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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 272 added, 247 removed, 593 unchanged (47% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our principal business consists of collecting deposits and making loans secured by various types of collateral, including real estate and other assets in the markets in which we are located.

Our principal business consists of collecting deposits and making loans primarily secured by various types of collateral, including real estate and other assets in the markets in which we are located.

Attracting and maintaining deposits is affected by a number of factors, including interest rates paid on competing deposits and other investments offered by other financial and non-financial institutions, account maturities, fee structures, and levels of personal income and savings.

Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic conditions.

Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of alternative lenders and regional economic conditions.

Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from investment and mortgage-backed securities and income provided from operations.

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Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities.

Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to insurance and investment management and trust services, and net gains and losses on the sale of assets.

Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to investment management and trust services, net gains and losses on the sale of assets and mortgage banking income.

Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including employee compensation and benefits and occupancy and processing costs, as well as by state and federal income tax expense.

Our net income was $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021 compared to $74.9 million, or $0.62 per diluted share, for the year ended December 31, 2020 and $110.4 million, or $1.04 per diluted share, for the year ended December 31, 2019.

The provision for credit losses was $84.0 million for the year ended December 31, 2020 compared to $22.7 million for the year ended December 31, 2019 and $20.3 million for the year ended December 31, 2018.

Critical Accounting Policies

The provision for credit losses was a credit of $11.9 million for the year ended December 31, 2021 compared to a provision expense of $84.0 million for the year ended December 31, 2020 and a provision expense of $22.7 million for the year ended December 31, 2019.

Selected Financial and Other Data

The summary financial information presented below is derived in part from the Company’s Consolidated Financial Statements.

The following is only a summary and should be read in conjunction with the Consolidated Financial Statements and notes included elsewhere in this document.

The information at December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 is derived in part from the audited Consolidated Financial Statements that appear in this document.

At December 31,

(In thousands)

Selected Consolidated Financial Data:

Total assets $ 14,501,508 13,806,268

Cash and cash equivalents 1,279,259 736,277

Marketable securities held-to-maturity 124,451 67,990

Marketable securities available-for-sale 1,548,592 252,237

Mortgage-backed securities held-to-maturity 643,703 178,887

Mortgage-backed securities available-for-sale 1,297,915 1,146,704

Loans receivable, net of allowance for credit losses:

Residential mortgage loans held-for-sale 25,056 58,786

Residential mortgage loans 2,962,191 3,002,069

Home equity loans 1,314,631 1,461,744

Consumer loans 1,820,381 1,490,297

Commercial real estate loans 2,957,460 3,255,990

Commercial loans 834,432 1,177,536

Total loans receivable, net 9,914,151 10,446,422

Deposits 12,301,165 11,599,233

Borrowed funds 139,093 159,715

Subordinated debt 123,575 123,329

Shareholders’ equity 1,583,571 1,538,703

For the years ended December 31,

2021 2020 2019

(In thousands except per share data)

Selected Consolidated Operating Data:

Total interest income $ 418,508 434,068 417,380

Total interest expense 27,246 42,340 56,914

Net interest income 391,262 391,728 360,466

Provision for credit losses ( 11,883 ) 83,975 22,659

Net interest income after provision for credit losses 403,145 307,753 337,807

Noninterest income 142,889 132,265 99,407

Noninterest expense 344,910 347,492 296,103

Income before income taxes 201,124 92,526 141,111

Income tax expense 46,801 17,672 30,679

Net income $ 154,323 74,854 110,432

Earnings per share:

Basic $ 1.22 0.62 1.05

Diluted $ 1.21 0.62 1.04

At or for the year ended December 31,

2021 2020 2019

Selected Financial Ratios and Other Data:

Return on average assets (1), (5), (6), (7), (8) 1.08 % 0.58 % 1.07 %

Return on average equity (2), (5), (6), (7), (8) 9.91 % 4.72 % 8.36 %

Average capital to average assets 10.89 % 12.29 % 12.79 %

Capital to total assets 10.92 % 11.14 % 12.90 %

Tangible common equity to tangible assets 8.43 % 8.48 % 9.72 %

Net interest rate spread (3) 2.89 % 3.24 % 3.62 %

Net interest margin (4) 2.98 % 3.36 % 3.84 %

Noninterest expense to average assets (5), (6), (7) 2.41 % 2.70 % 2.87 %

Efficiency ratio (5), (6), (7), (8) 63.53 % 65.01 % 62.97 %

Noninterest income to average assets (8) 1.00 % 1.03 % 0.96 %

Net interest income to noninterest expense (5), (6), (7) 1.13x 1.13x 1.22x

Dividend payout ratio 65.29 % 122.58 % 69.23 %

Nonperforming loans to net loans receivable 1.60 % 0.99 % 0.79 %

Nonperforming assets to total assets 1.10 % 0.77 % 0.67 %

Allowance for credit losses to nonperforming loans 64.38 % 129.99 % 84.09 %

Allowance for credit losses to loans receivable 1.02 % 1.27 % 0.66 %

Average interest-earning assets to average interest-bearing liabilities 1.39x 1.35x 1.35x

Number of banking offices 170 170 181

(1) Represents net income divided by average assets.

(2) Represents net income divided by average equity.

(3) Represents average yield on interest-earning assets less average cost of interest-bearing liabilities (shown on a fully taxable equivalent ( “ FTE ” ) basis).

(4) Represents net interest income as a percentage of average interest-earning assets (shown on a FTE basis).

(5) 2019 includes $4.2 million restructuring/acquisition expense.

(6) 2020 includes $20.8 million acquisition/branch optimization expense, $41.6 million estimated provision for credit losses related to COVID-19 and $18.2 million

estimated provision for credit losses related to the effect of CECL on the acquisition of MutualBank.

(7) 2021 includes $3.5 million in merger, asset disposition and restructuring expense.

(8) 2021 includes $25.3 million gain on sale of insurance business.

Critical Accounting Estimates

Our significant accounting policies are described in Note 1 of the notes to the Consolidated Financial Statements .

Certain accounting policies are important to the understanding of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.

Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations.

The following are the accounting policies we believe are critical.

The following are the accounting estimates we believe are critical.

Allowance for Credit Losses.

We recognize that losses will be experienced on loans and that the risk of loss varies with the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the collateral for the loan.

We recognize that losses will be experienced on assets and that the risk of loss varies with the type of asset, the creditworthiness of a borrower, general economic conditions and the quality of the collateral, if any.

We maintain an allowance for expected lifetime losses in the loan portfolio.

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In establishing the allowance for credit losses, a combination of statistical models are applied to various pools of outstanding loans.

We use a twelve month forecasting period and revert to historical average loss rates thereafter.

We use a twenty-four month forecasting period and revert to historical average loss rates thereafter.

Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool.

If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.

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

term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.

Our allowance for credit losses is sensitive to a number of inputs, most notably the macroeconomic forecast assumptions as well as the reasonable and supportable forecasting periods that are incorporated in our estimate of credit losses.

Therefore, as the macroeconomic environment and related forecasts change or decisions are made to shorten or lengthen the forecasting period, the allowance for credit losses may change materially.

The following sensitivity analyses do not represent management ’ s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs.

We utilized a multi-scenario based macroeconomic forecast in determining the December 31, 2021 allowance for credit losses, which included a weighting of three scenarios:

an upside scenario, a baseline scenario and a downside scenario.

We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenario.

If we placed 100% weighting on the baseline scenario, the quantitative allowance for credit losses would have been approximately $11.4 million lower.

These forecasts revert to our long-term historical average loss rate after a 24 month forecasting period.

If we shortened the forecasting period to twelve months and reverted to our long-term historical loss rate thereafter, the quantitative allowance for credit losses would have been approximately $ 833,000 higher .

Although management believes that it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit 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 credit losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously.

Any material increase in the

allowance for credit losses may adversely affect our financial condition and results of operations.

Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously.

Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations.

The allowance is based on information known at the time of the review.

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For further information related to our allowance for credit losses, see Note 1(f) of the notes to the Consolidated Financial Statements.

Valuation of Investment Securities.

Our investment securities are classified as either held-to-maturity or available-for-sale.

Held-to-maturity securities are carried at amortized cost, while available-for-sale securities are carried at fair value.

Unrealized gains or losses on available-for-sale securities, net of deferred taxes, are reported in other comprehensive income.

Fair values are determined as described in Note 17 of the notes to the Consolidated Financial Statements.

Semi-annually (at May 31 and November 30), we validate the prices received from third parties by comparing them to prices provided by a different independent pricing service.

We have reviewed the detailed valuation methodologies provided to us by our pricing services.

Additional information related to our investment securities can be found in Note 1(d) of the notes to the Consolidated Financial Statements.

On a quarterly basis, we measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type.

Available-for-sale debt securities in an unrealized loss position are reviewed for impairment at least quarterly.

An investment security is deemed impaired if the fair value of the investment is less than its amortized cost.

In making this determination, we consider both our intent to sell and the likelihood that we will not have to sell the investment securities before recovery of their amortized cost basis during our evaluation.

For available-for-sale debt securities that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment we consider the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security, among other factors.

Also, we may evaluate the business and financial outlook of the issuer, as well as broader economic performance indicators.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Any future deterioration in the fair value of an investment security, or the determination that impairment exists, may have a material adverse affect on future earnings.

Goodwill is not subject to regular amortization but instead is required to be tested for impairment at least annually and possibly more frequently if certain events occur or changes in circumstances arise.

In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If, after assessing the totality of events and circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the impairment test would be unnecessary.

However, if we conclude otherwise, it would then be required to perform the quantitative impairment test.

In the quantitative impairment test, the fair value of each reporting unit is compared to its carrying amount in order to determine if impairment is indicated.

If the estimated fair value exceeds the carrying amount, the reporting unit is not deemed to be impaired.

If the estimated fair value is below the carrying value of the reporting unit, the difference is the amount of impairment.

Determining the fair value of a reporting unit requires a high degree of subjective judgment, including developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium.

Future changes in the economic environment or the operations of the reporting units could cause changes to these variables, which could give rise to declines in the estimated fair value of goodwill.

Declines in fair value could result in impairment being identified.

We have established June 30 of each year as the date for conducting our annual goodwill impairment assessment.

Quarterly, we evaluate if there are any triggering events that would require an update to our previous assessment.

During the first quarter of 2020, the Company determined the COVID-19 pandemic and its negative effect on the global economy to be a triggering event.

As a result, the Company, with the assistance of a third-party specialist, performed a quantitative impairment analysis in accordance with ASU 2017-04 as of March 31, 2020.

This analysis indicated the aggregate fair value of Northwest Bank, the sole reporting unit of Northwest Bancshares, Inc., exceeded the carrying value and therefore goodwill was not impaired.

Given the results of the quantitative goodwill analysis performed during the first quarter and the absence of any significant changes in the economic environment that would indicate a change in the conclusion of the quantitative analysis performed, the Company elected to perform a qualitative goodwill impairment test as of June 30, 2020 in accordance with ASC 350, as updated by ASU 2017-04, and concluded that goodwill was not impaired as of June 30, 2020.

As of December 31, 2020 and 2019, there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment in goodwill.

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.

We exercise 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 we make 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.

Pension Benefits .

Pension expense and obligations depend on assumptions used in calculating such amounts.

These assumptions include discount rates, anticipated salary increases, interest costs, expected return on plan assets, mortality rates, and other factors.

In accordance with U.S.

generally accepted accounting principles, actual results that differ from the assumptions are amortized over average future service and, therefore, generally affect recognized expense.

While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension obligations and future expense.

In determining the projected benefit obligations for pension benefits at December 31, 2020 and 2019, we used a discount rate of 2.39% and 3.14%, respectively.

We use the FTSE (previously Citigroup) Pension Liability Index rates matching the duration of our benefit payments as of the measurement date, December 31, to determine the discount rate.

Recently Issued Accounting Standards

The following Accounting Standard Updates (“ASU”) issued by the FASB have not yet been adopted.

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

This guidance is effective for annual periods beginning after December 15, 2020, with early adoption permitted, and requires retrospective adoption for all periods presented.

We do not expect this guidance to have a material impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." This guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences.

ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

This guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those years, with early adoption permitted.

We do not expect this guidance to have a material impact on our financial statements.

In March 2020, the FASB issued ASU No.

2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”.

This ASU provides temporary optional guidance to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met.

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We are currently in the process of evaluating the amendments and determining the impact on our financial statements.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform”.

This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform.

This guidance is effective as of the date of issuance through December 31, 2022.

We are currently in the process of evaluating the amendments and determining the impact on our financial statements.

Balance Sheet Analysis

Total assets at December 31, 2020 were $13.806 billion, an increase of $3.312 billion, or 31.6%, from $10.494 billion at December 31, 2019.

This increase in assets was due primarily to an increase in net loans receivable of $1.696 billion primarily due to the acquisition of MutualBank in April 2020.

Total assets at December 31, 2021 were $14.502 billion, an increase of $695.2 million, or 5.0%, from $13.806 billion at December 31, 2020.

This increase in assets was due to an increase in both marketable securities and total cash and cash equivalents.

A discussion of significant changes follows.

Cash and cash equivalents .

Cash and cash equivalents increased by $675.4 million to $736.3 million at December 31, 2020, from $60.8 million at December 31, 2019.

This increase was a result of increases in deposits of $3.007 billion and borrowings of $36.7 million offset slightly by funding gross loan growth of $1.772 billion.

Cash and cash equivalents increased by $543.0 million to $1.279 billion at December 31, 2021, from $736.3 million at December 31, 2020.

This increase was primarily due to the increase in customer deposit balances associated with consumer stimulus checks and loan funds from the Paycheck Protection Program (“PPP”).

Marketable securities .

Marketable securities increased by $739.9 million, or 88.3%, to $1.578 billion at December 31, 2020, from $837.9 million at December 31, 2019.

This increase was a result of using excess deposits to purchase higher yielding investment securities.

Marketable securities increased by $738.9 million, or 46.8%, to $2.317 billion at December 31, 2021, from $1.578 billion at December 31, 2020.

This increase was primarily a result of investing excess cash generated by deposits within our held-to-maturity portfolio.

The following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated.

At December 31,

2020 2019 2018

value Amortized

(In thousands)

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Municipal securities 125,457 128,701 112,634 116,813

Corporate debt issues — — 919 919 914 914

Total marketable securities available-for-sale $ 1,565,002 1,548,592 1,375,685 1,398,941

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At December 31,

2020 2019 2018

value Amortized

(In thousands)

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Marketable securities held-to-maturity:

Debt issued by the U.S.

Government and agencies 124,451 119,632 67,990 67,879

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At December 31,

2020 2019 2018

(In thousands)

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Total residential mortgage-backed securities $ 1,941,618 1,257,601

Market Securities Portfolio Maturities and Yields .

The following table sets forth the scheduled maturities, carrying values, amortized cost, market values and weighted average yields for our market securities and mortgage-backed securities portfolios at December 31, 2020.

Marketable Securities Portfolio Maturities and Yields .

The following table sets forth the scheduled maturities, carrying values, amortized cost, market values and weighted average yields for our marketable securities and mortgage-backed securities portfolios at December 31, 2021.

The annualized weighted average yields are calculated by taking the interest of the marketable securities divided by the amortized cost.

Adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust.

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Marketable securities

held-to-maturity:

Government and

agency obligations $ — — % $ — — % $ 67,990 1.00 % $ — — % $ 67,990 67,879 1.00 %

Marketable securities

available-for-sale:

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mortgage-backed securities available-for-sale 51,264 0.97 % 10,407 1.65 % 62,135 1.58 % 1,190,479 1.33 % 1,314,285 1,297,915 1.33 %

Marketable securities

held-to-maturity:

Government and

agency obligations — — % 16,478 — % 107,973 1.00 % — — % 124,451 119,632 0.87 %

Residential mortgage-backed securities held-to-maturity:

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mortgage-backed securities held-to-maturity 1,266 1.20 % 792 3.53 % 40,494 1.11 % 601,151 1.17 % 643,703 631,881 1.17 %

Tota marketable securities and mortgage-backed securities $ 103,467 1.31 % $ 14,822 2.46 % $ 260,673 1.29 % $ 1,175,610 1.63 % $ 1,554,572 1,578,607 1.56 %

Total marketable securities and mortgage-backed securities $ 53,653 1.02 % $ 49,929 0.87 % $ 280,705 1.26 % $ 1,948,869 1.32 % $ 2,333,156 2,300,105 1.30 %

Further information and analysis of our investment portfolio, including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity marketable securities and tables showing the fair value and gross unrealized losses on marketable securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in Note 4 of the Notes to the Consolidated Financial Statements.

Loans Receivable .

Net loans receivable increased by $1.696 billion, or 19.4%, to $10.446 billion at December 31, 2020, from $8.751 billion at December 31, 2019.

This increase was due primarily to the addition of $1.508 billion, at fair value, of loans related to the acquisition of MutualBank, as well as organic growth of $187.5 million over the last twelve months.

Net loans receivable decreased by $532.3 million, or 5.1%, to $9.914 billion at December 31, 2021, from $10.446 billion at December 31, 2020.

This decrease was due primarily to loan paydowns and payoffs outpacing new originations across all of our loan portfolios with the exception of our consumer loan portfolio which increased $330.8 million, or 21.9%, to $1.839 billion at December 31, 2021 from $1.508 billion at December 31, 2020.

Set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated.

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2021 2020 2019

Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

Amount Percent Amount Percent Amount Percent

(Dollars in thousands)

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Home equity loans 1,319,931 13.2 % 1,467,736 13.9 % 1,342,918 15.2 %

Vehicle loans 1,484,231 14.8 % 1,152,673 10.9 % 861,192 9.8 %

Consumer loans (1) 354,517 3.5 % 355,320 3.4 % 263,940 3.0 %

Automobile 1,152,673 10.9 % 861,192 9.8 % 722,227 9.0 % 502,998 6.5 % 439,807 5.9 %

Other (1) 355,320 3.4 % 263,940 3.0 % 137,486 1.8 % 168,391 2.2 % 203,154 2.7 %

Total Consumer loans 1,507,993 14.3 % 1,125,132 12.8 % 859,713 10.8 % 671,389 8.7 % 642,961 8.6 %

Total Personal Banking 6,153,299 61.4 % 6,043,850 57.1 % 5,336,177 60.6 %

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At December 31, 2021 (In thousands) Due in one year or less Due after

two years Due after

three years Due after

five years Due after

five years Total

fifteen years Due after fifteen years Total

Personal Banking:

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Total Commercial Banking 800,683 1,530,577 1,254,529 299,806 3,885,595

Total $ 1,756,372 1,117,029 1,031,601 1,643,540 4,980,550 10,529,092

Total Loans $ 1,432,847 3,548,684 3,120,527 1,851,574 9,953,632

Net unearned income and unamortized premiums and discounts 62,760

Total Loans Receivable $ 10,016,392

The following table sets forth at December 31, 2021, the dollar amount of all fixed-rate and adjustable-rate loans due one year or more after December 31, 2021.

11 unchanged sentences

Total $ 5,757,854 2,762,931 8,520,785

Total deposits increased by $3.007 billion, or 35.0%, to $11.599 billion at December 31, 2020 from $8.592 billion at December 31, 2019 primarily due to the addition of $1.617 billion of deposits, at fair value, from the acquisition of MutualBank.

In addition, legacy total deposits increased by $1.390 billion, or 16.2%.

Our legacy noninterest-bearing demand deposits increased by $773.2 million, or 48.0%, to $2.383 billion at December 31, 2020 from $1.610 billion at December 31, 2019 and our legacy interest-bearing demand deposits increased by $424.6 million, or 21.8%, to $2.369 billion at December 31, 2020 from $1.944 billion at December 31, 2019.

Additionally, our legacy time deposits increased by $400.6 million, or 25.5%, legacy money market deposit accounts increased by $341.4 million, or 18.3%, to $2.205 billion at December 31, 2020 from $1.864 billion at December 31, 2019, and legacy savings deposits increased by $251.6 million, or 15.7%, to $1.856 billion at December 31, 2020 from $1.605 billion at December 31, 2019.

This deposit growth is a result of PPP loan funds and consumer stimulus checks as well as consumer saving trends this past year.

Total deposits increased by $701.9 million, or 6.1%, to $12.301 billion at December 31, 2021 from $11.599 billion at December 31, 2020.

This increase was primarily due to an increase in noninterest-bearing demand deposits of $383.3 million, or 14.1%, to $3.100 billion at December 31, 2021 from $2.716 billion at December 31, 2020 and an increase in savings deposits of $256.3 million, or 12.5%, to $2.304 billion at December 31, 2021 from $2.047 billion at December 31, 2020.

In addition, money market deposit accounts increased by $192.3 million, or 7.9%, to $2.630 billion at December 31, 2021 from $2.438 billion at December 31, 2020 and interest-bearing demand deposits increased by $184.5 million, or 6.7%, to $2.940 billion at December 31, 2021 from $2.756 billion at December 31, 2020.

These deposit account increases were the result of both consumer stimulus checks and PPP loan funds as well as consumer saving trends.

Partially offsetting these increases, time deposits decreased by $314.5 million, or 19.2%, as customer trends have moved funds from term products to checking and savings accounts.

The following table sets forth the dollar amount of deposits in the various types of accounts we offered at the dates indicated.

At December 31,

2020 2019 2018

Balance Percent (1) Rate (2) Balance Percent (1) Rate (2) Balance Percent (1) Rate (2)

Balance Percent (1) Rate (2) Balance Percent (1) Rate (2)

(Dollars in thousands)

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Total $ 12,301,165 100.0 %

The following table indicates the amount of our certificates of deposit of $100,000 or more by time remaining until maturity at December 31, 2020.

The following table indicates the amount of our certificates of deposits of $250,000 or more by time remaining until maturity at December 31, 2021.

Maturity period Certificates of deposit

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Total $ 123,736

Borrowings increased by $36.7 million, or 14.9%, to $283.0 million at December 31, 2020 from $246.3 million at December 31, 2019.

This increase was a result of the Company issuing $125.0 million of 4.00% fixed-to-floating rate subordinated notes during the third quarter of 2020, and $45.0 million increase in collateralized borrowings.

This increase was offset by a decrease of $131.6 million in FHLB borrowings.

At December 31, 2021 and 2020, we had deposits in excess of $250,000 (the limit for FDIC insurance) of $123.7 million and $181.7 million, respectively.

At those dates, we had no deposits that were uninsured for any other reason.

Borrowings decreased by $20.4 million, or 7.2%, to $262.7 million at December 31, 2021 from $283.0 million at December 31, 2020.

This decrease was a result of $22.0 million of term notes payable to the FHLB maturing during the current year.

The following table sets forth information concerning our borrowings at the dates and for the periods indicated.

During the years ended December 31,

2020 2019 2018

(Dollars in thousands)

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Total shareholders’ equity at December 31, 2021 was $1.584 billion, an increase of $44.9 million, or 2.9%, from $1.539 billion at December 31, 2020.

This increase in equity was primarily the result of the impact of the issuance of common stock for the MutualBank acquisition of $213.4 million in the second quarter of 2020 as well as net income of $74.9 million.

This increase was partially offset by the payment of cash dividends of $93.1 million.

This increase in equity was primarily the result of net income for the year ended December 31, 2021 of $154.3 million.

This increase was partially offset by the payment of cash dividends of $100.3 million for the year ended December 31, 2021.

Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020

Net income for the year ended December 31, 2021 was $154.3 million, or $1.21 per diluted share, an increase of $79.5 million, or 106.2%, from $74.9 million, or $0.62 per diluted share, for the year ended December 31, 2020.

The increase in net income resulted from a decrease in provision for credit losses of $95.9 million, or 114.2%, an increase in noninterest income of $10.6 million, or 8.0%, and a decrease in noninterest expense of $2.6 million, or 0.7%.

Partially offsetting these increases was an increase in income tax expense of $29.1 million, or 164.8%, and a decrease in net interest income of $466,000, or 0.1%.

Net income for the year ended December 31, 2021 represents returns on average equity and average assets of 9.91% and 1.08%, respectively, compared to 4.72% and 0.58% for the year ended December 31, 2020.

A discussion of significant changes follows.

Interest Income.

Total interest income decreased by $15.6 million, or 3.6%, to $418.5 million for the year ended December 31, 2021 from $434.1 million for the year ended December 31, 2020.

This decrease is the result of decreases in the average yield on interest-earning assets to 3.16% for the year ended December 31, 2021 from 3.70% for the year ended December 31, 2020.

This decrease in average yield is attributed to a decline in overall market interest rates.

Partially offsetting this decrease in rates was an increase in the average balance of interest-earning assets of $1.503 billion, or 12.8%, to $13.236 billion for the year ended December 31, 2021 from $11.733 billion for the year ended December 31, 2020.

Interest income on loans receivable decreased by $20.6 million, or 5.0%, to $390.3 million for the year ended December 31, 2021 from $410.9 million for the year ended December 31, 2020.

This decrease in interest income on loans receivable is primarily due to a decrease in the average yield on loans receivable to 3.81% for the year ended December 31, 2021 from 4.07% for the year ended December 31, 2020 primarily due to the decrease in market interest rates.

Partially offsetting this decrease was an increase in the average balance of loans receivable which increased $135.2 million, or 1.3%, to $10.240 billion for the year ended December 31, 2021 from $10.104 billion for the year ended December 31, 2020 primarily due to growth in our consumer portfolio.

At December 31, 2021, there was $69.4 million in PPP loans outstanding, and included in loan interest income for the year ended December 31, 2021 was $14.6 million of accretion related to PPP fees, net of origination costs, compared to $5.7 million for the year ended December 31, 2020.

Interest income on mortgage-backed securities increased by $4.0 million, or 23.2%, to $21.5 million for the year ended December 31, 2021 from $17.4 million for the year ended December 31, 2020.

This increase is the result of an increase in the average balance of mortgage-backed securities by $814.3 million, or 91.5%, to $1.704 billion for the year ended December 31, 2021 from $889.7 million for the year ended December 31, 2020.

This increase was primarily a result of additional purchases utilizing excess cash from deposit growth during the current year.

Partially offsetting this increase in average balance was a decrease in the average yield on mortgage-backed securities to 1.26% for the year ended December 31, 2021 from 1.96% for the year ended December 31, 2020.

This decrease in yield was the result of the new security purchases made at lower yields due to decreases in market interest rates.

Interest income on investment securities increased by $1.1 million, or 26.1%, to $5.1 million for the year ended December 31, 2021 from $4.0 million for the year ended December 31, 2020.

This increase is primarily the result of an increase in the average balance of investment securities of $154.7 million, or 78.9%, to $350.8 million for the year ended December 31, 2021 from $196.1 million for the year ended December 31, 2020, which was primarily due to the utilization of excess funds from deposit growth.

Partially offsetting this increase in average balances was a decrease in the average yield on investment securities to 1.45% for the year ended December 31, 2021 from 2.06% for the year ended December 31, 2020 as new investment purchases were at lower yields than the existing portfolio due to lower market interest rates.

Dividends on FHLB stock decreased by $574,000, or 58.5%, to $407,000 for the year ended December 31, 2021 from $981,000 for the year ended December 31, 2020.

This decrease is the result of decreases in the average yield on FHLB stock which decreased to 2.01% for the year ended December 31, 2021 from 4.50% for the year ended December 31, 2020.

The FHLB of Pittsburgh decreased yields on required stock holdings due to lower market interest rates.

In addition, the average balance of FHLB stock decreased by $1.6 million, or 7.1%, to $20.2 million for the year ended December 31, 2021 from $21.8 million for the year ended December 31, 2020.

Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $475,000, or 66.1%, to $1.2 million for the year ended December 31, 2021 from $719,000 for the year ended December 31, 2020.

This increase is attributable to an increase in the average balance of interest-earning deposits.

The average balance increased by $400.7 million, or 77.0%, to $921.4 million for the year ended December 31, 2021 from $520.7 million for the year ended December 31, 2020 due to excess liquidity from steady deposit inflows.

Partially offsetting this increase was a decrease in the average yield on interesting-earning deposits to 0.13% for the year ended December 31, 2021 from 0.14% for the year ended December 31, 2020.

Interest Expense.

Interest expense decreased by $15.1 million, or 35.6%, to $27.2 million for the year ended December 31, 2021 from $42.3 million for the year ended December 31, 2020.

This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities which decreased to 0.29% for the year ended December 31, 2021 from 0.49% for the year ended December 31, 2020.

This decrease resulted from decreases in the interest rates paid on deposits and junior subordinated debentures in response to decreases in market interest rates.

Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $797.9 million, or 9.2%, to $9.501 billion for the year ended December 31, 2021 from $8.703 billion for the year ended December 31, 2020.

This increase in average balance resulted from internal growth in deposits and the issuance of $125.0 million of fixed-to-floating subordinated debt in September of 2020.

Net Interest Income.

Net interest income remained relatively flat, decreasing by $466,000, or 0.1%, to $391.3 million for the year ended December 31, 2021 from $391.7 million for the year ended December 31, 2020.

This decline was attributable to the overall decrease in interest income and interest expense that largely offset each other.

Our interest rate spread decreased to 2.88% for the year ended December 31, 2021 from 3.21% for the year ended December 31, 2020 and our net interest margin also decreased to 2.96% for the year ended December 31, 2021 from 3.34% for the year ended December 31, 2020 primarily due to the change in interest-earning asset mix.

Contributing to the decline was an increase in average cash balances of $400.7 million, earning 0.13%, due to deposit growth associated with PPP loan funds and consumer stimulus checks.

Provision for Credit Losses.

We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements.

The provision for credit losses decreased by $95.9 million, or 114.2%, to a net credit of $11.9 million for the year ended December 31, 2021 compared to a provision expense of $84.0 million for the year ended December 31, 2020.

The prior year provision was elevated due to the uncertainty of COVID-19 and the negative effects to the economic forecasts.

Throughout 2021, we were able to release those credit loss reserves that were previously built up as the economic forecasts and our overall credit quality improved.

Total classified loans decreased by $126.1 million, or 25.8%, to $363.2 million at December 31, 2021 from $489.3 million at December 31, 2020.

In addition, net charge-offs to average loans decreased to 0.20% for the year ended December 31, 2021 from 0.27% for the year ended December 31, 2020.

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in real estate values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience.

We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”.

The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2021.

Noninterest Income.

Noninterest income increased by $10.6 million, or 8.0%, to $142.9 million for the year ended December 31, 2021 from $132.3 million for the year ended December 31, 2020.

This increase is largely due to the $25.3 million gain recognized on the sale of the insurance business in the second quarter of 2021.

Also contributing to this increase was a $7.0 million, or 33.5%, increase in trust and other financial services income to $27.9 million for the year ended December 31, 2021 from $20.9 million for the year ended December 31, 2020 as a result of growth in both customer accounts and market gains.

Partially offsetting these increases, was a decrease in mortgage banking income of $15.5 million, or 49.4%, to $15.9 million for the year ended December 31, 2021 from $31.4 million for the year ended December 31, 2020, due primarily to the impact of less favorable pricing in the secondary market.

Additionally, service charges and fees decreased $3.8 million, or 6.8%, to $51.8 million for the year ended December 31, 2021 from $55.6 million for the year ended December 31, 2020 due to the impact of the Durbin amendment on our interchange fees which came into effect in the second half of 2020.

Noninterest Expense.

Noninterest expense decreased by $2.6 million, or 0.7%, to $344.9 million for the year ended December 31, 2021 from $347.5 million for the year ended December 31, 2020.

This decrease was primarily due to a decrease of $17.3 million, or 83.4%, in merger, asset disposition and restructuring expense to $3.5 million for the year ended December 31, 2021 from $20.8 million for the year ended December 31, 2020 due to expenses incurred in the prior year for the MutualBank acquisition and the 2020 branch optimization initiative.

Also, other expenses decreased $8.1 million, or 49.4%, to $8.3 million for the year ended December 31, 2021 from $16.5 million for the year ended December 31, 2020 primarily due to the decrease in the reserve for unfunded commitments.

The prior year was significantly impacted by the onset of COVID-19 and the uncertainty surrounding the possible negative effect on loan commitments and undrawn lines of credit.

Partially offsetting these decreases was an increase in compensation and employee benefits of $15.5 million, or 8.7%, to $193.9 million for the year ended December 31, 2021 from $178.4 million for the year ended December 31, 2020 primarily due to increases in health insurance and other benefits costs, regular merit expense and the addition of MutualBank and other strategic personnel.

Additionally, processing expenses increased $5.7 million, or 11.4%, to $55.8 million for the year ended December 31, 2021 from $50.1 million for the year ended December 31, 2020, as we continue to invest in technology and infrastructure as well as increases in activity-driven utilization fees for ATM, check card and online and mobile banking.

Lastly, professional service expense increased $5.1 million, or 41.2%, to $17.6 million for the year ended

December 31, 2021 from $12.5 million for the year ended December 31, 2020 primarily due to the utilization of third-party experts to assist with our digital strategy rollout.

Income Taxes.

The provision for income taxes increased by $29.1 million, or 164.8%, to $46.8 million for the year ended December 31, 2021 from $17.7 million for the year ended December 31, 2020.

This increase in income tax expense is primarily due to the $108.6 million, or 117.4%, increase in pretax income to $201.1 million for the year ended December 31, 2021 from $92.5 million for the year ended December 31, 2020.

In addition, our effective tax rate for the year ended December 31, 2021 was 23.3% compared to 19.1% for the year ended December 31, 2020.

Comparison of Results of Operations for the Years Ended December 31, 2020 and 2019

Net income for the year ended December 31, 2020 was $74.9 million, or $0.62 per diluted share, a decrease of $35.6 million, or 32.2%, from $110.4 million, or $1.04 per diluted share, for the year ended December 31, 2019.

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Total interest income increased by $16.7 million, or 4.0%, to $434.1 million for the year ended December 31, 2020 from $417.4 million for the year ended December 31, 2019.

This increase is the result of an increase in the

average balance of interest-earning assets of $2.294 billion, or 24.3%, to $11.733 billion for the year ended December 31, 2020 from $9.438 billion for the year ended December 31, 2019.

This increase is the result of an increase in the average balance of interest-earning assets of $2.294 billion, or 24.3%, to $11.733 billion for the year ended December 31, 2020 from $9.438 billion for the year ended December 31, 2019.

Partially offsetting this increase in average balances was a decrease in the average yield on interest-earning assets to 3.70% for the year ended December 31, 2020 from 4.42% for the year ended December 31, 2019.

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Interest income on loans receivable increased by $16.1 million, or 4.1%, to $410.9 million for the year ended December 31, 2020 from $394.8 million for the year ended December 31, 2019.

This increase in interest income on loans receivable is attributed to increases in the average balance on loans receivable.

This increase in interest income on loans receivable is attributed to the increase in the average balance on loans receivable.

The average balance increased by $1.549 billion, or 18.1%, to $10.104 billion for the year ended December 31, 2020 from $8.555 billion for the year ended December 31, 2019.

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The average yield on investment securities remained flat at 2.06% for the years ended December 31, 2020 and December 31, 2019.

Dividends on FHLB stock decreased by $75,000, or 7.1%, to $1.0 million for the year ended December 31, 2020 from $1.1 million for the year ended December 31, 2019.

Dividends on FHLB stock decreased by $75,000, or 7.1%, to $981,000 for the year ended December 31, 2020 from $1.1 million for the year ended December 31, 2019.

This decrease is the result of decreases in the average yield on FHLB stock which decreased to 4.50% for the year ended December 31, 2020 from 7.29% for the year ended December 31, 2019.

The FHLB of Pittsburgh recently decreased yields on required stock holdings in reaction to lower market interest rates.

Slightly offsetting this decrease was an increase in the average balance on FHLB stock by $7.3 million, or 50.5%, to $21.8 million for the year ended December 31, 2020 from $14.5 million for the year ended December 31, 2019 primarily due to FHLB stock acquired and retained from MutualBank.

Slightly offsetting this

decrease was an increase in the average balance on FHLB stock by $7.3 million, or 50.5%, to $21.8 million for the year ended December 31, 2020 from $14.5 million for the year ended December 31, 2019 primarily due to FHLB stock acquired and retained from MutualBank.

Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

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Provision for Credit Losses.

We analyze the allowance for credit losses as described in No te 1(f) of the notes to the Consolidated Financial Statements.

We analyze the allowance for credit losses as described in Note 1(f) of the notes to the Consolidated Financial Statements.

The provision for credit losses increased by $61.3 million to $84.0 million for the year ended December 31, 2020 from $22.7 million for the year ended December 31, 2019.

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We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses.” The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2020.

We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”.

The provision that was recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2020.

Noninterest Income.

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The largest drivers of the overall increase were an increase of $16.6 million in acquisition and branch optimization expenses to $20.8 million for the year ended December 31, 2020 from $4.2 million for the year ended December 31, 2019 due to expenses incurred as part of the MutualBank acquisition as well as expenses incurred as part of the branch optimization initiative that occurred during December.

In addition, compensation and employee benefits expense increased by $15.3 million, or 9.4%, to $178.4 million for the year ended December 31, 2020 from $163.1 million for the year ended December 31, 2019, due to internal growth in compensation and staff as well as the addition of MutualBank employees.

In addition, compensation and employee benefits expense

increased by $15.3 million, or 9.4%, to $178.4 million for the year ended December 31, 2020 from $163.1 million for the year ended December 31, 2019, due to internal growth in compensation and staff as well as the addition of MutualBank employees.

Also contributing to the increase was an increase in processing expenses of $7.6 million, or 17.9%, to $50.1 million for the year ended December 31, 2020 from $42.5 million for the year ended December 31, 2019, primarily due to our continued efforts to invest in technology and infrastructure as well as improvements to our mortgage and commercial loan origination platforms.

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The provision for income taxes decreased by $13.0 million, or 42.4%, to $17.7 million for the year ended December 31, 2020 from $30.7 million for the year ended December 31, 2019.

This decrease in income tax expense is primarily due to the $48.6 million, or 34.4%, decrease in pretax income to $92.5 million for the year ended December 31, 2020 from $141.1 million for the year ended December 31, 2019.

In addition, our effective tax rate for the year ended December 31, 2020 was 19.1% compared to 21.7% for the year ended December 31, 2019.

Comparison of Results of Operations for the Years Ended December 31, 2019 and 2018

Net income for the year ended December 31, 2019 was $110.4 million, or $1.04 per diluted share, an increase of $4.9 million, or 4.7%, from $105.5 million, or $1.02 per diluted share, for the year ended December 31, 2018.

The increase in net income resulted from an increase in net interest income of $21.8 million, or 6.4% and noninterest income of $7.7 million, or 8.4%.

Partially offsetting these increases were an increase in provision for credit losses of $2.3 million, or 11.4%, an increase in noninterest expense of $20.0 million, or 7.2%, and an increase in income tax expense of $2.3 million, or 7.9%.

Net income for the year ended December 31, 2019 represents returns on average equity and average assets of 8.36% and 1.07%, respectively, compared to 8.61% and 1.11% for the year ended December 31, 2018.

A discussion of significant changes follows.

Interest Income.

Total interest income increased by $41.6 million, or 11.1%, to $417.4 million for the year ended December 31, 2019 from $375.8 million for the year ended December 31, 2018.

This increase is the result of an increase in the average balance of interest earning assets of $675.3 million, or 7.7%, to $9.438 billion for the year ended December 31, 2019 from $8.763 billion for the year ended December 31, 2018 and an increase in the average yield on interest-earning assets to 4.44% for the year ended December 31, 2019 from 4.30% for the year ended December 31, 2018.

Interest income on loans receivable increased by $38.2 million, or 10.7%, to $394.8 million for the year ended December 31, 2019 from $356.6 million for the year ended December 31, 2018.

This increase in interest income on loans receivable is attributed to increases in the average balance and average yield on loans receivable.

The average balance increased by $671.0 million, or 8.5%, to $8.555 billion for the year ended December 31, 2019 from $7.884 billion for the year ended December 31, 2018.

This increase is due primarily to the addition of $407.8 million, at fair value, of loans related to the UCB acquisition and organic loan growth of $349.4 million.

Additionally, the average yield on loans receivable increased to 4.63% for the year ended December 31, 2019 from 4.54% for the year ended December 31, 2018.

The average loan yield was positively affected by increases in market interest rates before the Federal Reserve started its interest rate easing strategy in March of 2019.

Interest income on mortgage-backed securities increased by $2.9 million, or 21.0%, to $16.7 million for the year ended December 31, 2019 from $13.8 million for the year ended December 31, 2018.

This increase is the result of increases in both the average balance and average yield.

The average balance of mortgage-backed securities increased by $53.2 million, or 9.1%, to $639.8 million for the year ended December 31, 2019 from $586.6 million for the year ended December 31, 2018.

The average yield on mortgage-backed securities increased to 2.61% for the year ended December 31, 2019 from 2.35% for the year ended December 31, 2018 due to the purchase of fixed-rate mortgage-backed securities, including the UCB portfolio, which had yields higher than the existing Northwest portfolio.

Interest income on investment securities remained relatively flat, increasing by $103,000, or 2.5%, to $4.2 million for the year ended December 31, 2019 from $4.1 million for the year ended December 31, 2018.

This increase is the result of an increase in the average yield on investment securities to 2.17% for the year ended December 31, 2019 from 1.84% for the year ended December 31, 2018, due primarily to the addition of higher yielding investments, including municipal bonds, from the UCB acquisition.

Partially offsetting this increase was a decrease in the average balance of investment securities of $35.2 million, or 14.6%, to $205.8 million for the year ended December 31, 2019 from $241.0 million for the year ended December 31, 2018, which was primarily due to the maturity or call of government agency securities.

Dividends on FHLB stock increased by $604,000, or 133.6%, to $1.1 million for the year ended December 31, 2019 from $452,000 for the year ended December 31, 2018.

This increase is the result of increases in both the average balance and average yield.

The average balance on FHLB stock increased by $4.1 million, or 39.8%, to $14.5 million for the year ended December 31, 2019 from $10.4 million for the year ended December 31, 2018.

Additionally, the average yield on FHLB stock increased to 7.29% for the year ended December 31, 2019 from 4.37% for the year ended December 31, 2018.

Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits decreased by $235,000, or 28.1%, to $600,000 for the year ended December 31, 2019 from $835,000 for the year ended December 31, 2018.

This decrease is attributable to a decrease in the average balance of interest-earning deposits.

The average balance decreased by $17.8 million, or 43.3%, to $23.3 million for the year ended December 31, 2019 from $41.1 million for the year ended December 31, 2018, due to the utilization of excess cash to fund loan growth.

Partially offsetting this decrease was an increase in the average yield on interesting-earning deposits to 2.54% for the year ended December 31, 2019 from 2.00% for the year ended December 31, 2018, as a result of previous increases in the targeted Federal Funds rate by the Federal Reserve Board before declining in the second half of 2019.

Interest Expense .

Interest expense increased by $19.8 million, or 53.2%, to $56.9 million for the year ended December 31, 2019 from $37.1 million for the year ended December 31, 2018.

This increase in interest expense was due to both an increase in the average balance of interest-bearing liabilities and the increase in the average cost of interest-bearing liabilities.

The average balance increased by $486.9 million, or 7.5%, to $6.968 billion for the year ended December 31, 2019 from $6.481 billion for the year ended December 31, 2018.

This increase was primarily due to the UCB acquisition, which included $479.4 million in deposits.

Additionally, the average yield on interest-bearing liabilities increased to 0.82% for the year ended December 31, 2019 from 0.57% for the year ended December 31, 2018.

This increase resulted from increases in the interest rates paid on deposits and borrowed funds in response to increases in market interest rates.

Net Interest Income .

Net interest income increased by $21.8 million, or 6.4%, to $360.5 million for the year ended December 31, 2019 from $338.6 million for the year ended December 31, 2018.

This increase is attributable to the factors discussed above.

Our interest-bearing deposit costs rose greater than yields on interest-earning assets reducing both our interest rate spread and net interest margin.

Our interest rate spread decreased to 3.62% for the year ended December 31, 2019 from 3.73% for the year ended December 31, 2018 and our net interest margin also decreased to 3.84% for the year ended December 31, 2019 from 3.88% for the year ended December 31, 2018.

Provision for Credit Losses.

We analyze the allowance for credit losses as described in Note 1(f) of the notes to the Consolidated Financial Statements.

The provision for credit losses increased by $2.3 million, or 11.4%, to $22.7 million for the year ended December 31, 2019 from $20.3 million for the year ended December 31, 2018.

This increase is due primarily to a downgrade of an $11.5 million commercial loan resulting in a credit loss reserve on this relationship of approximately $7.4 million.

Partially offsetting this increase was a decrease in total nonaccrual loans by $3.4 million, or 4.7%, to $68.9 million, or 0.78% of total loans, at December 31, 2019 from $72.3 million, or 0.90% of total loans, at December 31, 2018.

In addition, total loan delinquency decreased to $119.4 million, or 1.36% of total loans at December 31, 2019 from $121.5 million, or 1.51% of total loans at December 31, 2018.

In determining the amount of the current period provision for the year ended December 31, 2019, we considered current economic conditions as of that period, including unemployment levels, bankruptcy filings, and changes in real estate values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss factors.

The provision that was recorded was sufficient, in our 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 as of December 31, 2019.

Noninterest Income.

Noninterest income increased by $7.7 million, or 8.4%, to $99.4 million for the year ended December 31, 2019 from $91.7 million for the year ended December 31, 2018.

This increase is primarily attributable to a $3.2 million, or 540.8%, increase in mortgage banking income to $3.8 million for the year ended December 31, 2019 from $596,000 for the year ended December 31, 2018, as a result of expanding our secondary market sales capabilities.

Service charges and fees also increased $2.3 million, or 4.5%, to $53.1 million for the year ended December 31, 2019 from $50.8 million for the year ended December 31, 2018, primarily due to additional fees collected on deposit accounts due to a recent change in fee structure while also being positively impacted by transaction volume.

We also recognized a gain of $1.7 million during the current year on the sale of approximately $98.2 million of one-to-four family mortgage loans from our portfolio.

In addition, trust and other financial services income increased by $1.2 million, or 7.1%, to $17.8 million for the year ended December 31, 2019 from $16.6 million for the year ended December 31, 2018, due primarily to new brokerage production.

Slightly offsetting these increases was a decrease of $1.4 million, or 24.1%, in income on bank owned life insurance to $4.4 million for the year ended December 31, 2019 from $5.8 million for the year ended December 31, 2018 due to death benefits received in the prior year.

Noninterest Expense.

Noninterest expense increased by $20.0 million, or 7.2%, to $296.1 million for the year ended December 31, 2019 from $276.1 million for the year ended December 31, 2018.

All noninterest expense categories, with the exception

of federal deposit insurance premiums, marketing expense, and real estate owned expense, increased compared to 2018.

Most of these increases resulted from the UCB acquisition as well as the MutualBank acquisition which closed and converted in the second quarter of 2020.

The largest driver of the overall increase was a $10.7 million, or 7.0%, increase in compensation and employee benefits expense to $163.1 million for the year ended December 31, 2019 from $152.4 million for the year ended December 31, 2018, due to both internal growth in compensation and staff as well as the addition of UCB employees.

Also contributing to the increase was an increase in processing expenses of $3.4 million, or 8.7%, to $42.5 million for the year ended December 31, 2019 from $39.0 million for the year ended December 31, 2018, primarily due to our continued efforts to invest in technology and infrastructure as well as improvements to our mortgage and commercial loan origination platforms.

Acquisition expense increased by $3.2 million, or 311.0%, to $4.2 million for the year ended December 31, 2019 from $1.0 million for the year ended December 31, 2018 due both to costs incurred as part of the UCB acquisition as well as initial expenses incurred as a result of the MutualBank acquisition.

Professional services expenses also increased by $1.7 million, or 15.9% primarily as a result of the continued consulting engagements related to the implementation of CECL as well as a deposit consulting engagement focused on product, price and promotion.

Additionally, other noninterest expense increased by $2.7 million or 23.5%, to $14.0 million for the year ended December 31, 2019 from $11.3 million for the year ended December 31, 2018, due to both an increase in pension related servicing costs and an increase in litigation expenses.

Slightly offsetting these increases was a decrease in FDIC premiums of $2.1 million, or 75.1%, due to an FDIC assessment credit received during the 2019 as a result of the deposit insurance fund becoming fully funded as well as a decrease in marketing expense of $1.4 million, or 17.0%, due primarily to our debit card reward program being discontinued.

Income Taxes.

The provision for income taxes increased by $2.3 million, or 7.9%, to $30.7 million for the year ended December 31, 2019 from $28.4 million for the year ended December 31, 2018.

This increase in income tax expense is primarily the result of the $7.2 million, or 5.4%, increase in pretax income to $141.1 million for the year ended December 31, 2019 from $133.9 million for the year ended December 31, 2018.

This decrease in income tax expense is primarily due to the $48.6 million, or 34.4%, decrease in pretax income to $92.5 million for the year ended December 31, 2020 from $141.1 million for

the year ended December 31, 2019.

In addition, our effective tax rate for the year ended December 31, 2020 was 19.1% compared to 21.7% for the year ended December 31, 2019.

27 unchanged sentences

At December 31,

2020 2019 2018 2017 2016

(Dollars in thousands)

2 unchanged sentences

Home equity loans 4,262 8,441

Vehicle loans 1,635 4,599

Consumer loans 765 1,459

Commercial real estate loans 23,489 23,307

Commercial real estate loans - owner occupied 574 1,980

Commercial loans 1,105 7,325

14 unchanged sentences

(1) Also included in nonaccrual loans above.

During the year ended December 31, 2020, gross interest income of approximately $6.4 million would have been recorded on loans accounted for on a nonaccrual basis if the loans had been current and in accordance with their original terms throughout the year.

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

Classification of Assets .

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“Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected.

Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” so that their continuance as assets without the establishment of a specific loss reserve is not warranted.

Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated “special mention.” At December 31, 2020, we had 198 loans, with an aggregate principal balance of $149.3 million, designated as “special mention.”

Assets classified as “loss” are those considered “uncollectible” so that their continuance as assets without the establishment of a specific loss reserve is not warranted.

At December 31, 2021, we had 109 loans, with an aggregate principal balance of $79.9 million, designated as “special mention”.

We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

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At December 31,

2020 2019 2018

(In thousands)

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We adopted CECL on January 1, 2020, as further described in Note 1.

Our Board of Directors has adopted an “Allowance for Credit Losses” policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period.

Our Board of Directors has adopted an “Allowance for Credit Losses” (“ACL”) policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period.

This methodology was developed to provide a consistent process and review procedure to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

5 unchanged sentences

This rating is also reviewed independently by our Loan Review department on a periodic basis.

Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss.” Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”.

Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”.

Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”.

A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable.

Loans classified as “loss” have all the weakness inherent in those classified as "doubtful" and considered uncollectible.

Loans classified as “loss” have all the weakness inherent in those classified as “doubtful” and are considered uncollectible.

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The allowance for credit losses is measured using a combination of statistical models.

We use a twelve month forecasting period and revert to historical average loss rates thereafter.

We use a twenty-four month forecasting period and revert to historical average loss rates thereafter.

Reversion to average loss rates takes place over twelve months.

6 unchanged sentences

In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.

In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and the Pennsylvania Department of Banking perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements.

In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from the FDIC and the Pennsylvania Department of Banking perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements.

Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.

5 unchanged sentences

In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations.

The ACL increased by $76.5 million, or 132.0%, to $134.4 million, or 1.27% of total loans at December 31, 2020 from $57.9 million, or 0.66% of total loans, at December 31, 2019.

Due to the adoption of CECL, our allowance increased $10.8 million.

In addition, our allowance increased $8.8 million as a result of recording the initial allowance on the purchased credit deteriorated loans acquired from MutualBank.

The ACL decreased by $32.2 million, or 23.9%, to $102.2 million, or 1.02% of gross loans at December 31, 2021 from $134.4 million, or 1.27% of total loans, at December 31, 2020 .

During 2020 our allowance increased $8.8 million as a result of recording the initial allowance on the purchased credit deteriorated loans acquired from MutualBank.

The non-purchased credit deteriorated loans acquired from MutualBank resulted in a credit mark of $28.1 million and an additional allowance of $18.2 million, as required by CECL.

The estimated economic impact of COVID-19 caused us to increase our provision for credit loss expense by approximately $41.6 million for the year ended December 31, 2020.

Throughout 2021, we were able to release those credit loss reserves that were previously built up as the economic forecasts improved as well as our overall credit quality.

Quarterly, management’s Credit Committee reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas.

2 unchanged sentences

Nonaccrual loans of $158.5 million, or 1.59% of total gross loans receivable at December 31, 2021, increased by $55.6 million, or 54.1%, from $102.8 million, or 0.98% of total gross loans receivable, at December 31, 2020.

As a percentage of average loans, net charge-offs increased to 0.27% for the year ended December 31, 2020 compared to 0.23% for the year ended December 31, 2019.

The increase in net charge-offs was largely impacted by a $9.1 million charge-off on one commercial loan which was previously downgraded and reserved for prior to the onset of COVID-19.

This increase was primarily related to loans within the hospitality industry that were placed on nonaccrual after the end of their deferral periods.

As a percentage of average loans, net charge-offs decreased to 0.20% for the year ended December 31, 2021 compared to 0.27% for the year ended December 31, 2020.

The decrease in net charge-offs was largely due to a $9.1 million charge-off on one commercial loan which was previously downgraded and reserved for in 2020 prior to the onset of COVID-19.

Analysis of the Allowance for Credit Losses .

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Years ended December 31,

2020 2019 2018 2017 2016

(Dollars in thousands)

Net loans receivable $ 10,446,422 8,750,733 7,996,225 7,736,614 7,496,408

Loans receivable $ 10,016,392 10,580,849

Average loans outstanding 10,239,620 10,104,453

6 unchanged sentences

Home equity loans (3,380) (608)

Vehicle loans (4,632) (6,827)

Consumer loans (5,417) (5,831)

Commercial real estate loans (11,933) (4,240)

Commercial real estate loans - owner occupied (890) (83)

Commercial loans (4,213) (16,212)

2 unchanged sentences

Home equity loans 900 766

Vehicle loans 2,536 2,536 1,867

Consumer loans 2,360 1,542

Commercial real estate loans 2,189 1,287

Commercial real estate loans - owner occupied 107 107 27

Commercial loans 4,807 1,741

1 unchanged sentence

Balance at end of period $ 102,241 134,427

Allowance for credit losses as a percentage of net loans receivable 1.29 % 0.66 % 0.69 % 0.73 % 0.81 %

Allowance for credit losses as a percentage of loans receivable 1.02 % 1.27 %

Net charge-offs as a percentage of average loans outstanding:

Allowance for credit losses as a percentage of nonperforming loans 129.99 % 84.09 % 76.21 % 87.43 % 76.00 %

Allowance for credit losses as a percentage of nonperforming assets 127.24 % 82.95 % 73.67 % 80.42 % 71.63 %

Allocation of Allowance for Credit Losses .

The following tables set forth the allocation of the allowance for credit losses by loan category at the dates indicated.

The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category.

At December 31,

2020 2019 2018

Amount % of total

loans (1) Amount % of total

(Dollars in thousands)

Balance at end of year applicable to:

Residential mortgage loans 0.09 % 0.02 %

Home equity loans 0.18 % (0.01) %

Vehicle loans 0.16 % 0.48 %

Consumer loans 0.97 % 1.36 %

Commercial real estate loans 0.35 % 0.11 %

Commercial real estate loans - owner occupied 0.19 % 0.01 %

Commercial loans (0.06) % 1.26 %

Total $ 134,427 100.0 % $ 57,941 100.0 % $ 55,214 100 %

Total Average Loans Receivable 0.20 % 0.27 %

Allowance for credit losses as a percentage of nonperforming loans 64.38 % 129.99 %

Allowance for credit losses as a percentage of nonperforming assets 64.03 % 127.24 %

Allocation of Allowance for Credit Losses .

The following tables set forth the allocation of the allowance for credit losses by loan category at the dates indicated.

The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category.

At December 31,

5 unchanged sentences

Home equity loans 5,300 13.2 % 5,992 13.9 %

Vehicle loans 15,483 14.8 % 14,825 11.0 %

Consumer loans 2,884 3.5 % 2,871 3.3 %

Commercial real estate loans 54,141 26.2 % 79,381 26.9 %

Commercial real estate loans - owner occupied 3,883 3.9 % 10,518 4.7 %

Commercial loans 13,177 8.5 % 13,574 11.2 %

7 unchanged sentences

The average yield for loans receivable and investment securities are calculated on a FTE basis.

There were no out-of-period adjustments or other exclusions from the amounts presented in the table.

For the years ended December 31,

19 unchanged sentences

Borrowed funds (7) 135,285 616 0.46 % 315,116 1,628 0.52 % 206,458 2,865 1.39 %

Subordinated debt (8) 123,457 4,980 4.03 % 31,326 1,562 4.99 % — — — %

Junior subordinated debentures 128,915 2,528 1.93 % 126,683 3,254 2.53 % 120,012 4,833 3.97 %

16 unchanged sentences

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

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

(9) Average cost of deposits were 0.16%, 0.34% and 0.58%, respectively.

1 unchanged sentence

(11) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(11) Shown on a FTE basis.

(12) Shown on a FTE basis and in consideration of applicable current federal, state and local tax rates.

GAAP basis yields for the years ended December 31, 2021, 2020 and 2019 were - Loans:

10 unchanged sentences

Changes not solely attributable to rate or volume have been allocated proportionately to the change due to volume and the change due to rate.

There were no out-of-period adjustments or other exclusions from the amounts presented in the table.

Years ended December 31, 2021 vs.

18 unchanged sentences

Borrowed funds (193) (819) (1,012) (964) 1,289 325

Subordinated debt (298) 3,716 3,418 — — —

Junior subordinated debentures (761) 35 (726) (1,764) 185 (1,579)

15 unchanged sentences

In addition, we invest excess funds in short-term interest earning and other assets, which provide liquidity to meet lending requirements.

Short-term interest-earning deposits amounted to $595.9 million at December 31, 2020.

Short-term interest-earning deposits amounted to $1.211 billion at December 31, 2021.

For additional information about our cash flows from operating, financing, and investing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing, and financing activities.

The primary sources of cash during the current year were net income, principal repayments on loans and mortgage-backed securities, and the subordinated debt offering.

The primary sources of cash during the current year were net income, principal repayments on loans and mortgage-backed securities and net increase in deposits.

Liquidity management is both a daily and long-term function of business management.

If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh, FHLB of Indianapolis and the Federal Reserve Bank of Cleveland, which provide an additional source of funds.

At December 31, 2020, Northwest Bank had advances of $22.1 million from the FHLB of Indianapolis.

If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh and the Federal Reserve Bank of Cleveland, which provide an additional source of funds.

At December 31, 2021, Northwest Bank had no outstanding advances with the FHLB of Pittsburgh.

We borrow from these sources to reduce interest rate risk and to provide liquidity when necessary.

6 unchanged sentences

Financial institutions, such as Northwest Bank, are also subject to deposit outflows.

Our net deposits increased by $3.007 billion for the year ended December 31, 2020, increased by $697.8 million for the year ended December 31, 2019 and increased by $67.2 million for the year ended December 31, 2018.

Similarly, the amount of principal repayments on loans and the amount of new loan originations is heavily influenced by the general level of market interest rates, consumer confidence and consumer spending and also includes approximately $500.0 million of PPP loans.

Our net deposits increased by $701.9 million for the year ended December 31, 2021, increased by $3.007 billion for the year ended December 31, 2020 and increased by $697.8 million for the year ended December 31, 2019.

Funds received from loan maturities and principal payments on loans for the years ended December 31, 2021, 2020 and 2019 were $4.490 billion, $4.384 billion and $3.275 billion, respectively.

4 unchanged sentences

When necessary, we utilize borrowings as a source of liquidity and as a source of funds for long-term investment when market conditions permit.

The net cash flow from the receipt and repayment of borrowings was a net decrease of $192.4 million, a net increase of $11.9 million and a net increase of $126.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The net cash flow from the receipt and repayment of borrowings was a net decrease of $20.7 million , a net decrease of $192.4 million and a net increase of $11.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Northwest Bancshares, Inc.

1 unchanged sentence

Northwest Bancshares’ primary source of liquidity is the dividend payments it receives from Northwest Bank.

The payment of dividends by Northwest Bank is subject to regulatory requirements.

In addition, during 2020, Northwest Bancshares, Inc.

During 2020, Northwest Bancshares, Inc.

issued $125.0 million of subordinated debt.

1 unchanged sentence

(on an unconsolidated basis) had liquid assets of $128.0 million.

Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $93.1 million million, $76.2 million and $69.9 million for the ended December 31, 2020, 2019 and 2018, respectively.

Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $100.3 million million, $93.1 million and $76.2 million for years the ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, stockholders’ equity totaled $1.584 billion.

1 unchanged sentence

We monitor the capital levels of Northwest Bank to provide for current and future business opportunities and to meet regulatory guidelines for “well capitalized” institutions.

Northwest Bank is required by the Pennsylvania Department of Banking and the FDIC to meet minimum capital adequacy requirements.

At December 31, 2020, Northwest Bank exceeded all regulatory minimum capital requirements and is considered to be “well capitalized.” In addition, as of December 31, 2020, we were not aware of any recommendation by a regulatory authority that, if it were implemented, would have a material effect on liquidity, capital resources or operations.

Northwest Bank is required by the Pennsylvania Department of Banking and Securities and the FDIC to meet minimum capital adequacy requirements.

At December 31, 2021, Northwest Bank exceeded all regulatory minimum capital requirements and is considered to be “well capitalized”.

In addition, as of December 31, 2021, we were not aware of any recommendation by a regulatory authority that, if it were implemented, would have a material effect on liquidity, capital resources or operations.

Regulatory Capital Requirements.

33 unchanged sentences

Supplemental Executive Retirement Plan (1) $ — — — 1,487 1,487

Term notes payable to the FHLB of Indiana (2) — — — 22,054 22,054

Collateralized borrowings (2) 139,093 — — — 139,093

19 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis