Northwest Bancshares, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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. Our earnings depend primarily on net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. 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 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 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. 29 Table of Contents 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, 2021 2020 (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 30 Table of Contents 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 estimates we believe are critical. Allowance for Credit Losses. 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. The allowance for credit losses represents management’s estimate of lifetime expected losses based on all available information. The allowance for credit losses is based on management’s evaluation of relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The loan portfolio is reviewed regularly by management in its determination of the allowance for credit losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review our allowance for credit losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for credit losses, a combination of statistical models are applied to various pools of outstanding loans. 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 31 Table of Contents 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 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. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. For further information related to our allowance for credit losses, see Note 1(f) of the notes to the Consolidated Financial Statements. Recently Issued Accounting Standards The following Accounting Standard Updates (“ASU”) issued by the FASB have not yet been adopted. In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU provides temporary optional guidance 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. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective March 12, 2020 through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact on our financial statements. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform”. This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform. This guidance is effective as of the date of issuance through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact on our financial statements. Balance Sheet Analysis Assets. 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 $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 $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. 32 Table of Contents 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, 2021 2020 Amortized cost Fair value Amortized cost Fair value (In thousands) Residential mortgage-backed securities available-for-sale: Fixed rate pass-through $ 265,604 265,468 339,406 346,445 Variable rate pass-through 11,306 11,591 14,778 15,189 Fixed rate agency CMOs 997,680 980,999 723,586 734,251 Variable rate agency CMOs 39,695 39,857 50,333 50,819 Total residential mortgage-backed securities available-for-sale 1,314,285 1,297,915 1,128,103 1,146,704 Marketable securities available-for-sale: U.S. Government, agency and GSEs 125,260 121,976 134,948 135,424 Municipal securities 125,457 128,701 112,634 116,813 Total marketable securities available-for-sale $ 1,565,002 1,548,592 1,375,685 1,398,941 The following table sets forth certain information regarding the amortized cost and fair value of our held-to-maturity marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated. At December 31, 2021 2020 Amortized cost Fair value Amortized cost Fair value (In thousands) Residential mortgage-backed securities held-to-maturity: Fixed rate pass-through $ 183,092 180,989 1,723 1,854 Variable rate pass-through 667 691 919 949 Fixed rate agency CMOs 459,345 449,585 107,651 108,365 Variable rate agency CMOs 599 616 604 619 Total residential mortgage-backed securities held-to-maturity 643,703 631,881 110,897 111,787 Marketable securities held-to-maturity: U.S. Government and agencies 124,451 119,632 67,990 67,879 Total marketable securities held-to-maturity $ 768,154 751,513 178,887 179,666 The following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated. At December 31, 2021 2020 (In thousands) Residential mortgage-backed securities: FNMA $ 704,070 532,532 GNMA 577,684 367,354 FHLMC 659,433 357,249 Other (including non-agency) 431 466 Total residential mortgage-backed securities $ 1,941,618 1,257,601 33 Table of Contents 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. One year or less More than one year to five years More than five years to ten years More than ten years Total Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Fair value Annualized weighted average yield (1) (Dollars in thousands) Marketable securities available-for-sale: Government sponsored entities $ 177 1.51 % $ 991 2.82 % $ 46,411 1.02 % $ — — % $ 47,579 46,085 1.06 % U.S. Government and agency obligations — — % 20,000 0.87 % — — % 57,681 1.26 % 77,681 75,891 1.16 % Municipal securities 946 3.45 % 1,261 2.75 % 23,692 2.33 % 99,558 2.13 % 125,457 128,701 2.19 % Total marketable securities available-for-sale 1,123 3.14 % 22,252 1.07 % 70,103 1.47 % 157,239 1.82 % 250,717 250,677 1.66 % Residential mortgage-backed securities available-for-sale: Pass-through certificates 11,307 2.05 % 6,218 1.38 % 34,033 1.80 % 225,352 1.36 % 276,910 277,058 1.44 % CMOs 39,957 0.66 % 4,189 2.04 % 28,102 1.32 % 965,127 1.33 % 1,037,375 1,020,857 1.30 % Total residential 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: U.S. Government and agency obligations — — % 16,478 — % 107,973 1.00 % — — % 124,451 119,632 0.87 % Residential mortgage-backed securities held-to-maturity: Pass-through certificates 667 1.63 % 792 3.53 % 20,283 1.30 % 162,017 1.18 % 183,759 181,679 1.21 % CMOs 599 0.72 % — — % 20,211 0.92 % 439,134 1.17 % 459,944 450,202 1.16 % Total residential 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 % 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. 34 Table of Contents Loans Receivable . 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. At December 31, 2021 2020 2019 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Personal Banking: Residential mortgage loans held-for-sale $ 25,056 0.3 % $ 58,786 0.5 % $ 7,709 0.1 % Residential mortgage loans 2,969,564 29.6 % 3,009,335 28.4 % 2,860,418 32.5 % 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 % Total Personal Banking 6,153,299 61.4 % 6,043,850 57.1 % 5,336,177 60.6 % Commercial Banking: Commercial real estate 3,015,484 30.1 % 3,345,889 31.6 % 2,754,390 31.3 % Commercial loans 847,609 8.5 % 1,191,110 11.3 % 718,107 8.1 % Total Commercial Banking 3,863,093 38.6 % 4,536,999 42.9 % 3,472,497 39.4 % Total loans receivable, gross 10,016,392 100.0 % 10,580,849 100.0 % 8,808,674 100.0 % Total allowance for credit losses (102,241) (134,427) (57,941) Total loans receivable, net $ 9,914,151 $ 10,446,422 $ 8,750,733 (1) Consists primarily of secured and unsecured personal loans. The following table sets forth the maturity of our loan portfolio at December 31, 2021. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Adjustable and floating-rate loans are included in the period in which they contractually mature, and fixed-rate loans are included in the period in which the contractual repayment is due. At December 31, 2021 (In thousands) Due in one year or less Due after one year through five years Due after five years through fifteen years Due after fifteen years Total Personal Banking: Residential mortgage loans $ 154,090 501,766 1,176,937 1,144,352 2,977,145 Home equity loans 101,236 335,017 471,546 407,407 1,315,206 Consumer loans 376,838 1,181,324 217,515 9 1,775,686 Total Personal Banking 632,164 2,018,107 1,865,998 1,551,768 6,068,037 Commercial Banking: Commercial real estate loans 549,636 1,056,330 1,148,217 269,708 3,023,891 Commercial loans 251,047 474,247 106,312 30,098 861,704 Total Commercial Banking 800,683 1,530,577 1,254,529 299,806 3,885,595 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 35 Table of Contents 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. Adjustable and floating-rate loans are included in the table based on the contractual due date of the loan. At December 31, 2021 (In thousands) Fixed Adjustable Total Personal Banking: Residential mortgage loans $ 2,797,356 25,699 2,823,055 Home equity loans 781,701 432,269 1,213,970 Consumer loans 1,372,011 26,837 1,398,848 Total Personal Banking 4,951,068 484,805 5,435,873 Commercial Banking: Commercial real estate loans 612,827 1,861,428 2,474,255 Commercial loans 193,959 416,698 610,657 Total Commercial Banking 806,786 2,278,126 3,084,912 Total $ 5,757,854 2,762,931 8,520,785 Deposits . 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, 2021 2020 Balance Percent (1) Rate (2) Balance Percent (1) Rate (2) (Dollars in thousands) Savings deposits $ 2,303,760 18.7 % 0.10 % $ 2,047,424 17.7 % 0.12 % Demand deposits 6,039,968 49.1 % 0.01 % 5,472,174 47.2 % 0.02 % Money market deposit accounts 2,629,882 21.4 % 0.10 % 2,437,539 21.0 % 0.15 % Time deposits: Maturing within 1 year 890,101 7.2 % 0.68 % 990,769 8.5 % 0.96 % Maturing 1 to 3 years 368,535 3.0 % 1.28 % 545,049 4.7 % 1.61 % Maturing more than 3 years 68,919 0.6 % 0.43 % 106,278 0.9 % 1.63 % Total certificates 1,327,555 10.8 % 0.84 % 1,642,096 14.1 % 1.22 % Total deposits $ 12,301,165 100.0 % 0.14 % $ 11,599,233 100.0 % 0.23 % (1) Represents percentage of total deposits. (2) Represents weighted average nominal rate at year end. The following table sets forth the dollar amount of deposits in each state by branch location as of December 31, 2021. State Balance Percent (Dollars in thousands) Pennsylvania $ 6,991,776 56.8 % New York 2,846,373 23.1 % Ohio 1,034,641 8.4 % Indiana 1,428,375 11.7 % Total $ 12,301,165 100.0 % 36 Table of Contents 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 (In thousands) Three months or less $ 27,027 Over three months through six months 22,282 Over six months through twelve months 32,694 Over twelve months 41,733 Total $ 123,736 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. 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, 2021 2020 (Dollars in thousands) FHLB borrowings: Average balance outstanding $ 1,671 $ 183,062 Maximum outstanding at end of any month during year 7,019 302,644 Balance outstanding at end of year — 22,054 Weighted average interest rate during year 2.20 % 1.67 % Weighted average interest rate at end of year — % 1.92 % Collateralized borrowings: Average balance outstanding $ 132,100 $ 122,782 Maximum outstanding at end of any month during year 139,568 150,638 Balance outstanding at end of year 139,093 137,661 Weighted average interest rate during year 0.19 % 0.25 % Weighted average interest rate at end of year 0.19 % 0.19 % Subordinated borrowings: Average balance outstanding $ 123,481 $ 123,294 Maximum outstanding at end of any month during year 123,560 123,329 Balance outstanding at end of year 123,575 123,329 Weighted average interest rate during year 4.00 % 4.00 % Weighted average interest rate at end of year 4.00 % 4.00 % Total borrowings: Average balance outstanding $ 258,742 $ 346,442 Maximum outstanding at end of any month during year 269,931 440,079 Balance outstanding at end of year 262,668 283,044 Weighted average interest rate during year 2.03 % 1.44 % Weighted average interest rate at end of year 1.98 % 1.98 % Shareholders’ equity . 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 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. 37 Table of Contents Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020 General. 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. 38 Table of Contents 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 39 Table of Contents 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 General. 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. The decrease in net income resulted from an increase in provision for credit losses of $61.3 million, or 270.6%, and an increase in noninterest expense of $51.4 million, or 17.4%. Partially offsetting these increases were an increase in noninterest income of $32.9 million, or 33.1%, an increase in net interest income of $31.3 million, or 8.7%, and a decrease in income tax expense of $13.0 million, or 42.4%. Net income for the year ended December 31, 2020 represents returns on average equity and average assets of 4.72% and 0.58%, respectively, compared to 8.36% and 1.07% for the year ended December 31, 2019. A discussion of significant changes follows. Interest Income. 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. 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. This decrease in average yield is attributed to a decline in overall market interest rates. 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 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. This increase is due primarily to the addition of $1.517 billion, at fair value, of loans related to the MutualBank acquisition and organic loan growth of $255.2 million. Contributing to this organic loan growth was the origination of approximately $500.0 million of PPP loans. Included in loan interest income for the year ended December 31, 2020 is $3.1 million of accretion related to MutualBank loan purchase accounting and $5.7 million of accretion related to PPP fees, net of origination costs. Partially offsetting this increase in average balances was a decrease in the average yield on loans receivable to 4.07% for the year ended December 31, 2020 from 4.61% for the year ended December 31, 2019 primarily due to the decrease in market interest rates. Interest income on mortgage-backed securities increased by $746,000, or 4.5%, to $17.4 million for the year ended December 31, 2020 from $16.7 million for the year ended December 31, 2019. This increase is the result of an increase in the average balance of mortgage-backed securities by $250.0 million, or 39.1%, to $889.7 million for the year ended December 31, 2020 from $639.8 million for the year ended December 31, 2019. This increase was primarily a result of investment securities received as part of the MutualBank acquisition as well as additional purchases utilizing excess cash from deposit growth during the current year. Partially offsetting this increase was a decrease in the average yield on mortgage-backed securities to 1.96% for the year ended December 31, 2020 from 2.61% for the year ended December 31, 2019. This decrease in yield was partially due to the assumption of mortgage-backed securities from MutualBank with market yields lower than the existing Northwest portfolio due to mark-to-market purchase accounting adjustments. In addition, new security purchases were made at lower yields due to decreases in market interest rates. Interest income on investment securities remained relatively flat, decreasing by $200,000, or 4.7%, to $4.0 million for the year ended December 31, 2020 from $4.2 million for the year ended December 31, 2019. This decrease is the result of a decrease in the average balance of investment securities of $9.7 million, or 4.7%, to $196.1 million for the year ended December 31, 2020 from $205.8 million for the year ended December 31, 2019, which was primarily due to the maturity or call of government agency securities. 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 $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 40 Table of Contents 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. Interest income on interest-earning deposits increased by $119,000, or 19.8%, to $719,000 for the year ended December 31, 2020 from $600,000 for the year ended December 31, 2019. This increase is attributable to an increase in the average balance of interest-earning deposits. The average balance increased by $497.4 million to $520.7 million for the year ended December 31, 2020 from $23.3 million for the year ended December 31, 2019 due to excess liquidity from recent deposit inflows. Partially offsetting this increase was a decrease in the average yield on interesting-earning deposits to 0.14% for the year ended December 31, 2020 from 2.54% for the year ended December 31, 2019, as a result of the Federal Reserve decreasing their targeted federal funds rate. Interest Expense . Interest expense decreased by $14.6 million, or 25.6%, to $42.3 million for the year ended December 31, 2020 from $56.9 million for the year ended December 31, 2019. This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities which decreased to 0.49% for the year ended December 31, 2020 from 0.82% for the year ended December 31, 2019. This decrease resulted from decreases in the interest rates paid on deposits and borrowed funds in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest bearing liabilities by $1.736 billion, or 24.9%, to $8.703 billion for the year ended December 31, 2020 from $6.968 billion for the year ended December 31, 2019. This increase in average balance resulted from both internal growth in deposits and borrowings as well as the addition of $1.617 billion of deposits and $232.2 million of borrowed funds from the acquisition of MutualBank. Net Interest Income . Net interest income increased by $31.3 million, or 8.7%, to $391.7 million for the year ended December 31, 2020 from $360.5 million for the year ended December 31, 2019. This increase is attributable to the factors discussed above. Despite the overall increase in net interest income due primarily to balance sheet growth, our interest rate spread decreased to 3.21% for the year ended December 31, 2020 from 3.61% for the year ended December 31, 2019 and our net interest margin also decreased to 3.34% for the year ended December 31, 2020 from 3.82% for the year ended December 31, 2019 primarily due to declining interest-earning asset yields. Contributing to the decline in asset yields was an increase in average cash balances of $497.4 million, earning just 0.14%, 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 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. During the current year, the Company adopted ASU 2016-13, (“CECL”), which requires that all financial assets measured at amortized cost be presented at the net amount expected to be collected inclusive of the Company’s current estimate of all lifetime expected credit losses. The economic impact of COVID-19, in combination with CECL, including the purchase accounting impact from MutualBank, caused the increase in the provision for the year. 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 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. Noninterest income increased by $32.9 million, or 33.1%, to $132.3 million for the year ended December 31, 2020 from $99.4 million for the year ended December 31, 2019. This increase is primarily attributable to a $27.6 million increase in mortgage banking income to $31.4 million for the year ended December 31, 2020 from $3.8 million for the year ended December 31, 2019 due to continued efforts to expand our secondary market sales capabilities over the last year, as well as an interest rate environment conducive to refinance activity and attractive secondary market pricing. In addition, trust and other financial services income increased by $3.2 million, or 17.8%, to $20.9 million for the year ended December 31, 2020 from $17.8 million for the year ended December 31, 2019, as well as an increase of $2.5 million, or 4.8%, in service charges and fees to $55.6 million for the year ended December 31, 2020 from $53.1 million for the year ended December 31, 2019, both due primarily to additional fee income as a result of the MutualBank acquisition. Noninterest Expense. Noninterest expense increased by $51.4 million, or 17.4%, to $347.5 million for the year ended December 31, 2020 from $296.1 million for the year ended December 31, 2019. All noninterest expense categories, with the exception of real estate owned expense, increased compared to last year. 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 41 Table of Contents 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. Additionally, FDIC premiums increased by $4.1 million to $4.8 million for the year ended December 31, 2020 from $685,000 for the year ended December 31, 2019 due to assessment credits received in the prior year. Income Taxes. 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. Asset Quality We actively manage asset quality through our underwriting practices and collection procedures. Our underwriting practices are focused on balancing risk and return while our collection operations focus on diligently working with delinquent borrowers in an effort to minimize losses. Collection procedures . Our collection procedures for personal loans generally provide that at 15 days delinquent, a notice of late charges is sent and personal contact efforts are attempted by telephone to strengthen the collection process and obtain reasons for the delinquency. Also, plans to establish a payment program are developed. Personal contact efforts are continued throughout the collection process, as necessary. Generally, if a loan becomes 30 days past due, a collection letter is sent and the loan becomes subject to possible legal action if suitable arrangements for payment have not been made. In addition, the borrower is given information which provides access to consumer counseling services to the extent required by the regulations of the Department of Housing and Urban Development and other applicable authorities. When a loan continues in a delinquent status for 60 days or more, and a payment schedule has not been developed or kept by the borrower, we may send the borrower a notice of intent to foreclose, providing for cure periods of at least 30 days. If not cured, foreclosure proceedings are initiated. Nonperforming assets . Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of all contractual principal and/or interest is doubtful. Loans are automatically placed on nonaccrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual status is reversed and charged against interest income. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time that it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal. If the value of the property is less than the principal balance, less any related specific credit loss reserve allocations, the difference is charged against the allowance for credit losses. Any subsequent write-down of real estate owned or loss at the time of disposition is charged against earnings. Nonaccrual, Past Due, Restructured Loans and Nonperforming Assets . The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan becomes 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual principal and/or interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan. 42 Table of Contents At December 31, 2021 2020 (Dollars in thousands) Loans 90 days or more past due: Residential mortgage loans $ 7,641 14,489 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 Total loans 90 days or more past due $ 39,471 61,600 Total real estate owned (REO) $ 873 2,232 Total loans 90 days or more past due and REO 40,344 63,832 Total loans 90 days or more past due to net loans receivable 0.40 % 0.59 % Total loans 90 days or more past due and REO to total assets 0.28 % 0.46 % Nonperforming assets: Nonaccrual loans - loans 90 days or more past due $ 39,140 61,015 Nonaccrual loans - loans less than 90 days past due 119,331 41,817 Loans 90 days or more past due still accruing 331 585 Total nonperforming loans 158,802 103,417 Total nonperforming assets $ 159,675 105,649 Nonaccrual troubled debt restructuring loans (1) $ 17,216 10,704 Accruing troubled debt restructuring loans 13,072 21,431 Total troubled debt restructuring loans $ 30,288 32,135 (1) Also included in nonaccrual loans above. Classification of Assets . Our policies, consistent with regulatory guidelines, provide for the classification of loans, or other assets including other real estate owned, considered to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “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 as “special mention”. 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. Our largest classified assets generally are also our largest nonperforming assets. 43 Table of Contents The following table sets forth the aggregate amount of our classified assets at the dates indicated. At December 31, 2021 2020 (In thousands) Substandard assets $ 364,035 491,557 Doubtful assets — — Loss assets — — Total classified assets $ 364,035 491,557 Allowance for Credit Losses . We adopted CECL on January 1, 2020, as further described in Note 1. 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. On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each region to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”. Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” have all the weakness inherent in those classified as “doubtful” and are considered uncollectible. Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed. If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly. If a substandard or doubtful loan is not grouped with other loans that possess common characteristics for evaluation and analysis, it is considered individually for impairment. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models. We use a twenty-four month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period. The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Losses Committee (“ACL Committee”) monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit. 44 Table of Contents 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. We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated. We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of December 31, 2021, we considered the most recent economic conditions and forecasts available which incorporated the impact of COVID-19. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL decreased by $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. The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ACL levels and ratios compared to our peer group as well as state and national statistics. We also consider how the levels of non-accrual loans and h istorical charge-offs have influenced the required amount of ACL. 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. 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. 45 Table of Contents Analysis of the Allowance for Credit Losses . The following table sets forth the analysis of the allowance for credit losses for the periods indicated. Years ended December 31, 2021 2020 (Dollars in thousands) Loans receivable $ 10,016,392 10,580,849 Average loans outstanding 10,239,620 10,104,453 Allowance for credit losses Balance at beginning of period 134,427 57,941 CECL adoption — 10,792 Initial allowance on loans purchased with credit deterioration — 8,845 Provision for credit losses (11,883) 83,975 Charge-offs: Residential mortgage loans (3,672) (917) 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) Total charge-offs (34,137) (34,718) Recoveries: Residential mortgage loans 935 362 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 Total recoveries 13,834 7,592 Balance at end of period $ 102,241 134,427 Allowance for credit losses as a percentage of loans receivable 1.02 % 1.27 % Net charge-offs as a percentage of average loans outstanding: 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 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 % 46 Table of Contents 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, 2021 2020 Amount % of total loans (1) Amount % of total loans (1) (Dollars in thousands) Balance at end of year applicable to: Residential mortgage loans $ 7,373 29.9 % $ 7,266 29.0 % 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 % Total $ 102,241 100.0 % $ 134,427 100.0 % (1) Represents percentage of loans in each category to total loans. 47 Table of Contents Average Balance Sheets The following tables set forth average balance sheets, average yields, on a fully taxable equivalent (“FTE”) basis, and average costs, and certain other information at and for the periods indicated. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances. The yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense. 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, 2021 2020 2019 Average balance Interest Average yield/cost (12) Average balance Interest Average yield/cost (12) Average balance Interest Average yield/cost (12) (Dollars in thousands) Interest-earning assets: Loans receivable (includes FTE adjustments of $1,922, $2,223 and $1,335, respectively) (1), (2), (3) $ 10,239,620 392,265 3.83 % $ 10,104,453 413,131 4.09 % $ 8,554,954 396,144 4.63 % Mortgage-backed securities (4) 1,704,006 21,463 1.26 % 889,744 17,416 1.96 % 639,764 16,670 2.61 % Investment securities (includes FTE adjustments of $747, $797 and $225, respectively) (4), (5) 350,806 5,848 1.67 % 196,071 4,841 2.47 % 205,757 4,470 2.17 % FHLB stock, at cost 20,229 407 2.01 % 21,781 981 4.50 % 14,477 1,056 7.29 % Interest-earning deposits 921,360 1,194 0.13 % 520,666 719 0.14 % 23,305 600 2.54 % Total interest-earning assets (includes FTE adjustments of $2,669, $3,020 and $1,560, respectively) 13,236,021 421,177 3.18 % 11,732,715 437,088 3.73 % 9,438,257 418,940 4.44 % Noninterest-earning assets (6) 1,072,313 1,159,405 890,760 Total assets $ 14,308,334 $ 12,892,120 $ 10,329,017 Interest-bearing liabilities: Savings deposits $ 2,232,454 2,440 0.11 % $ 1,885,517 2,640 0.14 % $ 1,655,495 3,115 0.19 % Interest-bearing demand deposits 2,862,677 1,660 0.06 % 2,432,427 3,358 0.14 % 1,651,393 6,012 0.36 % Money market deposit accounts 2,554,975 2,570 0.10 % 2,224,904 6,995 0.31 % 1,778,661 13,010 0.73 % Time deposits 1,463,522 12,452 0.85 % 1,687,381 22,903 1.36 % 1,555,726 27,079 1.74 % 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 % Total interest-bearing liabilities 9,501,285 27,246 0.29 % 8,703,354 42,340 0.49 % 6,967,745 56,914 0.82 % Noninterest-bearing demand deposits (9) 2,999,392 2,357,725 1,835,622 Noninterest-bearing liabilities 250,075 246,294 204,198 Total liabilities 12,750,752 11,307,373 9,007,565 Shareholders’ equity 1,557,582 1,584,747 1,321,452 Total liabilities and shareholders’ equity $ 14,308,334 $ 12,892,120 $ 10,329,017 Net interest income 393,931 394,748 362,026 Net interest rate spread (10) 2.89 % 3.24 % 3.62 % Net interest-earning assets/net interest margin (11) $ 3,734,736 2.98 % $ 3,029,361 3.36 % $ 2,470,512 3.84 % Ratio of average interest-earning assets to average interest-bearing liabilities 1.39X 1.35X 1.35X (1) Average gross loans receivable includes loans held as available-for-sale and loans placed on nonaccrual status. (2) Interest income includes accretion/amortization of deferred loan fees/expenses, which was not material. (3) Interest income on tax-free loans is presented on a FTE basis including adjustments, as indicated. (4) Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale. (5) Interest income on tax-free investment securities is presented on a FTE basis including adjustments, as indicated. (6) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale. (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. (10) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (11) Net interest margin represents net interest income as a percentage of average interest-earning assets. (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: 3.81%, 4.07% and 4.61%, respectively, Investment securities: 1.45%, 2.06% and 2.06%, respectively, Interest-earning assets: 3.16%, 3.70% and 4.42%, respectively. GAAP basis net interest rate spreads were 2.88%, 3.21% and 3.61%, respectively, and GAAP basis net interest margins were 2.96%, 3.34% and 3.82%, respectively. 48 Table of Contents Rate/Volume Analysis The following table presents, on a FTE basis, the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the year ended December 31, 2021 compared to 2020 and for the year ended December 31, 2020 compared to 2019. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the prior year rate; (2) changes in rate multiplied by the prior year volume; and (3) the total increase or decrease. 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. 2020 Years ended December 31, 2020 vs. 2019 Increase/(decrease) due to Total increase/(decrease) Increase/(decrease) due to Total increase/(decrease) Rate Volume Rate Volume (In thousands) Interest-earning assets: Loans receivable $ (26,044) 5,178 (20,866) (46,366) 63,353 16,987 Mortgage-backed securities (6,209) 10,256 4,047 (4,147) 4,893 746 Investment securities (1,572) 2,579 1,007 610 (239) 371 FHLB stock, at cost (543) (31) (574) (404) 329 (75) Interest-earning deposits (42) 517 475 (569) 688 119 Total interest-earning assets (34,410) 18,499 (15,911) (50,876) 69,024 18,148 Interest-bearing liabilities: Savings deposits (579) 379 (200) (797) 322 (475) Interest-bearing demand deposits (1,947) 250 (1,697) (3,732) 1,078 (2,654) Money market deposit accounts (4,757) 332 (4,425) (7,418) 1,403 (6,015) Time deposits (8,547) (1,905) (10,452) (5,963) 1,787 (4,176) 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) Total interest-bearing liabilities (17,082) 1,988 (15,094) (20,638) 6,064 (14,574) Net change in net interest income $ (17,328) 16,511 (817) (30,238) 62,960 32,722 Liquidity and Capital Resources Northwest Bank is required to maintain a sufficient level of liquid assets, as determined by management and defined and reviewed for adequacy by the FDIC during their regular examinations. The FDIC, however, does not prescribe by regulation a minimum amount or percentage of liquid assets. The FDIC allows us to consider any unencumbered, available-for-sale marketable security, whose sale would not impair our capital adequacy, to be eligible for liquidity. Liquidity is monitored through the use of a standard liquidity ratio of liquid assets to borrowings plus deposits. Using this formula, Northwest Bank’s liquidity ratio was 21.24% as of December 31, 2021. We adjust our liquidity level in order to meet funding needs of deposit outflows, repayment of borrowings and loan commitments. We also adjust liquidity as appropriate to meet our asset and liability management objectives. Liquidity needs can also be met by temporarily drawing upon lines-of-credit established for such reasons. At December 31, 2021, Northwest Bank had $3.613 billion of additional borrowing capacity available with the FHLB of Pittsburgh, including a $250.0 million overnight line of credit, which had no balance at December 31, 2021, as well as $101.0 million of borrowing capacity available with the Federal Reserve Bank and $110.0 million with three correspondent banks. In addition to deposits, our primary sources of funds are the amortization and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rate levels, economic conditions, and competition. We manage the pricing of our deposits to maintain a desired deposit balance. 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 $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. 49 Table of Contents 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 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 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. At December 31, 2021, our customers had $1.054 billion of unused lines of credit available and $355.7 million in loan commitments. This amount does not include the unfunded portion of loans in process. Time deposits scheduled to mature in less than one year at December 31, 2021, totaled $ 890.1 million . We believe that a significant portion of such deposits will remain with us. Deposits are our primary source of externally generated funds. The level of deposit inflows during any given period is heavily influenced by factors outside of our control, such as consumer savings tendencies, the general level of short-term and long-term market interest rates, as well as higher alternative yields that investors may obtain on competing investments such as money market mutual funds. Financial institutions, such as Northwest Bank, are also subject to deposit outflows. 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. 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. 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. Loan originations for the years ended December 31, 2021, 2020 and 2019 were $4.715 billion, $5.386 billion and $3.789 billion, respectively. We also sell a portion of the loans we originate as part of our mortgage banking operations, and the cash flows from such sales for the years ended December 31, 2021, 2020 and 2019 were $804.7 million, $704.7 million and $62.4 million, respectively. We experience significant cash flows from our portfolio of marketable securities as principal payments are received on mortgage-backed securities and as investment securities mature or are called. Cash flow from the repayment of principal and the maturity or call of marketable securities for the years ended December 31, 2021, 2020 and 2019 were $517.9 million, $396.3 million and $245.8 million, respectively. 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 $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. is a separate legal entity from Northwest Bank and must provide for its own liquidity to pay dividends to shareholders, to repurchase its common stock and for other corporate purposes. Northwest Bancshares’ primary source of liquidity is the dividend payments it receives from Northwest Bank. During 2020, Northwest Bancshares, Inc. issued $125.0 million of subordinated debt. At December 31, 2021, Northwest Bancshares, Inc. (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 $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. During 2021, our Board of Directors declared regular quarterly cash dividends totaling $0.79 per share of common stock. 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 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. 50 Table of Contents Regulatory Capital Requirements. Northwest Bank is subject to minimum capital requirements established by the FDIC. See “Item 1. Business Supervision and Regulation — Capital Requirements and Prompt Corrective Action”. The following table summarizes Northwest Bank’s total shareholders’ equity, regulatory capital, total risk-based assets, and leverage and risk-based capital ratios at the dates indicated. At December 31, 2021 2020 (Dollars in thousands) Total shareholders' equity (GAAP capital) $ 1,714,817 1,616,666 Add: Accumulated other comprehensive loss 25,980 21,582 Less: non-qualifying intangible assets (273,435) (284,220) CET 1 capital 1,467,362 1,354,028 Additions to Tier 1 capital — — Leverage or Tier 1 capital 1,467,362 1,354,028 Add: Tier 2 capital (1) 83,722 124,282 Total risk-based capital $ 1,551,084 1,478,310 Average assets for leverage ratio $ 14,251,169 13,672,614 Net risk-weighted assets including off-balance-sheet items $ 9,855,420 9,930,043 CET 1 capital ratio 14.889 % 13.636 % Minimum requirement 4.500 % 4.500 % Leverage capital ratio 10.296 % 9.903 % Minimum requirement 4.000 % 4.000 % Total risk-based capital ratio 15.738 % 14.887 % Minimum requirement 8.000 % 8.000 % (1) Tier 2 capital consists of the allowance for credit losses, which is limited to 1.25% of total risk-weighted assets as detailed under the regulations of the FDIC, and 45% of pre-tax net unrealized gains on securities available-for-sale. Northwest Bank is also subject to capital guidelines of the Pennsylvania Department of Banking. Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% total risk-based capital. See “Item 1. Business — Supervision and Regulation — Capital Requirements and Prompt Corrective Action”. Contractual Obligations. We are obligated to make future payments according to various contracts. The following table presents the expected future payments of the contractual obligations aggregated by obligation type at December 31, 2021. Payments due Less than one year One year to less than three years Three years to less than five years Five years or greater Total (In thousands) Supplemental Executive Retirement Plan (1) $ — — — 1,487 1,487 Collateralized borrowings (2) 139,093 — — — 139,093 Subordinated debentures (2) — — — 125,000 125,000 Junior subordinated debentures (2) — — — 129,054 129,054 Operating leases (3) 6,080 10,816 9,556 48,471 74,923 Total $ 145,173 10,816 9,556 304,012 469,557 Commitments to extend credit $ 355,682 — — — 355,682 (1) See Note 15 to the Consolidated Financial Statements, Employee Benefit Plans, for additional information. (2) See Note 11 to the Consolidated Financial Statements, Borrowed Funds, for additional information. (3) See Note 3 to the Consolidated Financial Statements, Leases, for additional information. Impact of Inflation and Changing Prices. The Consolidated Financial Statements and notes thereto, presented elsewhere herein, have been prepared in accordance with United States generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. 51 Table of Contents Off-Balance-Sheet Arrangements. As a financial services provider, we are routinely a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we routinely enter into commitments to purchase and sell residential mortgage loans.