,385 |
|
|
|
332,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA |
|
|
|
|
|
|
71,673 |
|
|
|
|
|
|
|
71,673 |
|
FNMA |
|
|
|
|
|
|
178,147 |
|
|
|
|
|
|
|
178,147 |
|
FHLMC |
|
|
|
|
|
|
140,203 |
|
|
|
|
|
|
|
140,203 |
|
Non-agency |
|
|
|
|
|
|
774 |
|
|
|
|
|
|
|
774 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA |
|
|
|
|
|
|
54,492 |
|
|
|
|
|
|
|
54,492 |
|
FNMA |
|
|
|
|
|
|
78,834 |
|
|
|
|
|
|
|
78,834 |
|
FHLMC |
|
|
|
|
|
|
184,360 |
|
|
|
|
|
|
|
184,360 |
|
Non-agency |
|
|
|
|
|
|
25,084 |
|
|
|
|
|
|
|
25,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
|
|
|
|
733,567 |
|
|
|
|
|
|
|
733,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
(4,957 |
) |
|
|
|
|
|
|
(4,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
907 |
|
|
|
1,053,620 |
|
|
|
7,605 |
|
|
|
1,062,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available for sale Generally, debt securities are valued
using pricing for similar securities, recently executed transactions and other pricing models
utilizing observable inputs. The valuation for most debt securities is classified as level 2.
Securities within level 2 include corporate bonds, municipal bonds, mortgage-backed securities and
US government obligations. Certain debt securities do not have an active market and as such the
broker pricing received by the Company uses alternative methods, including use of cash flow
estimates. Accordingly, these securities are included herein as level 3 assets. The fair value of
certain corporate debt securities are determined by the Company using a discounted cash flow model
and market assumptions, which generally include cash flow, collateral and other market
assumptions. As such, these securities are included herein as level 3 assets.
Equity securities available for sale Level 1 securities include publicly traded
securities valued using quoted market prices. Level 3 securities include investments in two
financial institutions that provide financial services only to
investor banks obtained as part of
previous acquisitions without observable market data to determine the investments fair values.
These securities can only be sold back to the issuing financial institution at cost. The Company
considers the financial condition of the issuer to determine if the securities have indicators of
impairment.
24
Interest rate swap agreements (Swaps) The fair value of the swaps is the amount the
Company would be expected to pay to terminate the agreements and is based upon the present value of
the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest
rate.
The table below presents a reconciliation of all assets and liabilities measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) for the three and six-month
periods ended June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
|
Equity |
|
|
Debt |
|
|
Equity |
|
|
Debt |
|
|
|
securities |
|
|
securities |
|
|
securities |
|
|
securities |
|
Beginning balance |
|
$ |
220 |
|
|
|
9,316 |
|
|
$ |
220 |
|
|
|
7,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized investment gains/ (losses)
and net change in unrealized appreciation/
(depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income as OTTI |
|
|
|
|
|
|
(218 |
) |
|
|
|
|
|
|
(315 |
) |
Included in other comprehensive income |
|
|
|
|
|
|
309 |
|
|
|
|
|
|
|
2,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers in (out) of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
220 |
|
|
|
9,407 |
|
|
$ |
220 |
|
|
|
9,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents a reconciliation of all assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) for the three and
six-month periods ended June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2009 |
|
|
|
Equity |
|
|
Debt |
|
|
Equity |
|
|
Debt |
|
|
|
securities |
|
|
securities |
|
|
securities |
|
|
securities |
|
Beginning balance |
|
$ |
220 |
|
|
|
4,168 |
|
|
$ |
220 |
|
|
|
5,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized investment gains/ (losses)
and net change in unrealized appreciation/
(depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income as OTTI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
2,570 |
|
|
|
|
|
|
|
801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
Net transfers in (out) of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
220 |
|
|
|
7,238 |
|
|
$ |
220 |
|
|
|
7,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Certain assets and liabilities are measured at fair value on a nonrecurring basis after
initial recognition such as loans measured for impairment, real estate owned and mortgage servicing
rights. The following table represents the fair value measurement for nonrecurring assets as of
June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
fair value |
|
Loans measured for impairment |
|
$ |
|
|
|
|
|
|
|
|
76,430 |
|
|
|
76,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
$ |
|
|
|
|
|
|
|
|
22,191 |
|
|
|
22,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
$ |
|
|
|
|
|
|
|
|
1,108 |
|
|
|
1,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
|
|
|
|
|
99,729 |
|
|
|
99,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain assets and liabilities are measured at fair value on a nonrecurring basis after
initial recognition such as loans measured for impairment, real estate owned and mortgage servicing
rights. The following table represents the fair value measurement for nonrecurring assets as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
fair value |
|
Loans measured for impairment |
|
$ |
|
|
|
|
|
|
|
|
75,933 |
|
|
|
75,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
$ |
|
|
|
|
|
|
|
|
20,257 |
|
|
|
20,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
$ |
|
|
|
|
|
|
|
|
5,481 |
|
|
|
5,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
|
|
|
|
|
101,671 |
|
|
|
101,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans A loan is considered to be impaired when it is probable that
all of the principal and interest due under the original terms of the loan may not be collected.
Impairment is measured based on the fair value of the underlying collateral or discounted cash
flows when collateral does not exist. The Company measures impairment on all nonaccrual commercial
and commercial real estate loans for which it has established specific reserves as part of the
specific allocated allowance component of the allowance for loan losses. The Company classifies
impaired loans as nonrecurring Level 3.
Real Estate Owned Real estate owned is comprised of property acquired through
foreclosure or voluntarily conveyed by delinquent borrowers. These assets are recorded on the date
acquired at the lower of the related loan balance or fair value, less estimated disposition costs,
with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at
the lower of the amount recorded at acquisition date or fair value, less estimated disposition
costs. The Company classifies real estate owned as nonrecurring Level 3.
Mortgage servicing rights Mortgage servicing rights represent the value of
servicing residential mortgage loans, when the mortgage loans have been sold into the secondary
market and the associated servicing has been retained by the Company. The value is determined
through a discounted cash flow
26
analysis, which uses interest rates, prepayment speeds and
delinquency rate assumptions as inputs. All of these assumptions require a significant degree of
management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common
characteristics. Adjustments are only made when the estimated discounted future cash flows are
less than the carrying value, as determined by individual pool. As such, mortgage servicing rights
are classified as nonrecurring Level 3.
(10) Mortgage Loan Servicing
Mortgage servicing assets are recognized as separate assets when servicing rights are
recorded through loan originations and the underlying loan is sold. Upon sale, the mortgage servicing right
(MSR) is established, which represents the then-fair value of future net cash flows expected to
be realized for performing the servicing activities. The fair value of the MSRs are estimated by
calculating the present value of estimated future net servicing cash flows, taking into
consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs
and other economic factors , which are determined based on current market conditions. In
determining the fair value of the MSRs, mortgage interest rates, which are used to determine
prepayment rates and discount rates, are held constant over the estimated life of the portfolio.
MSRs are amortized against mortgage banking income in proportion to, and over the period of, the
estimated future net servicing income of the underlying mortgage loans.
Capitalized MSRs are evaluated for impairment based on the estimated fair value of those
rights. The MSRs are stratified by certain risk characteristics, primarily loan term and note
rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance
is established through a charge to income equal to the amount by which the carrying value exceeds
the fair value. If it is later determined all or a portion of the temporary impairment no longer
exists for a particular tranche, the valuation allowance is reduced.
The following table shows changes in MSRs as of and for the three months ended June 30, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
Servicing |
|
|
Valuation |
|
|
Value and |
|
|
|
Rights |
|
|
Allowance |
|
|
Fair Value |
|
Balance at March 31, 2010 |
|
|
7,492 |
|
|
|
(295 |
) |
|
|
7,197 |
|
Additions/ (reductions) |
|
|
129 |
|
|
|
120 |
|
|
|
249 |
|
Amortization |
|
|
(1,064 |
) |
|
|
|
|
|
|
(1,064 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
|
6,557 |
|
|
|
(175 |
) |
|
|
6,382 |
|
|
|
|
|
|
|
|
|
|
|
The following table shows changes in MSRs as of and for the six months ended June 30,
2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
Servicing |
|
|
Valuation |
|
|
Value and |
|
|
|
Rights |
|
|
Allowance |
|
|
Fair Value |
|
Balance at December 31, 2009 |
|
|
8,570 |
|
|
|
(540 |
) |
|
|
8,030 |
|
Additions/ (reductions) |
|
|
154 |
|
|
|
365 |
|
|
|
519 |
|
Amortization |
|
|
2,167 |
) |
|
|
|
|
|
|
(2,167 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
|
6,557 |
|
|
|
(175 |
) |
|
|
6,382 |
|
|
|
|
|
|
|
|
|
|
|
27
The following table shows changes in MSRs (recorded in other assets on
the consolidated statement of financial condition) as of and for the three months ended June 30,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Servicing |
|
Valuation |
|
Value and |
|
|
Rights |
|
Allowance |
|
Fair Value |
Balance at March 31, 2009
|
|
|
8,549 |
|
|
|
(2,290 |
) |
|
|
6,259 |
|
Additions/ (reductions)
|
|
|
1,798 |
|
|
|
1,300 |
|
|
|
3,098 |
|
Amortization
|
|
|
(1,440 |
) |
|
|
|
|
|
|
(1,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
8,907 |
|
|
|
(990 |
) |
|
|
7,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table shows changes in MSRs (recorded in other assets on
the consolidated statement of financial condition) as of and for the six months ended June 30,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Servicing |
|
Valuation |
|
Value and |
|
|
Rights |
|
Allowance |
|
Fair Value |
Balance at December 31, 2008
|
|
|
8,660 |
|
|
|
(2,380 |
) |
|
|
6,280 |
|
Additions/ (reductions)
|
|
|
2,904 |
|
|
|
1,390 |
|
|
|
4,294 |
|
Amortization
|
|
|
(2,657 |
) |
|
|
|
|
|
|
(2,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
8,907 |
|
|
|
(990 |
) |
|
|
7,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11) Guaranteed Preferred Beneficial Interests in the Companys Junior Subordinated
Deferrable Interest Debentures (Trust Preferred Securities) and Interest Rate Swaps
The Company has two statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware
statutory business trust and Northwest Bancorp Statutory Trust IV, a Connecticut statutory business
trust (Trusts). These trusts exist solely to issue preferred securities to third parties for
cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest
the proceeds from the sale of the trust securities in an equivalent amount of debentures of the
Company, and engage in other activities that are incidental to those previously listed.
Northwest Bancorp Capital Trust III (Trust III) issued 50,000 cumulative trust preferred
securities in a private transaction to a pooled investment vehicle on December 5, 2006 (liquidation
value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 30, 2035.
These securities carry a floating interest rate, which is reset quarterly, equal to three-month
LIBOR plus 1.38%. Northwest Bancorp Statutory Trust IV (Trust IV) issued 50,000 cumulative trust
preferred securities in a private transaction to a pooled investment vehicle on December 15, 2006
(liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of
December 15, 2035. These securities carry a floating interest rate, which is reset quarterly,
equal to three-month LIBOR plus 1.38%. The Trusts have invested the proceeds of the offerings in
junior subordinated deferrable interest debentures issued by the Company. The structure of these
debentures mirrors the structure of the trust-preferred securities. Trust III holds $51,547,000 of
the Companys junior subordinated debentures and Trust IV holds $51,547,000 of the Companys junior
subordinated debentures. 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. The Company has the right to defer payment of interest on
the subordinated debentures at any time, or from time-to-time, for periods not exceeding five
years. If interest payments on the subordinated debentures are deferred, the distributions on the
trust preferred are also deferred. Interest on the subordinated debentures and distributions on
the trust securities is cumulative.
28
The Companys obligation constitutes a full, irrevocable, and unconditional guarantee on a
subordinated basis of the obligations of the trust under the preferred securities.
The Company entered into four interest rate swap agreements (swaps), designating the swaps as
cash flow hedges. The swaps are intended to protect against the variability of cash flows
associated with Trust III and Trust IV. The first two swaps modify the repricing characteristics
of Trust III, wherein (i) the Company receives interest of three-month LIBOR from a counterparty
and pays a fixed rate of 4.20% to the same counterparty calculated on a notional amount of $25.0
million and (ii) the Company receives interest of three-month LIBOR from a counterparty and pays a
fixed rate of 4.61% to the same counterparty calculated on a notional
amount of $25.0 million. The original terms of these two swaps are five years and ten years, respectively. The second two swaps modify
the repricing characteristics of Trust IV, wherein (i) the Company receives interest of three-month
LIBOR from a counterparty and pays a fixed rate of 3.85% to the same counterparty calculated on a
notional amount of $25.0 million and (ii) the Company receives interest of three-month LIBOR from a
counterparty and pays a fixed rate of 4.09% to the same counterparty calculated on a notional
amount of $25.0 million. The original terms of these two swaps are seven years and ten years, respectively.
The swap agreements were entered into with a counterparty that met the Companys credit standards
and the agreements contain collateral provisions protecting the at-risk party. The Company
believes that the credit risk inherent in the contracts is not significant. At June 30, 2010,
$10.8 million was pledged as collateral to the counterparty.
At June 30, 2010, the fair value of the swap agreements was $(10.8) million and was the amount
the Company would have expected to pay if the contracts were terminated. There was no material
hedge ineffectiveness for these swaps.
The following table shows liability derivatives, included in other liabilities, as of June 30,
2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Fair value |
|
$ |
10,831 |
|
|
|
4,957 |
|
Notional amount |
|
$ |
100,000 |
|
|
|
100,000 |
|
Collateral posted |
|
$ |
10,831 |
|
|
|
4,957 |
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements:
In addition to historical information, this document may contain certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or implied in the
forward-looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they reflect managements analysis only as of the date of this
report. The Company has no obligation to revise or update these forward-looking statements to
reflect events or circumstances that arise after the date of this report.
Important factors that might cause such a difference include, but are not limited to:
|
|
|
Changes in interest rates which could impact our net interest margin; |
29
|
|
|
Adverse changes in our loan portfolio or investment securities portfolio and the
resulting credit risk-related losses and/ or market value adjustments; |
|
|
|
|
The impact of the current financial crisis on our loan portfolio (including cash
flow and collateral values), investment portfolio, customers and capital market
activities; |
|
|
|
|
Possible impairments of securities held by us, including those issued by government
entities and government sponsored enterprises; |
|
|
|
|
Our ability to continue to increase and manage our commercial and residential real
estate, multifamily and commercial and industrial loans; |
|
|
|
|
The adequacy of the allowance for loan losses; |
|
|
|
|
Changes in the financial performance and/ or condition of the Companys borrowers; |
|
|
|
|
Changes in general economic or business conditions resulting in changes in demand
for credit and other services, among other things; |
|
|
|
|
Changes in consumer confidence, spending and savings habits relative to the bank and
non-bank financial services we provide; |
|
|
|
|
Compliance with laws and regulatory requirements of federal and state agencies; |
|
|
|
|
New legislation affecting the financial services industry; |
|
|
|
|
The impact of the current governmental effort to restructure the U.S. financial and
regulatory system; |
|
|
|
|
The level of future deposit premium assessments; |
|
|
|
|
Competition from other financial institutions in originating loans and attracting
deposits; |
|
|
|
|
The effect of changes in accounting policies and practices, as may be adopted by the
regulatory agencies, as well as the SEC, Public Company Oversight Board, the Financial
Accounting Standards Board and other accounting standards setters; |
|
|
|
|
Our ability to effectively implement technology driven products and services; |
|
|
|
|
Sources of liquidity; and |
|
|
|
|
Our success in managing the risks involved in the foregoing. |
Overview of Critical Accounting Policies Involving Estimates
The Companys critical accounting policies involve accounting estimates that: a) require
assumptions about highly uncertain matters, and b) could vary sufficiently enough to have a
material effect on the Companys financial condition and/ or results of operations.
Allowance for Loan Losses. The Company recognizes that losses will be experienced on loans
and that the risk of loss will vary with, among other things, the type of loan, the
creditworthiness of the borrower, general economic conditions and the quality of the collateral for
the loan. The Company maintains an allowance for loan losses for losses inherent in the loan
portfolio. The allowance for loan losses represents managements estimate of probable losses based
on all available information. The allowance for loan losses is based on managements evaluation of
the collectibility of the loan portfolio, including past loan loss experience, known and inherent
losses, information about specific borrower situations and estimated collateral values, and current
economic conditions. The loan portfolio and other credit exposures are regularly reviewed by
management in its determination of the allowance for loan losses. The methodology for assessing
the appropriateness of the allowance includes a review of historical losses, peer group
comparisons, industry data and economic conditions. As an integral part of their examination
process, regulatory agencies periodically review the Companys allowance for loan losses and may
require the Company to make additional provisions for estimated losses based upon judgments
different from those of management. In establishing the allowance for loan losses, loss factors
are applied to various pools of outstanding loans. Loss factors are derived using the Companys
historical loss experience and may be adjusted for factors that affect the collectibility of the
portfolio as of the evaluation date. Commercial loans that are criticized are evaluated
individually to determine the required allowance for loan losses and to evaluate the potential
impairment of such loans. Although management believes
30
that it uses the best information available
to establish the allowance for loan losses, future adjustments to the allowance for loan losses may
be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.
Because future events affecting borrowers and collateral cannot be predicted with certainty, there
can be no assurance that the existing allowance for loan losses is adequate or that increases will
not be necessary should the quality of loans deteriorate as a result of the factors previously
discussed. Any material increase in the allowance for loan losses may adversely affect the
Companys financial condition and results of operations. The allowance is based on information
known at the time of the review. Changes in factors underlying the assessment could have a
material impact on the amount of the allowance that is necessary and the amount of provision to be
charged against earnings. Such changes could impact future results. Management believes,
however, to the best of their knowledge, that all known losses as of the balance sheet date have
been recorded.
Valuation of Investment Securities. Unrealized gains or losses, net of deferred taxes, on
available for sale securities are reported in other comprehensive income as a separate component of
shareholders equity. In general, fair value is based upon quoted market prices of identical
assets, when available. If quoted market prices are not available, fair value is based upon
valuation models that use cash flow, security structure and other observable information. Where
sufficient data is not available to produce a fair valuation, fair value is based on broker quotes
for similar assets. Broker quotes may be adjusted to ensure that financial instruments are
recorded at fair value. Adjustments may include unobservable parameters, among other things.
The Company conducts a quarterly review and evaluation of our investment securities to
determine if any declines in fair value are other than temporary. In making this determination, we
consider the period of time the securities were in a loss position, the percentage decline in
comparison to the securities amortized cost, the financial condition of the issuer, if applicable,
and the delinquency or default rates of underlying collateral. In addition, we consider our intent
to sell the investment securities currently in an unrealized loss position and whether it is more
likely than not that the Company will be required to sell the security before recovery of its cost
basis. Any valuation decline that we determine to be other than temporary would require us to
write down the security to fair value through a charge to earnings for the credit loss component.
Goodwill. Goodwill is not subject to amortization but is tested for impairment at least
annually, and possibly more frequently if certain events or changes in circumstances arise.
Impairment testing requires that the fair value of each reporting unit be compared to its carrying
amount, including goodwill. Reporting units are identified based upon analyzing each of the
Companys individual operating segments. A reporting unit is defined as any distinct, separately
identifiable component of an operating segment for which complete, discrete financial information
is available that management regularly reviews. Determining the fair value of a reporting unit
requires a high degree of subjective management judgment, including developing cash flow
projections, selecting appropriate discount rates, identifying relevant market comparable,
incorporating general economic and market conditions and selecting an appropriate control premium.
The selection and weighting of the various fair value techniques may result in a higher or lower
fair value. Judgment is applied in determining the weightings that are most representative of fair
value. The Company has established June 30th of each year as the date for conducting
its annual goodwill impairment assessment. As of June 30, 2010, the Company, through the
assistance of an external third party, performed an impairment test on the Companys goodwill. We
valued each reporting unit by using a weighted average of four valuation methodologies; comparable
transaction approach, control premium approach, public market peers approach and discounted cash
flow approach. Declines in fair value could result in impairment being identified. At June 30,
2010, the Company did not identify any individual reporting unit where the fair value was less than
the carrying value. Future changes in the economic
31
environment or the operations of the operating
units could cause changes to the variables used, which could give rise to declines in the estimated
fair value of the reporting units.
Deferred Income Taxes. The Company uses the asset and liability method of accounting for
income taxes. Using this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. If current available information
raises doubt as to the realization of the deferred tax assets, a valuation allowance is
established. Deferred tax assets and liabilities are measured using enacted tax rates expected to
be applied to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The Company exercises significant judgment in evaluating the amount and
timing of recognition of the resulting tax liabilities and assets. These judgments require us to
make projections of future taxable income. The judgments and estimates the Company makes in
determining our deferred tax assets, which are inherently subjective, are reviewed on an ongoing
basis as regulatory and business factors change. A reduction in estimated future taxable income
could require the Company to record a valuation allowance. Changes in levels of valuation
allowances could result in increased income tax expense, and could negatively affect earnings.
Other Intangible Assets. Using the purchase method of accounting for acquisitions, the
Company is required to record the assets acquired, including identified intangible assets, and
liabilities assumed at their fair values. These fair values often involve estimates based on third
party valuations, including appraisals, or internal valuations based on discounted cash flow
analyses or other valuation techniques, which are inherently subjective. Core deposit and other
intangible assets are recorded in purchase accounting. Intangible assets, which are determined to
have finite lives, are amortized based on the period of estimated economic benefits received,
primarily on an accelerated basis.
Executive Summary and Comparison of Financial Condition
Total assets at June 30, 2010 were $8.136 billion, an increase of $110.8 million, or 1.4%,
from $8.025 billion at December 31, 2009. This increase in assets is primarily attributed to an
increase in loans receivable of $245.4 million, which was partially offset by a decrease in cash
and investments of $120.1 million and an increase in the allowance for loan losses of $5.0 million.
The net increase in total assets was funded by an increase in deposits of $104.6 million,
partially offset by a decrease in shareholders equity of $5.8 million.
Total cash and investments decreased by $120.0 million, or 5.5%, to $2.055 billion at June 30,
2010, from $2.175 billion at December 31, 2009. This decrease is a result of using cash to fund
loan growth.
Loans receivable increased by $245.4 million, or 4.6%, to $5.545 billion at June 30, 2010,
from $5.299 billion at December 31, 2009. Loan demand continues to be strong and we continue to
gain market share throughout our footprint. During the six months ended June 30, 2010, we
originated $1.031 billion of loans receivable.
Deposit balances increased across all products, except time deposits. Total deposits
increased by $104.6 million, or 1.9%, to $5.729 billion at June 30, 2010 from $5.624 billion at
December 31, 2009. Noninterest-bearing demand deposits increased by $47.5 million, or 9.7%, to
$534.5 million at June 30, 2010 from $487.0 million at December 31, 2009; interest-bearing demand
deposits increased by $13.6 million, or 1.8%, to $781.7 million at June 30, 2010 from $768.1
million at December 31, 2009; savings deposits, including insured money fund accounts, increased by
$222.3 million, or 12.7%, to $1.967 billion at June 30, 2010 from $1.745 billion at December 31,
2009; while time deposits decreased by $178.8 million, or 6.8%, to $2.446 billion at June 30, 2010
from $2.625 billion at December 31, 2009.
32
Total shareholders equity at June 30, 2010 was $1.311 billion, or $11.83 per share, a
decrease of $5.8 million, or 0.4%, from $1.317 billion, or $11.90 per share, at December 31, 2009.
This decrease was
primarily attributable to the payment of cash dividends of $22.1 million and the purchase of
the remaining ESOP plan shares of $17.2 million, partially offset by net income of $29.3 million.
Financial institutions are subject to various regulatory capital requirements administered by
state and federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by the regulators that, if
undertaken, could have a direct material effect on a companys financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, financial
institutions must meet specific capital guidelines that involve quantitative measures of its
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative judgments made by
the regulators about components, risk-weighting and other factors.
Quantitative measures, established by regulation to ensure capital adequacy, require financial
institutions to maintain minimum amounts and ratios (set forth in the table below) of Total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I
capital to average assets (as defined). Capital ratios for Northwest are presented in the tables
below. Dollar amounts in the accompanying tables are in thousands.
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital |
|
Well Capitalized |
|
|
Actual |
|
Requirements |
|
Requirements |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Total Capital (to risk weighted assets)
|
|
$ |
1,006,221 |
|
|
|
21.02 |
% |
|
|
382,924 |
|
|
|
8.00 |
% |
|
|
478,355 |
|
|
|
10.00 |
% |
Tier I Capital (to risk weighted assets)
|
|
|
947,353 |
|
|
|
19.79 |
% |
|
|
191,462 |
|
|
|
4.00 |
% |
|
|
287,193 |
|
|
|
6.00 |
% |
Tier I Capital (leverage) (to average assets)
|
|
|
947,353 |
|
|
|
11.89 |
% |
|
|
239,017 |
|
|
|
3.00 |
%* |
|
|
398,362 |
|
|
|
5.00 |
% |
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital |
|
Well Capitalized |
|
|
Actual |
|
Requirements |
|
Requirements |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Total Capital (to risk weighted assets)
|
|
$ |
974,967 |
|
|
|
20.95 |
% |
|
|
372,366 |
|
|
|
8.00 |
% |
|
|
465,457 |
|
|
|
10.00 |
% |
Tier I Capital (to risk weighted assets)
|
|
|
916,613 |
|
|
|
19.69 |
% |
|
|
186,183 |
|
|
|
4.00 |
% |
|
|
279,274 |
|
|
|
6.00 |
% |
Tier I Capital (leverage) (to average assets)
|
|
|
916,613 |
|
|
|
12.65 |
% |
|
|
217,402 |
|
|
|
3.00 |
%* |
|
|
362,337 |
|
|
|
5.00 |
% |
|
|
|
* |
|
The FDIC has indicated that the most highly rated institutions which meet certain criteria will
be required to maintain a ratio of 3%, and all other institutions will be required to maintain an
additional capital cushion of 100 to 200 basis points. As of June 30, 2010, the Company had not
been advised of any additional requirements in this regard. |
Northwest Savings Bank is required to maintain a sufficient level of liquid assets, as
determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of
Banking during their regular examinations. Northwest monitors its liquidity position primarily
using the ratio of unencumbered liquid assets as a percentage of deposits and borrowings
(liquidity ratio). Northwests liquidity ratio at June 30, 2010 was 24.8%. We adjust liquidity
levels in order to meet funding needs for deposit outflows, payment of real estate taxes and
insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. As of
June 30, 2010 the Bank had $2.0 billion of additional borrowing capacity available with the FHLB,
including $150.0 million on an overnight line of credit, as well as $97.3 million of borrowing
capacity available with the Federal Reserve Bank and $75.0 million with a correspondent bank.
33
We paid $11.1 million and $4.0 million in cash dividends during the quarters ended June 30,
2010 and 2009, respectively, and $22.1 million and $7.9 million during the six-month periods ended
June 30, 2010 and 2009, respectively. The increase in dividends paid is the result of our
reorganization and second-
step common stock offering completed on December 18, 2009. Prior to the reorganization and
second-step common stock offering, Northwest Bancorp, MHC requested the non-objection of the OTS to
waive its receipt of dividends from the Company when such dividends were not needed for regulatory
capital, working capital or other purposes. As a result, we did not pay dividends on the 63% of
shares owned by Northwest Bancorp, MHC. The common stock dividend payout ratio (dividends declared
per share divided by net income per share) was 66.7% and 142.9% for the quarters ended June 30,
2010 and 2009, respectively, on dividends of $0.10 per share for each period. The common stock
dividend payout ratio for the six-month periods ended June 30, 2010 and 2009 was 74.1% and 111.1%,
respectively, on dividends of $0.20 per share for each period. The 2009 dividends per share
amounts were adjusted for the second-step common stock offering and related conversion of 2.25
shares of Northwest Bancshares, Inc. for each share of Northwest Bancorp, Inc.). We have declared
a dividend of $0.10 per share payable on August 17, 2010 to shareholders of record as of August 5,
2010. This represents the 63rd consecutive quarter we have paid a cash dividend.
Nonperforming Assets
The following table sets forth information with respect to our nonperforming assets, defined
as nonaccrual loans and foreclosed real estate. Nonaccrual loans are those loans for which the
accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are
90 days or more contractually delinquent and may also be placed on nonaccrual status even if not 90
days or more delinquent but other conditions exist. Other nonperforming assets represent real
estate we acquired through foreclosure or repossession. Foreclosed property is carried at the
lower of its fair value less estimated costs to sell, or the principal balance of the related loan.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
(Dollars in Thousands) |
|
Loans accounted for on a nonaccrual basis: |
|
|
|
|
|
|
|
|
One- to four-family residential loans |
|
$ |
26,441 |
|
|
|
29,373 |
|
Multifamily and commercial real estate loans |
|
|
54,691 |
|
|
|
49,594 |
|
Consumer loans |
|
|
13,101 |
|
|
|
12,544 |
|
Commercial business loans |
|
|
36,096 |
|
|
|
33,115 |
|
|
|
|
|
|
|
|
Total |
|
|
130,329 |
|
|
|
124,626 |
|
|
|
|
|
|
|
|
Total nonperforming loans as a percentage of loans |
|
|
2.35 |
% |
|
|
2.35 |
% |
Total real estate acquired through foreclosure and other
real estate owned (REO) |
|
|
22,191 |
|
|
|
20,257 |
|
Total nonperforming assets |
|
$ |
152,520 |
|
|
|
144,883 |
|
Total nonperforming assets as a percentage of total
assets |
|
|
1.87 |
% |
|
|
1.81 |
% |
|
|
|
|
|
|
|
A loan is considered to be impaired, when, based on current information and events it is
probable that we will be unable to collect all amounts due according to the contractual terms of
the loan agreement including both contractual principal and interest payments. The amount of
impairment is required to be measured using one of three methods: (1) the present value of expected
future cash flows discounted at the loans effective interest rate; (2) the loans observable
market price; or (3) the fair value of collateral if the loan is collateral dependent. If the
measure of the impaired loan is less than the recorded investment in the loan, a specific allowance
is allocated for the impairment. Impaired loans at June 30, 2010 and
34
December 31, 2009 were $107.5
million and $124.6 million, respectively. Specific allowances allocated to impaired loans were
$15.4 million and $19.1 million at June 30, 2010 and December 31, 2009, respectively.
Allowance for Loan Losses
Our Board of Directors has adopted an Allowance for Loan Losses (ALL) policy designed to
provide management with a systematic methodology for determining and documenting the ALL each
reporting period. This methodology was developed to provide a consistent process and review
procedure to ensure that the ALL is in conformity with GAAP, our internal policies and procedures
and other supervisory and regulatory guidelines.
On an ongoing basis, the Credit Review department, as well as loan officers, branch managers
and department heads, review and monitor the loan portfolio for problem loans. This portfolio
monitoring includes a review of the monthly delinquency reports as well as historical comparisons
and trend analysis. In addition, a meeting is held every quarter with each of our eight regions to
monitor the performance and status of loans on an internal watch list. On an on-going basis the
loan officer along with the Credit Review department grades or classifies problem loans or
potential problem loans based upon their knowledge of the lending relationship and other
information previously accumulated. Our loan grading system for problem loans is consistent with
industry regulatory guidelines which classify loans as substandard, doubtful or loss. Loans
that do not exhibit risk sufficient to warrant classification in one of the subsequent categories,
but which possess some weaknesses, are designated as special mention. A substandard loan is
any loan that is more than 90 days contractually delinquent or is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans
classified as doubtful have all the weaknesses inherent in those classified as substandard with
the added characteristic that the weaknesses present make collection or liquidation in full, on the
basis of currently existing facts, conditions or values, highly questionable and improbable. Loans
classified as loss are considered uncollectible so that their continuance as assets without the
establishment of a specific loss allowance is not warranted.
The loans that have been classified as substandard or doubtful are reviewed by the Credit
Review department for possible impairment. A loan is considered impaired when, based on current
information and events, it is probable that we will be unable to collect all amounts due according
to the contractual terms of the loan agreement, including both contractual principal and interest
payments.
If an individual loan is deemed to be impaired, the Credit Review department determines the
proper measure of impairment for each loan based on one of three methods: (1) the present value of
expected future cash flows discounted at the loans effective interest rate; (2) the loans
observable market price; or (3) the fair value of the collateral if the loan is collateral
dependent. If the measurement of the impaired loan is more or less than the recorded investment in
the loan, the Credit Review department adjusts the specific allowance associated with that
individual loan accordingly.
If a substandard or doubtful loan is not considered individually for impairment, it is grouped
with other loans that possess common characteristics for impairment evaluation and analysis. This
segmentation is accomplished by grouping loans of similar product types, risk characteristics and
industry concentration into homogeneous pools. Historical loss ratios are analyzed and adjusted
based on delinquency trends as well as the current economic, political, regulatory and interest
rate environment and used to estimate the current measure of impairment.
The individual impairment measures along with the estimated loss for each homogeneous pool are
consolidated into one summary document. This summary schedule along with the support documentation
used to establish this schedule is presented to the Credit Committee on a quarterly basis. The
Credit
35
Committee reviews the processes and documentation presented, reviews the concentration of
credit by industry and customer, lending products, activity, competition and collateral values, as
well as economic conditions in general and in each of our market areas. Based on this review and discussion
the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with
this estimate are determined. In addition, the Credit Committee considers if any changes to the
methodology are needed. The Credit Committee also reviews and discusses delinquency trends,
nonperforming asset amounts and ALL levels and ratios compared to its peer group as well as state
and national statistics. Similarly, following the Credit Committees review and approval, a review
is performed by the Risk Management Committee of the Board of Directors.
In addition to the reviews by managements Credit Committee and the Board of Directors Risk
Management Committee, regulators from either the FDIC or the Pennsylvania Department of Banking
perform a review on an annual basis for the adequacy of the ALL and its conformity with regulatory
guidelines and pronouncements. Any recommendations or enhancements from these independent parties
are considered by management and the Credit Committee and implemented accordingly.
Management acknowledges that this is a dynamic process and consists of factors, many of which
are external and out of managements control, that can change often, rapidly and substantially.
The adequacy of the ALL is based upon estimates using all the information previously discussed as
well as current and known circumstances and events. There is no assurance that actual portfolio
losses will not be substantially different than those that were estimated.
Management utilizes a consistent methodology each period when analyzing the adequacy of the
allowance for loan losses and the related provision for loan losses. As part of the analysis as of
June 30, 2010, management considered the economic conditions in our markets, such as the elevated
unemployment and bankruptcy levels as well as the declines in real estate collateral values. In
addition, management considered the negative trend in asset quality, loan charge-offs and the
allowance for loan losses as a percentage of nonperforming loans. As a result, we increased the
allowance for loan losses during the six-month period ended June 30, 2010 by $5.0 million, or 7.1%,
to $75.4 million, or 1.36% of total loans, at June 30, 2010 from $70.4 million, or 1.33% of total
loans, at December 31, 2009. The increase in the allowance for loan losses and the related
provision for loan losses is partially attributed to specific reserves discussed further in the
comparison of operating results for the six months ended June 30, 2010 section which follows. In
addition, management considered how the level of nonperforming loans and historical charge-offs
have influenced the required amount of allowance for loan losses. Nonperforming loans of $130.3
million, or 2.35% of total loans, at June 30, 2010 increased by $5.7 million, or 4.6%, from $124.6
million, or 2.35% of total loans, at December 31, 2009. As a percentage of average loans,
annualized net charge-offs increased to 0.43% for the six months ended June 30, 2010 compared to
0.22% for the six months ended June 30, 2009
In addition, the increase in the allowance for loan losses is related to the growth in the
loan portfolio and in particular the increase in commercial loans. The commercial loan portfolio
increased by $107.4 million, or 6.7%, during the six months ended June 30, 2010 to $1.717 billion,
from $1.610 billion at December 31, 2009. Commercial loans tend to be larger in size and generally
more vulnerable to economic slowdowns. Management believes all known losses as of the balance
sheet dates have been recorded.
Comparison of Operating Results for the Quarters Ended June 30, 2010 and 2009
Net income for the quarter ended June 30, 2010 was $16.1 million, or $0.15 per diluted share,
an increase of $8.8 million, or 121.4%, from $7.3 million, or $0.07 per diluted share, for the same
quarter last year. The increase in net income resulted primarily from increases in net interest
income of $7.6 million and noninterest income of $3.3 million and a decrease in the provision for
loan losses of $3.8 million.
36
Partially offsetting these increases were an increase in noninterest
expense of $1.2 million and income taxes of $4.7 million. A discussion of significant changes
follows. Annualized, net income for the quarter ended June 30, 2010 represents a 4.95% and 0.79% return on average equity and return on
average assets, respectively, compared to 4.62% and 0.41% for the same quarter last year.
Interest Income
Total interest income increased by $1.7 million, or 1.8%, to $92.4 million for the quarter
ended June 30, 2010 due to an increase in the average balance of interest earning assets, which was
partially offset by a decrease in the average yield earned on interest earning assets. Average
interest earning assets increased by $984.0 million, or 15.0%, to $7.543 billion for the quarter
ended June 30, 2010 from $6.559 billion for the quarter ended June 30, 2009. The average yield on
interest earning assets decreased to 4.91% for the quarter ended June 30, 2010 from 5.52% for the
quarter ended June 30, 2009. The average yield on all categories of interest earning assets
decreased from the previous period, except for the yield on interest earning deposits, which
increased slightly.
Interest income on loans increased by $2.1 million, or 2.6%, to $81.7 million for the quarter
ended June 30, 2010 from $79.7 million for the quarter ended June 30, 2009. Average loans
receivable increased by $285.2 million, or 5.5%, to $5.465 billion for the quarter ended June 30,
2010 from $5.180 billion for the quarter ended June 30, 2009. This increase is primarily
attributable to strong loan demand throughout our market area and a continued increase in market
share, as well as the decision to retain most of our one-to four-family mortgage loan production in
the current quarter instead of selling into the secondary market as we did throughout the prior
year. The average yield on loans receivable decreased to 6.00% for the quarter ended June 30, 2010
from 6.13% for the quarter ended June 30, 2009. The decrease in average yield is primarily
attributable to the interest rates on variable rate loans adjusting downward as market rates
decreased, as well as the origination of new loans in a generally lower interest rate environment.
Interest income on mortgage-backed securities decreased by $167,000, or 2.4%, to $6.7 million
for the quarter ended June 30, 2010 from $6.9 million for the quarter ended June 30, 2009. This
decrease is the result of a decrease in the average yield, which decreased to 3.39% for the quarter
ended June 30, 2010 from 4.01% for the quarter ended June 30, 2009. The decrease in average yield
resulted from the reduction in interest rates for variable rate securities during this period of
generally lower market interest rates. The decrease in average yield was partially offset by an
increase in average balance, which increased by $106.5 million, or 15.5%, to $792.4 million for the
quarter ended June 30, 2010 from $685.9 million for the quarter ended June 30, 2009. The increase
in average balance is a result of deploying the proceeds from our second-step common stock
offering, completed in December 2009.
Interest income on investment securities decreased by $626,000, or 15.4%, to $3.5 million for
the quarter ended June 30, 2010 from $4.1 million for the quarter ended June 30, 2009. This
decrease is due to a decrease in average yield, which decreased to 3.67% for the quarter ended June
30, 2010 from 4.58% for the quarter ended June 30, 2009. The average yield decreased as a result
of the purchase of investment securities during a period of generally lower market interest rates.
Partially offsetting the decrease in average yield was an increase in the average balance of
investment securities, which increased by $20.2 million, or 5.7%, to $376.2 million for the quarter
ended June 30, 2010 from $356.0 million for the quarter ended June 30, 2009. The increase in the
average balance is a result of investing part of the proceeds of our second-step common stock
offering in shorter-term investment securities in order to improve net interest income.
Interest income on interest-earning deposits increased by $389,000, to $512,000 for the
quarter ended June 30, 2010 from $123,000 for the quarter ended June 30, 2009. This increase is
due to the average balance increasing by $572.0 million, to $845.9 million for the quarter ended
June 30, 2010 from
37
$273.9 million for the quarter ended June 30, 2009. The average balance
increased due to the placement of the proceeds from our second-step common stock offering in
overnight funds while we systematically deploy these funds to originate loans, purchase investments and pay for acquisitions. The
average yield increased to 0.24% for the quarter ended June 30, 2010 from 0.18% for the quarter
ended June 30, 2009.
Interest Expense
Interest expense decreased by $5.9 million, or 17.0%, to $28.7 million for the quarter ended
June 30, 2010 from $34.6 million for the quarter ended June 30, 2009. This decrease in interest
expense was due to a decrease in the average cost of interest-bearing liabilities to 1.86% from
2.36%, which was partially offset by an increase in the average balance of interest-bearing
liabilities. Average interest-bearing liabilities increased by $321.8 million, or 5.5%, to $6.190
billion for the quarter ended June 30, 2010 from $5.868 billion for the quarter ended June 30,
2009. The decrease in the cost of funds resulted primarily from a decrease in the level of market
interest rates which enabled the Company to reduce the rate of interest paid on most deposit
products. The increase in liabilities resulted primarily from deposit growth in all of our
markets, particularly low cost deposit products.
Net Interest Income
Net interest income increased by $7.5 million, or 13.4%, to $63.7 million for the quarter
ended June 30, 2010 from $56.2 million for the quarter ended June 30, 2009. This increase in net
interest income was attributable to the factors discussed above, primarily the increase in the
balance and change in mix of interest earning assets, and the decrease in market interest rates
enabling us to reduce our cost of funds. Our net interest rate spread decreased to 3.05% for the
quarter ended June 30, 2010 from 3.16% for the quarter ended June 30, 2009, and our net interest
margin decreased to 3.38% for the quarter ended June 30, 2010 from 3.43% for the quarter ended June
30, 2009.
Provision for Loan Losses
The provision for loan losses decreased by $3.8 million, or 32.7%, to $7.9 million for the
quarter ended June 30, 2010 from $11.7 million for the quarter ended June 30, 2009. This decrease
is primarily a result of a decrease in loans greater than 90 days delinquent. Included in the
provision for the quarter ended June 30, 2010 was a specific reserve of $134,000 for a loan to a
trucking and storage company in Pennsylvania, a specific reserve of $435,000 for a loan secured by
a hotel in Maryland, a specific reserve of $148,000 for a loan to a coal mining company in
Pennsylvania, a specific reserve of $181,000 for a loan secured by residential real estate rental
properties in Pennsylvania, a specific reserve of $206,000 for a loan to a wholesale lender in
Maryland, a specific reserve of $195,000 for a loan secured by a hotel in Pennsylvania and a
general reserve of $2.1 million for an increase in the historical loss factors used to determine
the required level of allowance for loan losses.
In determining the amount of the current quarters provision, we considered the extended
length of time of the current economic downturn and the increase in charge-offs over the past year.
We also considered that the historical loss factors now include these elevated charge-off levels
and determined that these historical loss ratios appropriately represent future losses. Net
charge-offs for the quarter ended June 30, 2010 were $7.3 million compared to $2.4 million for the
quarter ended June 30, 2009. Annualized net charge-offs to average loans was 0.54% for the quarter
ended June 30, 2010. We also considered unemployment levels and bankruptcy filings, declines in
real estate values and the impact of these factors on the quality of our loan portfolio.
Management analyzes the allowance for loan losses as described in the section entitled Allowance
for Loan Losses. The provision that is recorded is sufficient, in managements judgment, to bring
this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan
mix, economic conditions and historical loss experience. Management believes, to the best of their
knowledge, that all known losses as of the balance sheet dates have been recorded.
38
Noninterest Income
Noninterest income increased by $3.3 million, or 27.3%, to $15.5 million for the quarter ended
June 30, 2010 from $12.2 million for the quarter ended June 30, 2009. Net impairment charges on
investment securities of $218,000 for the quarter ended June 30, 2010, improved by $4.1 million
compared to the same quarter last year when net impairment charges were $4.3 million. The decrease
in net impairment charges is a result of increases in the fair value of our investment portfolio.
Service charges and fees increased by $1.4 million, or 16.4%, to $9.9 million for the quarter ended
June 30, 2010 from $8.5 million for the quarter ended June 30, 2009 primarily as a result of our
growth in deposit transaction accounts which generate these types of fees. Insurance commission
income increased by $534,000, or 70.4%, to $1.3 million for the quarter ended June 30, 2010 from
$759,000 for the quarter ended June 30, 2009. This increase is primarily attributable to our
acquisition of Veracity Benefits Design, an employee benefits firm specializing in services to
employer and employee groups. Offsetting these increases was a decrease in mortgage banking
income, which decreased by $3.3 million, or 99.1%, to $29,000 for the quarter ended June 30, 2010
from $3.3 million for the quarter ended June 30, 2009. This decrease is a result of holding
substantially all of our one- to four-family mortgage loan production during the current year,
while we sold the majority of this production in the prior year.
Noninterest Expense
Noninterest expense increased by $1.2 million, or 2.5%, to $48.2 million for the quarter ended
June 30, 2010 from $47.0 million for the same quarter in the prior year. Compensation and employee
benefits expense increased by $2.3 million, or 9.8%, to $25.0 million for the quarter ended June
30, 2010 from $22.7 million for the quarter ended June 30, 2009. This increase is primarily due to
an increase in health insurance expense and the expense related to the ESOP plan. Processing
expenses increased by $598,000, or 12.1%, to $5.6 million for the quarter ended June 30, 2010 from
$5.0 million for the quarter ended June 30, 2009. This increase is primarily the result of our
continued upgrade of systems, including our migration to check imaging. Marketing expense
increased by $1.3 million, or 63.5%, to $3.3 million for the quarter ended June 30, 2010 from $2.0
million for the quarter ended June 30, 2009. This increase was due to the implementation of an
extensive marketing campaign focused on acquiring low cost checking accounts. Partially offsetting
these increases were decreases in office operations expense and FDIC insurance special assessments.
Office operations decreased by $358,000, or 10.9%, to $2.9 million for the quarter ended June 30,
2010 from $3.3 million for the quarter ended June 30, 2009. This decrease is primarily a result of
decreases in bank service charges and courier expenses, due to our migration to check imaging. In
the prior year, the FDIC levied a special assessment on all insured banks to help replenish the
insurance fund, with our assessment being $3.3 million.
Income Taxes
The provision for income taxes for the quarter ended June 30, 2010 increased by $4.7 million,
or 200.4%, to $7.1 million for the quarter ended June 30, 2010 from $2.4 million for the quarter
ended June 30, 2009. This increase in income tax is primarily a result of an increase in income
before income taxes of $13.6 million, or 140.7%. Our effective tax rate for the quarter ended June
30, 2010 was 30.5% compared to 24.4% in the same quarter last year as tax-free income from the
investment in municipal securities and BOLI comprised a smaller percentage of earnings in the
current year compared to the prior year.
Comparison of operating results for the six months ended June 30, 2010 and 2009
Net income for the six months ended June 30, 2010 was $29.3 million, or $0.27 per diluted
share, an increase of $9.7 million, or 49.5%, from $19.6 million, or $0.18 per diluted share, for
the same period last year. The increase in net income resulted primarily from an increase in net
interest income of $9.8 million, a decrease in the provision for loan losses of $820,000 and an
increase in noninterest income of $9.5 million. These were partially offset by an increase in
noninterest expense of $5.5 million and income
39
taxes of $5.0 million. A discussion of significant changes follows. Annualized, net income
for the six months ended June 30, 2010 represents a 4.49% and 0.73% return on average equity and
return on average assets, respectively, compared to 6.26% and 0.56% for the same period last year.
Interest Income
Total interest income increased by $178,000, or 0.1%, to $183.5 million for the six months
ended June 30, 2010 due to an increase in the average balance of interest earning assets, which was
partially offset by a decrease in the average yield earned on interest earning assets. Average
interest earning assets increased by $983.0 million, or 15.1%, to $7.499 billion for the six months
ended June 30, 2010 from $6.516 billion for the six months ended June 30, 2009. The average yield
on interest earning assets decreased to 4.92% for the six months ended June 30, 2010 from 5.63% for
the six months ended June 30, 2009. The average yield on all categories of interest earning assets
decreased from the previous period, except for the yield on interest earning deposits, which
increased slightly.
Interest income on loans increased by $2.1 million, or 1.3%, to $162.5 million for the six
months ended June 30, 2010 from $160.4 million for the six months ended June 30, 2009. Average
loans receivable increased by $212.2 million, or 4.1%, to $5.406 billion for the six months ended
June 30, 2010 from $5.194 billion for the six months ended June 30, 2009. This increase is
primarily attributable to strong loan demand throughout our market area and the continued increase
in market share, as well as the decision to retain most of our one-to four-family mortgage loan
production in the current period instead of selling into the secondary market, as we did throughout
the prior year. The average yield on loans receivable decreased to 6.04% for the six months ended
June 30, 2010 from 6.18% for the six months ended June 30, 2009. The decrease in average yield is
primarily attributable to the interest rates on variable rate loans adjusting downward as market
interest rates decreased, as well as the origination of new loans in a generally lower interest
rate environment.
Interest income on mortgage-backed securities decreased by $1.4 million, or 10.0%, to $12.9
million for the six months ended June 30, 2010 from $14.3 million for the six months ended June 30,
2009. This decrease is the result of a decrease in the average yield, which decreased to 3.36% for
the six months ended June 30, 2010 from 4.01% for the six months ended June 30, 2009. The decrease
in average yield resulted from the reduction in interest rates for variable rate securities during
this period of generally lower market interest rates. The decrease in average yield was partially
offset by an increase in average balance, which increased by $52.9 million, or 7.4%, to $764.7
million for the six months ended June 30, 2010 from $711.8 million for the six months ended June
30, 2009. The increase in average balance is a result of deploying the proceeds from our
second-step common stock offering, which was completed in December 2009.
Interest income on investment securities decreased by $1.5 million, or 16.6%, to $7.1 million
for the six months ended June 30, 2010 from $8.6 million for the six months ended June 30, 2009.
This decrease is due to a decrease in average yield, which decreased to 3.88% for the six months
ended June 30, 2010 from 4.61% for the six months ended June 30, 2009. The average yield decreased
as a result of the purchase of investment securities during a period of generally lower market
interest rates. The average balance of investment securities decreased by $3.0 million, or 0.8%,
to $367.9 million for the six months ended June 30, 2010 from $370.9 million for the six months
ended June 30, 2009.
Interest income on interest-earning deposits increased by $915,000, to $1.1 million for the
six months ended June 30, 2010 from $162,000 for the six months ended June 30, 2009. This increase
is due to the average balance increasing by $720.9 million, to $896.3 million for the six months
ended June 30, 2010 from $175.4 million for the six months ended June 30, 2009. The average
balance increased due to the placement of the proceeds from our second-step common stock offering
and deposit inflows in
40
overnight funds while we systematically deploy these funds to originate loans, purchase
investments and pay for acquisitions. The average yield increased to 0.24% for the six months
ended June 30, 2010 from 0.18% for the six months ended June 30, 2009.
Interest Expense
Interest expense decreased by $9.6 million, or 13.8%, to $59.8 million for the six months
ended June 30, 2010 from $69.4 million for the six months ended June 30, 2009. This decrease in
interest expense was due to a decrease in the average cost of interest-bearing liabilities to 1.96%
from 2.39%, which was partially offset by an increase in the average balance of interest-bearing
liabilities of $317.9 million, or 5.4%, to $6.165 billion for the six months ended June 30, 2010
from $5.848 billion for the six months ended June 30, 2009. The decrease in the cost of funds
resulted primarily from a decrease in the level of market interest rates. The increase in
liabilities resulted primarily from deposit growth in all of our markets, particularly low cost
deposit products.
Net Interest Income
Net interest income increased by $9.8 million, or 8.6%, to $123.8 million for the six months
ended June 30, 2010 from $114.0 million for the six months ended June 30, 2009. This increase in
net interest income was attributable to the factors discussed above. Our net interest rate spread
decreased to 2.96% for the six months ended June 30, 2010 from 3.24% for the six months ended June
30, 2009, and our net interest margin decreased to 3.30% for the six months ended June 30, 2010
from 3.51% for the six months ended June 30, 2009.
Provision for Loan Losses
The provision for loan losses decreased by $820,000, or 4.7%, to $16.7 million for the six
months ended June 30, 2010 from $17.5 million for the six months ended June 30, 2009. Included in
the provision for the six months ended June 30, 2010 was a specific reserve of $161,000 for a loan
to a hotel and restaurant in Pennsylvania, a specific reserve of $300,000 for a loan secured by
rental retail space located in Virginia, a specific reserve of $112,000 for a loan to a restaurant
in Pennsylvania, a specific reserve of $960,000 for a loan to an equipment leasing company in
Pennsylvania, a specific reserve of $500,000 for a loan to a car dealer located in Pennsylvania, a
specific reserve of $134,000 for a loan to a trucking and storage company in Pennsylvania, a
specific reserve of $435,000 for a loan secured by a hotel in Maryland, a specific reserve of
$148,000 for a loan to a coal mining company in Pennsylvania, a specific reserve of $181,000 for a
loan secured by residential real estate rental properties in Pennsylvania, a specific reserve of
$206,000 for a loan to a wholesale lender in Maryland, a specific reserve of $195,000 for a loan
secured by a hotel in Pennsylvania and a general reserve of $4.1 million for an increase in the
historical loss factors used to determine the required level of allowance for loan losses.
In determining the amount of the current period provision, we considered the economic
conditions, including unemployment levels and bankruptcy filings, and declines in real estate
values and the impact of these factors on the quality of our loan portfolio. Net charge-offs for
the six months ended June 30, 2010 were $11.7 million compared to $5.7 million for the six months
ended June 30, 2009. Annualized net charge-offs to average loans was 0.43% for the six months
ended June 30, 2010. Management analyzes the allowance for loan losses as described in the section
entitled Allowance for Loan Losses. The provision that is recorded is sufficient, in
managements judgment, to bring this reserve to a level that reflects the losses inherent in our
loan portfolio relative to loan mix, economic conditions and historical loss experience.
Management believes, to the best of their knowledge, that all known losses as of the balance sheet
dates have been recorded.
41
Noninterest Income
Noninterest income increased by $9.5 million, or 43.7%, to $31.4 million for the six months
ended June 30, 2010 from $21.9 million for the six months ended June 30, 2009. Net impairment
charges on investment securities of $315,000 for the six months ended June 30, 2010, improved by
$4.0 million compared to the same period last year when net impairment charges were $4.3 million.
The decrease in net impairment charges is a result of increases in the fair value of our investment
portfolio. Service charges and fees increased by $2.4 million, or 14.8%, to $18.8 million for the
six months ended June 30, 2010 from $16.4 million for the six months ended June 30, 2009 primarily
as a result of our growth in deposit transaction accounts which generate these types of fees.
Insurance commission income increased by $1.1 million, or 86.2%, to $2.4 million for the six months
ended June 30, 2010 from $1.3 million for the six months ended June 30, 2009. This increase is
primarily attributable to our acquisition of Veracity Benefits Design. Losses on the sale or
write-down of real estate owned also decreased because in the six months ended June 30, 2009 we
recorded an impairment charge of approximately $3.9 million related to a parcel of land in Florida
that was taken into real estate owned during 2008 and in the first quarter of 2010 we recognized a
gain of approximately $2.0 million from the sale of investment securities. Offsetting these
increases in non-interest income was a decrease in mortgage banking income, which decreased by $5.1
million, or 99.6%, to $21,000 for the six months ended June 30, 2010 from $5.1 million for the six
months ended June 30, 2009. This decrease is a result of our decision to hold substantially all of
our one- to four-family mortgage loan production during the current year, while selling the
majority of loan production in the prior year.
Noninterest Expense
Noninterest expense increased by $5.5 million, or 6.0%, to $96.8 million for the six months
ended June 30, 2010 from $91.3 million for the same period in the prior year. Compensation and
employee benefits expense increased by $4.1 million, or 8.9%, to $50.8 million for the six months
ended June 30, 2010 from $46.7 million for the six months ended June 30, 2009. This increase is
primarily due to an increase in health insurance expense and the expense related to stock benefit
plans. Processing expenses increased by $986,000, or 9.6%, to $11.2 million for the six months
ended June 30, 2010 from $10.3 million for the six months ended June 30, 2009. This increase is
primarily the result of our continued upgrade of systems, including our migration to check imaging.
Marketing expense increased by $1.8 million, or 60.9%, to $4.7 million for the six months ended
June 30, 2010 from $2.9 million for the six months ended June 30, 2009. This increase was due to
the initiation of an aggressive marketing campaign focused on acquiring low cost checking accounts.
Also impacting our marketing expense was the cost to advertise our recognition by J. D. Power as
the top bank in the mid-Atlantic region for customer satisfaction. Partially offsetting these
increases was a decrease in FDIC insurance special assessments. In the prior year, the FDIC levied
a special assessment on all insured banks to help replenish the insurance fund, our assessment
being $3.3 million.
Income Taxes
The provision for income taxes for the six months ended June 30, 2010 increased by $5.0
million, or 66.6%, to $12.4 million for the six months ended June 30, 2010 from $7.4 million for
the six months ended June 30, 2009. This increase in income tax is primarily a result of an
increase in income before income taxes of $14.7 million, or 54.2%. Our effective tax rate for the
six months ended June 30, 2010 was 29.8% compared to 27.5% experienced in the same period last
year.
42
Average Balance Sheet
(Dollars in Thousands)
The following table sets forth certain information relating to the Companys
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are calculated using daily averages.
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|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Avg. |
|
|
|
|
|
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|
|
|
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Avg. |
|
|
|
Average |
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|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Cost (f) |
|
|
Balance |
|
|
Interest |
|
|
Cost (f) |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (a) (b) (includes FTE adjustments of $132 and $414,
respectively) |
|
$ |
5,465,373 |
|
|
|
81,866 |
|
|
|
6.03 |
% |
|
|
5,180,219 |
|
|
|
80,074 |
|
|
|
6.17 |
% |
Mortgage-backed securities (c) |
|
|
792,412 |
|
|
|
6,706 |
|
|
|
3.39 |
% |
|
|
685,930 |
|
|
|
6,873 |
|
|
|
4.01 |
% |
Investment securities (c) (includes FTE adjustments of
$1,537 and $1,468, respectively) |
|
|
376,206 |
|
|
|
4,989 |
|
|
|
5.30 |
% |
|
|
355,960 |
|
|
|
5,546 |
|
|
|
6.23 |
% |
FHLB stock |
|
|
63,242 |
|
|
|
|
|
|
|
|
|
|
|
63,143 |
|
|
|
|
|
|
|
|
|
Other interest earning deposits |
|
|
845,947 |
|
|
|
512 |
|
|
|
0.24 |
% |
|
|
273,924 |
|
|
|
123 |
|
|
|
0.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets (includes FTE adjustments of
$1,669 and $1,882, respectively) |
|
|
7,543,180 |
|
|
|
94,073 |
|
|
|
5.02 |
% |
|
|
6,559,176 |
|
|
|
92,616 |
|
|
|
5.64 |
% |
Noninterest earning assets (d) |
|
|
584,203 |
|
|
|
|
|
|
|
|
|
|
|
483,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
8,127,383 |
|
|
|
|
|
|
|
|
|
|
|
7,042,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
1,033,707 |
|
|
|
2,236 |
|
|
|
0.87 |
% |
|
|
834,007 |
|
|
|
1,605 |
|
|
|
0.77 |
% |
Now accounts |
|
|
785,619 |
|
|
|
319 |
|
|
|
0.16 |
% |
|
|
745,657 |
|
|
|
741 |
|
|
|
0.40 |
% |
Money market demand accounts |
|
|
901,439 |
|
|
|
1,630 |
|
|
|
0.73 |
% |
|
|
729,613 |
|
|
|
2,272 |
|
|
|
1.25 |
% |
Certificate accounts |
|
|
2,470,706 |
|
|
|
14,788 |
|
|
|
2.40 |
% |
|
|
2,537,422 |
|
|
|
19,828 |
|
|
|
3.13 |
% |
Borrowed funds (e) |
|
|
895,650 |
|
|
|
8,283 |
|
|
|
3.71 |
% |
|
|
913,512 |
|
|
|
8,656 |
|
|
|
3.80 |
% |
Debentures |
|
|
103,094 |
|
|
|
1,421 |
|
|
|
5.45 |
% |
|
|
108,249 |
|
|
|
1,459 |
|
|
|
5.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
6,190,215 |
|
|
|
28,677 |
|
|
|
1.86 |
% |
|
|
5,868,460 |
|
|
|
34,561 |
|
|
|
2.36 |
% |
Noninterest bearing liabilities |
|
|
632,037 |
|
|
|
|
|
|
|
|
|
|
|
543,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,822,252 |
|
|
|
|
|
|
|
|
|
|
|
6,411,960 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
1,305,131 |
|
|
|
|
|
|
|
|
|
|
|
630,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
8,127,383 |
|
|
|
|
|
|
|
|
|
|
|
7,042,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/ Interest rate spread |
|
|
|
|
|
|
65,396 |
|
|
|
3.16 |
% |
|
|
|
|
|
|
58,055 |
|
|
|
3.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earning assets/ Net interest margin |
|
$ |
1,352,965 |
|
|
|
|
|
|
|
3.47 |
% |
|
|
690,716 |
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest earning assets to interest bearing liabilities |
|
|
1.22 |
X |
|
|
|
|
|
|
|
|
|
|
1.12 |
X |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Average gross loans include loans held as available-for-sale and loans placed on nonaccrual status. |
|
(b) |
|
Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material. |
|
(c) |
|
Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale. |
|
(d) |
|
Average balances include the effect of unrealized gains or losses on securities held as available-for-sale. |
|
(e) |
|
Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.
(f) Annualized. Shown on a fully tax-equivalent basis (FTE). The FTE basis adjusts for the tax benefit of income
on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The
Company believes this measure to be the preferred industry measurement of net interest income and provides relevant
comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans 6.00% and 6.13%; respectively,
Investment securities 3.67% and 4.58%; respectively, interest-earning assets 4.91% and 5.52%; respectively.
GAAP basis net interest rate spreads were 3.05% and 3.16%, respectively and GAAP basis net interest margins were
3.38% and 3.44%, respectively. |
43
Rate/ Volume Analysis
(Dollars in Thousands)
The following table represents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affect the Companys interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) net change. Changes
that cannot be attributed to either rate or volume have been allocated to both
rate and volume.
Three months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Rate |
|
|
Volume |
|
|
Change |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(2,607 |
) |
|
|
4,399 |
|
|
|
1,792 |
|
Mortgage-backed securities |
|
|
(1,234 |
) |
|
|
1,067 |
|
|
|
(167 |
) |
Investment securities |
|
|
(872 |
) |
|
|
315 |
|
|
|
(557 |
) |
FHLB stock |
|
|
|
|
|
|
|
|
|
|
|
|
Other interest-earning deposits |
|
|
87 |
|
|
|
302 |
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
(4,626 |
) |
|
|
6,083 |
|
|
|
1,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
223 |
|
|
|
408 |
|
|
|
631 |
|
Now accounts |
|
|
(462 |
) |
|
|
40 |
|
|
|
(422 |
) |
Money market demand accounts |
|
|
(1,177 |
) |
|
|
535 |
|
|
|
(642 |
) |
Certificate accounts |
|
|
(4,580 |
) |
|
|
(460 |
) |
|
|
(5,040 |
) |
Borrowed funds |
|
|
(206 |
) |
|
|
(167 |
) |
|
|
(373 |
) |
Debentures |
|
|
33 |
|
|
|
(71 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
(6,169 |
) |
|
|
285 |
|
|
|
(5,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
$ |
1,543 |
|
|
|
5,798 |
|
|
|
7,341 |
|
|
|
|
|
|
|
|
|
|
|
44
Average Balance Sheet
(Dollars in Thousands)
The following table sets forth certain information relating to the Companys
average balance sheet and reflects the average yield on assets and average cost
of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively,
for the periods presented. Average balances are calculated using daily averages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Avg. |
|
|
|
|
|
|
|
|
|
|
Avg. |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Cost (f) |
|
|
Balance |
|
|
Interest |
|
|
Cost (f) |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (a) (b) (includes FTE adjustments of $708 and $834,
respectively) |
|
$ |
5,406,464 |
|
|
|
163,188 |
|
|
|
6.07 |
% |
|
|
5,194,221 |
|
|
|
161,202 |
|
|
|
6.21 |
% |
Mortgage-backed securities (c) |
|
|
764,690 |
|
|
|
12,851 |
|
|
|
3.36 |
% |
|
|
711,842 |
|
|
|
14,278 |
|
|
|
4.01 |
% |
Investment securities (c) (includes FTE adjustments of
$2,982 and $3,047, respectively) |
|
|
367,856 |
|
|
|
10,116 |
|
|
|
5.50 |
% |
|
|
370,922 |
|
|
|
11,603 |
|
|
|
6.26 |
% |
FHLB stock |
|
|
63,242 |
|
|
|
|
|
|
|
|
|
|
|
63,143 |
|
|
|
|
|
|
|
|
|
Other interest earning deposits |
|
|
896,321 |
|
|
|
1,077 |
|
|
|
0.24 |
% |
|
|
175,431 |
|
|
|
162 |
|
|
|
0.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets (includes FTE adjustments of
$3,690 and $3,881, respectively) |
|
|
7,498,573 |
|
|
|
187,232 |
|
|
|
5.02 |
% |
|
|
6,515,559 |
|
|
|
187,245 |
|
|
|
5.75 |
% |
Noninterest earning assets (d) |
|
|
576,136 |
|
|
|
|
|
|
|
|
|
|
|
496,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
8,074,709 |
|
|
|
|
|
|
|
|
|
|
|
7,011,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
997,126 |
|
|
|
4,269 |
|
|
|
0.86 |
% |
|
|
812,396 |
|
|
|
3,058 |
|
|
|
0.76 |
% |
Now accounts |
|
|
769,531 |
|
|
|
718 |
|
|
|
0.19 |
% |
|
|
727,614 |
|
|
|
1,547 |
|
|
|
0.43 |
% |
Money market demand accounts |
|
|
871,291 |
|
|
|
3,467 |
|
|
|
0.80 |
% |
|
|
717,288 |
|
|
|
4,795 |
|
|
|
1.35 |
% |
Certificate accounts |
|
|
2,526,314 |
|
|
|
31,923 |
|
|
|
2.55 |
% |
|
|
2,504,253 |
|
|
|
39,683 |
|
|
|
3.20 |
% |
Borrowed funds (e) |
|
|
898,169 |
|
|
|
16,578 |
|
|
|
3.72 |
% |
|
|
977,856 |
|
|
|
17,355 |
|
|
|
3.58 |
% |
Debentures |
|
|
103,094 |
|
|
|
2,826 |
|
|
|
5.45 |
% |
|
|
108,249 |
|
|
|
2,949 |
|
|
|
5.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
6,165,525 |
|
|
|
59,781 |
|
|
|
1.96 |
% |
|
|
5,847,656 |
|
|
|
69,387 |
|
|
|
2.39 |
% |
Noninterest bearing liabilities |
|
|
604,859 |
|
|
|
|
|
|
|
|
|
|
|
538,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,770,384 |
|
|
|
|
|
|
|
|
|
|
|
6,385,844 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
1,304,325 |
|
|
|
|
|
|
|
|
|
|
|
625,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
8,074,709 |
|
|
|
|
|
|
|
|
|
|
|
7,011,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/ Interest rate spread |
|
|
|
|
|
|
127,451 |
|
|
|
3.06 |
% |
|
|
|
|
|
|
117,858 |
|
|
|
3.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earning assets/ Net interest margin |
|
$ |
1,333,048 |
|
|
|
|
|
|
|
3.40 |
% |
|
|
667,903 |
|
|
|
|
|
|
|
3.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest earning assets to interest bearing liabilities |
|
|
1.22 |
X |
|
|
|
|
|
|
|
|
|
|
1.11 |
X |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Average gross loans include loans held as available-for-sale and loans placed on nonaccrual status. |
|
(b) |
|
Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material. |
|
(c) |
|
Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale. |
|
(d) |
|
Average balances include the effect of unrealized gains or losses on securities held as available-for-sale. |
|
(e) |
|
Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.
(f) Annualized. Shown on a fully tax-equivalent basis (FTE). The FTE basis adjusts for the tax benefit of income
on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The
Company believes this measure to be the preferred industry measurement of net interest income and provides relevant
comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans 6.04% and 6.18%; respectively,
Investment securities 3.88% and 4.61%; respectively, interest-earning assets 4.92% and 5.63%; respectively.
GAAP basis net interest rate spreads were 2.96% and 3.24%, respectively and GAAP basis net interest margins were
3.30% and 3.51%, respectively. |
45
Rate/ Volume Analysis
(Dollars in Thousands)
The following table represents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affect the Companys interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) net change. Changes
that cannot be attributed to either rate or volume have been allocated to both
rate and volume.
Six months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Rate |
|
|
Volume |
|
|
Change |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(4,604 |
) |
|
|
6,590 |
|
|
|
1,986 |
|
Mortgage-backed securities |
|
|
(2,487 |
) |
|
|
1,060 |
|
|
|
(1,427 |
) |
Investment securities |
|
|
(1,397 |
) |
|
|
(90 |
) |
|
|
(1,487 |
) |
FHLB stock |
|
|
|
|
|
|
|
|
|
|
|
|
Other interest-earning deposits |
|
|
149 |
|
|
|
766 |
|
|
|
915 |
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
(8,339 |
) |
|
|
8,326 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
468 |
|
|
|
743 |
|
|
|
1,211 |
|
Now accounts |
|
|
(918 |
) |
|
|
89 |
|
|
|
(829 |
) |
Money market demand accounts |
|
|
(2,357 |
) |
|
|
1,029 |
|
|
|
(1,328 |
) |
Certificate accounts |
|
|
(8,110 |
) |
|
|
350 |
|
|
|
(7,760 |
) |
Borrowed funds |
|
|
694 |
|
|
|
(1,471 |
) |
|
|
(777 |
) |
Debentures |
|
|
18 |
|
|
|
(141 |
) |
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
(10,205 |
) |
|
|
599 |
|
|
|
(9,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
$ |
1,866 |
|
|
|
7,727 |
|
|
|
9,593 |
|
|
|
|
|
|
|
|
|
|
|
46
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As the holding company for a savings bank, one of our primary market risks is interest rate
risk. Interest rate risk is the sensitivity of net interest income to variations in interest rates
over a specified time period. The sensitivity results from differences in the time periods in
which interest rate sensitive assets and liabilities mature or reprice. We attempt to control
interest rate risk by matching, within acceptable limits, the repricing periods of our assets and
liabilities. We have attempted to limit our exposure to interest sensitivity by increasing core
deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with
fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the
origination of more short-term fixed rate loans and adjustable rate loans. We also continue to
sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, we
purchase shorter term or adjustable-rate investment securities and adjustable-rate mortgage-backed
securities.
We have an Asset/ Liability Committee consisting of several members of management which meets
monthly to review market interest rates, economic conditions, the pricing of interest earning
assets and interest bearing liabilities and our balance sheet structure. On a quarterly basis,
this Committee also reviews our interest rate risk position and the Banks cash flow projections.
Our Board of Directors has a Risk Management Committee which meets quarterly and reviews
interest rate risks and trends, our interest sensitivity position, our liquidity position and the
market risk inherent in our investment portfolio.
In an effort to assess market risk, we utilize a simulation model to determine the effect of
immediate incremental increases and decreases in interest rates on net income and the market value
of our equity. Certain assumptions are made regarding loan prepayments and decay rates of passbook
and NOW accounts. Because it is difficult to accurately project the market reaction of depositors
and borrowers, the effect of actual changes in interest rates on these assumptions may differ from
simulated results. We have established the following guidelines for assessing interest rate risk:
Net income simulation. Given a parallel shift of 2% in interest rates, the estimated net
income may not decrease by more than 20% within a one-year period.
Market value of equity simulation. The market value of equity is the present value of our
assets and liabilities. Given a parallel shift of 2% in interest rates, the market value of equity
may not decrease by more than 30% of total shareholders equity.
47
The following table illustrates the simulated impact of a 1% or 2% upward or 1% or 2% downward
movement in interest rates on net income, return on average equity, earnings per share and market
value of equity. This analysis was prepared assuming that interest-earning asset levels at June
30, 2010 remain constant. The impact of the rate movements was computed by simulating the effect
of an immediate and sustained shift in interest rates over a twelve-month period from June 30, 2010
levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Decrease |
|
Parallel shift in interest rates over the next 12 months |
|
|
1.0 |
% |
|
|
2.0 |
% |
|
|
1.0 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected percentage increase/ (decrease) in net income |
|
|
10.4 |
% |
|
|
13.5 |
% |
|
|
(5.6 |
)% |
|
|
(13.9 |
)% |
Projected increase/ (decrease) in return on average equity |
|
|
0.6 |
% |
|
|
0.7 |
% |
|
|
(0.3 |
)% |
|
|
(0.7 |
)% |
Projected increase/ (decrease) in earnings per share |
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.09 |
) |
Projected percentage increase/ (decrease) in market value of equity |
|
|
(9.8 |
)% |
|
|
(19.4 |
)% |
|
|
(1.4 |
)% |
|
|
(0.9 |
)% |
The figures included in the table above represent projections that were computed based
upon certain assumptions including prepayment rates and decay rates. These assumptions are
inherently uncertain and, as a result, we cannot precisely predict the impact of changes in
interest rates. Actual results may differ significantly due to timing, magnitude and frequency of
interest rate changes and changes in market conditions.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision of and with the participation of management, including the Principal
Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of the end of the period covered by this quarterly report (the Evaluation Date).
Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer
concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective
in timely alerting them to the material information relating to the Company (or the consolidated
subsidiaries) required to be included in our periodic SEC filings.
There were no changes in internal controls over financial reporting during the period covered
by this report or in other factors that has materially affected, or is reasonably likely to
materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Northwest Bancshares, Inc. and its subsidiaries are subject to a number of asserted and
unasserted claims encountered in the normal course of business. Management believes that the
aggregate liability, if any, that may result from such potential litigation will not have a
material adverse effect on our financial statements.
48
Item 1A. Risk Factors
In addition to the other information contained this Quarterly Report on Form 10-Q, the
following risk factors represent material updates and additions to the risk factors previously
disclosed in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
March 16, 2010. Additional risks not presently known to us, or that we currently deem immaterial,
may also adversely affect our business, financial condition or results of operations. Further, to
the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes
forward-looking statements, the risk factor set forth below also is a cautionary statement
identifying important factors that could cause our actual results to differ materially from those
expressed in any forward-looking statements made by or on behalf of us.
Financial reform legislation recently enacted by Congress will, among other things, eliminate
the Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial
Protection Bureau and result in new laws and regulations that are expected to increase our costs of
operations.
Congress recently enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act). This new law will significantly change the current bank regulatory structure and
affect the lending, deposit, investment, trading and operating activities of financial institutions
and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad
range of new implementing rules and regulations, and to prepare numerous studies and reports for
Congress. The federal agencies are given significant discretion in drafting the implementing rules
and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act
may not be known for many months or years.
Certain
provisions of the Dodd-Frank Act are expected to have a near term
impact on us. For example, the new law provides that the Office of
Thrift Supervision, currently our
primary federal regulators, will cease to exist one year from the date of the
new laws enactment. The Board of Governors of the Federal Reserve System will supervise and
regulate all savings and loan holding companies that were formerly regulated by the Office of
Thrift Supervision, including the Company.
Also effective one year after the date of enactment is a provision of the Dodd-Frank Act that
eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses
to have interest bearing checking accounts. Depending on competitive responses, this significant
change to existing law could have an adverse impact on our interest expense.
The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance
assessments. Assessments will now be based on the average consolidated total assets less tangible
equity capital of a financial institution. The Dodd-Frank Act also permanently increases the
maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000
per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have
unlimited deposit insurance through December 31, 2013.
The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding
vote on executive compensation and so-called golden parachute payments, and by authorizing the
Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate
their own candidates using a companys proxy materials. The legislation also directs the Federal
Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company
executives, regardless of whether the company is publicly traded or not.
The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings
49
institutions, including the authority to prohibit unfair, deceptive or abusive acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over
all banks and savings institutions with more than $10 billion in assets. Savings institutions such
as Northwest Savings Bank with $10 billion or less in assets will continued to be examined for
compliance with the consumer laws by their primary bank regulators.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to
be written implementing rules and regulations will have on community banks. However, it is expected
that at a minimum they will increase our operating and compliance costs and could increase our
interest expense.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a.) Not applicable.
b.) Not applicable.
c.) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Removed and Reserved
Item 5. Other Information
Not applicable.
Item 6. Exhibits
31.1 |
|
Certification of the Companys Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
31.2 |
|
Certification of the Companys Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
32.1 |
|
Certification of the Companys Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
50
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed by the undersigned thereunto duly authorized.
|
|
|
|
|
|
NORTHWEST BANCSHARES, INC.
(Registrant)
|
|
Date: August 5, 2010 |
By: |
/s/ Gerald J. Ritzert
|
|
|
|
Gerald J. Ritzert |
|
|
|
Controller
(Duly Authorized Officer and Principal Accounting Officer of the Registrant) |
|
51