Northwest Bancshares, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Management, including the principal executive officer and principal financial officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013) . Based on such assessment, management concluded that, as of December 31, 2021, the Company’s internal control over financial reporting is effective based upon those criteria. KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Report and has issued a report with respect to the effectiveness of the Company’s internal control over financial reporting. /s/ Ronald J. Seiffert /s/ William W. Harvey, Jr. Ronald J. Seiffert, Chairman, President and Chief Executive Officer (Principal Executive Officer) William W. Harvey, Jr., Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) 56 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Northwest Bancshares, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Northwest Bancshares, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Pittsburgh, Pennsylvania February 25, 2022 57 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Northwest Bancshares, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of Northwest Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2021 and December 31, 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 5 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments”. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for credit losses for loans evaluated on a collective basis As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans was $102.2M, as of December 31, 2021, a portion which included the measure of expected credit losses on a collective (pool) basis for those loans that share similar risk characteristics (the collective ACL). The expected credit loss methodologies apply either a probability of default and loss given default loss assumption or a portfolio-level loss net charge-off rate assumption to loan level exposures on an undiscounted basis over the contractual term of the loans, adjusted for prepayments. The Company uses a twenty-four-month reasonable and supportable forecast period, which is based on a probability-weighted multiple macroeconomic scenarios approach and reverts to historical average loss rates over a twelve-month period for the remaining life of the loans. The following collective ACL modeling methodologies were developed for each significant loan portfolio segment: (1) the allowance for credit losses within the mortgage and home equity loan portfolios are calculated at the loan-level using projected default rates, prepayment rates, and severity rates as well as macroeconomic forecasts determined at the pool level; (2) the allowance for credit losses within the vehicle loan portfolio is calculated at the portfolio-level using a vintage analysis to project portfolio-level net charge-off rates; (3) the allowance for credit losses is calculated for commercial 58 Table of Contents real estate and commercial small business loans at the portfolio-level using a regression model to project portfolio-level net charge-off rates as well as macroeconomic forecasts; and (4) the allowance for credit losses for the commercial real estate and commercial loan portfolio is calculated at loan-level using projected default and severity rates as well as macroeconomic forecasts determined at the pool level. A portion of the collective ACL is comprised of adjustments to historical loss information for asset-specific risk characteristics to reflect the extent they do not exist in the historical loss information. These adjustments are based on qualitative factors not reflected in the quantitative models but are likely to impact the measurement of estimated credit losses. We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodologies, including the models and methods used to estimate (1) the default, severity, prepayments, and projected portfolio-level net charge-off rates, and their significant assumptions, including the macroeconomic forecast scenarios and economic assumptions, and the reasonable and supportable forecast periods, and (2) the qualitative factors and their significant assumptions, including adjustments to account for current and expected macroeconomic conditions. The assessment also included an evaluation of the conceptual soundness and performance of the models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s collective ACL estimate, including controls over the: • development of the collective ACL methodologies • continued use and conceptual soundness of the default, severity, prepayments, and projected portfolio-level net charge-off rate (model assumptions) • performance monitoring of the models • determination and measurement of the significant assumptions used in the models • determination of the qualitative factors, including the significant assumptions used in the measurement of the qualitative factors • analysis of the collective ACL results, trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL methodologies for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the development and performance testing of the model assumptions by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • assessing the conceptual soundness and performance testing of the model assumptions by inspecting the model documentation to determine whether the models are suitable for their intended use • evaluating the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices • evaluating the length of the historical observation period and reasonable and supportable forecast by comparing them to specific portfolio risk characteristics and trends • evaluating the methodology used to develop the qualitative factors and the effect of certain factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends. We also assessed the sufficiency of the audit evidence obtained related to the collective ACL by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices, and potential bias in the accounting estimate. /s/ KPMG LLP We have served as the Company’s auditor since 1963. Pittsburgh, Pennsylvania February 25, 2022 59 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, excluding share data) December 31, 2021 2020 Assets Cash and cash equivalents $ 1,279,259 736,277 Marketable securities available-for-sale (amortized cost of $ 1,565,002 and $ 1,375,685 , respectively) 1,548,592 1,398,941 Marketable securities held-to-maturity (fair value of $ 751,513 and $ 179,666 , respectively) 768,154 178,887 Total cash and cash equivalents and marketable securities 3,596,005 2,314,105 Loans held-for-sale 25,056 58,786 Loans held for investment 9,991,336 10,522,063 Allowance for credit losses ( 102,241 ) ( 134,427 ) Loans receivable, net 9,914,151 10,446,422 FHLB stock, at cost 14,184 21,748 Accrued interest receivable 25,599 35,554 Real estate owned, net 873 2,232 Premises and equipment, net 156,524 161,538 Bank-owned life insurance 256,213 253,951 Goodwill 380,997 382,279 Other intangible assets, net 12,836 19,936 Other assets 144,126 168,503 Total assets $ 14,501,508 13,806,268 Liabilities and shareholders’ equity Liabilities: Deposits $ 12,301,165 11,599,233 Borrowed funds 139,093 159,715 Subordinated debt 123,575 123,329 Junior subordinated debentures 129,054 128,794 Advances by borrowers for taxes and insurance 44,582 45,230 Accrued interest payable 1,804 2,054 Other liabilities 178,664 209,210 Total liabilities 12,917,937 12,267,565 Shareholders’ equity: Preferred stock, $ 0.01 par value: 50,000,000 authorized, no shares issued — — Common stock, $ 0.01 par value: 500,000,000 shares authorized, 126,612,183 and 127,019,452 shares issued and outstanding, respectively 1,266 1,270 Additional paid-in capital 1,010,405 1,015,502 Retained earnings 609,529 555,480 Accumulated other comprehensive loss ( 37,629 ) ( 33,549 ) Total shareholders’ equity 1,583,571 1,538,703 Total liabilities and shareholders’ equity $ 14,501,508 13,806,268 See accompanying notes to Consolidated Financial Statements. 60 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, excluding share data) Years ended December 31, 2021 2020 2019 Interest income: Loans receivable $ 390,343 410,907 394,809 Mortgage-backed securities 21,463 17,416 16,670 Taxable investment securities 2,616 1,985 3,401 Tax-free investment securities 2,485 2,060 844 FHLB stock dividends 407 981 1,056 Interest-earning deposits 1,194 719 600 Total interest income 418,508 434,068 417,380 Interest expense: Deposits 19,122 35,896 49,216 Borrowed funds 8,124 6,444 7,698 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: Gain/(loss) on sale of investments ( 176 ) 236 50 Gain on sale of loans — 1,302 1,734 Service charges and fees 51,837 55,613 53,065 Trust and other financial services income 27,921 20,922 17,765 Insurance commission income 3,633 9,132 8,068 Gain/(loss) on real estate owned, net 442 ( 106 ) ( 53 ) Income from bank-owned life insurance 6,050 5,190 4,418 Mortgage banking income 15,892 31,391 3,819 Gain on sale of insurance business 25,327 — — Other operating income 11,963 8,585 10,541 Total noninterest income 142,889 132,265 99,407 Noninterest expense: Compensation and employee benefits 193,887 178,375 163,086 Premises and occupancy costs 31,073 30,622 28,717 Office operations 13,769 15,728 14,133 Collections expense 1,932 3,275 2,560 Processing expenses 55,763 50,050 42,453 Marketing expenses 8,237 7,695 6,998 Federal deposit insurance premiums 4,975 4,767 685 Professional services 17,621 12,482 12,287 Amortization of intangible assets 5,553 6,856 6,543 Real estate owned expense 298 359 478 Merger, asset disposition and restructuring expense 3,453 20,789 4,168 Other expenses 8,349 16,494 13,995 Total noninterest expense 344,910 347,492 296,103 Income before income taxes 201,124 92,526 141,111 Provision for income taxes: Federal 35,306 14,896 24,069 State 11,495 2,776 6,610 Total provision for income taxes 46,801 17,672 30,679 Net income $ 154,323 74,854 110,432 Basic earnings per share $ 1.22 0.62 1.05 Diluted earnings per share $ 1.21 0.62 1.04 See accompanying notes to Consolidated Financial Statements. 61 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years ended December 31, 2021 2020 2019 Net income $ 154,323 74,854 110,432 Other comprehensive income net of tax: Net unrealized holding gains/(losses) on marketable securities: Unrealized holding gains/(losses), net of tax of $ 10,333 , $( 5,607 ), and $( 3,994 ), respectively ( 28,873 ) 13,711 9,984 Reclassification adjustment for gains included in net income, net of tax of $ 92 , $ 6 , and $ 2 , respectively ( 287 ) ( 15 ) ( 5 ) Net unrealized holding gains/(losses) on marketable securities ( 29,160 ) 13,696 9,979 Change in fair value of interest rate swaps: Unrealized holding losses on interest rate swaps, net of tax of $ 0 , $ 209 , and $ 0 , respectively — ( 946 ) — Reclassification adjustment for losses included in net income, net of tax of $ 0 , $( 209 ), and $ 0 , respectively — 946 — Net change in fair value of interest rate swaps — — — Defined benefit plan: Net gain/(loss), net of tax $( 9,144 ), $ 4,169 , $ 3,193 , respectively 23,748 ( 11,301 ) ( 8,059 ) Reclassification adjustments for prior period service costs and net losses included in net income, net of tax of $( 515 ), $( 395 ), and $( 334 ), respectively 1,332 997 835 Net gain/(loss) on defined benefit plans 25,080 ( 10,304 ) ( 7,224 ) Other comprehensive income/(loss) ( 4,080 ) 3,392 2,755 Total comprehensive income $ 150,243 78,246 113,187 See accompanying notes to Consolidated Financial Statements. 62 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (in thousands, excluding share data) Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income/(loss) Total shareholders’ equity Balance at December 31, 2018 $ 1,034 745,926 550,374 ( 39,696 ) 1,257,638 Comprehensive income: Net income — — 110,432 — 110,432 Other comprehensive income, net of tax of $( 1,129 ) — — — 2,755 2,755 Total comprehensive income — — 110,432 2,755 113,187 Acquisition of Union Community Bank 24 43,264 — — 43,288 Reclassification due to adoption of ASU No. 2016-02 — — ( 1,226 ) — ( 1,226 ) Exercise of stock options 9 9,718 — — 9,727 Stock-based compensation expense 3 6,842 — — 6,845 Stock-based compensation forfeited ( 1 ) — — — ( 1 ) Dividends paid ($ 0.72 per share) — — ( 76,173 ) — ( 76,173 ) Balance at December 31, 2019 1,069 805,750 583,407 ( 36,941 ) 1,353,285 Comprehensive income: Net income — — 74,854 — 74,854 Other comprehensive income, net of tax of $( 1,287 ) — — — 3,392 3,392 Total comprehensive income — — 74,854 3,392 78,246 Acquisition of Mutual Bank 206 213,200 — — 213,406 Reclassification due to adoption of ASU No. 2016-13 — — ( 9,649 ) — ( 9,649 ) Exercise of stock options 1 1,478 — — 1,479 Share repurchases ( 7 ) ( 9,269 ) — — ( 9,276 ) Stock-based compensation expense 3 4,236 — — 4,239 Stock-based compensation forfeited ( 2 ) 2 — — — Other — 105 — — 105 Dividends paid ($ 0.76 per share) — — ( 93,132 ) — ( 93,132 ) Balance at December 31, 2020 1,270 1,015,502 555,480 ( 33,549 ) 1,538,703 Comprehensive income: Net income — — 154,323 — 154,323 Other comprehensive income, net of tax of $ 858 — — — ( 4,080 ) ( 4,080 ) Total comprehensive income — — 154,323 ( 4,080 ) 150,243 Exercise of stock options 12 13,999 — — 14,011 Share repurchases ( 18 ) ( 23,836 ) — — ( 23,854 ) Stock-based compensation expense 3 4,739 — — 4,742 Stock-based compensation forfeited ( 1 ) 1 — — — Dividends paid ($ 0.79 per share) — — ( 100,274 ) — ( 100,274 ) Balance at December 31, 2021 $ 1,266 1,010,405 609,529 ( 37,629 ) 1,583,571 See accompanying notes to Consolidated Financial Statements. 63 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years ended December 31, 2021 2020 2019 Operating activities: Net income $ 154,323 74,854 110,432 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses ( 11,883 ) 83,975 22,659 Net gain on sale of assets ( 1,201 ) ( 3,249 ) ( 2,472 ) Mortgage banking activity ( 20,120 ) ( 25,798 ) — Gain on sale of insurance business ( 25,327 ) — — Net depreciation, amortization and accretion 6,633 4,738 3,824 (Increase)/decrease in other assets 22,163 ( 16,097 ) ( 66,080 ) Increase in other liabilities 4,025 47,018 53,998 Net amortization on marketable securities 7,757 3,797 922 Noncash compensation expense related to stock benefit plans 4,742 4,239 6,845 Noncash write-down of real estate owned 173 321 607 Deferred income tax (benefit)/expense 12,314 ( 8,084 ) 2,776 Origination of loans held-for-sale ( 752,831 ) ( 729,939 ) ( 68,400 ) Proceeds from sale of loans held-for-sale 804,690 704,660 62,351 Net cash provided by operating activities 205,458 140,435 127,462 Investing activities: Purchase of marketable securities held-to-maturity ( 658,817 ) ( 164,629 ) — Purchase of marketable securities available-for-sale ( 705,146 ) ( 830,487 ) ( 200,204 ) Proceeds from maturities and principal reductions of marketable securities held-to-maturity 68,495 3,760 4,707 Proceeds from maturities and principal reductions of marketable securities available-for-sale 449,372 392,511 241,079 Proceeds from sale of marketable securities available-for-sale 59,579 1,096 32,389 Proceeds of bank-owned life insurance 3,984 596 2,638 Loan originations ( 3,961,816 ) ( 4,655,969 ) ( 3,721,001 ) Proceeds from loan maturities and principal reductions 4,490,089 4,383,933 3,275,400 Proceeds from sale of loans held for investment — 50,791 97,923 Net proceeds of FHLB stock 7,564 6,107 1,348 Proceeds from sale of real estate owned 2,700 1,651 4,198 Proceeds from sale of real estate owned for investment, net 305 607 608 Purchases of premises and equipment ( 17,517 ) ( 12,254 ) ( 10,899 ) Proceeds from sale of insurance business 28,238 — — Acquisitions, net of cash received — 261,712 ( 28,779 ) Net cash used in investing activities ( 232,970 ) ( 560,575 ) ( 300,593 ) 64 Table of Contents NORTHWEST BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years ended December 31, 2021 2020 2019 Financing activities: Net increase in deposits $ 701,932 1,390,187 218,449 Proceeds from long-term borrowings — 123,211 — Repayments of long-term borrowings ( 22,105 ) ( 206,908 ) — Net increase/(decrease) in short-term borrowings 1,432 ( 108,675 ) 11,947 Increase/(decrease) in advances by borrowers for taxes and insurance ( 648 ) ( 1,315 ) 1,238 Cash dividends paid on common stock ( 100,274 ) ( 93,132 ) ( 76,173 ) Proceeds from stock options exercised 14,011 1,479 9,727 Purchase of common stock for retirement ( 23,854 ) ( 9,276 ) — Net cash provided by financing activities 570,494 1,095,571 165,188 Net increase/(decrease) in cash and cash equivalents $ 542,982 675,431 ( 7,943 ) Cash and cash equivalents at beginning of period $ 736,277 60,846 68,789 Net increase/(decrease) in cash and cash equivalents 542,982 675,431 ( 7,943 ) Cash and cash equivalents at end of period $ 1,279,259 736,277 60,846 Cash paid during the period for: Interest on deposits and borrowings (including interest credited to deposit accounts of $ 18,711 , $ 34,313 , and $ 44,928 , respectively) $ 27,496 41,428 54,277 Income taxes 33,576 29,767 29,283 Business acquisitions: Fair value of assets acquired $ — 2,090,599 584,253 Northwest Bancshares, Inc. common stock issued — ( 213,406 ) ( 43,288 ) Net cash paid — — ( 45,600 ) Liabilities assumed $ — 1,877,193 495,365 Noncash activities: Loan foreclosures and repossessions $ 4,897 5,643 5,815 Sale of real estate owned financed by the Company 54 126 44 See accompanying notes to Consolidated Financial Statements. 65 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (1) Summary of Significant Accounting Policies (a) Nature of Operations Northwest Bancshares, Inc., a Maryland corporation headquartered in Columbus, Ohio, is the federal savings and loan holding company for its wholly owned subsidiary, Northwest Bank. Northwest Bank, a Pennsylvania chartered savings bank, offers personal and business deposit and loan products as well as investment management and insurance services through its 170 banking locations in Pennsylvania, New York, Ohio, and Indiana. We have determined that we have one reportable business segment. (b) Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all intercompany accounts and transactions. (c) Cash and Cash Equivalents For purposes of the statements of financial condition and cash flows, cash and cash equivalents include cash and amounts due from banks, interest-bearing deposits in other financial institutions, federal funds sold, and other short-term investments with original maturities of three months or less. (d) Marketable Securities We classify marketable securities at the time of purchase as held-to-maturity, available-for-sale, or trading. Securities for which management has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts on a level yield basis (amortized cost). If it is management’s intent at the time of purchase to hold securities for an indefinite period of time and/or to use such securities as part of its asset/liability management strategy, the securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of tax. Securities classified as available-for-sale include securities that may be sold in response to changes in interest rates, resultant prepayment risk, or other market factors. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with changes in fair value included in earnings. The cost of securities sold is determined on a specific identification basis. We held no securities classified as trading at or during the years ended December 31, 2021 and 2020. Fair values are determined as described in Note 17. Throughout the year we validate the prices received from third parties by comparing them to prices provided by a different independent pricing service. We have reviewed the detailed valuation methodologies provided to us by our pricing services. On a quarterly basis, we measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type and all of our held-to-maturity debt securities are residential mortgage-backed securities. Accrued interest receivable on held-to-maturity debt securities totaled $ 2.2 million and $ 1.8 million at December 31, 2021 and December 31, 2020, respectively, and is excluded from estimated credit losses. All of our residential mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. For available-for-sale debt securities in an unrealized loss position, on at least a quarterly basis, we review our investments for impairment. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. We consider both our intent to sell and the likelihood that we will not have to sell the investment securities before recovery of their amortized cost basis during our evaluation. If we intend to sell the investment security or if it is more likely than not that we will be required to sell the investment security, the entire impairment is recorded in earnings. For available-for-sale debt securities that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment we consider the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security, among other factors. Also, we may evaluate the business and financial outlook of the issuer, as well as broader economic performance indicators. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is 66 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) recorded for the credit loss, limited by the amount that the fair value is less than amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security is confirmed or when there is an intent or requirement to sell the security. Accrued interest receivable on available-for-sale debt securities totaled $ 1.9 million at December 31, 2021 and December 31, 2020, and is excluded from the estimate of credit losses. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. The receivable for interest income that is accrued but not collected is reversed against interest income when the debt security is placed on nonaccrual status. (e) Loans Receivable Our portfolio segments are based on the class of financing receivable. Additionally, the class of financing receivables are based on several factors including the method for monitoring and assessing credit risk and the risk characteristics of the financing receivables. Based on evaluation of the nature of our financing receivables, along with the nature and extent of exposure to credit risk arising from these receivables, our portfolio segments were determined to be Personal Banking and Business Banking loans. • Personal Banking loans consist of the following classes of financing receivables: ◦ Residential mortgage loans - fixed and adjustable rate mortgage loans ◦ Home equity loans - first and second mortgage loans and home equity lines of credit ◦ Vehicle loans - direct and indirect automobile and motorcycle loans ◦ Consumer loans - unsecured lines of credit, credit card loans, and other consumer loans • Business Banking loans consist of the following classes of financing receivables: ◦ Commercial real estate - multi-family commercial real estate loans are secured by multi-family residences, such as rental properties and loans secured by nonresidential properties such as hotels, commercial offices, medical buildings, manufacturing facilities and retail establishments, excluding owner-occupied loans, and including small business commercial real estate loans ◦ Commercial real estate - owner-occupied loans - commercial real estate loans secured by residential or non-residential properties ◦ Commercial loans - other commercial loans, including small business commercial loans Loans are reported at amortized cost. Amortized cost is the principal balance outstanding, net of any deferred purchased premiums and discounts, deferred origination fees or costs and the allowance for credit losses. Accrued interest receivable totaled $ 21.3 million and $ 31.7 million at December 31, 2021 and December 31, 2020, respectively, and was reported in accrued interest receivable on the Consolidated Statements of Financial Position. Accrued interest receivable is excluded from the amortized cost basis of loans and from the estimate of allowance for credit losses. Interest income on loans is credited to income as earned. Interest earned on loans for which no payments were received during the month is accrued at month end. Accrued interest on loans more than 90 days delinquent is reversed and such loans are placed on nonaccrual status. All loans are placed on nonaccrual status when principal or interest is 90 days or more delinquent or when there is reasonable doubt that interest or principal will not be collected in accordance with the contractual terms. Interest receipts on all nonaccrual loans are recognized as interest income when it has been determined that all principal and interest will be collected or are applied to principal when collectability of contractual principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and a period of performance has been established in accordance with the contractual terms, typically six months. A loan is considered to be a troubled debt restructuring loan (“TDR”) when the borrower is experiencing financial difficulties and the restructuring constitutes a concession. TDRs may include modifications of terms of loans, receipts of assets from borrowers in partial or full satisfaction of loans, or a combination thereof. A modified loan is determined to be a TDR based on the contractual terms as specified by the original loan agreement or the most recent modification. Once classified as a TDR, a loan is removed from 67 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) such classification under three circumstances: (1) the loan is paid off, (2) the loan is charged off, or (3) if, at the beginning of the current fiscal year, the loan has performed in accordance with the modified terms for a minimum of six consecutive months and at the time of modification the loan’s interest rate represented a then current market interest rate for a loan of similar risk. Loan delinquency is measured based on the number of days since the payment due date. Past due status is measured using the loan’s contractual maturity date. Personal Banking loans are charged-off or charged down when they become 180 days delinquent, unless the borrower has filed for bankruptcy. Business Banking loans are charged-off or charged down when, in our opinion, they are no longer collectible or when it has been determined that the collateral value no longer supports the carrying value of the loan for loans that are collateral dependent. Loan fees and certain direct loan origination costs are deferred and the net deferred fee or cost is then recognized using the level-yield method over the contractual life of the loan as an adjustment to interest income. We identify certain residential mortgage loans which will be sold prior to maturity, as loans held-for-sale. These loans are recorded at fair value less estimated cost to sell. At December 31, 2021 and 2020, there were $ 25.1 million and $ 58.8 million of residential mortgage loans classified as held-for-sale, respectively. Acquired loans that are not considered purchased with credit deterioration (“PCD”) are initially measured at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Acquired loans may be classified as PCD loans upon acquisition if they have experienced more than insignificant credit deterioration since origination. Loans are considered to have experienced more than insignificant credit deterioration if they are greater than 30 days past due, classified special mention or worse or on nonaccrual status. An allowance for credit losses on day 1 is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”. There is no credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. (f) Allowance for Credit Losses and Provision for Credit Losses The allowance for credit losses is deducted from, or added to, the loan’s amortized cost basis to present the net amount expected to be collected on our lending portfolios. We estimate the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Loans are charged off against the allowance when we believe the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments. The contractual term excludes expected extensions, renewals and modifications unless we had a reasonable expectation at the reporting date that a TDR will be executed for an individual borrower or the extension or renewal option is included in the contract and is not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, we first estimate the future cash flows expected to be received and then apply those expected future cash flows to the credit card balance. Expected credit losses for credit cards are determined by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting date and applying those principal payments against the balance outstanding as of the reporting period until the expected payments have been fully allocated. The allowance for credit losses is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments. The allowance for credit losses is measured on a collective (“pool”) basis when similar risk characteristics exist. For the purpose of calculating portfolio-level reserves, we have grouped our loans into seven segments: residential mortgage loans, home 68 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate owner-occupied and commercial loans. The allowance for credit losses is measured at the pool level utilizing loan-level inputs wherever possible. We use a twenty-four month forecasting period and revert to historical average loss rates thereafter. The reasonable and supportable forecast is based on a probability-weighted multiple economic scenario approach and obtained from a third party vendor. Reversion to the mean takes place over a twelve-month period. Our loss rate models utilize a linear reversion method. For our Probability of Default (“PD”)/Loss Given Default (“LDG”) models we revert the PD utilizing exponential reversion, which is an accelerated method, and the LGD utilizing a linear reversion method. Historical average loss rates are calculated using historical data beginning in 2009 through the current period. 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. Mortgage and Home Equity Loans The allowance for credit losses within the mortgage and home equity loan classes is calculated at the pool-level using a non-discounted cash flow method through a PD and LGD model developed by an external third-party. These classes are further divided into smaller pools of loans with similar risk characteristics such as: lines versus loans, fixed versus variable, senior lien position versus junior lien position, among other things. For each pool, the models project default rates, prepayment rates, and severity rates. The models accept as inputs key risk drivers such as: current balance, original credit bureau score, original loan-to-value ratio, type of collateral, location of collateral, delinquency status, loan age, among other characteristics. They also utilize macroeconomic forecasts of home price indices, unemployment rates, gross domestic product, and others. Vehicle Loans The allowance for credit losses within the vehicle loan portfolio is calculated at the portfolio-level using a non-discounted cash flow method through a loss rate model developed internally with the assistance of an external third-party. The allowance for vehicle loans utilizes a vintage analysis to project portfolio-level net charge-off rates. The class is further divided into short term versus long term loans, prime versus subprime borrowers, and origination vintage. This model uses current balance, original credit bureau score, original debt-to-income ratio, loan term, loan age, and other product characteristics as key risk drivers. The model used for vehicle loans is not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework. Consumer Loans The allowance for credit losses within the consumer loan portfolio is calculated at the portfolio-level using a non-discounted cash flow method through a suite of loss rate models developed internally with the assistance of an external third-party. This class of financing receivables is further divided into credit cards, unsecured lines of credit and other consumer loans. The allowance for credit losses for credit cards and unsecured lines of credit is calculated using two transition matrix models to project portfolio-level net charge-off rates. Both models use current balance and delinquency status as key risk drivers. These models are not natively sensitive to macroeconomic conditions. The necessary adjustments to account for current and expected macroeconomic conditions is captured via our qualitative adjustment framework. For other consumer loans, a regression model is used to project portfolio-level net charge-off rates. This model uses borrower information and macroeconomic forecasts as key inputs. Commercial Real Estate Loans The commercial real estate loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial real estate loans and small business commercial real estate loans. The allowance for credit losses for the commercial real estate loan portfolio is calculated at the pool level using a non-discounted cash flow method through a PD/LGD model developed by an external third-party. This model projects default and severity rates. The model accepts as inputs key risk drivers such as: current balance, original loan-to-value-ratio, type of collateral, location of collateral, delinquency status, loan age, obligor financial statement information, and expected prepayment rates, among other 69 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) characteristics. It also utilizes macroeconomic forecasts of commercial real estate price indices, unemployment rates, gross domestic product and others. The allowance for credit losses is calculated for commercial real estate small business loans at the portfolio-level using a non-discounted cash flow method through a loss rate model developed internally with the assistance of an external third-party. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs. Commercial Loans and Commercial Real Estate - Owner Occupied Loans The allowance for credit losses for the commercial loan portfolio and the commercial real estate - owner occupied loan portfolio is calculated at the pool level using a non-discounted cash flow method through a PD/LGD model developed by an external third-party. The commercial loan class is further segmented into smaller pools of loans with similar risk characteristics, commercial loans and commercial small business loans. The commercial loan portfolio and the commercial real estate owner occupied loan portfolio models project default and severity rates. The model accepts as inputs key risk drivers such as the obligor financial statement information, collateral type, the obligor’s primary industry, expected prepayment rates, among other characteristics. It also utilizes macroeconomic forecasts of unemployment rates, gross domestic product, corporate bond spreads, and others. The allowance for credit losses for commercial small business loans is calculated at the portfolio-level using a non-discounted cash flow method through a loss rate model developed internally with the assistance of an external third-party. A regression model is used to project portfolio-level net charge-off rates. This model uses loan characteristics and macroeconomic forecasts as key inputs. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When we determine that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. If this criteria is not met, a discounted cash flow method is used to determine the allowance for credit losses. All changes in the discounted cash flow method over time are reported in the allowance for credit losses. The allowance calculation is also supplemented with qualitative reserves that takes into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except when the value of the concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan. For off-balance-sheet credit exposures, we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The liability for credit losses on off-balance-sheet credit exposures is adjusted through a provision for credit loss expense and is included within “other expenses”. We estimate the liability balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The estimate includes a consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Off-balance-sheet exposures that are not unconditionally cancellable have been identified for the mortgage, home equity, commercial real estate, and commercial loan portfolios. Results for reporting periods beginning after January 1, 2020 are presented under CECL methodology while prior period amounts continue to be reported in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingencies; and specific reserves based upon ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as commercial loans, consumer lines of credit and residential mortgages that are not individually evaluated for impairment. ASC Topic 310 is applied to commercial and consumer loans that are individually evaluated for impairment. 70 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (g) Real Estate Owned Real estate owned is comprised of property either acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the loan balance or fair value of the collateral, less estimated disposition costs, with the fair value being determined by an appraisal. Any initial write-down is charged to the allowance for credit losses. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or the current fair value, less estimated disposition costs. Any subsequent write-down or gains or losses realized from the disposition of such property are credited or charged to noninterest income. (h) Restricted Investment in FHLB Stock Federal law requires a member institution of the FHLB system to hold stock of its district FHLB according to a predetermined formula. FHLB stock is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. FHLB stock can only be purchased, redeemed and transferred at par value. Dividends are reported in interest income in the Consolidated Statements of Income. (i) Premises and Equipment Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is accumulated on a straight-line basis over the estimated useful lives of the related assets. Estimated lives range from three to 39 years. Amortization of leasehold improvements is accumulated on a straight-line basis over the terms of the related leases or the useful lives of the related assets, whichever is shorter. (j) Goodwill Goodwill is generated from the premium paid for an acquisition and is allocated to reporting units, which are either our reportable segments or one level below. Reporting units are identified based upon analyzing each individual operating segment. A reporting unit is defined as a distinct, separately identifiable component of an operating segment for which complete, discrete financial information is available that management regularly reviews. Goodwill is not subject to amortization but is tested for impairment at least annually and possibly more frequently if certain events occur or changes in circumstances arise. In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing all events and circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test would be unnecessary. However, if we conclude otherwise, it would then be required to perform the first step of the goodwill impairment test and continue to the second step, if necessary. Step 1 requires the fair value of each reporting unit be compared to its carrying amount, including goodwill. Determining the fair value of a reporting unit requires a high degree of subjective judgment, including developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. We have established June 30 of each year as the date for conducting our annual goodwill impairment assessment. Quarterly, we evaluate if there are any triggering events that would require an update to our previous assessment. We conducted our annual impairment assessment as of June 30, 2021 by first performing a qualitative assessment of goodwill to determine if it was more likely than not that the fair value was less than the carrying value. In performing a qualitative analysis, factors considered include, but are not limited to, macroeconomic conditions, industry and market conditions and overall financial performance. The results of the qualitative assessment for 2021 indicated that it was not more likely than not that the fair value of the reporting unit was less than the carrying value. Consequently, no additional quantitative two-step impairment test was required and no impairment was recorded in 2021. Future events could cause us to conclude that goodwill has become impaired, which would result in recording an impairment loss. There were no changes in our operations that would cause us to update the assessment performed as of June 30, 2021 and 2020. Accordingly, we have determined that goodwill is not impaired as of December 31, 2021 and 2020. (k) Core Deposit and Other Identifiable Intangibles Through the assistance of an independent third party, we analyze and prepare a core deposit study for all bank acquisitions or other identifiable intangible asset study, such as customer lists, for all non-bank acquisitions. The core deposit study reflects the cumulative present value benefit of acquiring deposits versus an alternative source of funding. The other identifiable intangible asset 71 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) study reflects the cumulative present value benefit of acquiring the income stream from an existing customer base versus developing new business relationships. Based upon analysis, the amount of the premium related to the core deposits or other identifiable intangibles of the business purchased is calculated along with the estimated life of the intangible. The intangible, which is recorded in other intangible assets, is then amortized to expense on an accelerated basis over an approximate life of typically between seven to eleven years . (l) Bank-Owned Life Insurance We own insurance on the lives of a certain group of current and former employees and directors. The policies were purchased to help offset the increase in the costs of various benefit plans, including healthcare, as well as the directors deferred compensation plan. The cash surrender value of these policies is included as an asset on the Consolidated Statements of Financial Condition and any increases in the cash surrender value are recorded as tax-free noninterest income on the Consolidated Statements of Income. In the event of the death of an insured individual covered by these policies, after distribution to the insured’s beneficiaries, if any, we receive a tax-free death benefit, which is recorded as noninterest income. (m) Deposits Interest on deposits is accrued and charged to expense monthly and is paid or credited in accordance with the terms of the accounts. (n) Revenue Recognition Revenue that is not associated with our financial assets and financial liabilities is recognized when performance obligations under the terms of a contract with our customers are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The majority of our revenue continues to be recognized at the point in time when the services are provided to our customers. (o) Pension Plans We maintain multiple noncontributory defined benefit pension plans (“Pension Plan”) for substantially all of our employees. The net periodic pension cost has been calculated using service cost, interest cost, expected returns on plan assets and net amortization. The other components of the net periodic benefit cost are included in other expense on the Consolidated Statement of Income and are reported separately from the service costs. Pension expense and obligations depend on assumptions used in calculating such amounts. These assumptions include discount rates, anticipated salary increases, interest costs, expected return on plan assets, mortality rates, and other factors. In determining the projected benefit obligations for pension benefits at December 31, 2021 and 2020, we u sed a discount rate of 2.75 % and 2.39 %, respectively. We use the FTSE (previously Citigroup) Pension Liability Index rates matching the duration of our benefit payments as of the measurement date, December 31, to determine the discount rate. (p) Income Taxes We join with our wholly owned subsidiaries in filing a consolidated federal income tax return. In accordance with an intercompany tax allocation agreement, the applicable federal income tax expense or benefit is allocated to each subsidiary based upon taxable income or loss calculated on a separate company basis. Each subsidiary is responsible for payment of its own federal income tax liability or receives reimbursement of federal income tax benefit. In addition, deferred taxes are calculated and maintained on a separate company basis. We account for income taxes under the asset and liability method. The objective of the asset and liability method is to establish deferred tax assets and liabilities for temporary differences between the financial reporting and tax basis of our assets and liabilities based on the tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities with regard to a change in tax rates is recognized in the tax provision in the period the change is enacted. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. 72 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (q) Stock-Related Compensation We determine the fair value of each option award, estimated on the grant date, using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model uses variables including expected volatilities, expected term, risk-free discount rate and annual rate of quarterly dividends. Expected volatilities are based on historical volatility of the Company’s stock. The expected terms are based upon actual exercise and forfeiture experience of previous option grants. The risk-free rate is based on yields on U.S. Treasury securities of a similar maturity to the expected term of the options. For options outstanding at December 31, 2021, the following assumptions were used to determine the option’s fair value: (1) annual rate of quarterly dividends ranging from 3.9 % to 7.5 % based on historical dividends and market prices; (2) expected volatility of 13.0 % to 19.0 % based on historical average monthly volatility; (3) risk-free discount rates ranging from 0.7 % to 2.9 %; and (4) expected lives of nine to ten years based on previous grants. During the year ended December 31, 2021, we awarded 621,972 stock options to employees and 72,000 stock options to directors. During the year ended December 31, 2020, we awarded 556,476 stock options to employees and 57,600 stock options to directors. The options granted in 2021 and 2020 vest over a five or seven-year period, depending on the date of the grant, with the first vesting occurring on the grant date. New shares are issued when options are exercised. Option awards are generally granted with an exercise price equal to the closing market price of the Company’s stock on the day before the grant date. During the year ended December 31, 2021, we awarded 307,207 restricted shares to employees and 27,000 restricted shares to directors. During the year ended December 31, 2020, we awarded 261,091 restricted shares to employees and 21,600 restricted shares to directors. These common share awards vest over a five or seven-year period, depending on the date of the grant, with the first vesting occurring on the grant date. Once shares have vested, they are no longer restricted. Compensation expense, in the amount of the fair market value of the common stock at the date of the grant will be recognized pro rata over the periods in which the shares vest. While restricted, the recipients are entitled to all shareholder rights, except that the shares may not be sold, pledged, or otherwise disposed of and are required to be held in a trust. For additional information regarding grants of stock options and common shares, see Note 15. Stock-based employee compensation expense related to common share awards of $ 4.1 million, $ 3.5 million and $ 5.7 million was included in income before income taxes during the years ended December 31, 2021, 2020 and 2019, respectively. The effect on net income for the years ended December 31, 2021, 2020 and 2019 was a reduction of $ 2.9 million, $ 2.5 million and $ 4.1 million, respectively. Total compensation expense for unvested stock options of $ 1.7 million has yet to be recognized as of December 31, 2021. The weighted average period over which this remaining stock option expense will be recognized is approximately 4.34 years. (r) Derivative Financial Instruments We recognize all derivative financial instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. An entity that elects to use hedge accounting is required, at inception, to establish the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with our approach to managing risk. At times, we utilize interest rate swap agreements as part of the management of interest rate risk to hedge the interest rate risk on our trust preferred debentures. Amounts receivable or payable are recognized as accrued under the terms of the agreements and the differential is recorded as an adjustment to interest expense. The interest rate swaps are designated as cash flow hedges, with the effective portion of the derivative’s unrealized gain or loss recorded as a component of other comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense. For derivatives that are not designated as hedging instruments, any gain or loss is recognized immediately in earnings. 73 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (s) Off-Balance-Sheet Instruments In the normal course of business, we extend credit in the form of loan commitments, undisbursed lines of credit, and standby letters of credit. These off-balance-sheet instruments involve, to various degrees, elements of credit and interest rate risk not reported in the Consolidated Statement of Financial Condition. We utilize the same underwriting standards for these instruments as other extensions of credit. (t) Use of Estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. The estimates and assumptions that we deem important to our financial statements relate to the allowance for loan losses, the accounting treatment and valuation of our investment securities portfolio, the analysis of the carrying value of goodwill, pension and income taxes. These estimates and assumptions are based on management’s best estimates and judgment and we evaluate them using historical experience and other factors, including the current economic environment. We adjust our estimates and assumptions when facts and circumstances dictate. As future events cannot be determined, actual results could differ significantly from our estimates. (u) Reclassification of Prior Years’ Statements Certain items previously reported have been reclassified to conform with the current year’s reporting format. (2) Recently Adopted Accounting Standards In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans”. This guidance removes and adds disclosure requirements for defined benefit pension or other post-retirement plans. On January 1, 2021, the Company adopted ASU 2018-14 on a retrospective basis for disclosures impacted. The adoption of this standard did not have a material effect on our results of operations or financial position. Refer to Note 15, “Employee Benefit Plans ” . In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes”. This guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption of the standard did not have a material effect on our results of operations or financial position. (3) Leases At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification of a finance or operating lease. Operating lease right of use (“ROU ” ) assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments. ROU assets are further adjusted for lease incentives and initial direct costs. The Company has operating leases for certain branch and office facilities or land with lease terms up to 35 years. These leases generally contain renewal options for periods ranging from one to ten years . These options are included in the lease term when it is reasonably certain that the options will be exercised. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., common area maintenance, taxes, etc.). For all leases, the Company elected the option of not separating lease and non-lease components and instead we account for them as a single lease component. 74 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Certain lease agreements include rental payments that are adjusted periodically for an index or rate. The leases are initially measured using the projected adjustment for the index or rate in effect at the commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Generally, the Company cannot practically determine the interest rate implicit in the lease. Therefore, the Company uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The components of lease cost recognized within our Consolidated Statements of Income were as follows: For the years ended December 31, 2021 2020 Operating lease costs (office operations) $ 5,802 6,139 Variable lease costs (office operations) 662 680 Total operating lease costs $ 6,464 6,819 Amounts reported in the Consolidated Statements of Financial Condition were as follows: For the years ended December 31, 2021 2020 Operating leases: Operating lease ROU assets (other assets) $ 54,887 48,329 Operating lease liabilities (other liabilities) 57,726 52,206 Other information related to leases were as follows: For the years ended December 31, 2021 2020 Supplemental cash flow information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow from operating leases $ 6,143 6,204 ROU assets obtained in exchange for lease obligations 12,866 8,657 Weighted average remaining lease term 15.9 years 15.1 years Weighted average discount rate 3.1 % 3.4 % 75 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments. Maturities of lease liabilities by fiscal year for our operating leases are as follows: As of December 31, 2021 2022 $ 6,080 2023 5,777 2024 5,039 2025 4,822 2026 4,734 Thereafter 48,471 Total lease payments 74,923 Less amount of lease payments representing interest 17,197 Total present value of lease payments $ 57,726 Rental expense for the years ended December 31, 2021, 2020 and 2019 was $ 6.5 million, $ 6.8 million and $ 6.2 million, respectively. (4) Marketable Securities Marketable securities available-for-sale at December 31, 2021 are as follows: Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Debt issued by the U.S. government and agencies: Due in one year through five years $ 20,000 — ( 68 ) 19,932 Due after ten years 57,681 — ( 1,722 ) 55,959 Debt issued by government sponsored enterprises: Due in less than one year 177 — — 177 Due in one year through five years 991 73 — 1,064 Due in five years through ten years 46,411 1 ( 1,568 ) 44,844 Municipal securities: Due in less than one year 946 13 — 959 Due in one year through five years 1,261 22 ( 3 ) 1,280 Due in five years through ten years 23,692 661 ( 146 ) 24,207 Due after ten years 99,558 2,884 ( 187 ) 102,255 Residential mortgage-backed securities: Fixed rate pass-through 265,604 2,389 ( 2,525 ) 265,468 Variable rate pass-through 11,306 294 ( 9 ) 11,591 Fixed rate agency CMOs 997,680 2,284 ( 18,965 ) 980,999 Variable rate agency CMOs 39,695 224 ( 62 ) 39,857 Total residential mortgage-backed securities 1,314,285 5,191 ( 21,561 ) 1,297,915 Total marketable securities available-for-sale $ 1,565,002 8,845 ( 25,255 ) 1,548,592 76 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Marketable securities held-to-maturity at December 31, 2021 are as follows: Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Debt issued by the U.S. government and agencies: Due in one year through five years $ 16,478 — ( 206 ) 16,272 Due in five years through ten years 107,973 — ( 4,613 ) 103,360 Residential mortgage-backed securities: Fixed rate pass-through 183,092 58 ( 2,161 ) 180,989 Variable rate pass-through 667 24 — 691 Fixed rate agency CMOs 459,345 251 ( 10,011 ) 449,585 Variable rate agency CMOs 599 17 — 616 Total residential mortgage-backed securities 643,703 350 ( 12,172 ) 631,881 Total marketable securities held-to-maturity $ 768,154 350 ( 16,991 ) 751,513 Marketable securities available-for-sale at December 31, 2020 are as follows: Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Debt issued by the U.S. government and agencies: Due after ten year $ 40,761 211 ( 55 ) 40,917 Debt issued by government-sponsored enterprises: Due in less than one year 24,976 159 — 25,135 Due in one year through five years 238 3 — 241 Due in five years through ten years 68,973 238 ( 80 ) 69,131 Municipal securities: Due in less than one year 4,008 14 — 4,022 Due in one year through five years 2,803 63 ( 2 ) 2,864 Due in five years through ten years 16,045 429 ( 5 ) 16,469 Due after ten years 89,778 3,752 ( 72 ) 93,458 Residential mortgage-backed securities: Fixed rate pass-through 339,406 7,125 ( 86 ) 346,445 Variable rate pass-through 14,778 431 ( 20 ) 15,189 Fixed rate agency CMOs 723,586 11,758 ( 1,093 ) 734,251 Variable rate agency CMOs 50,333 519 ( 33 ) 50,819 Total residential mortgage-backed securities 1,128,103 19,833 ( 1,232 ) 1,146,704 Total marketable securities available-for-sale $ 1,375,685 24,702 ( 1,446 ) 1,398,941 77 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Marketable securities held-to-maturity at December 31, 2020 are as follows: Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Debt issued by the U.S. government and agencies: Due after five years through ten years $ 67,990 12 ( 123 ) 67,879 Residential mortgage-backed securities: Fixed rate pass-through 1,723 131 — 1,854 Variable rate pass-through 919 30 — 949 Fixed rate agency CMOs 107,651 716 ( 2 ) 108,365 Variable rate agency CMOs 604 15 — 619 Total residential mortgage-backed securities 110,897 892 ( 2 ) 111,787 Total marketable securities held-to-maturity $ 178,887 904 ( 125 ) 179,666 The following table shows the contractual maturity of our residential mortgage-backed securities available-for-sale at December 31, 2021: Amortized cost Fair value Residential mortgage-backed securities: Due in less than one year $ 490 491 Due in one year through five years 14,013 14,126 Due after five years through ten years 89,594 89,948 Due after ten years 1,210,188 1,193,350 Total residential mortgage-backed securities $ 1,314,285 1,297,915 78 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table shows the contractual maturity of our residential mortgage-backed securities held-to-maturity at December 31, 2021: Amortized cost Fair value Residential mortgage-backed securities: Due in one year through five years $ 792 833 Due after five years through ten years 40,494 38,817 Due after ten years 602,417 592,231 Total residential mortgage-backed securities $ 643,703 631,881 The following table presents information regarding the issuers and the carrying values of our mortgage-backed securities at December 31, 2021 and 2020: December 31, 2021 2020 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 Marketable securities having a carrying value of $ 227.5 million at December 31, 2021 were pledged under collateral agreements. During the year ended December 31, 2021, we sold marketable securities classified as available-for-sale for $ 59.6 million, with gross realized gains of $ 410,000 and gross realized losses of $ 396,000 . During the year ended December 31, 2020, we sold marketable securities classified as available-for-sale for $ 1.1 million, with gross realized gains of $ 64,000 and no gross realized losses. During the year ended December 31, 2019, we sold marketable securities classified as available-for-sale for $ 32.4 million, with gross realized gains of $ 29,000 and no gross realized losses. During the years ended December 31, 2021 and 2020, we did no t recognize allowance for credit losses in our investment portfolio and during the year ended December 31, 2019, we did no t recognize non-cash credit related other-than-temporary-impairment in our investment portfolio. The following table shows the fair value and gross unrealized losses on investment securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2021: Less than 12 months 12 months or more Total Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss U.S. government sponsored enterprises $ 132,782 ( 3,504 ) 106,160 ( 4,673 ) 238,942 ( 8,177 ) Municipal securities 25,118 ( 336 ) — — 25,118 ( 336 ) Residential mortgage-backed securities 1,428,582 ( 26,516 ) 184,389 ( 7,217 ) 1,612,971 ( 33,733 ) Total temporarily impaired securities $ 1,586,482 ( 30,356 ) 290,549 ( 11,890 ) 1,877,031 ( 42,246 ) The following table shows the fair value and gross unrealized losses on investment securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2020: Less than 12 months 12 months or more Total Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss U.S. government sponsored enterprises $ 67,809 ( 179 ) 1,923 ( 80 ) 69,732 ( 259 ) Municipal securities 4,257 ( 79 ) — — 4,257 ( 79 ) Residential mortgage-backed securities 300,767 ( 1,202 ) 5,533 ( 31 ) 306,300 ( 1,233 ) Total temporarily impaired securities $ 372,833 ( 1,460 ) 7,456 ( 111 ) 380,289 ( 1,571 ) 79 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of December 31, 2021, which were comprised of 245 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies or U.S. government-sponsored agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company does not have the intent to sell these investment securities and it is likely that we will not be required to sell these securities before their anticipated recovery, which may be at maturity. All of the Company ’ s held-to-maturity securities are issued by U.S. government-sponsored agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of December 31, 2021. The following table presents the credit quality for our held-to-maturity securities, based on the latest information available as of December 31, 2021. The credit ratings are sourced from nationally recognized rating agencies, including Moody ’ s and S&P, or when credit ratings cannot be sourced from the agencies, they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of December 31, 2021. AA+ Total Held-to-maturity securities: Debt issued by the U.S. government-sponsored agencies $ 124,451 124,451 Residential mortgage-backed securities 643,703 643,703 Total marketable securities held-to-maturity $ 768,154 768,154 (5) Loans Receivable On January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments ” using the modified retrospective transition approach. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required ASC 326 disclosures for periods before the date of adoption (i.e., January 1, 2020). The following table shows a summary of our loans receivable at amortized cost basis at December 31, 2021 and December 31, 2020 (in thousands): December 31, 2021 December 31, 2020 Originated Acquired Total Originated Acquired Total Personal Banking: Residential mortgage loans (1) $ 2,783,459 211,161 2,994,620 2,753,593 314,528 3,068,121 Home equity loans 1,107,202 212,729 1,319,931 1,175,703 292,033 1,467,736 Vehicle loans 1,384,246 99,985 1,484,231 995,040 157,633 1,152,673 Consumer loans 307,961 46,556 354,517 288,066 67,254 355,320 Total Personal Banking 5,582,868 570,431 6,153,299 5,212,402 831,448 6,043,850 Commercial Banking: Commercial real estate loans 2,202,027 423,454 2,625,481 2,223,108 624,873 2,847,981 Commercial real estate loans - owner occupied 321,253 68,750 390,003 344,016 153,892 497,908 Commercial loans 765,877 81,732 847,609 1,019,482 171,628 1,191,110 Total Commercial Banking 3,289,157 573,936 3,863,093 3,586,606 950,393 4,536,999 Total loans receivable, gross 8,872,025 1,144,367 10,016,392 8,799,008 1,781,841 10,580,849 Allowance for credit losses ( 86,750 ) ( 15,491 ) ( 102,241 ) ( 102,874 ) ( 31,553 ) ( 134,427 ) Total loans receivable, net (2) $ 8,785,275 1,128,876 9,914,151 8,696,134 1,750,288 10,446,422 (1) Includes $ 25.1 million and $ 58.8 million of loans held-for-sale at December 31, 2021 and December 31, 2020, respectively. (2) Includes $ 62.8 million and $ 40.9 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at December 31, 2021 and December 31, 2020, respectively. 80 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) As of December 31, 2021, 2020, and 2019, we serviced loans for others approximating $ 1.622 billion, $ 1.516 billion, and $ 793.1 million, respectively. These loans serviced for others are not our assets and are not included in our financial statements. As of December 31, 2021 and 2020, approximately 41 % and 42 %, respectively, of our loan portfolio was secured by properties located in Pennsylvania. We do not believe we have significant concentrations of credit risk to any one group of borrowers given our underwriting and collateral requirements. Loans receivable as of December 31, 2021 and 2020 include $ 3.277 billion and $ 3.690 billion, respectively, of adjustable rate loans and $ 6.739 billion and $ 6.840 billion, respectively, of fixed rate loans. The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the year ended December 31, 2021 (in thousands): Balance as of December 31, 2021 Current period provision Charge-offs Recoveries Balance as of December 31, 2020 Allowance for Credit Losses Personal Banking: Residential mortgage loans $ 7,373 2,844 ( 3,672 ) 935 7,266 Home equity loans 5,300 1,788 ( 3,380 ) 900 5,992 Vehicle loans 15,483 2,754 ( 4,632 ) 2,536 14,825 Consumer loans 2,884 3,070 ( 5,417 ) 2,360 2,871 Total Personal Banking 31,040 10,456 ( 17,101 ) 6,731 30,954 Commercial Banking: Commercial real estate loans 54,141 ( 15,496 ) ( 11,933 ) 2,189 79,381 Commercial real estate loans - owner occupied 3,883 ( 5,852 ) ( 890 ) 107 10,518 Commercial loans 13,177 ( 991 ) ( 4,213 ) 4,807 13,574 Total Commercial Banking 71,201 ( 22,339 ) ( 17,036 ) 7,103 103,473 Total $ 102,241 ( 11,883 ) ( 34,137 ) 13,834 134,427 Allowance for Credit Losses - off-balance-sheet exposure Personal Banking: Residential mortgage loans $ 2 — — — 2 Home equity loans 39 4 — — 35 Total Personal Banking 41 4 — — 37 Commercial Banking: Commercial real estate loans 881 ( 2,568 ) — — 3,449 Commercial real estate loans - owner occupied 142 ( 184 ) — — 326 Commercial loans 1,394 ( 1,157 ) — — 2,551 Total Commercial Banking 2,417 ( 3,909 ) — — 6,326 Total off-balance-sheet exposure $ 2,458 ( 3,905 ) — — 6,363 81 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the year ended December 31, 2020 and includes the cumulative effect of adopting ASU 2016-13 (in thousands): Balance as of December 31, 2020 Current period provision Charge-offs Recoveries Initial ACL on loans purchased with credit deterioration Cumulative effect of ASU 2016-13* Balance as of December 31, 2019 Allowance for Credit Losses Personal Banking: Residential mortgage loans $ 7,266 ( 3,289 ) ( 917 ) 362 1,095 7,441 2,574 Home equity loans 5,992 ( 3,357 ) ( 608 ) 766 216 5,786 3,189 Vehicle loans 14,825 11,416 ( 6,827 ) 1,867 235 842 7,292 Consumer loans 2,871 4,126 ( 5,831 ) 1,542 157 ( 2,424 ) 5,301 Total Personal Banking 30,954 8,896 ( 14,183 ) 4,537 1,703 11,645 18,356 Commercial Banking: Commercial real estate loans 79,381 58,483 ( 4,240 ) 1,287 5,720 2,288 15,843 Commercial real estate loans - owner occupied 10,518 2,588 ( 83 ) 27 963 1,278 5,745 Commercial loans 13,574 14,008 ( 16,212 ) 1,741 459 ( 4,419 ) 17,997 Total Commercial Banking 103,473 75,079 ( 20,535 ) 3,055 7,142 ( 853 ) 39,585 Total $ 134,427 83,975 ( 34,718 ) 7,592 8,845 10,792 57,941 Allowance for Credit Losses - off-balance-sheet exposure Personal Banking: Residential mortgage loans $ 2 2 — — — — — Home equity loans 35 5 — — — ( 293 ) 323 Consumer loans — — — — — ( 402 ) 402 Total Personal Banking 37 7 — — — ( 695 ) 725 Commercial Banking: Commercial real estate loans 3,449 1,438 — — — 1,934 77 Commercial real estate loans - owner occupied 326 235 — — — 88 3 Commercial loans 2,551 1,459 — — — 923 169 Total Commercial Banking 6,326 3,132 — — — 2,945 249 Total off-balance-sheet exposure $ 6,363 3,139 — — — 2,250 974 * Includes the impact of the initial allowance on PCD loans of $ 517,000 . During the year ended December 31, 2020, we sold $ 50.0 million of loans that were classified as held-for-investment, for a gain of $ 1.3 million, which is reported in gain on sale of loans on the Consolidated Statements of Income. 82 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the year ended December 31, 2019, prior to the adoption of ASU 2016-13 (in thousands): Balance as of December 31, 2019 Current period provision Charge-offs Recoveries Balance as of December 31, 2018 Originated loans Personal Banking: Residential mortgage loans $ 2,463 ( 1,089 ) ( 935 ) 433 4,054 Home equity loans 2,830 46 ( 619 ) 219 3,184 Consumer loans 12,055 10,025 ( 11,537 ) 2,487 11,080 Total Personal Banking 17,348 8,982 ( 13,091 ) 3,139 18,318 Commercial Banking: Commercial real estate loans 17,292 ( 5,241 ) ( 5,078 ) 1,232 26,379 Commercial loans 16,799 12,449 ( 3,237 ) 533 7,054 Total Commercial Banking 34,091 7,208 ( 8,315 ) 1,765 33,433 Total originated loans 51,439 16,190 ( 21,406 ) 4,904 51,751 Acquired loans Personal Banking: Residential mortgage loans 111 184 ( 231 ) 75 83 Home equity loans 359 322 ( 502 ) 191 348 Consumer loans 538 156 ( 270 ) 233 419 Total Personal Banking 1,008 662 ( 1,003 ) 499 850 Commercial Banking: Commercial real estate loans 4,296 2,092 ( 389 ) 597 1,996 Commercial loans 1,198 3,715 ( 3,414 ) 280 617 Total Commercial Banking 5,494 5,807 ( 3,803 ) 877 2,613 Total acquired loans 6,502 6,469 ( 4,806 ) 1,376 3,463 Total $ 57,941 22,659 ( 26,212 ) 6,280 55,214 83 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2021 (in thousands): Total loans receivable Allowance for credit losses Nonaccrual loans (1) Loans 90 days past due and accruing TDRs Allowance related to TDRs Additional commitments to customers with loans classified as TDRs Personal Banking: Residential mortgage loans $ 2,994,620 7,373 10,402 — 6,749 1,442 — Home equity loans 1,319,931 5,300 5,758 — 1,781 718 — Vehicle loans 1,484,231 15,483 3,263 — — — — Consumer loans 354,517 2,884 675 331 — — — Total Personal Banking 6,153,299 31,040 20,098 331 8,530 2,160 — Commercial Banking: Commercial real estate loans 2,625,481 54,141 129,666 — 17,025 2,024 400 Commercial real estate loans - owner occupied 390,003 3,883 1,233 — 159 24 — Commercial loans 847,609 13,177 7,474 — 4,574 609 60 Total Commercial Banking 3,863,093 71,201 138,373 — 21,758 2,657 460 Total $ 10,016,392 102,241 158,471 331 30,288 4,817 460 (1) Includes $ 17.2 million of nonaccrual TDRs. The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2020 (in thousands): Total loans receivable Allowance for credit losses Nonaccrual loans (1) Loans 90 days past due and accruing TDRs Allowance related to TDRs Additional commitments to customers with loans classified as TDRs Personal Banking: Residential mortgage loans $ 3,068,121 7,266 15,924 — 8,431 560 — Home equity loans 1,467,736 5,992 9,123 — 2,058 381 26 Vehicle loans 1,152,673 14,825 5,533 1 — — — Consumer loans 355,320 2,871 1,031 584 1 — — Total Personal Banking 6,043,850 30,954 31,611 585 10,490 941 26 Commercial Banking: Commercial real estate loans 2,847,981 79,381 44,092 — 18,430 787 471 Commercial real estate loans - owner occupied 497,908 10,518 3,642 — 761 123 — Commercial loans 1,191,110 13,574 23,487 — 2,454 165 362 Total Commercial Banking 4,536,999 103,473 71,221 — 21,645 1,075 833 Total $ 10,580,849 134,427 102,832 585 32,135 2,016 859 (1) Includes $ 10.7 million of nonaccrual TDRs. 84 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table presents the amortized cost of our loans on nonaccrual status as of the beginning and end of the year ended December 31, 2021 (in thousands): Nonaccrual loans at January 1, 2021 December 31, 2021 Nonaccrual loans with an allowance Nonaccrual loans with no allowance Total Nonaccrual loans at the end of the period Loans 90 days past due and accruing Personal Banking: Residential mortgage loans $ 15,924 10,402 — 10,402 — Home equity loans 9,123 5,551 207 5,758 — Vehicle loans 5,533 3,251 12 3,263 — Consumer loans 1,031 674 1 675 331 Total Personal Banking 31,611 19,878 220 20,098 331 Commercial Banking: Commercial real estate loans 44,092 65,529 64,137 129,666 — Commercial real estate loans - owner occupied 3,642 1,233 — 1,233 — Commercial loans 23,487 3,941 3,533 7,474 — Total Commercial Banking 71,221 70,703 67,670 138,373 — Total $ 102,832 90,581 67,890 158,471 331 During the year ended December 31, 2021, we recognized $ 803,000 of interest income on nonaccrual and troubled debt restructuring loans. The following table presents the amortized cost of our loans on nonaccrual status as of the beginning and end of the year ended December 31, 2020, (in thousands): Nonaccrual loans at January 1, 2020 December 31, 2020 Nonaccrual loans with an allowance Nonaccrual loans with no allowance Total Nonaccrual loans at the end of the period Loans 90 days past and accruing Personal Banking: Residential mortgage loans $ 14,476 15,924 — 15,924 — Home equity loans 6,745 8,871 252 9,123 — Vehicle loans 3,147 5,377 156 5,533 1 Consumer loans 1,079 1,030 1 1,031 584 Total Personal Banking 25,447 31,202 409 31,611 585 Commercial Banking: Commercial real estate loans 18,832 27,079 17,013 44,092 — Commercial real estate loans - owner occupied 16,032 3,642 — 3,642 — Commercial loans 8,559 18,069 5,418 23,487 — Total Commercial Banking 43,423 48,790 22,431 71,221 — Total $ 68,870 79,992 22,840 102,832 585 During the year ended December 31, 2020, we recognized $ 842,000 of interest income on nonaccrual and troubled debt restructuring loans. 85 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2021 (in thousands): Real estate Equipment Other Total Personal Banking: Residential mortgage loans $ 580 — — 580 Home equity loans 99 — — 99 Total Personal Banking 679 — — 679 Commercial Banking: Commercial real estate loans 119,825 1,705 — 121,530 Commercial loans 3,973 1,926 — 5,899 Total Commercial Banking 123,798 3,631 — 127,429 Total $ 124,477 3,631 — 128,108 The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020 (in thousands): Real estate Equipment Other Total Personal Banking: Residential mortgage loans $ 1,269 — — 1,269 Home equity loans 99 — — 99 Total Personal Banking 1,368 — — 1,368 Commercial Banking: Commercial real estate loans 79,392 1,997 1,703 83,092 Commercial loans 3,313 197 11,069 14,579 Total Commercial Banking 82,705 2,194 12,772 97,671 Total $ 84,073 2,194 12,772 99,039 86 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Our loan portfolios include loans that have been modified in a TDR, where concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include: extending the note’s maturity date, permitting interest only payments, reducing the interest rate to a rate lower than current market rates for new debt with similar risk, reducing the principal payment, principal forbearance or other actions. These concessions are applicable to all loan segments and classes. Certain TDRs are classified as nonperforming at the time of restructuring and may be returned to performing status after considering the borrower’s sustained repayment performance for a period of at least six months. When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, the loan’s observable market price or the current fair value of the collateral, less selling costs, for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premiums or discounts), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment in accordance with ASC 310-10. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, we evaluate the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, partial charge-offs may be taken to further write-down the carrying value of the loan, or the loan may be charged-off completely. In March 2020 and August 2020, joint statements were issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification. For borrowers who are 30 days or more past due when enrolling in a loan modification program related to the COVID-19 pandemic, we evaluate the loan modifications under our existing TDR framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. 87 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides a roll forward of troubled debt restructurings for the periods indicated (dollars in thousands): For the years ended December 31, 2021 2020 Number of contracts Amount Number of contracts Amount Beginning TDR balance: 170 $ 32,135 176 $ 31,999 New TDRs 9 7,253 14 1,497 Re-modified TDRs 9 7,370 5 9,693 Net paydowns — ( 3,420 ) — ( 9,806 ) Charge-offs: Residential mortgage loans — — — — Home equity loans 1 ( 29 ) 1 ( 10 ) Vehicle loans — — — — Commercial real estate loans 2 ( 53 ) — — Commercial real estate loans - owner occupied 1 ( 105 ) — — Commercial loans 6 ( 170 ) — — Paid-off loans: Residential mortgage loans 10 ( 1,216 ) 2 ( 330 ) Home equity loans 6 ( 147 ) 5 ( 44 ) Vehicle loans — — — — Commercial real estate loans 11 ( 3,064 ) 3 ( 321 ) Commercial real estate loans - owner occupied 3 ( 198 ) 2 ( 324 ) Commercial loans 5 ( 698 ) 7 ( 219 ) Ending TDR balance: 134 $ 30,288 170 $ 32,135 Accruing TDRs $ 13,072 $ 21,431 Nonaccrual TDRs 17,216 10,704 The following tables provide information related to TDRs (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (in thousands): For the year ended December 31, 2021 Number of contracts Recorded investment at the time of modification Current recorded investment Current allowance Personal Banking: Residential mortgage loans 1 $ 125 114 15 Home equity loans 3 155 34 34 Total Personal Banking 4 280 148 49 Commercial Banking: Commercial real estate loans 8 12,006 10,572 1,453 Commercial loans 6 4,147 3,903 451 Total Commercial Banking 14 16,153 14,475 1,904 Total 18 $ 16,433 14,623 1,953 88 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) For the year ended December 31, 2020 Number of contracts Recorded investment at the time of modification Current recorded investment Current allowance Personal Banking: Residential mortgage loans 1 $ 90 88 5 Home equity loans 2 86 79 9 Total Personal Banking 3 176 167 14 Commercial Banking: Commercial real estate loans 9 7,365 7,615 311 Commercial real estate loans - owner occupied 1 58 48 8 Commercial loans 5 2,944 408 40 Total Commercial Banking 15 10,367 8,071 359 Total 18 $ 10,543 8,238 373 For the year ended December 31, 2019 Number of contracts Recorded investment at the time of modification Current recorded investment Current allowance Personal Banking: Residential mortgage loans 3 $ 297 297 19 Home equity loans 5 171 165 12 Total Personal Banking 8 468 462 31 Commercial Banking: Commercial real estate loans 10 8,333 7,369 613 Commercial loans 4 221 192 21 Total Commercial Banking 14 8,554 7,561 634 Total 22 $ 9,022 8,023 665 89 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information as of December 31, 2021 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2021 (in thousands): Type of modification Number of contracts Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans 1 $ 114 — — — 114 Home equity loans 3 — 30 4 — 34 Total Personal Banking 4 114 30 4 — 148 Commercial Banking: Commercial real estate loans 8 2,077 — 8,424 71 10,572 Commercial loans 6 171 — 3,732 — 3,903 Total Commercial Banking 14 2,248 — 12,156 71 14,475 Total 18 $ 2,362 30 12,160 71 14,623 The following table provides information as of December 31, 2020 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2020 (in thousands): Type of modification Number of contracts Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans 1 $ — — 88 — 88 Home equity loans 2 65 — 14 — 79 Total Personal Banking 3 65 — 102 — 167 Commercial Banking: Commercial real estate loans 9 — — 7,335 280 7,615 Commercial real estate loans - owner occupied 1 — — 48 — 48 Commercial loans 5 — 111 217 80 408 Total Commercial Banking 15 — 111 7,600 360 8,071 Total 18 $ 65 111 7,702 360 8,238 90 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information as of December 31, 2019 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2019 (in thousands): Type of modification Number of contracts Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans 3 $ — — 297 — 297 Home equity loans 5 109 — 56 — 165 Total Personal Banking 8 109 — 353 — 462 Commercial Banking: Commercial real estate loans 10 — 2,541 4,828 — 7,369 Commercial loans 4 37 — 155 — 192 Total Commercial Banking 14 37 2,541 4,983 — 7,561 Total 22 $ 146 2,541 5,336 — 8,023 The following table provides information related to re-modified trouble debt restructurings by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2021 (in thousands): Type of re-modification Number of re-modified TDRs Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans 1 $ 114 — — — 114 Home equity loans 1 — — — — — Total Personal Banking 2 114 — — — 114 Commercial Banking: Commercial real estate loans 7 2,077 — 5,108 71 7,256 Total Commercial Banking 7 2,077 — 5,108 71 7,256 Total 9 $ 2,191 — 5,108 71 7,370 91 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to re-modified trouble debt restructurings by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2020 (in thousands): Type of re-modification Number of re-modified TDRs Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans — $ — — — — — Home equity loans — — — — — — Total Personal Banking — — — — — — Commercial Banking: Commercial real estate loans 3 — — 6,652 — 6,652 Commercial real estate loans - owner occupied 1 48 48 Commercial loans 1 — — — 80 80 Total Commercial Banking 5 — — 6,700 80 6,780 Total 5 $ — — 6,700 80 6,780 The following table provides information related to re-modified trouble debt restructurings by portfolio segment and class of financing receivable for modifications during the year ended December 31, 2019 (in thousands): Type of re-modification Number of re-modified TDRs Rate Payment Maturity date Other Total Personal Banking: Residential mortgage loans — $ — — — — — Home equity loans — — — — — — Total Personal Banking — — — — — — Commercial Banking: Commercial real estate loans 7 — 219 4,448 — 4,667 Commercial loans 1 — — 38 — 38 Total Commercial Banking 8 — 219 4,486 — 4,705 Total 8 $ — 219 4,486 — 4,705 92 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to troubled debt restructurings modified within the previous twelve months of December 31, 2021 that subsequently defaulted: Number of contracts Recorded investment at the time of modification Current recorded investment Current allowance Commercial Banking: Commercial real estate loans 1 $ 4,167 3,823 — Total Commercial Banking 1 4,167 3,823 — Total 1 $ 4,167 3,823 — No TDRs modified within the previous twelve months of December 31, 2020 or December 31, 2019 subsequently defaulted. The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2021 (in thousands): 30-59 days delinquent 60-89 days delinquent 90 days or greater delinquent Total delinquency Current Total loans receivable 90 days or greater delinquent and accruing Personal Banking: Residential mortgage loans $ 20,567 5,433 7,641 33,641 2,960,979 2,994,620 — Home equity loans 3,153 949 4,262 8,364 1,311,567 1,319,931 — Vehicle loans 5,331 1,487 1,635 8,453 1,475,778 1,484,231 — Consumer loans 1,205 519 765 2,489 352,028 354,517 331 Total Personal Banking 30,256 8,388 14,303 52,947 6,100,352 6,153,299 331 Commercial Banking: Commercial real estate loans 16,938 699 23,489 41,126 2,584,355 2,625,481 — Commercial real estate loans - owner occupied 127 70 574 771 389,232 390,003 — Commercial loans 193 727 1,105 2,025 845,584 847,609 — Total Commercial Banking 17,258 1,496 25,168 43,922 3,819,171 3,863,093 — Total loans $ 47,514 9,884 39,471 96,869 9,919,523 10,016,392 331 93 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information related to the amortized cost basis loan payment delinquencies at December 31, 2020 (in thousands): 30-59 days delinquent 60-89 days delinquent 90 days or greater delinquent Total delinquency Current Total loans receivable 90 days or greater delinquent and accruing Personal Banking: Residential mortgage loans $ 28,797 5,083 14,489 48,369 3,019,752 3,068,121 — Home equity loans 4,763 1,656 8,441 14,860 1,452,876 1,467,736 — Vehicle loans 7,707 1,776 4,599 14,082 1,138,592 1,152,674 1 Consumer loans 2,867 966 1,459 5,292 350,027 355,319 584 Total Personal Banking 44,134 9,481 28,988 82,603 5,961,247 6,043,850 585 Commercial Banking: Commercial real estate loans 6,692 1,615 23,307 31,614 2,816,366 2,847,980 — Commercial real estate loans - owner occupied 4,231 — 1,980 6,211 491,698 497,909 — Commercial loans 6,405 864 7,325 14,594 1,176,516 1,191,110 — Total Commercial Banking 17,328 2,479 32,612 52,419 4,484,580 4,536,999 — Total loans $ 61,462 11,960 61,600 135,022 10,445,827 10,580,849 585 Credit Quality Indicators: For Commercial Banking loans we categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $ 1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass: Special Mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics. A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations. Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring. Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, those weaknesses make collection or liquidation in full highly questionable and improbable. A loan classified as doubtful exhibits discernible loss potential, but a complete loss seems very unlikely. The possibility of a loss on a doubtful loan is high, but because of certain important and reasonably specific pending factors that may strengthen the loan, its classification as an estimated loss is deferred until a more exact status can be determined. Loss — Loans classified as loss are considered uncollectible and of such value that the continuance as a loan is not warranted. A loss classification does not mean that the loan has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off all or a portion of a basically worthless loan even though partial recovery may be possible in the future. 94 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) For Personal Banking loans a pass risk rating is maintained until they are greater than 90 days past due, and risk rating reclassification is based primarily on past due status of the loan. The risk rating categories can generally be described by the following groupings: Pass — Loans classified as pass are homogeneous loans that are less than 90 days past due from the required payment date at month-end. Substandard — Loans classified as substandard are homogeneous loans that are greater than 90 days past due from the required payment date at month-end, loans classified as TDRs, or homogenous retail loans that are greater than 180 days past due from the requirement payment date at month-end that has been written down to the value of underlying collateral, less costs to sell. Doubtful — Loans classified as doubtful are homogeneous loans that are greater than 180 days past due from the required payment date at month-end and not written down to the value of underlying collateral. These loans are generally charged-off in the month in which the 180 day period elapses. 95 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Based on the most recent analysis performed, the amortized cost basis by risk category of loans by class of loans by origination year is as follows as of December 31, 2021 (in thousands): 2021 2020 2019 2018 2017 Prior Revolving loans Revolving loans converted to term loans Total loans receivable Personal Banking: Residential mortgage loans Pass $ 644,862 602,429 304,275 156,639 171,240 1,098,635 — — 2,978,080 Substandard 138 489 377 538 882 14,116 — — 16,540 Total residential mortgage loans 645,000 602,918 304,652 157,177 172,122 1,112,751 — — 2,994,620 Home equity loans Pass 150,847 210,224 138,661 65,011 61,692 209,959 435,660 40,766 1,312,820 Substandard — — 441 60 455 3,820 1,275 1,060 7,111 Total home equity loans 150,847 210,224 139,102 65,071 62,147 213,779 436,935 41,826 1,319,931 Vehicle loans Pass 801,084 292,804 205,653 119,304 34,546 27,576 — — 1,480,967 Substandard 387 365 1,141 745 379 247 — — 3,264 Total vehicle loans 801,471 293,169 206,794 120,049 34,925 27,823 — — 1,484,231 Consumer loans Pass 117,856 81,266 47,195 20,595 9,794 12,202 63,025 1,578 353,511 Substandard 213 161 105 64 26 50 357 30 1,006 Total consumer loans 118,069 81,427 47,300 20,659 9,820 12,252 63,382 1,608 354,517 Total Personal Banking 1,715,387 1,187,738 697,848 362,956 279,014 1,366,605 500,317 43,434 6,153,299 Business Banking: Commercial real estate loans Pass 306,689 433,219 335,541 263,524 221,450 683,537 26,288 10,179 2,280,427 Special Mention 803 1,808 52,513 3,296 1,394 8,529 729 23 69,095 Substandard — 34,153 44,712 46,045 56,077 89,311 492 5,169 275,959 Total commercial real estate loans 307,492 469,180 432,766 312,865 278,921 781,377 27,509 15,371 2,625,481 Commercial real estate loans - owner occupied Pass 69,084 19,452 51,997 60,824 57,676 94,687 2,822 2,707 359,249 Special Mention — — — 769 1,959 1,444 856 — 5,028 Substandard — — 3,575 2,887 7,840 10,602 — 822 25,726 Total commercial real estate loans - owner occupied 69,084 19,452 55,572 64,480 67,475 106,733 3,678 3,529 390,003 Commercial loans Pass 224,367 110,171 73,276 27,668 20,748 76,987 262,805 12,301 808,323 Special Mention 197 661 812 1,195 50 581 2,234 — 5,730 Substandard 329 4,767 5,102 4,437 1,529 2,116 6,667 8,609 33,556 Total commercial loans 224,893 115,599 79,190 33,300 22,327 79,684 271,706 20,910 847,609 Total Business Banking 601,469 604,231 567,528 410,645 368,723 967,794 302,893 39,810 3,863,093 Total loans $ 2,316,856 1,791,969 1,265,376 773,601 647,737 2,334,399 803,210 83,244 10,016,392 For the year ended December 31, 2021, $ 27.3 million of revolving loans were converted to term loans. 96 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Based on the most recent analysis performed, the amortized cost basis by risk category of loans by class of loans by origination year is as follows as of December 31, 2020 (in thousands): 2020 2019 2018 2017 2016 Prior Revolving loans Revolving loans converted to term loans Total loans receivable Personal Banking: Residential mortgage loans Pass $ 641,963 418,057 229,477 247,426 215,893 1,289,728 — — 3,042,544 Substandard — 68 1,293 1,674 1,091 21,451 — — 25,577 Total residential mortgage loans 641,963 418,125 230,770 249,100 216,984 1,311,179 — — 3,068,121 Home equity loans Pass 273,076 193,439 94,757 87,717 81,212 219,061 465,453 40,759 1,455,474 Substandard — 210 318 281 876 5,158 3,509 1,910 12,262 Total home equity loans 273,076 193,649 95,075 87,998 82,088 224,219 468,962 42,669 1,467,736 Vehicle loans Pass 448,746 352,661 218,372 70,122 31,197 24,791 — — 1,145,889 Substandard 343 1,958 2,087 1,210 667 519 — — 6,784 Total vehicle loans 449,089 354,619 220,459 71,332 31,864 25,310 — — 1,152,673 Consumer loans Pass 128,809 83,419 35,183 17,439 7,848 11,757 66,965 1,695 353,115 Substandard 133 399 139 192 36 619 686 1 2,205 Total consumer loans 128,942 83,818 35,322 17,631 7,884 12,376 67,651 1,696 355,320 Total Personal Banking 1,493,070 1,050,211 581,626 426,061 338,820 1,573,084 536,613 44,365 6,043,850 Business Banking: Commercial real estate loans Pass 417,390 473,115 316,045 264,702 195,168 709,459 36,980 29,755 2,442,614 Special Mention 584 3,381 20,180 24,675 15,424 15,817 597 3,048 83,706 Substandard 7,426 4,007 57,694 56,991 24,056 140,147 2,240 29,100 321,661 Total commercial real estate loans 425,400 480,503 393,919 346,368 234,648 865,423 39,817 61,903 2,847,981 Commercial real estate loans - owner occupied Pass 24,895 67,162 87,497 71,626 46,760 100,081 4,422 7,648 410,091 Special Mention — 4,371 4,514 3,643 4,276 3,689 3,822 — 24,315 Substandard — 21,627 1,903 12,898 4,013 21,777 874 410 63,502 Total commercial real estate loans - owner occupied 24,895 93,160 93,914 88,167 55,049 125,547 9,118 8,058 497,908 Commercial loans Pass 479,436 99,877 50,915 51,858 58,597 49,178 286,467 16,170 1,092,498 Special Mention 5,828 2,751 5,579 4,588 162 190 16,512 5,668 41,278 Substandard 1,660 3,343 2,932 2,016 2,266 3,003 27,988 14,126 57,334 Total commercial loans 486,924 105,971 59,426 58,462 61,025 52,371 330,967 35,964 1,191,110 Total Business Banking 937,219 679,634 547,259 492,997 350,722 1,043,341 379,902 105,925 4,536,999 Total loans $ 2,430,289 1,729,845 1,128,885 919,058 689,542 2,616,425 916,515 150,290 10,580,849 For the year ended December 31, 2020, $ 23.1 million of revolving loans were converted to term loans. 97 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Our exposure to credit loss in the event of nonperformance by the other party to off-balance-sheet financial instruments is represented by the contract amount of the financial instrument. We use the same credit policies in making commitments for off- balance-sheet financial instruments as we do for on-balance-sheet instruments. Financial instruments with off-balance-sheet risk as of December 31, 2021 and 2020 are presented in the following table: Years ended December 31, 2021 2020 Loans commitments $ 355,682 251,145 Undisbursed lines of credit 1,054,184 1,044,824 Standby letters of credit 45,521 45,137 Total $ 1,455,387 1,341,106 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral we obtain upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies but generally may include cash, marketable securities, real estate and other property. Outstanding loan commitments at December 31, 2021 for fixed rate loans were $ 185.3 million. The interest rates on these commitments approximate market rates at December 31, 2021. Outstanding loan commitments at December 31, 2021 for adjustable rate loans were $ 150.3 million. The fair values of these commitments are affected by fluctuations in market rates of interest. We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s credit assessment of the customer. As of December 31, 2021, the maximum potential amount of future payments we could be required to make under these standby letters of credit is $ 45.5 million, of which $ 35.8 million is fully collateralized. A liability (which represents deferred income) of $ 500,000 and $ 493,000 has been recognized for the obligations as of December 31, 2021 and 2020, respectively, and there are no recourse provisions that would enable us to recover any amounts from third parties. Mortgage servicing assets are recognized as separate assets when servicing rights are created through loan originations and the underlying loan is sold. Upon sale, the mortgage servicing right (“MSR”) is established, which represents the then-fair value of future net cash flows expected to be realized for performing the servicing activities. The fair value of the MSRs are estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. In determining the fair value of the MSRs, stochastic modeling is performed using variables such as the forward yield curve, prepayment rates, annual service cost, average life expectancy and option adjusted spreads. MSRs are amortized against mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. MSRs are recorded in other assets on the Consolidated Statement of Financial Condition. Capitalized MSRs are evaluated quarterly for impairment based on the estimated fair value of those rights. The MSRs are stratified by certain risk characteristics, primarily loan term and note rate. If impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced or eliminated. We do not directly hedge against realized or potential future impairment losses on our MSRs. 98 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table shows changes in MSRs as of and for the years ended December 31, 2021 and 2020: Servicing rights Valuation allowance Net carrying value and fair value Balance at December 31, 2019 $ 1,848 ( 1 ) 1,847 Additions 9,549 ( 491 ) 9,058 Amortization ( 2,740 ) — ( 2,740 ) Balance at December 31, 2020 8,657 ( 492 ) 8,165 Additions 4,604 481 5,085 Amortization ( 3,095 ) — ( 3,095 ) Balance at December 31, 2021 $ 10,166 ( 11 ) 10,155 (6) Accrued Interest Receivable Accrued interest receivable as of December 31, 2021 and 2020 is presented in the following table: December 31, 2021 2020 Investment securities $ 1,591 1,660 FHLB dividends 89 197 Mortgage-backed securities 2,589 2,031 Loans receivable 21,330 31,666 $ 25,599 35,554 (7) FHLB Stock Northwest Bank is a member of the FHLB of Pittsburgh and FHLB of Indianapolis. As a member of the FHLB of Pittsburgh, we are required to maintain an investment in the capital stock of the FHLB of Pittsburgh in accordance with their 2015 Capital Plan, at cost, in two subclasses based on the following ranges: Membership stock purchase (Subclass B-1) ranging from 0.05 % to 1.0 % of the member asset value as defined by the FHLB, currently at 0.10 %; and Activity-based stock purchase (Subclass B-2) ranging from 2.0 % to 6.0 % of outstanding advances, currently at 4.0 %; 0.0 % to 6.0 % of acquired member assets, currently at 4.0 %; 0.0 % to 4.0 % of certain letters of credit, currently at 0.75 %; and 0.0 % to 6.0 % of outstanding advance commitments settling more than 30 days after trade, currently at 0.0 %. As a member of the FHLB of Indianapolis, we are required to maintain an investment in the capital stock of the FHLB of Indianapolis in accordance with their capital plan that became effective on September 26, 2020. This plan requires the Company to invest in two subclasses based on the following ranges: Membership stock requirements (B-1 stock) ranging from 0.01 % to 0.50 % of the member asset value as defined by the FHLB, currently at 0.10 %; and Activity-based stock requirements (B-2 stock) ranging from 1.0 % to 6.0 % of advances, currently at 4.5 %; 1.0 % to 6.0 % for lines of credit, currently at 4.5 %; 0.10 % to 6.0 % for letters of credit, currently at 0.10 %; 1.0 % to 6.0 % of derivative contracts, currently at 4.5 %; 0.0 % to 6.0 % for the mandatory Mortgage Purchase Program (“MPP”), currently at 0.0 %; 0.0 % to 6.0 % for the optional MPP, currently at 4.5 %; and 1.0 % to 6.0 % for Community Investment Program (“CIP”) advances, currently at 4.5 %. Our investment in the capital stock of the FHLB of Pittsburgh at December 31, 2021 and December 31, 2020 was $ 10.4 million and $ 8.6 million, respectively. In addition, our investment of capital stock of the FHLB of Indianapolis at December 31, 2021 was $ 3.8 million and $ 13.1 million at December 31, 2020. We received dividends on capital stock during the years ended December 31, 2021 and 2020 of $ 407,000 and $ 981,000 , respectively. Future dividends may be established at different rates for the two subclasses of capital stock. 99 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (8) Premises and Equipment Premises and equipment at December 31, 2021 and 2020 are summarized by major classification in the following table: December 31, 2021 2020 Land and land improvements $ 25,449 26,878 Office buildings and improvements 152,654 154,439 Furniture, fixtures and equipment 138,242 134,821 Leasehold improvements 20,288 18,845 Total, at cost 336,633 334,983 Less accumulated depreciation and amortization ( 180,109 ) ( 173,445 ) Premises and equipment, net $ 156,524 161,538 Depreciation and amortization expense for the years ended December 31, 2021, 2020 and 2019 was $ 12.1 million, $ 11.9 million and $ 11.7 million, respectively. (9) Goodwill and Other Intangible Assets The following table provides information for intangible assets subject to amortization for the years ended December 31, 2021 and 2020: December 31, 2021 2020 Amortizable intangible assets: Core deposit intangibles - gross $ 74,899 71,182 Acquisitions — 3,717 Less: accumulated amortization ( 62,158 ) ( 56,896 ) Core deposit intangibles - net $ 12,741 18,003 Customer and Contract intangible assets - gross $ 12,775 12,775 Customer list intangible assets disposed of due to sale of insurance business ( 1,547 ) — Less: accumulated amortization ( 11,133 ) ( 10,842 ) Customer and Contract intangible assets - net 95 1,933 Total intangible assets - net $ 12,836 19,936 The following information shows the actual aggregate amortization expense for the years ended December 31, 2021, 2020 and 2019 as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for each of the five succeeding fiscal years: For the year ended December 31, 2019 $ 6,543 For the year ended December 31, 2020 6,856 For the year ended December 31, 2021 5,553 For the year ending December 31, 2022 4,277 For the year ending December 31, 2023 3,270 For the year ending December 31, 2024 2,452 For the year ending December 31, 2025 1,662 For the year ending December 31, 2026 871 100 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table provides information for the changes in the carrying amount of goodwill: Total Balance at December 31, 2019 $ 346,103 Goodwill acquired 36,176 Balance at December 31, 2020 382,279 Purchase accounting adjustment 77 Goodwill disposed of due to sale of insurance business ( 1,359 ) Balance at December 31, 2021 $ 380,997 We have determined that goodwill is not impaired as of December 31, 2021 and 2020. There were no events or changes in circumstances that would cause us to update that goodwill impairment test as of June 30, 2021 and 2020. (10) Deposits Deposit balances at December 31, 2021 and 2020 are shown in the table below: December 31, 2021 2020 Noninterest-bearing demand deposits $ 3,099,526 2,716,224 Interest-bearing demand deposits 2,940,442 2,755,950 Money market deposit accounts 2,629,882 2,437,539 Savings deposits 2,303,760 2,047,424 Time deposits 1,327,555 1,642,096 Total deposits $ 12,301,165 11,599,233 The aggregate amount of time deposits with a minimum denomination of $100,000 at December 31, 2021 and 2020 was $ 439.5 million and $ 578.5 million, respectively. Generally, deposits in excess of $250,000 are not federally insured. At December 31, 2021 and 2020, we had $ 4.194 billion and $ 3.744 billion of deposits in accounts exceeding $250,000, respectively. The following table summarizes the contractual maturity of time deposits at December 31, 2021 and 2020: December 31, 2021 2020 Due within 12 months $ 890,101 990,769 Due between 12 and 24 months 288,284 380,466 Due between 24 and 36 months 80,251 164,583 Due between 36 and 48 months 33,843 64,700 Due between 48 and 60 months 29,692 36,098 After 60 months 5,384 5,480 Total time deposits $ 1,327,555 1,642,096 101 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table summarizes the interest expense incurred on the respective deposits for the years ended December 31, 2021, 2020 and 2019: Years ended December 31, 2021 2020 2019 Interest-bearing demand deposits $ 1,660 3,358 6,012 Money market deposit accounts 2,597 7,021 13,010 Savings deposits 2,413 2,614 3,115 Time deposits 12,452 22,903 27,079 Total interest expense on deposits $ 19,122 35,896 49,216 (11) Borrowed Funds (a) Borrowings Borrowed funds at December 31, 2021 and 2020 are presented in the following table: December 31, 2021 2020 Amount Average rate Amount Average rate Term notes payable to the FHLB: Payable to the FHLB of Indianapolis acquired from MutualBank $ — — % $ 22,054 1.92 % Total term notes payable to the FHLB — 22,054 Collateralized borrowings, due within one year 139,093 0.19 % 137,661 0.19 % Total borrowed funds $ 139,093 $ 159,715 Borrowings from the Federal Home Loan Banks (“FHLB”) of Pittsburgh and Indianapolis, if any, are secured by our residential first mortgage and other qualifying loans. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment. During the year ended December 31, 2021, $ 22.0 million of term notes payable to the FHLB of Indianapolis matured. The revolving line of credit with the FHLB of Pittsburgh carries a commitment of $ 250.0 million. The rate is adjusted daily by the FHLB of Pittsburgh, and any borrowings on this line may be repaid at any time without penalty. The revolving line of credit had no balance as of December 31, 2021 and December 31, 2020. At December 31, 2021 and December 31, 2020, collateralized borrowings due within one year were $ 139.1 million and $ 137.7 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB. The market value of these securities exceeds the value of the collateralized borrowings . The average amount of collateralized borrowings outstanding in the years ended December 31, 2021, 2020 and 2019 was $ 132.1 million, $ 122.8 million and $ 91.1 million, respectively. The maximum amount of collateralized borrowings outstanding during the years ended December 31, 2021, 2020 and 2019 was $ 139.6 million, $ 150.6 million and $ 101.1 million, respectively. On September 9, 2020, the Company issued $ 125.0 million of 4.00 % fixed-to-floating rate subordinated notes with a maturity date of September 15, 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 4.00 %, payable semi-annually in arrears commencing on March 15, 2021, and a floating rate of interest equivalent to the 3-month SOFR plus 3.89 % payable quarterly in arrears commencing on December 15, 2025. The subordinated debt issuance costs of approximately $ 1.8 million are being amortized over five years on a straight-line basis into interest expense. At December 31, 2021 and December 31, 2020, subordinated debentures, net of issuance costs, were $ 123.6 million and $ 123.3 million, respectively. (b) Trust Preferred Securities The Company has seven statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust, LNB Trust II, a Delaware statutory business trust, Union National Capital Trust I (“UNCT I”), a Delaware statutory business trust, Union National Capital Trust II (“UNCT II”), a Delaware statutory business trust, MFBC Statutory Trust I, a Delaware statutory trust, and Universal Preferred Trust, a Delaware statutory trust (the “Trusts”). The Trusts exist solely to issue preferred securities to third parties for cash, issue common securities to 102 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed. The Trusts have invested the proceeds of the offerings in junior subordinated deferrable interest debentures issued by the Company. The structure of these debentures mirrors the structure of the trust-preferred securities. These subordinated debentures are the sole assets of the Trusts. As the shareholders of the trust preferred securities are the primary beneficiaries of the Trusts, the Trusts are not consolidated in our financial statements. The following table sets forth a summary of the cumulative trust preferred securities and the junior subordinated debt held by the Trust as of December 31, 2021 and 2020. Maturity date Interest rate Capital debt securities December 31, 2021 2020 Northwest Bancorp Capital Trust III December 30, 2035 3-month LIBOR plus 1.38 % $ 50,000 51,547 51,547 Northwest Bancorp Statutory Trust IV December 15, 2035 3-month LIBOR plus 1.38 % 50,000 51,547 51,547 LNB Trust II June 15, 2037 3-month LIBOR plus 1.48 % 7,875 8,119 8,119 Union National Capital Trust I (1) January 23, 2034 3-month LIBOR plus 2.85 % 8,000 7,950 7,925 Union National Capital Trust II (1) November 23, 2034 3-month LIBOR plus 2.00 % 3,000 2,741 2,714 MFBC Statutory Trust I (1) September 15, 2035 3-month LIBOR plus 1.70 % 5,000 3,580 3,476 Universal Preferred Trust (1) October 7, 2035 3-month LIBOR plus 1.69 % 5,000 3,570 3,466 Total $ 128,875 129,054 128,794 (1) Net of discounts due to the fair value adjustment made at the time of acquisition . Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts. We have the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years . If interest payments on the subordinated debentures are deferred, the distributions on the trust securities also are deferred. To date there have been no interest deferrals. Interest on the subordinated debentures and distributions on the trust securities is cumulative. Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities. The Trusts must redeem the preferred securities when the debentures are paid at maturity or upon an earlier redemption of the debentures to the extent the debentures are redeemed. All or part of the debentures may be redeemed at any time. Also, the debentures may be redeemed at any time if existing laws or regulations, or the interpretation or application of these laws or regulations, change causing: • the interest on the debentures to no longer be deductible by the Company for federal income tax purposes; • the trust to become subject to federal income tax or to certain other taxes or governmental charges; • the trust to register as an investment company; or • the preferred securities do not qualify as Tier I capital. We may, at any time, dissolve any of the Trusts and distribute the debentures to the trust security holders, subject to receipt of any required regulatory approval(s). 103 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (12) Income Taxes Total income tax was allocated for the years ended December 31, 2021, 2020 and 2019 as follows: Years ended December 31, 2021 2020 2019 Income tax expense $ 46,801 17,672 30,679 Shareholders’ equity for unrealized gain/(loss) on securities available-for-sale ( 10,425 ) 5,061 3,992 Shareholders’ equity for pension adjustment 9,659 ( 3,774 ) ( 2,859 ) Unallocated income tax $ 46,035 18,959 31,812 Income tax expense applicable to income before taxes consists of: Years ended December 31, 2021 2020 2019 Current $ 34,487 25,756 27,903 Deferred 12,314 ( 8,084 ) 2,776 Total income tax expense $ 46,801 17,672 30,679 A reconciliation of the expected federal statutory income tax rate to the effective rate, expressed as a percentage of pretax income for the years ended December 31, 2021, 2020 and 2019, is as follows: Years ended December 31, 2021 2020 2019 Expected tax rate 21.0 % 21.0 % 21.0 % Tax-exempt interest income ( 0.9 ) % ( 1.7 ) % ( 0.8 ) % State income tax, net of federal benefit 4.5 % 2.2 % 3.7 % Bank-owned life insurance ( 0.6 ) % ( 1.1 ) % ( 0.6 ) % Stock-based compensation ( 0.1 ) % 0.2 % ( 0.6 ) % Dividends on stock plans ( 0.4 ) % ( 0.9 ) % ( 0.6 ) % Low income housing and historic tax credits ( 0.2 ) % ( 0.9 ) % ( 0.5 ) % Other — % 0.3 % 0.1 % Effective tax rate 23.3 % 19.1 % 21.7 % 104 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are presented below: December 31, 2021 2020 Deferred tax assets: Deferred compensation expense $ 4,230 4,272 Bad debts 23,273 30,418 Other reserves 1,333 2,358 Accrued post-retirement benefit cost 900 778 Stock benefit plans 623 820 Pension and post-retirement benefits 9,747 19,405 Unrealized loss on the fair value of securities available-for-sale 4,093 — Deferred income 341 540 Lease liability 12,958 11,713 Purchase accounting 432 412 Net operating loss 2,140 2,800 Other 922 1,338 Total deferred tax assets 60,992 74,854 Deferred tax liabilities: Pension expense 6,993 6,198 Intangible assets 16,543 15,419 Mortgage servicing rights 2,278 1,831 Fixed assets 5,287 4,740 Net deferred loan costs 2,338 1,548 Right of use asset 12,322 10,844 Unrealized gain on fair value of securities available-for-sale — 6,332 Interest rate derivatives 341 1,268 Other 2,503 2,670 Total deferred tax liabilities 48,605 50,850 Net deferred tax asset $ 12,387 24,004 We have $ 4.3 million of federal net operating loss carryovers subject to the annual limitation under Internal Revenue Code Section 382 at December 31, 2021. The carryovers begin to expire in 2029 and are expected to be fully realized. We have $ 38.1 million of Indiana net operating loss carryovers subject to annual limitation as Indiana conforms to the Internal Revenue Code Section 382 at December 31, 2021. The carryovers begin to expire in 2025. Due to limitation, we do not expect to realize $ 7.6 million of the Indiana net operating loss carryover. This is netted against the net operating loss deferred tax asset in the preceding table. We recorded a valuation allowance against state deferred tax assets of a Northwest subsidiary since the subsidiary is not expected to utilize its deferred tax assets in the foreseeable future. This valuation allowance is netted against other deferred tax assets in the preceding table. Other than stated above, we have determined that no valuation allowance is necessary for the deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. We will continue to review the criteria related to the recognition of deferred tax assets on a regular basis. We utilize a comprehensive approach to recognize, measure, present and disclose in our financial statements uncertain tax positions that the company has taken or expects to take on a tax return. We recognize interest accrued and penalties (if any) related to unrecognized tax benefits in income tax expense. The accrual for interest and penalties was not material for all years presented. 105 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table presents changes in unrecognized tax benefits at December 31, 2021, 2020 and 2019: Year ended December 31, 2021 2020 2019 Unrecognized tax benefits: Balance, beginning of year $ 331 — — Increases related to prior year tax positions 37 336 — Decreases related to prior year tax positions ( 173 ) ( 5 ) — Increases related to current year tax positions 46 — — Settlements — — — Lapse of statute — — — Balance, end of year $ 241 $ 331 — It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes. We do not expect any significant changes in unrecognized tax benefits during the next twelve months. We are subject to routine audits of our tax returns by the Internal Revenue Service as well as all states in which we conduct business. We are subject to audit by the Internal Revenue Service for the tax periods ended after December 31, 2017 and generally subject to audit by any state in which we conduct business for the tax periods ended after December 31, 2017. We are under audit by the state of New York for tax years 2016 through 2018. We do not expect any material adjustments from this audit. No findings have been issued at this time. (13) Shareholders’ Equity Retained earnings are partially restricted in connection with regulations related to the insurance of deposit accounts, which requires Northwest to maintain certain statutory reserves. Northwest may not pay dividends on or repurchase any of its common stock if the effect thereof would reduce retained earnings below the level of adequate capitalization as defined by federal and state regulators. In tax years prior to fiscal 1997, Northwest was permitted, under the Internal Revenue Code (“IRC”), to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. Bad debt deductions for income tax purposes are included in taxable income of later years only if the bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. Because Northwest does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided prior to fiscal 1987. Retained earnings at December 31, 2021 and 2020 include approximately $ 39.1 million representing such bad debt deductions for which no deferred income taxes have been provided. (14) Earnings Per Share Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. During the year ended December 31, 2021, 2,146,897 stock options were not included in the computation of diluted earnings per share because the stock options’ exercise price was more than the average market price of the common shares of $ 13.80 . During the year ended December 31, 2020, 4,677,841 stock options were not included in the computation of diluted earnings per share because the stock options’ exercise price was more than the average market price of the common shares of $ 11.54 . During the year ended December 31, 2019, all stock options outstanding were included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $ 17.07 . 106 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2021, 2020 and 2019. Years ended December 31, 2021 2020 2019 Net income $ 154,323 74,854 110,432 Less: Dividends and undistributed earnings allocated to participating securities 1,010 — — Net income available to common shareholders $ 153,313 74,854 110,432 Weighted average common shares outstanding (1) 126,181,586 120,244,474 104,878,774 Add: Participating shares outstanding 828,251 — 960,375 Total weighted average common shares and dilutive potential shares (1) 127,009,837 120,244,474 105,839,149 Basic earnings per share (1) $ 1.22 0.62 1.05 Diluted earnings per share (1) $ 1.21 0.62 1.04 (1) Not in thousands. (15) Employee Benefit Plans (a) Pension Plans We maintain noncontributory defined benefit pension plans covering substantially all employees and members of our board of directors. Retirement benefits are based on certain compensation levels, age, and length of service. Contributions are based on an actuarially determined amount to fund not only benefits attributed to service to date but also for those expected to be earned in the future. In addition, we have an unfunded Supplemental Executive Retirement Plan (“SERP”) to compensate those executive participants eligible for the defined benefit pension plan whose benefits are limited by Section 415 of the IRC. We also sponsor a retirement savings plan in which substantially all employees participate. We provide a matching contribution of 100 % of each employee’s contribution to a maximum of 4 % of the employee’s compensation. Effective August 1, 2020, the Pension Plan was amended to include a soft freeze. The soft freeze will allow those employees in an eligible position that were hired, rehired, or acquired on or before July 31, 2020, to continue to vest and accrue additional benefits for each year they are credited with 1,000 hours or more. Employees that are hired, rehired, acquired, or transfer to an eligible job classification on or after August 1, 2020 are not eligible to participate in the Pension Plan. Total expense for all retirement plans, including defined benefit pension plans, was approximately $ 10.1 million, $ 8.2 million and $ 6.7 million, for the years ended December 31, 2021, 2020 and 2019, respectively. 107 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Components of net periodic pension cost and other amounts recognized in other comprehensive income: The following table sets forth components of net periodic pension cost and other amounts recognized in other comprehensive income for the years ended December 31, 2021, 2020 and 2019. Years ended December 31, 2021 2020 2019 Defined benefit pension plan: Service cost $ 11,440 8,391 5,949 Interest cost 6,070 6,855 7,353 Expected return on plan assets ( 13,859 ) ( 12,362 ) ( 11,037 ) Amortization of prior service cost ( 2,322 ) ( 2,322 ) ( 2,322 ) Amortization of the net loss 4,156 3,695 3,423 Net periodic pension cost, defined benefit pension plans 5,485 4,257 3,366 Other changes in defined benefit pension plan recognized in other comprehensive income: Net (gain)/loss ( 36,552 ) 11,521 8,235 Amortization of prior service cost 2,322 2,323 2,323 Total recognized in other comprehensive income ( 34,230 ) 13,844 10,558 Total recognized in net periodic pension cost and other comprehensive income $ ( 28,745 ) 18,101 13,924 The estimated net loss and prior service credit for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic cost ending December 31, 2022 is $ 1.5 million and $ 4.0 million, respectively. The following table sets forth information for the defined benefit pension plans’ funded status at December 31, 2021 and 2020: December 31, 2021 2020 Change in benefit obligation: Benefit obligation at beginning of year $ 258,589 222,497 Service cost 11,440 8,391 Interest cost 6,070 6,855 Actuarial (gain)/loss ( 19,834 ) 29,084 Benefits paid ( 9,331 ) ( 8,238 ) Benefit obligation at end of year 246,934 258,589 Change in plan assets: Fair value of plan assets at beginning of year $ 216,872 193,541 Actual return on plan assets 26,421 26,228 Employer contributions 5,476 5,341 Benefits paid ( 9,331 ) ( 8,238 ) Fair value of plan assets at end of period 239,438 216,872 Funded status at end of year $ ( 7,496 ) ( 41,717 ) 108 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table sets forth the assumptions used to develop the net periodic pension cost: Years ended December 31, 2021 2020 2019 Discount rate 2.39 % 3.14 % 4.15 % Expected long-term rate of return on assets 6.50 % 6.50 % 7.00 % Rate of increase in compensation levels 3.00 % 3.00 % 3.00 % The following table sets forth the assumptions used to determine benefit obligations at the end of each period: Years ended December 31, 2021 2020 2019 Discount rate 2.75 % 2.39 % 3.14 % Expected long-term rate of return on assets 6.50 % 6.50 % 6.50 % Rate of increase in compensation levels 3.00 % 3.00 % 3.00 % The expected long-term rate of return on assets is based on the expected return of each of the asset categories, weighted based on the median of the target allocation for each category. We use the FTSE (previously Citigroup) Pension Liability Index rates matching the duration of our benefit payments as of the measurement date to determine the discount rate. The accumulated benefit obligation for the funded defined benefit pension plan was $ 243.6 million, $ 254.2 million, and $ 217.3 million at December 31, 2021, 2020 and 2019, respectively. The accumulated benefit obligation for all unfunded defined benefit plans was $ 3.3 million, $ 4.4 million, and $ 5.2 million at December 31, 2021, 2020 and 2019, respectively. The following table sets forth certain information related to our pension plans: December 31, 2021 2020 Projected benefit obligation $ 246,934 258,589 Accumulated benefit obligation 246,934 258,589 Fair value of plan assets 239,438 216,872 We anticipate making a contribution to our defined benefit pension plan of $ 2.0 million to $ 4.0 million during the year ending December 31, 2022. The investment policy as established by the Plan Administrative Committee, to be followed by the Trustee, is to invest assets based on the target allocations shown in the table below. To meet target allocation ranges set forth by the Plan Administrative Committee, periodically, the assets are reallocated by the Trustee. The investment policy is reviewed periodically to determine if the policy should be changed. Pension assets are conservatively invested with the goal of providing market or better returns with below market risks. Assets are invested in a balanced portfolio composed primarily of equities, fixed income, and cash or cash equivalent investments. The Trustee tries to maintain an approximate asset mix position of 20 % to 50 % bonds and 30 % to 60 % equities. A maximum of 10 % may be invested in any one stock, including the stock of Northwest Bancshares, Inc. The objective of holding equity securities is to provide capital appreciation consistent with the ownership of the common stocks of medium to large companies. Acceptable bond investments are direct or agency obligations of the U.S. Government or investment grade corporate bonds. The average maturity of the bond portfolio shall not exceed ten years . 109 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table sets forth the weighted average asset allocation of defined benefit plans: Target December 31, allocation 2021 2020 Debt securities 20 – 50 % 25 % 22 % Equity securities 30 – 60 % 66 % 67 % Other 5 – 50 % 9 % 11 % Total 100 % 100 % All of the assets held by the defined benefit pension plan are measured and recorded at estimated fair value on our balance sheet on a recurring basis as Level 1 assets, as defined by the fair value hierarchy defined in Note 16. The following tables sets forth the pension plan assets as of December 31, 2021 and 2020. December 31, 2021 2020 Defined benefit pension assets: Common stock $ 61,968 52,019 Mutual funds 154,676 140,746 Money market funds 11,946 15,068 Other 10,672 8,879 Total defined benefit pension plan assets (1) $ 239,262 216,712 (1) The defined benefit pension plan statement of net assets also includes accrued interest and dividends resulting in net assets available for benefits of $ 239.4 million and $ 216.9 million, respectfully. The benefits expected to be paid in each year from 2022 to 2026 are $ 8.0 million, $ 8.8 million, $ 8.9 million, $ 9.4 million and $ 9.8 million, respectively. The aggregate benefits expected to be paid in the five years from 2027 to 2031 are $ 56.7 million. The expected benefits to be paid are based on the same assumptions used to measure our benefit obligations at December 31, 2021 and include estimated future employee service. (b) Post-retirement Healthcare Plan In addition to pension benefits, we provide post-retirement healthcare benefits for certain employees who were employed as of October 1, 1993 and were at least 55 years of age on that date. We use the accrual method of accounting for post-retirement benefits other than pensions. Components of net periodic benefit cost and other amounts recognized in other comprehensive income: The following table sets forth the net periodic benefit cost for the post-retirement healthcare benefits plan for the years ended December 31, 2021, 2020 and 2019: Years ended December 31, 2021 2020 2019 Interest cost $ 42 26 52 Amortization of net loss 14 18 68 Net period benefit cost $ 56 44 120 The following table sets forth other changes in the post-retirement healthcare plan’s plan assets and benefit obligations recognized in other comprehensive income: Years ended December 31, 2021 2020 2019 Net gain $ ( 66 ) ( 51 ) ( 475 ) Total recognized in other comprehensive income $ ( 66 ) ( 51 ) ( 475 ) Total recognized in net periodic benefit cost and other comprehensive loss $ ( 10 ) ( 7 ) ( 355 ) 110 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The estimated net loss for the post-retirement healthcare benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ending December 31, 2022 is $ 6,000 . The following table sets forth the funded status of the post-retirement healthcare benefit plan at December 31, 2021 and 2020: December 31, 2021 2020 Change in benefit obligation: Benefit obligation at beginning of year $ 1,807 889 Interest cost 42 26 Actuarial gain ( 53 ) ( 34 ) Benefits paid ( 236 ) ( 111 ) Defined benefit plan acquired from MutualBank — 1,037 Benefit obligation at end of year $ 1,560 1,807 Change in plan assets: Employer contributions $ 236 111 Benefits paid ( 236 ) ( 111 ) Funded status at year end $ ( 1,560 ) ( 1,807 ) The assumptions used to develop the preceding information for post-retirement healthcare benefits are as follows: Years ended December 31, 2021 2020 2019 Discount rate 2.39 % 3.14 % 4.15 % Monthly cost of healthcare insurance per beneficiary (1) $ 343 370 391 Annual rate of increase in healthcare costs 5.00 % 4.00 % 4.00 % (1) Not in thousands. If the assumed rate of increase in healthcare costs was increased by one percentage point to 6 % from the level presented above, the interest cost component of net periodic post-retirement healthcare benefit cost would increase by $ 2,000 and the accumulated post-retirement benefit obligation for healthcare benefits would increase by $ 85,000 . The following table sets forth information for plans with an accumulated benefit obligation in excess of plan assets: December 31, 2021 2020 Projected benefit obligation $ 1,560 1,807 Accumulated benefit obligation 1,560 1,807 (c) Common Stock Awards On April 18, 2018, we established the Northwest Bancshares, Inc. 2018 Equity Incentive Plan with 1,500,000 common shares authorized for award. From this plan, we awarded employees 256,800 common shares and outside directors 24,300 common shares with a grant date fair value of $ 17.27 per share (total market value of $ 4.9 million at issuance) on May 22, 2019. We also awarded employees 261,091 common shares and outside directors 21,600 common shares with a grant date fair value of $ 9.71 per share (total market value of $ 2.7 million at issuance) on May 20, 2020. In addition, on May 25, 2021, we awarded employees 293,755 restricted common shares and directors 27,000 restricted common shares with a grant date fair value of $ 13.68 . These common shares vest over a five-year period with the first vesting occurring on the grant date. Also during 2021, we awarded discretionary grants of 13,452 common shares with a weighted average grant date fair value of $ 13.76 . Total common shares forfeited from the 2018 plan were 163,267 , of which 46,650 shares were forfeited during the year ended December 31, 2021. Forfeited shares may be awarded to other eligible recipients in future grants until the plan termination date in 2028. 111 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (d) Stock Option Plans The Northwest Bancshares, Inc. 2018 Equity Incentive Plan also authorized the granting of 3,500,000 stock options authorized for award. On May 22, 2019, we granted employees 547,410 stock options and outside directors 64,800 stock options with an exercise price of $ 17.27 per share. On May 20, 2020, we granted employees 556,476 stock options and outside directors 57,600 stock options with an exercise price of $ 9.71 per share. On May 25, 2021, we granted employees 621,972 stock options and directors 72,000 stock options with an exercise price of $ 13.68 per share. These awarded stock options vest over a five-year period with the first vesting occurring on the grant date with a ten-year exercise period from the grant date. The following table summarizes the activity in our option plans during the years ended December 31, 2021, 2020 and 2019 (amounts in this table are not in thousands): Years ended December 31, 2021 2020 2019 Number Weighted average exercise price Number Weighted average exercise price Number Weighted average exercise price Balance at beginning of year 5,243,172 $ 13.72 5,101,351 $ 14.28 5,612,812 $ 13.49 Granted (1) 693,972 13.68 614,076 9.71 612,210 17.27 Exercised (2) ( 1,219,581 ) 12.28 ( 131,309 ) 11.81 ( 917,845 ) 11.77 Forfeited/expired ( 337,253 ) 14.59 ( 340,946 ) 14.39 ( 205,826 ) 14.28 Balance at end of year 4,380,310 14.05 5,243,172 13.72 5,101,351 14.28 Exercisable at end of year 2,618,733 14.15 3,350,356 13.53 2,803,918 13.36 (1) Weighted average fair value of options at grant date: $ 0.64 , $ 0.13 and $ 1.14 , respectively. (2) The total intrinsic value of options exercised was $ 2.3 million, $ 444,000 and $ 5.2 million, respectively. The aggregate intrinsic value of all options expected to vest and fully vested options at December 31, 2021 is $ 448,066 and $ 26,973 , respectively. The following table summarizes the number of options outstanding, number of options exercisable, and weighted average remaining life of all option grants as of December 31, 2021 (amounts in this table are not in thousands): Exercise price $ 9.71 Exercise price $ 11.70 Exercise price $ 12.37 Exercise price $ 12.44 Exercise price $ 13.15 Options outstanding: Number of options 515,674 189,338 332,520 252,951 278,012 Weighted average remaining contract life (years) 8.50 0.50 3.50 1.50 2.50 Options exercisable: Number of options 175,719 189,338 258,792 234,308 236,034 Weighted average remaining term - vested (years) 8.50 0.50 3.50 1.50 2.50 Exercise price $ 13.68 Exercise price $ 14.15 Exercise price $ 15.57 Exercise price $ 16.59 Exercise price $ 17.27 Total Average $ 14.05 Options outstanding: Number of options 664,918 441,989 540,305 681,771 482,832 4,380,310 Weighted average remaining contract life (years) 9.50 4.50 5.50 6.50 7.50 5.83 Options exercisable: Number of options 150,032 313,173 344,900 461,605 254,832 2,618,733 Weighted average remaining term - vested (years) 9.50 4.50 5.50 6.50 7.50 4.34 (16) Disclosures About Fair Value of Financial Instruments We are required to disclose fair value information about financial instruments whether or not recognized in the Consolidated Statement of Financial Condition. Fair value information of certain financial instruments and all nonfinancial instruments is not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 112 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for using a three-level hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. This hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used. Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques: • Level 1 - Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities. • Level 2 - Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing. • Level 3 - Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following: • Quotes from brokers or other external sources that are not considered binding; • Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price; and • Quotes and other information from brokers or other external sources where the inputs are not deemed observable. We are responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. We perform due diligence to understand the inputs used or how the data was calculated or derived. We also corroborate the reasonableness of external inputs in the valuation process. The carrying amounts reported in the Consolidated Statement of Financial Condition approximate fair value for the following financial instruments: cash and cash equivalents, marketable securities available-for-sale, accrued interest receivable, interest rate lock commitments, forward commitments, interest rate swaps, savings and checking deposits and accrued interest payable. Marketable Securities Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services. Debt securities — available-for-sale - Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and U.S. government obligations. Certain debt securities which were AAA rated at purchase do not have an active market and as such we have used an alternative method to determine the fair value of these securities. The fair value has been determined using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. As such, securities which otherwise would have been classified as Level 2 securities if an active market for those assets or similar assets existed are included herein as Level 3 assets. Debt securities — held-to-maturity - The fair value of debt securities held-to-maturity is determined in the same manner as debt securities available-for-sale. 113 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Loans Receivable Loans with comparable characteristics including collateral and re-pricing structures are segregated for valuation purposes. Each loan pool is separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows are discounted to present value using a market rate for comparable loans, which is not considered an exit price. Characteristics of comparable loans include remaining term, coupon interest, and estimated prepayment speeds. Delinquent loans are separately evaluated given the impact delinquency has on the projected future cash flow of the loan including the approximate discount or market rate, which is not considered an exit price. Loans Held-for-Sale The estimated fair value of loans held-for-sale is based on market bids obtained from potential buyers. FHLB Stock Due to the restrictions placed on the transferability of FHLB stock, it is not practical to determine the fair value. Deposit Liabilities The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity. Borrowed Funds Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost. The carrying amount of repurchase agreements approximates their fair value. Subordinated Debentures The fair value of our subordinated debentures is calculated using the discounted cash flows at rates observable for other similarly traded liabilities. Junior Subordinated Debentures The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest. Interest Rate Lock Commitments and Forward Commitments The fair value of interest rate lock commitments is based on the value of underlying loans held-for-sale which is based on quoted prices for similar loans in the secondary market. This value is then adjusted based on the probability of the loan closing (i.e., the “pull-through” amount, a significant unobservable input). The fair value of forward sale commitments is based on quoted prices from the secondary market based on the settlement date of the contracts. 114 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using LIBOR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable. The fair value of the foreign exchange swap is derived from proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions we believe to be reasonable. Off-Balance-Sheet Financial Instruments These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At December 31, 2021 and 2020, there was no significant unrealized appreciation or depreciation on these financial instruments. 115 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2021 and 2020: December 31, 2021 Carrying amount Estimated fair value Level 1 Level 2 Level 3 Financial assets: Cash and cash equivalents $ 1,279,259 1,279,259 1,279,259 — — Securities available-for-sale 1,548,592 1,548,592 — 1,548,592 — Securities held-to-maturity 768,154 751,513 — 751,513 — Loans receivable, net 9,889,095 9,648,825 — — 9,648,825 Residential mortgage loans held-for-sale 25,056 25,056 — — 25,056 Accrued interest receivable 25,599 25,599 25,599 — — Interest rate lock commitments 1,684 1,684 — — 1,684 Forward commitments 371 371 — 371 — Interest rate swaps not designated as hedging instruments 31,254 31,254 — 31,254 — FHLB stock 14,184 14,184 — — — Total financial assets $ 13,583,248 13,326,337 1,304,858 2,331,730 9,675,565 Financial liabilities: Savings and checking accounts $ 10,973,610 10,973,610 10,973,610 — — Time deposits 1,327,555 1,339,308 — — 1,339,308 Borrowed funds 139,093 139,093 139,093 — — Subordinated debt 123,575 129,138 — 129,138 — Junior subordinated debentures 129,054 120,083 — — 120,083 Foreign exchange swaps 341 341 — 341 — Interest rate swaps not designated as hedging instruments 31,357 31,357 — 31,357 — Risk participation agreements 60 60 — 60 — Accrued interest payable 1,804 1,804 1,804 — — Total financial liabilities $ 12,726,449 12,734,794 11,114,507 160,896 1,459,391 116 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) December 31, 2020 Carrying amount Estimated fair value Level 1 Level 2 Level 3 Financial assets: Cash and cash equivalents $ 736,277 736,277 736,277 — — Securities available-for-sale 1,398,941 1,398,941 — 1,398,941 — Securities held-to-maturity 178,887 179,666 — 179,666 — Loans receivable, net 10,387,636 10,334,521 — — 10,334,521 Residential mortgage loans held-for-sale 58,786 58,786 — — 58,786 Accrued interest receivable 35,554 35,554 35,554 — — Interest rate lock commitments 6,465 6,465 — — 6,465 Forward commitments 1,105 1,105 — 1,105 — Interest rate swaps not designated as hedging instruments 53,863 53,863 — 53,863 — FHLB stock 21,748 21,748 — — — Total financial assets $ 12,879,262 12,826,926 771,831 1,633,575 10,399,772 Financial liabilities: Savings and checking accounts $ 9,957,137 9,957,137 9,957,137 — — Time deposits 1,642,096 1,669,546 — — 1,669,546 Borrowed funds 159,715 159,745 159,745 — — Subordinated debt 123,329 123,329 — 123,329 — Junior subordinated debentures 128,794 121,106 — — 121,106 Interest rate swaps not designated as hedging instruments 54,579 54,579 — 54,579 — Risk participation agreements 86 86 — 86 — Accrued interest payable 2,054 2,054 2,054 — — Total financial liabilities $ 12,067,790 12,087,582 10,118,936 177,994 1,790,652 Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The preceding methods and assumptions were used in estimating the fair value of financial instruments at December 31, 2021 and 2020. 117 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table represents assets and liabilities measured at fair value on a recurring basis as of December 31, 2021: Level 1 Level 2 Level 3 Total at fair value Debt securities: U.S. government and agencies $ — 75,891 — 75,891 Government sponsored enterprises — 46,085 — 46,085 States and political subdivisions — 128,701 — 128,701 Total debt securities — 250,677 — 250,677 Residential mortgage-backed securities: GNMA — 16,510 — 16,510 FNMA — 160,063 — 160,063 FHLMC — 100,055 — 100,055 Non-agency — 431 — 431 Collateralized mortgage obligations: GNMA — 492,328 — 492,328 FNMA — 269,060 — 269,060 FHLMC — 259,468 — 259,468 Total mortgage-backed securities — 1,297,915 — 1,297,915 Interest rate lock commitments — — 1,684 1,684 Forward commitments — 371 — 371 Interest rate swaps not designated as hedging instruments — 31,254 — 31,254 Total assets $ — 1,580,217 1,684 1,581,901 Foreign exchange swaps $ — 341 — 341 Interest rate swaps not designated as hedging instruments — 31,357 — 31,357 Risk participation agreements — 60 — 60 Total liabilities $ — 31,758 — 31,758 118 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table represents assets and liabilities measured at fair value on a recurring basis as of December 31, 2020: Level 1 Level 2 Level 3 Total at fair value Debt securities: U.S. government and agencies $ — 40,917 — 40,917 Government sponsored enterprises — 94,507 — 94,507 States and political subdivisions — 116,813 — 116,813 Total debt securities — 252,237 — 252,237 Residential mortgage-backed securities: GNMA — 23,026 — 23,026 FNMA — 203,571 — 203,571 FHLMC — 134,572 — 134,572 Non-agency — 465 — 465 Collateralized mortgage obligations: GNMA — 343,409 — 343,409 FNMA — 262,109 — 262,109 FHLMC — 179,552 — 179,552 Total mortgage-backed securities — 1,146,704 — 1,146,704 Interest rate lock commitments — — 6,465 6,465 Forward commitments — 1,105 — 1,105 Interest rate swaps not designated as hedging instruments — 53,863 — 53,863 Total assets $ — 1,453,909 6,465 1,460,374 Interest rate swaps not designated as hedging instruments $ — 54,579 — 54,579 Risk participation agreements — 86 — 86 Total liabilities $ — 54,665 — 54,665 The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2021 and 2020: Years ended December 31, 2021 2020 Beginning balance January 1, $ 6,465 559 Total gains or losses: Included in net income — — Net activity ( 4,781 ) 5,906 Transfers from Level 3 — — Transfers into of Level 3 — — Ending balance December 31, $ 1,684 6,465 Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held for sale, loans individually assessed, real estate owned, and MSRs. 119 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2021: Level 1 Level 2 Level 3 Total assets at fair value Loans individually assessed $ — — 46,968 46,968 Mortgage servicing rights — — 380 380 Real estate owned, net — — 873 873 Total assets $ — — 48,221 48,221 The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2020: Level 1 Level 2 Level 3 Total assets at fair value Loans individually assessed $ — — 95,303 95,303 Real estate owned, net — — 2,232 2,232 Total assets $ — — 97,535 97,535 Individually Assessed Loans - A loan is considered to be individually assessed as described in Note 1(f) as part of the adoption of ASU 2016-13. We classify loans individually assessed as nonrecurring Level 3. Mortgage servicing rights - Mortgage servicing rights represent the value of servicing residential mortgage loans, when the mortgage loans have been sold into the secondary market and the associated servicing has been retained. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common characteristics. Adjustments are only made when the estimated discounted future cash flows are less than the carrying value, as determined by individual pool. As such, mortgage servicing rights are classified as nonrecurring Level 3. Real Estate Owned - Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify real estate owned as nonrecurring Level 3. The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2021: Fair value ($) Valuation techniques Significant unobservable inputs Range (weighted average) Loans individually assessed 46,968 Appraisal value (1) Estimated cost to sell 10 % Discounted cash flow Discount rate 8.60 % to 12.95 % ( 9.61 %) Mortgage servicing rights 380 Discounted cash flow Annual service cost $ 84 Prepayment rate 7.1 % to 23.6 % ( 11.0 %) Expected life (months) 42.2 to 103.1 (72.8) Option adjusted spread 650 basis points Forward yield curve 0.09 % to 1.51 % Real estate owned, net 873 Appraisal value (1) Estimated cost to sell 10 % Loans held for sale 25,056 Quoted prices for similar loans in active markets adjusted by an expected pull-through rate Estimated pull-through rate 100 % (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable. 120 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (17) Regulatory Capital Requirements We and our banking subsidiary are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices must be met. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Applicable regulations limit an organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a “capital conservation buffer” consisting of 2.5% of Total Tier 1 and Common Equity Tier 1 (“CET1”) capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. Quantitative measures established by regulation to ensure capital adequacy require us and our banking subsidiary to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1, and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). As of December 31, 2021 and 2020, we and our banking subsidiary exceeded all capital adequacy requirements to which we were subject. We have elected to phase the estimated impact of CECL into regulatory capital in accordance with the interim final rule of the Board of Governors of the Federal Reserve System (FRB) and other U.S. banking agencies that became effective on March 31, 2020. As a result, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25 % of the previously deferred estimated capital impact of CECL, with an additional 25 % to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the interim final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25 % of the subsequent change in allowance during the two-year deferral period. As of December 15, 2021, the most recent assessment from FDIC, Northwest Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes . To be considered as “well capitalized,” Northwest Bank must maintain total risk-based, Tier 1 risk-based, CET 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the bank’s categories. 121 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The actual, required, and well capitalized levels as of December 31, 2021 and 2020 were as follows: At December 31, 2021 Actual Minimum capital requirements (1) Well capitalized requirements Amount Ratio Amount Ratio Amount Ratio Total capital (to risk weighted assets) Northwest Bancshares, Inc. $ 1,682,487 17.056 % $ 1,035,786 10.500 % $ 986,463 10.000 % Northwest Bank 1,551,084 15.738 % 1,034,819 10.500 % 985,542 10.000 % Tier 1 capital (to risk weighted assets) Northwest Bancshares, Inc. 1,475,190 14.954 % 838,494 8.500 % 789,170 8.000 % Northwest Bank 1,467,362 14.889 % 837,711 8.500 % 788,434 8.000 % CET 1 capital (to risk weighted assets) Northwest Bancshares, Inc. 1,350,125 13.687 % 690,524 7.000 % 641,201 6.500 % Northwest Bank 1,467,362 14.889 % 689,879 7.000 % 640,602 6.500 % Tier 1 capital (leverage to average assets) Northwest Bancshares, Inc. 1,475,190 10.349 % 570,160 4.000 % 712,699 5.000 % Northwest Bank 1,467,362 10.296 % 570,047 4.000 % 712,558 5.000 % (1) Amounts and ratios include the 2021 capital conservation buffer of 2.5 % with the exception of Tier 1 capital to average assets. For further information related to the capital conservation buffer, see “ Item 1. Business - Supervision and Regulation ” . At December 31, 2020 Actual Minimum capital requirements (1) Well capitalized requirements Amount Ratio Amount Ratio Amount Ratio Total capital (to risk weighted assets) Northwest Bancshares, Inc. $ 1,654,198 16.642 % $ 1,043,693 10.500 % $ 993,993 10.000 % Northwest Bank 1,478,310 14.887 % 1,042,655 10.500 % 993,004 10.000 % Tier 1 capital (to risk weighted assets) Northwest Bancshares, Inc. 1,406,321 14.148 % 844,894 8.500 % 795,195 8.000 % Northwest Bank 1,354,028 13.636 % 844,054 8.500 % 794,403 8.000 % CET 1 capital (to risk weighted assets) Northwest Bancshares, Inc. 1,281,516 12.893 % 695,795 7.000 % 646,096 6.500 % Northwest Bank 1,354,028 13.636 % 695,103 7.000 % 645,453 6.500 % Tier 1 capital (leverage to average assets) Northwest Bancshares, Inc. 1,406,321 10.145 % 554,501 4.000 % 693,126 5.000 % Northwest Bank 1,354,028 9.903 % 546,905 4.000 % 683,631 5.000 % (1) Amounts and ratios include the 2020 capital conservation buffer of 2.5 % with the exception of Tier 1 capital to average assets. For further information related to the capital conservation buffer, see Item 1. Business - “ Supervision and Regulation”. 122 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (18) Contingent Liabilities We and our subsidiaries are subject to a number of asserted and unasserted claims encountered in the normal course of business. Management believes that the aggregate liability, if any, that may result from such potential litigation will not have a material adverse effect on our financial statements. However, we cannot presently determine whether or not any claims against us will have a material adverse effect on our results of operations in any future reporting period. (19) Legal Proceedings We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of December 31, 2021, we do not anticipate that the aggregate ultimate liability arising out of any pending or threatened legal proceedings will be material to our Consolidated Financial Statements. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings. During the year-ended December 31, 2018, Northwest and our subsidiary, The Bert Company (doing business as Northwest Insurance Services) (“NWIS”), were involved in a lawsuit against, among others, First National Bank of Pennsylvania (“FNB”) and their insurance subsidiary, First National Insurance Agency, LLC (“FNIA”). All counterclaims against Northwest were discontinued and, in December 2018, a verdict was rendered in favor of NWIS on several of its claims. Post-trial proceedings have continued throughout the current year and, due to the inherent uncertainties with respect to these proceedings, we have not accrued any awards associated with this verdict within our Consolidated Financial Statements as of December 31, 2021. (20) Components of Accumulated Other Comprehensive Income The following table sets forth the components of accumulated other comprehensive loss as of December 31, 2021 and 2020: December 31, 2021 2020 Unrealized gain/(loss) on marketable securities available-for-sale $ ( 12,317 ) 16,843 Defined benefit pension plans ( 25,312 ) ( 50,392 ) Accumulated other comprehensive loss $ ( 37,629 ) ( 33,549 ) The following table shows the changes in accumulated other comprehensive loss by component for the year ended December 31, 2021: Unrealized gains and losses on securities available-for-sale Change in defined benefit pension plans Total Balance as of January 1, $ 16,843 ( 50,392 ) ( 33,549 ) Other comprehensive income/(loss) before reclassification adjustments (1), (2) ( 28,873 ) 23,748 ( 5,125 ) Amounts reclassified from accumulated other comprehensive income (3), (4) ( 287 ) 1,332 1,045 Net other comprehensive income/(loss) ( 29,160 ) 25,080 ( 4,080 ) Balance as of December 31, $ ( 12,317 ) ( 25,312 ) ( 37,629 ) (1) Consists of unrealized holding losses, net of tax of ($ 10,333 ). (2) Consists of unrealized holdings gains, net of tax $ 9,144 . (3) Consists of realized holding losses, net of tax of ($ 92 ). (4) Consists of realized gains, net of tax of $ 515 . 123 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table shows the changes in accumulated other comprehensive loss by component for the year ended December 31, 2020: Unrealized gains and losses on securities available-for-sale Change in fair value of interest rate swaps Change in defined benefit pension plans Total Balance as of January 1, $ 3,147 — ( 40,088 ) ( 36,941 ) Other comprehensive income/(loss) before reclassification adjustments (1), (2), (3) 13,711 ( 946 ) ( 11,301 ) 1,464 Amounts reclassified from accumulated other comprehensive income (4), (5), (6) ( 15 ) 946 997 1,928 Net other comprehensive income/(loss) 13,696 — ( 10,304 ) 3,392 Balance as of December 31, $ 16,843 — ( 50,392 ) ( 33,549 ) (1) Consists of unrealized holding gains, net of tax of $ 5,607 . (2) Consists of unrealized holding losses, net of tax of ($ 209 ). (3) Consists of unrealized holding losses, net of tax of ($ 4,169 ). (4) Consists of realized gains, net of tax of ($ 6 ). (5) Consists of realized losses interest rate swaps, net of tax of $ 209 . (6) Consists of realized gains, net of tax of $ 395 . The following table shows the changes in accumulated other comprehensive loss by component for the year ended December 31, 2019: Unrealized gains and losses on securities available-for-sale Change in defined benefit pension plans Total Balance as of January 1, $ ( 6,832 ) ( 32,864 ) ( 39,696 ) Other comprehensive income/(loss) before reclassification adjustments (1), (2) 9,984 ( 8,059 ) 1,925 Amounts reclassified from accumulated other comprehensive income (3), (4) ( 5 ) 835 830 Net other comprehensive income/(loss) 9,979 ( 7,224 ) 2,755 Balance as of December 31, $ 3,147 ( 40,088 ) ( 36,941 ) (1) Consists of unrealized holding gains, net of tax of $ 3,994 . (2) Consists of unrealized holding losses, net of tax of ($ 3,193 ). (3) Consists of realized gains, net of tax of ($ 2 ). (4) Consists of realized gains, net of tax of $ 334 . 124 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (21) Parent Company Only Financial Statements - Condensed Statements of Financial Condition December 31, 2021 2020 Assets Cash and cash equivalents $ 128,001 172,142 Investment in bank subsidiary 1,674,360 1,585,429 Other assets 9,199 9,352 Total assets $ 1,811,560 1,766,923 Liabilities and shareholders’ equity Liabilities: Debentures payable $ 252,629 252,123 Other liabilities 1,814 1,889 Total liabilities 254,443 254,012 Shareholders’ equity 1,557,117 1,512,911 Total liabilities and shareholders’ equity $ 1,811,560 1,766,923 Statements of Income Years ended December 31, 2021 2020 2019 Income: Interest income $ 87 196 209 Other income 527 553 628 Dividends from bank subsidiary 73,000 — 110,000 Undistributed earnings from equity investment in bank subsidiary 88,944 80,996 5,102 Total income 162,558 81,745 115,939 Expense: Compensation and employee benefits 1,358 1,234 1,124 Other expenses 1,033 2,241 791 Interest expense 7,870 4,933 4,833 Total expense 10,261 8,408 6,748 Income before income taxes 152,297 73,337 109,191 Income tax benefit ( 2,026 ) ( 1,517 ) ( 1,241 ) Net income $ 154,323 74,854 110,432 125 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) Statements of Cash Flows Years ended December 31, 2021 2020 2019 Operating activities: Net income $ 154,323 74,854 110,432 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiary ( 88,944 ) ( 80,996 ) ( 5,102 ) Gain on sale of marketable securities — — ( 29 ) Net change in other assets and liabilities 597 128,287 ( 43,453 ) Net cash provided by operating activities 65,976 122,145 61,848 Investing activities: Net purchase sale of marketable securities — — — Net cash used in investing activities — — — Financing activities: Cash dividends paid on common stock ( 100,274 ) ( 93,132 ) ( 76,173 ) Repurchase of Northwest stock ( 23,854 ) ( 9,276 ) — Proceeds from stock options exercised 14,011 1,479 9,727 Net cash used in financing activities ( 110,117 ) ( 100,929 ) ( 66,446 ) Net increase/(decrease) in cash and cash equivalents $ ( 44,141 ) 21,216 ( 4,598 ) Cash and cash equivalents at beginning of period $ 172,142 150,926 155,524 Net increase/(decrease) in cash and cash equivalents ( 44,141 ) 21,216 ( 4,598 ) Cash and cash equivalents at end of period $ 128,001 172,142 150,926 126 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) (22) Derivative Financial Instruments We are a party to derivative financial instruments in the normal course of business to manage our own exposure to fluctuations in interest rates and to meet the needs of our customers. The primary derivatives that we use are interest rate swaps and caps and foreign exchange contracts, which are entered into with counterparties that meet established credit standards. We believe that the credit risk inherent in all of our derivative contracts is minimal based on our credit standards and the netting and collateral provisions of the interest rate swap agreements. Derivatives Designated as Hedging Instruments During March 2020, the Company entered into four separate pay-fixed interest rate swaps in order to synthetically convert short-term three month FHLB advances to fixed-rate term funding with an aggregate value of $ 100 million with maturities ranging from three to five years . Our risk management objective and strategy for these interest rate swaps at such time was to reduce our exposure to variability in interest-related cash outflows attributable to changes in the USD-LIBOR swap rate, the designated benchmark interest rate being hedged.Based upon our contemporaneous quantitative analysis at the inception of each interest rate swap, we have determined these interest rate swaps qualified for hedge accounting in accordance with ASC 815, Derivatives and Hedging . The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the quarter of September 30, 2020, the Company discontinued these cash flow hedges and, as a result, reclassified a $ 1.3 million loss into earnings. As of December 31, 2021, the Company had no cash flow hedges. Derivatives Not Designated as Hedging Instruments We act as an interest rate or foreign exchange swap counterparty for certain commercial borrowers in the normal course of servicing our customers, which are accounted for at fair value. We manage our exposure to such interest rate or foreign exchange swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the swaps we have with the commercial borrowers. These positions (referred to as “customer swaps”) directly offset each other and our exposure is the fair value of the derivatives due to changes in credit risk of our commercial borrowers and third parties. Customer swaps are recorded within other assets or other liabilities on the Consolidated Statement of Financial Condition at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the Consolidated Statement of Income. We enter into interest rate lock commitments for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative financial instruments under applicable accounting guidance. Interest rate lock commitments on loans held-for-sale are carried at fair value in other assets on the Consolidated Statement of Financial Condition. Northwest sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis commit us to deliver a specific principal amount of mortgage loans to an investor at a specified price, by a specified date, or the commitment must be paired off. These forward commitments entered into on a mandatory delivery basis meet the definition of a derivative financial instrument. All closed loans to be sold on a mandatory delivery basis are classified as held-for-sale on the Consolidated Statement of Financial Condition. Changes to the fair value of the interest rate lock commitments and the forward commitments are recorded in mortgage banking income in the Consolidated Statements of Income. We enter into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. 127 Table of Contents NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021, 2020 and 2019 (All dollar amounts presented in tables are in thousands, except as indicated) The following table presents information regarding our derivative financial instruments for the periods indicated: Asset derivatives Liability derivatives Notional amount Fair value Notional amount Fair value At December 31, 2021 Derivatives not designated as hedging instruments: Interest rate swap agreements $ 644,997 31,254 644,997 31,357 Foreign exchange swap agreements — — 17,124 341 Interest rate lock commitments 67,473 1,684 — — Forward commitments 14,484 371 — — Risk participation agreements — — 93,135 60 Total derivatives $ 726,954 33,309 755,256 31,758 At December 31, 2020 Derivatives not designated as hedging instruments: Interest rate swap agreements $ 599,300 53,863 599,300 54,579 Interest rate lock commitments 171,357 6,465 — — Forward commitments 25,474 1,105 — — Risk participation agreements — — 77,532 86 Total derivatives $ 796,131 61,433 676,832 54,665 The following table presents income or expenses recognized on derivatives for the periods indicated: For the years ended December 31, 2021 2020 2019 Hedging derivatives: Decrease in interest expense $ — ( 35 ) — Non-hedging swap derivatives: Increase/(decrease) in other income 1,033 ( 700 ) ( 63 ) Increase in mortgage banking income 5,515 6,867 — 128 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.