Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NWBI > SEC Filings for NWBI > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for NORTHWEST BANCSHARES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NORTHWEST BANCSHARES, INC.


9-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements:

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

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

changes in laws or government regulations or accounting policies affecting financial institutions, including the Dodd-Frank Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities, changes in regulatory fees and FDIC insurance costs;

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

                      competition among depository and other financial
institutions;

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

                      adverse changes in the securities markets;

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

                      changes in consumer spending, borrowing and savings
habits;

                      our ability to continue to increase and manage our

business and personal loans;

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

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

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

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

                      the effect of changes in accounting policies and

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

Overview of Critical Accounting Policies Involving Estimates

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 our financial condition and/ or results of operations.

Allowance for Loan Losses - Provisions for estimated loan losses and the amount of the allowance for loan losses are based on losses inherent in the loan portfolio that are both probable and can be reasonably estimated at the date of the financial statements. We believe, to the best of our knowledge, that all known losses as of the statement of condition dates have been recorded.

For all classes of loans, we consider a loan to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. In evaluating whether


Table of Contents

a loan is impaired, we consider not only the amount that we expect to collect but also the timing of collection. Generally, if a delay in payment is insignificant (e.g., less than 30 days), a loan is not deemed to be impaired.

When a loan is considered to be impaired, the amount of impairment is measured in one of three ways, the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's market price, or fair value of the collateral, less estimated cost to sell, if the loan is collateral dependent and it is possible we would foreclose on the property. Business Banking loans greater than or equal to $1.0 million are reviewed to determine if they should be individually evaluated for impairment. Smaller balance, homogeneous loans (e.g., primarily residential mortgage and consumer loans) are evaluated collectively for impairment. Impairment losses are included in the allowance for loan losses. Impaired loans are charged-off or charged down when we believe that the ultimate collectability of a loan is not likely or the collateral value no longer supports the carrying value of the loan.

Interest income on non-performing loans is recognized using the cash basis method. For non-performing loans interest collected is credited to income in the period of recovery or applied to reduce principal if there is sufficient doubt about the collectability of principal.

The allowance for loan losses is shown as a valuation allowance to loans. The accounting policy for the determination of the adequacy of the allowance by portfolio segment requires us to make numerous complex and subjective estimates and assumptions relating to amounts which are inherently uncertain. The allowance for loan losses is maintained to absorb losses inherent in the loan portfolio as of the statement of condition dates. The methodology used to determine the allowance for loan losses is designed to provide procedural discipline in assessing the appropriateness of the allowance for loan losses. Losses are charged against, and recoveries are added to, the allowance for loan losses.

For Business Banking loans the allowance for loan losses consists of:

                      An allowance for impaired loans;

                      An allowance for homogenous loans based on historical
losses; and

                      An allowance for homogenous loans based on environmental
factors.

The allowance for impaired loans is based on individual analysis of all nonperforming loans greater than or equal to $1.0 million. The allowance is measured by the difference between the recorded value of impaired loans and their impaired value. The impaired value is either the present value of the expected future cash flows from the borrower, the market value of the loan, or the fair value of the collateral, less estimated cost to sell.

The allowance for homogeneous loans based on historical factors is a rolling three-year average of actual losses incurred, adjusted for a loss realization period (the period of time from the event of loss to loss realization), applied to homogenous pools of loans categorized by similar risk characteristics, not including loans evaluated individually for impairment.

The allowance for homogeneous loans based on environmental factors augments the historical loss factors for changes in: economic conditions, lending policies and procedures, the nature and volume of the loan portfolio, management, delinquency trends, loan administration, underlying collateral values and concentrations of credit.


Table of Contents

For Personal Banking loans the allowance for loan losses consists of:

                      An allowance for loans 90 days or more delinquent;

                      An allowance for homogenous loans based on historical
losses; and

                      An allowance for homogenous loans based on environmental
factors.

The allowance for loans 90 days or more delinquent is based on the loss history of loans that have become 90 days or more delinquent. We apply a historical loss factor to homogeneous pools of loans that are 90 days or more delinquent.

The allowance for homogeneous loans based on historical losses is a rolling three-year average of actual losses incurred, adjusted for a loss realization period (the period of time from the event of loss to loss realization), applied to homogenous pools of loans categorized by similar risk characteristics, not including loans that are 90 days or more delinquent.

The allowance for homogeneous loans based on environmental factors augments the historical loss factors for changes in: economic conditions, lending policies and procedures, the nature and volume of the loan portfolio, management, delinquency trends, loan administration, underlying collateral values and concentrations of credit.

We also have an unallocated allowance which is based on our judgment regarding economic conditions, collateral values and industry conditions.

The allocation of the allowance for loan losses is inherently judgmental, and the entire allowance for loan losses is available to absorb loan losses regardless of the nature of the loss.

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

We have not made any material changes to our methodology for the calculation of the allowance for loan losses during the current year.

Valuation of Investment Securities - Unrealized gains or losses, net of deferred taxes, on available for sale securities are reported on the statement of condition as a component of accumulated other comprehensive income/ (loss) and on the statement of comprehensive income. In general, fair value is based upon quoted market prices of identical assets, when available. Semi-annually (as of May 31 and November 30) we receive quoted market prices from a second independent pricing service. 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.

On at least a quarterly basis, we review our investments that are in an unrealized loss position for other-than-temporary impairment ("OTTI"). An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. If an investment security is determined to be impaired, we evaluate whether the decline in value is other-than-temporary. We also consider whether or not we expect to receive all of the contractual cash flows from the investment security based on factors that include, but are not limited to: the credit worthiness of the issuer and the historical and projected performance of the underlying collateral. Also, we may evaluate the business and financial outlook of the issuer, as well as


Table of Contents

broader economic performance indicators. In addition, we consider our intent to sell the investment securities and the likelihood that we will not have to sell the investment securities before recovery of their cost basis. Declines in fair value of investment securities that are deemed credit related are recognized in earnings while declines in fair value of investment securities deemed noncredit related are recorded in accumulated other comprehensive income, if we do not intend to sell and it is not likely we will be required to sell. If we intend to sell the security or if it's more likely than not that we will be required to sell the security, the entire unrealized loss is recorded in earnings.

Goodwill - Goodwill is not subject to amortization but must be evaluated for impairment at least annually and possibly more frequently if certain events or changes in circumstances arise. Under a quantitative approach, 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 our 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. We have established June 30th of each year as the date for conducting the annual goodwill impairment assessment. As of June 30, 2013, we, through the assistance of an external third party, performed an impairment test on 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. As of June 30, 2013, we did not identify any individual reporting unit where the fair value was less than the carrying value. Future changes in the economic 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 - We use 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. Management 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 made 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 us 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, we are required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair values. Through the assistance of an independent third party, we analyze and prepare a core deposit study for all bank acquisitions or another identifiable intangible asset study, such as customer lists, for all non-bank acquisitions. The core deposit study reflects the cumulative present value benefit of acquiring deposits versus an alternative source of funding. The other identifiable intangible asset study reflects the cumulative present value benefit of acquiring the income stream from an existing customer base versus developing new business relationships. Based upon analysis, the amount of the premium related to the core deposits or other identifiable intangibles of the business purchased is calculated along with the estimated life of the intangible. The intangible, which is recorded in other intangible assets, is then amortized to expense on an accelerated basis over an approximate life of seven years. If it is subsequently


Table of Contents

determined that the period of economic benefit has decreased or no longer exists, accelerated amortization or impairment may occur.

Executive Summary and Comparison of Financial Condition

Total assets at June 30, 2013 were $7.964 billion, an increase of $21.2 million, or 0.3%, from $7.943 billion at December 31, 2012. This increase in assets was due to an increase in marketable securities available-for-sale of $65.9 million, which was partially offset by decreases in total loans receivable of $11.1 million and marketable securities held-to-maturity of $21.6 million. The net increase in total assets was funded by increases in deposits and advances from borrowers for taxes and insurance of $18.5 million and $9.9 million, respectively.

Total loans receivable decreased by $11.1 million, or 0.2%, to $5.691 billion at June 30, 2013, from $5.702 billion at December 31, 2012. Loan originations during the six months ended June 30, 2013, of $1.020 billion was offset by loan maturities and principal repayments of $962.4 million and mortgage loan sales of $51.7 million. Our business banking loan portfolio increased by $13.7 million, or 0.7%, to $1.989 billion at June 30, 2013 from $1.975 billion at December 31, 2012, as we continue to emphasize retaining and attracting quality business banking relationships. Our personal banking loan portfolio decreased by $24.8 million, or 0.7%, to $3.703 billion at June 30, 2013 from $3.728 billion at December 31, 2012. This decrease is attributed to residential mortgage loan sales of $51.7 million and sluggish consumer loan demand, partly due to the recent increase in long term interest rates.

Deposit balances continue to increase across all product types with the exception of time deposits. Total deposits increased by $18.5 million, or 0.3%, to $5.783 billion at June 30, 2013 from $5.765 billion at December 31, 2012. Noninterest-bearing demand deposits increased by $40.7 million, or 5.4%, to $796.1 million at June 30, 2013 from $755.4 million at December 31, 2012. Interest-bearing demand deposits increased by $35.6 million, or 4.2%, to $887.4 million at June 30, 2013 from $851.8 million at December 31, 2012. Savings deposits, including insured money fund accounts, increased by $65.9 million, or 2.9%, to $2.337 billion at June 30, 2013 from $2.271 billion at December 31, 2012. Time deposits decreased by $123.7 million, or 6.6%, to $1.762 billion at June 30, 2013 from $1.886 billion at December 31, 2012. We believe this continued movement of funds from time deposits to more liquid types of deposit accounts reflects depositors reluctance to lock-in time deposit rates and their positioning for higher interest rates in the future.

Borrowed funds decreased by $2.7 million to $857.3 million at June 30, 2013, from $860.0 million at December 31, 2012 due to a decrease in repurchase agreements. During the six months ended June 30, 2013 we borrowed $30.0 million from the FHLB with an average maturity of 8.5 years and an average interest rate of approximately 2.00% in order to secure long-term funding at favorable interest rates. None of our FHLB advances matured during the quarter and the next scheduled maturity is in 2015.

Total shareholders' equity at June 30, 2013 was $1.128 billion, or $12.02 per share, unchanged from $1.128 billion, or $12.05 per share, at December 31, 2012. This was primarily attributable to net income of $28.8 million which was offset by cash dividend payments of $22.0 million and a decrease in other comprehensive income of $8.1 million.

Financial institutions and their holding companies 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 company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-


Table of Contents

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 total assets (as defined). Capital ratios are presented in the tables below. Dollar amounts in the accompanying tables are in thousands.

                                                     At June 30, 2013
                                                      Minimum capital        Well capitalized
                                  Actual             requirements (1)        requirements (1)
                            Amount       Ratio       Amount      Ratio      Amount       Ratio
Total capital (to risk
weighted assts)
Northwest
Bancshares, Inc.          $ 1,129,608      22.15 %          -          -           -           -
Northwest Savings Bank        908,051      17.90 %    405,853       8.00 %   507,316       10.00 %

Tier I capital (to risk
weighted assets)
Northwest
Bancshares, Inc.            1,060,400      20.79 %          -          -           -           -
Northwest Savings Bank        844,028      16.64 %    202,927       4.00 %   304,390        6.00 %

Tier I capital
(leverage) (to average
assets)
Northwest
Bancshares, Inc.            1,060,400      13.61 %          -          -           -           -
Northwest Savings Bank        844,028      10.83 %    311,688       4.00 %   389,610        5.00 %




                                                   At December 31, 2012
                                                      Minimum capital        Well capitalized
                                  Actual             requirements (1)        requirements (1)
                            Amount       Ratio       Amount      Ratio      Amount       Ratio
Total capital (to risk
weighted assts)
Northwest
Bancshares, Inc.          $ 1,117,979      21.53 %          -          -           -           -
Northwest Savings Bank        875,676      16.94 %    413,424       8.00 %   516,780       10.00 %

Tier I capital (to risk
weighted assets)
Northwest
Bancshares, Inc.            1,050,261      20.22 %          -          -           -           -
Northwest Savings Bank        810,727      15.69 %    206,712       4.00 %   310,068        6.00 %

Tier I capital
(leverage) (to average
assets)
Northwest
Bancshares, Inc.            1,050,261      13.43 %          -          -           -           -
Northwest Savings Bank        810,727      10.41 %    311,473       4.00 %   389,340        5.00 %



(1) The Federal Reserve does not yet have formal capital requirements established for savings and loan holding companies.

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in


Table of Contents

or opt-out is exercised. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

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

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

                                             Basel III Reggulatory Capital Requirements
                                   January 1,   January 1,   January 1,   January 1,   January 1,
                        Current       2015         2016         2017         2018         2019
Tier 1 common equity
ratio plus capital
conservation buffer            -         4.50 %      5.125 %       5.75 %      6.375 %       7.00 %
Tier 1 risk-based
capital ratio               4.00 %          -            -            -            -            -
Tier 1 risk-based
capital ratio plus
capital conservation
buffer                         -         6.00 %      6.625 %       7.25 %      7.875 %       8.50 %
Total risk-based
capital ratio               8.00 %          -            -            -            -            -
Total risk-based
capital ratio plus
capital conservation
buffer                         -         8.00 %      8.625 %       9.25 %      9.875 %      10.50 %

We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings ("liquidity ratio"). Northwest's liquidity ratio at June 30, 2013 was 14.7%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At June 30, 2013 Northwest had $1.805 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, as well as $200.1 million of borrowing capacity available with the Federal Reserve Bank and $80.0 million with two correspondent banks.

We paid $22.0 million and $11.4 million in cash dividends during the quarters . . .

  Add NWBI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NWBI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.