Northwest Bancshares, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our principal business consists of collecting deposits and making loans primarily secured by various types of collateral, including real estate and other assets in the markets in which we are located. Attracting and maintaining deposits is affected by a number of factors, including interest rates paid on competing deposits and other investments offered by other financial and non-financial institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of alternative lenders and regional economic conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from investment and mortgage-backed securities and income provided from operations. Our earnings depend primarily on net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to investment management and trust services, net gains and losses on the sale of assets and mortgage banking income. Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including employee compensation and benefits and occupancy and processing costs, as well as by state and federal income tax expense. Our net income was $133.7 million, or $1.05 per diluted share, for the year ended December 31, 2022 compared to $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021, and $74.9 million, or $0.62 per diluted share, for the year ended December 31, 2020. The provision for credit losses was $17.9 million for the year ended December 31, 2022 compared to a provision credit of $11.9 million for the year ended December 31, 2021 and a provision expense of $84.0 million for the year ended December 31, 2020. 29 Table of Contents Selected Financial and Other Data The summary financial information presented below is derived in part from the Company’s Consolidated Financial Statements. The following is only a summary and should be read in conjunction with the Consolidated Financial Statements and notes included elsewhere in this document. The information at December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 is derived in part from the audited Consolidated Financial Statements that appear in this document. At December 31, 2022 2021 (In thousands) Selected Consolidated Financial Data: Total assets $ 14,113,324 14,501,508 Cash and cash equivalents 139,365 1,279,259 Marketable securities held-to-maturity 124,455 124,451 Marketable securities available-for-sale 224,537 250,677 Mortgage-backed securities held-to-maturity 756,794 643,703 Mortgage-backed securities available-for-sale 993,571 1,297,915 Loans receivable, net of allowance for credit losses: Residential mortgage loans held-for-sale 9,913 25,056 Residential mortgage loans 3,469,425 2,962,191 Home equity loans 1,291,772 1,314,631 Consumer loans 2,144,931 1,820,381 Commercial real estate loans 2,775,045 2,957,460 Commercial loans 1,111,330 834,432 Total loans receivable, net 10,802,416 9,914,151 Deposits 11,464,548 12,301,165 Borrowed funds 681,166 139,093 Subordinated debt 113,840 123,575 Shareholders’ equity 1,491,486 1,583,571 For the years ended December 31, 2022 2021 2020 (In thousands except per share data) Selected Consolidated Operating Data: Total interest income $ 448,798 418,508 434,068 Total interest expense 28,117 27,246 42,340 Net interest income 420,681 391,262 391,728 Provision for credit losses 17,860 (11,883) 83,975 Net interest income after provision for credit losses 402,821 403,145 307,753 Noninterest income 110,849 142,889 132,265 Noninterest expense 339,978 344,910 347,492 Income before income taxes 173,692 201,124 92,526 Income tax expense 40,026 46,801 17,672 Net income $ 133,666 154,323 74,854 Earnings per share: Basic $ 1.05 1.22 0.62 Diluted $ 1.05 1.21 0.62 30 Table of Contents At or for the year ended December 31, 2022 2021 2020 Selected Financial Ratios and Other Data: Return on average assets (1), (5), (6), (7), (8) 0.94 % 1.08 % 0.58 % Return on average equity (2), (5), (6), (7), (8) 8.80 % 9.91 % 4.72 % Average capital to average assets 10.71 % 10.89 % 12.29 % Capital to total assets 10.57 % 10.92 % 11.14 % Tangible common equity to tangible assets 8.03 % 8.43 % 8.48 % Net interest rate spread (3) 3.11 % 2.89 % 3.24 % Net interest margin (4) 3.20 % 2.98 % 3.36 % Noninterest expense to average assets (6), (7), (8) 2.40 % 2.41 % 2.70 % Efficiency ratio (5), (6), (7), (8) 63.16 % 63.53 % 65.01 % Noninterest income to average assets (7) 0.78 % 1.00 % 1.03 % Net interest income to noninterest expense (5), (6), (8) 1.24x 1.13x 1.13x Dividend payout ratio 76.19 % 65.29 % 122.58 % Nonperforming loans to net loans receivable 0.76 % 1.60 % 0.99 % Nonperforming assets to total assets 0.58 % 1.10 % 0.77 % Allowance for credit losses to nonperforming loans 143.98 % 64.38 % 129.99 % Allowance for credit losses to loans receivable 1.08 % 1.02 % 1.27 % Average interest-earning assets to average interest-bearing liabilities 1.41x 1.39x 1.35x Number of banking offices 150 170 170 (1) Represents net income divided by average assets. (2) Represents net income divided by average equity. (3) Represents average yield on interest-earning assets less average cost of interest-bearing liabilities (shown on a fully taxable equivalent (“FTE”) basis). (4) Represents net interest income as a percentage of average interest-earning assets (shown on a FTE basis). (5) 2020 includes $20.8 million acquisition/branch optimization expense, $41.6 million estimated provision for credit losses related to COVID-19 and $18.2 million estimated provision for credit losses related to the effect of CECL on the acquisition of MutualBank. (6) 2021 includes $3.5 million in merger, asset disposition and restructuring expense. (7) 2021 includes $25.3 million gain on sale of insurance business. (8) 2022 includes $5.6 million in merger, assets disposition and restructuring expense. Critical Accounting Estimates Our significant accounting policies are described in Note 1 of the notes to the Consolidated Financial Statements . Certain accounting policies are important to the understanding of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations. The following are the accounting estimates we believe are critical. Allowance for Credit Losses. We recognize that losses will be experienced on assets and that the risk of loss varies with the type of asset, the creditworthiness of a borrower, general economic conditions and the quality of the collateral, if any. We maintain an allowance for expected lifetime losses in the loan portfolio. The allowance for credit losses represents management’s estimate of lifetime expected losses based on all available information. The allowance for credit losses is based on management’s evaluation of relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The loan portfolio is reviewed regularly by management in its determination of the allowance for credit losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review our allowance for credit losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for credit losses, a combination of statistical models are applied to various pools of outstanding loans. We use a 24 month forecasting period and revert to historical average loss rates thereafter. Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed. The allowance calculation is also supplemented with qualitative reserves that takes into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component. 31 Table of Contents Our allowance for credit losses is sensitive to a number of inputs, most notably the macroeconomic forecast assumptions as well as the reasonable and supportable forecasting periods that are incorporated in our estimate of credit losses. Therefore, as the macroeconomic environment and related forecasts change or decisions are made to shorten or lengthen the forecasting period, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management ’ s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. We utilized a multi-scenario based macroeconomic forecast in determining the December 31, 2022 allowance for credit losses, which included a weighting of three scenarios: an upside scenario, a baseline scenario and a downside scenario. We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenario. If we placed 100% weighting on the baseline scenario, the quantitative allowance for credit losses would have been approximately $10.2 million lower. These forecasts revert to our long-term historical average loss rate after a 24 month forecasting period. If we shortened the forecasting period to twelve months and reverted to our long-term historical loss rate thereafter, the quantitative allowance for credit losses would have been approximately $18.8 million lower. Although management believes that it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously. Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. For further information related to our allowance for credit losses, see Note 1(f) of the notes to the Consolidated Financial Statements. Recently Issued Accounting Standards The following Accounting Standard Updates (“ASU”) issued by the FASB have not yet been adopted. In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance was effective as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, “ Reference Rate Reform (Topic 848): Deferral of the Sunset Date to Topic 848 ” . This guidance extends the guidance of ASU 2022-04 from December 31, 2022 to December 31, 2024. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform.” This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform. We established a cross-functional working group to manage the LIBOR transition. A transition plan was created to identify and modify the Company’s loan and other financial instrument contracts that are impacted by LIBOR transition. The Company chose the Secured Overnight Financing Rate (“SOFR”) as its alternative replacement for LIBOR on both back-to-back swaps and variable rate loans. We have not offered LIBOR for any new contracts since December 31, 2021. We are continuing to evaluate the amendments on our financial statements, with no material impacts expected, and execute on our transition plan. In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosure.” This ASU eliminates the accounting guidance for troubled debt restructurings, while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. This ASU also requires the disclosure of current period gross write-offs by year for origination for financing receivables. This guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, with early adoption permitted. This ASU is applied prospectively to modifications and write-offs beginning on the first day of the fiscal year of adoption. An entity may elect to adopt a modified retrospective transition method on the recognition and measurement of the TDR guidance. We do not believe this guidance will have a material impact on the Company’s financial statements, but will result in additional disclosures. 32 Table of Contents Balance Sheet Analysis 33 Table of Contents Assets. Total assets at December 31, 2022 were $14.113 billion, a decrease of $388.2 million, or 2.7%, from $14.502 billion at December 31, 2021. This decrease in assets was driven by a decrease in both marketable securities and total cash and cash equivalents. A discussion of significant changes follows. Cash and cash equivalents . Cash and cash equivalents decreased by $1.140 billion, or 89.1%, to $139.4 million at December 31, 2022, from $1.279 billion at December 31, 2021. This decrease was primarily driven by organic loan growth and deposit outflow, described in further detail below, as well as the purchase of three small business equipment finance loan pools totaling $182.8 million and two one- to four-family jumbo mortgage loan packages totaling $188.3 million during the year ended December 31, 2022. Marketable securities . Marketable securities decreased by $217.4 million, or 9.4%, to $2.099 billion at December 31, 2022, from $2.317 billion at December 31, 2021. This decrease was driven primarily by the rising interest rate environment which negatively impacted the fair market value of our available-for-sale portfolio. Additionally, the maturity and monthly cash flow of marketable securities was redeployed into higher interest-earning loan products. The following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated. At December 31, 2022 2021 Amortized cost Fair value Amortized cost Fair value (In thousands) Residential mortgage-backed securities available-for-sale: Fixed rate pass-through $ 227,122 195,986 265,604 265,468 Variable rate pass-through 8,837 8,663 11,306 11,591 Fixed rate agency CMOs 906,962 761,678 997,680 980,999 Variable rate agency CMOs 27,853 27,244 39,695 39,857 Total residential mortgage-backed securities available-for-sale 1,170,774 993,571 1,314,285 1,297,915 Marketable securities available-for-sale: U.S. Government, agency and GSEs 119,959 99,793 125,260 121,976 Municipal securities 127,455 111,766 125,457 128,701 Corporate debt issues 13,540 12,978 — — Total marketable securities available-for-sale $ 1,431,728 1,218,108 1,565,002 1,548,592 The following table sets forth certain information regarding the amortized cost and fair value of our held-to-maturity marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated. At December 31, 2022 2021 Amortized cost Fair value Amortized cost Fair value (In thousands) Residential mortgage-backed securities held-to-maturity: Fixed rate pass-through $ 163,196 138,512 183,092 180,989 Variable rate pass-through 542 530 667 691 Fixed rate agency CMOs 592,527 509,202 459,345 449,585 Variable rate agency CMOs 529 518 599 616 Total residential mortgage-backed securities held-to-maturity 756,794 648,762 643,703 631,881 Marketable securities held-to-maturity: U.S. Government and agencies 124,455 102,622 124,451 119,632 Total marketable securities held-to-maturity $ 881,249 751,384 768,154 751,513 34 Table of Contents The following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated. At December 31, 2022 2021 (In thousands) Residential mortgage-backed securities: FNMA $ 651,404 704,070 GNMA 438,193 577,684 FHLMC 660,762 659,433 Other (including non-agency) 6 431 Total residential mortgage-backed securities $ 1,750,365 1,941,618 Marketable Securities Portfolio Maturities and Yields . The following table sets forth the scheduled maturities, carrying values, amortized cost, market values and weighted average yields for our marketable securities and mortgage-backed securities portfolios at December 31, 2022. The annualized weighted average yields are calculated by taking the interest of the marketable securities divided by the amortized cost. Adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust. One year or less More than one year to five years More than five years to ten years More than ten years Total Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Annualized weighted average yield (1) Amortized cost Fair value Annualized weighted average yield (1) (Dollars in thousands) Marketable securities available-for-sale: Government sponsored entities $ — — % $ 993 2.82 % $ 45,814 1.06 % $ — — % $ 46,807 39,201 1.09 % U.S. Government and agency obligations — — % 20,000 1.25 % — — % 53,152 1.27 % 73,152 60,592 1.26 % Municipal securities 506 2.43 % 986 3.50 % 36,332 2.21 % 89,631 2.17 % 127,455 111,766 2.20 % Corporate debt issues — — % — — % 13,540 4.68 % — — % 13,540 12,978 4.68 % Total marketable securities available-for-sale 506 2.43 % 21,979 1.42 % 95,686 2.01 % 142,783 1.84 % 260,954 224,537 1.87 % Residential mortgage-backed securities available-for-sale: Pass-through certificates 8,894 2.67 % 19,264 1.04 % 15,702 2.31 % 192,100 1.76 % 235,960 204,649 1.77 % CMOs 27,875 4.49 % 10,255 1.62 % 11,891 1.26 % 884,793 1.51 % 934,814 788,922 1.60 % Total residential mortgage-backed securities available-for-sale 36,769 4.05 % 29,519 1.24 % 27,593 1.86 % 1,076,893 1.55 % 1,170,774 993,571 1.63 % Marketable securities held-to-maturity: U.S. Government and agency obligations — — % 29,478 0.98% 94,977 1.01 % — — % 124,455 102,622 1.00 % Total investment securities held-to-maturity — — % 29,478 0.98% 94,977 1.01 % — — % 124,455 102,622 1.00 % Residential mortgage-backed securities held-to-maturity: Pass-through certificates 542 2.32 % 444 3.50 % 20,250 1.30 % 142,502 1.29 % 163,738 139,042 1.30 % CMOs 529 4.80 % 20,168 0.92 % — — % 572,359 2.26 % 593,056 509,720 2.22 % Total residential mortgage-backed securities held-to-maturity 1,071 3.54 % 20,612 0.97 % 20,250 1.30 % 714,861 2.07 % 756,794 648,762 2.02 % Total marketable securities and mortgage-backed securities $ 38,346 4.02 % $ 101,588 1.15 % $ 238,506 1.53 % $ 1,934,537 1.77 % $ 2,312,977 1,969,492 1.75 % Further information and analysis of our investment portfolio, including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity marketable securities and tables showing the fair value and gross unrealized losses on marketable securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in Note 3 of the Notes to the Consolidated Financial Statements. 35 Table of Contents Loans Receivable . Gross loans receivable increased by $904.1 million, or 9.0%, to $10.920 billion at December 31, 2022, from $10.016 billion at December 31, 2021. This increase was due to organic loan growth as well as the purchases of small business equipment finance and one- to four-family jumbo mortgage loan pools during the year. Our personal banking loan portfolio increased by $811.6 million, or 13.2%, to $6.965 billion at December 31, 2022 from $6.153 billion at December 31, 2021. Continued growth in our consumer indirect auto loans and fewer sales of residential mortgages into the secondary market contributed to the increase in total loans receivable. In addition, our commercial loan portfolio increased by $92.4 million, or 2.4%, to $3.956 billion at December 31, 2022 from $3.863 billion at December 31, 2021. Set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated. At December 31, 2022 2021 Amount Percent Amount Percent (Dollars in thousands) Personal Banking: Residential mortgage loans held-for-sale $ 9,913 0.1 % $ 25,056 0.3 % Residential mortgage loans 3,488,686 31.9 % 2,969,564 29.6 % Home equity loans 1,297,674 11.9 % 1,319,931 13.2 % Vehicle loans 2,056,783 18.8 % 1,484,231 14.8 % Consumer loans (1) 111,872 1.0 % 354,517 3.5 % Total Personal Banking 6,964,928 63.7 % 6,153,299 61.4 % Commercial Banking: Commercial real estate 2,823,555 25.9 % 3,015,484 30.1 % Commercial loans 1,131,969 10.4 % 847,609 8.5 % Total Commercial Banking 3,955,524 36.3 % 3,863,093 38.6 % Total loans receivable, gross 10,920,452 100.0 % 10,016,392 100.0 % Total allowance for credit losses (118,036) (102,241) Total loans receivable, net $ 10,802,416 $ 9,914,151 (1) Consists primarily of secured and unsecured personal loans. The following table sets forth the maturity of our loan portfolio at December 31, 2022. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Adjustable and floating-rate loans are included in the period in which the contractual repayment is due or they contractually mature, if interest only, and fixed-rate loans are included in the period in which the contractual repayment is due. At December 31, 2022 (In thousands) Due in one year or less Due after one year through five years Due after five years through fifteen years Due after fifteen years Total Personal Banking: Residential mortgage loans $ 134,158 552,462 1,286,244 1,516,954 $ 3,489,818 Home equity loans 102,398 319,986 466,594 402,694 1,291,672 Consumer loans 448,060 1,429,636 226,670 — 2,104,366 Total Personal Banking 684,616 2,302,084 1,979,508 1,919,648 6,885,856 Commercial Banking: Commercial real estate loans 431,930 1,199,829 898,181 295,429 2,825,369 Commercial loans 315,052 671,284 139,398 7,365 1,133,099 Total Commercial Banking 746,982 1,871,113 1,037,579 302,794 3,958,468 Total Loans $ 1,431,598 4,173,197 3,017,087 2,222,442 10,844,324 Net unearned income and unamortized premiums and discounts 76,128 Total Loans Receivable $ 10,920,452 36 Table of Contents The following table sets forth at December 31, 2022, the dollar amount of all fixed-rate loans due one year or more after December 31, 2022. At December 31, 2022 (In thousands) Due after one year through five years Due after five years through fifteen years Due after fifteen years Total Personal Banking: Residential mortgage loans $ 543,387 1,261,709 1,490,086 3,295,182 Home equity loans 305,535 425,300 38,364 769,199 Consumer loans 1,417,142 210,747 — 1,627,889 Total Personal Banking 2,266,064 1,897,756 1,528,450 5,692,270 Commercial Banking: Commercial real estate loans 396,133 63,708 439 460,280 Commercial loans 290,078 31,334 3,420 324,832 Total Commercial Banking 686,211 95,042 3,859 785,112 Total Loans $ 2,952,275 1,992,798 1,532,309 6,477,382 The following table sets forth at December 31, 2022, the dollar amount of all adjustable-rate loans due one year or more after December 31, 2022. Adjustable and floating-rate loans are included in the table based on the contractual due date of the loan. At December 31, 2022 (In thousands) Due after one year through five years Due after five years through fifteen years Due after fifteen years Total Personal Banking: Residential mortgage loans $ 9,075 24,535 26,868 60,478 Home equity loans 14,451 41,294 364,330 420,075 Consumer loans 12,494 15,923 — 28,417 Total Personal Banking 36,020 81,752 391,198 508,970 Commercial Banking: Commercial real estate loans 803,696 834,473 294,990 1,933,159 Commercial loans 381,206 108,064 3,945 493,215 Total Commercial Banking 1,184,902 942,537 298,935 2,426,374 Total Loans $ 1,220,922 1,024,289 690,133 2,935,344 Deposits . Total deposits decreased by $836.6 million, or 6.8%, to $11.465 billion at December 31, 2022 from $12.301 billion at December 31, 2021. This decrease was primarily due to decreases in time and demand deposit accounts of $635.6 million, or 8.6%, as well as a decrease in money market deposit accounts by $172.3 million, or 6.6%. We believe these decreases were primarily the result of customer spending activity returning to pre-pandemic levels at a time when inflationary pressures have caused higher prices and government stimulus programs have ended. 37 Table of Contents The following table sets forth the dollar amount of deposits in the various types of accounts we offered at the dates indicated. At December 31, 2022 2021 Balance Percent (1) Rate (2) Balance Percent (1) Rate (2) (Dollars in thousands) Savings deposits $ 2,275,020 19.9 % 0.10 % $ 2,303,760 18.7 % 0.10 % Demand deposits 5,679,674 49.5 % 0.03 % 6,039,968 49.1 % 0.01 % Money market deposit accounts 2,457,569 21.4 % 0.14 % 2,629,882 21.4 % 0.10 % Time deposits: Maturing within 1 year 754,564 6.6 % 1.04 % 890,101 7.2 % 0.68 % Maturing 1 to 3 years 233,303 2.0 % 0.97 % 368,535 3.0 % 1.28 % Maturing more than 3 years 64,418 0.6 % 0.21 % 68,919 0.6 % 0.43 % Total certificates 1,052,285 9.2 % 0.65 % 1,327,555 10.8 % 0.84 % Total deposits $ 11,464,548 100.0 % 0.12 % $ 12,301,165 100.0 % 0.14 % (1) Represents percentage of total deposits. (2) Represents weighted average nominal rate at year end. The following table sets forth the dollar amount of deposits in each state by branch location as of December 31, 2022. State Balance Percent (Dollars in thousands) Pennsylvania $ 6,527,226 56.9 % New York 2,787,272 24.3 % Ohio 926,008 8.1 % Indiana 1,224,042 10.7 % Total $ 11,464,548 100.0 % The following table indicates the amount of our certificates of deposits of $250,000 or more by time remaining until maturity at December 31, 2022. Maturity period Certificates of deposit (In thousands) Three months or less $ 15,515 Over three months through six months 13,588 Over six months through twelve months 53,555 Over twelve months 25,665 Total $ 108,323 At December 31, 2022 and 2021, we had deposits in excess of $250,000 (the limit for FDIC insurance) of $4.031 billion and $4.194 billion, respectively. At those dates, we had no deposits that were uninsured for any other reason. Borrowings. Borrowings increased by $532.3 million, or 202.7%, to $795.0 million at December 31, 2022 from $262.7 million at December 31, 2021. This increase was a result of securing $551.3 million of notes payable to the FHLB during the current year. 38 Table of Contents The following table sets forth information concerning our borrowings at the dates and for the periods indicated. During the years ended December 31, 2022 2021 (Dollars in thousands) FHLB borrowings: Average balance outstanding $ 96,358 1,671 Maximum outstanding at end of any month during year 551,300 7,019 Balance outstanding at end of year 551,300 — Weighted average interest rate during year 4.27 % 2.20 % Weighted average interest rate at end of year 4.54 % — % Collateralized borrowings: Average balance outstanding $ 115,402 132,100 Maximum outstanding at end of any month during year 135,736 139,568 Balance outstanding at end of year 105,766 139,093 Weighted average interest rate during year 0.19 % 0.19 % Weighted average interest rate at end of year 0.27 % 0.19 % Collateral received: Average balance outstanding $ 14,104 — Maximum outstanding at end of any month during year 42,824 — Balance outstanding at end of year 24,100 — Weighted average interest rate during year 2.62 % — % Weighted average interest rate at end of year 4.17 % — % Subordinated borrowings: Average balance outstanding $ 116,644 123,481 Maximum outstanding at end of any month during year 123,638 123,560 Balance outstanding at end of year 113,840 123,575 Weighted average interest rate during year 4.00 % 4.00 % Weighted average interest rate at end of year 4.00 % 4.00 % Total borrowings: Average balance outstanding $ 342,508 258,742 Maximum outstanding at end of any month during year 795,006 269,931 Balance outstanding at end of year 795,006 262,668 Weighted average interest rate during year 2.74 % 2.03 % Weighted average interest rate at end of year 3.88 % 1.98 % Shareholders’ equity . Total shareholders’ equity at December 31, 2022 was $1.491 billion, or $11.74 per share, a decrease of $92.1 million, or 5.8%, from $1.584 billion, or $12.51 per share, at December 31, 2021. This decrease in equity was primarily the result of an increase in accumulated other comprehensive loss of $151.9 million due to an increase in unrealized losses in the available-for-sale investment portfolio as a result of rising interest rates, as well as the payment of cash dividends of $101.5 million during the year ended December 31, 2022. These decreases were partially offset by net income of $133.7 million for the year ended December 31, 2022. Comparison of Results of Operations for the Years Ended December 31, 2022 and 2021 General. Net income for the year ended December 31, 2022 was $133.7 million, or $1.05 per diluted share, a decrease of $20.7 million, or 13.4%, from $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021. The decrease in net income resulted from an increase in the provision for credit losses of $29.7 million, or 250.3%, and a decrease in noninterest income of $32.0 million, or 22.4%. Partially offsetting these unfavorable variances was an increase in net interest income of $29.4 million, or 7.5%, a decrease in income tax expense of $6.8 million, or 14.5%, and a decrease in noninterest expense of $4.9 million, or 1.4%. Net income for the year ended December 31, 2022 represents returns on average equity and average assets of 8.80% and 0.94%, respectively, compared to 9.91% and 1.08% for the year ended December 31, 2021. A discussion of significant changes follows. 39 Table of Contents Interest Income. Total interest income increased by $30.3 million, or 7.2%, to $448.8 million for the year ended December 31, 2022 from $418.5 million for the year ended December 31, 2021. This increase is the result of increases in the average yield on interest-earning assets as well as the average balance of interest-earning assets, and specifically the change in our interest-earning asset mix. The average yield earned on interest-earning assets increased to 3.39% for the year ended December 31, 2022 from 3.16% for the year ended December 31, 2021 due to the rising interest rate environment. The average balance of interest-earning assets increased by $17.6 million, or 0.1%, to $13.254 billion for the year ended December 31, 2022 from $13.236 billion for the year ended December 31, 2021. Interest income on loans receivable increased by $17.5 million, or 4.5%, to $407.8 million for the year ended December 31, 2022 from $390.3 million for the year ended December 31, 2021. This increase in interest income on loans receivable is due to increases in the average yield on loans receivable as well as the average balance of loans receivable. The average yield earned on loans receivable increased to 3.95% for the year ended December 31, 2022 from 3.81% for the year ended December 31, 2021 primarily due to the increase in market interest rates. The average balance of loans receivable increased $79.3 million, or 0.8%, to $10.319 billion for the year ended December 31, 2022 from $10.240 billion for the year ended December 31, 2021 driven mainly by growth in our retail portfolio as commercial Paycheck Protection Program ( “ PPP”) loans continued to payoff. Interest income on mortgage-backed securities increased by $9.3 million, or 43.5%, to $30.8 million for the year ended December 31, 2022 from $21.5 million for the year ended December 31, 2021. This increase is attributed to increases in both the average yield of mortgage-backed securities and the average balance. The average yield on mortgage-backed securities increased to 1.56% for the year ended December 31, 2022 from 1.26% for the year ended December 31, 2021 due to the purchase of fixed-rate mortgage-backed securities with yields higher than the existing portfolio. Additionally, the average balance of mortgage-backed securities increased by $264.5 million, or 15.5%, to $1.969 billion for the year ended December 31, 2022 from $1.704 billion for the year ended December 31, 2021. This increase was primarily a result of additional purchases as we deployed interest-earning deposits into higher yielding investments throughout 2022. Interest income on investment securities increased by $736,000, or 14.4%, to $5.8 million for the year ended December 31, 2022 from $5.1 million for the year ended December 31, 2021. This increase is primarily the result of an increase in the average balance of investment securities of $30.7 million, or 8.8%, to $381.5 million for the year ended December 31, 2022 from $350.8 million for the year ended December 31, 2021. Additionally, the average yield on investment securities increased to 1.53% for the year ended December 31, 2022 from 1.45% for the year ended December 31, 2021. Dividends on FHLB stock increased by $323,000, or 79.4%, to $730,000 for the year ended December 31, 2022 from $407,000 for the year ended December 31, 2021. This increase is the result of an increase in the average yield on FHLB stock to 4.27% for the year ended December 31, 2022 from 2.01% for the year ended December 31, 2021 as the FHLB of Pittsburgh increased dividend rates on required stock holdings in relation to higher market interest rates. Partially offsetting this increase was a decrease in the average balance of FHLB stock of $3.2 million, or 15.6%, to $17.1 million for the year ended December 31, 2022 from $20.2 million for the year ended December 31, 2021. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB. Interest income on interest-earning deposits increased by $2.4 million, or 201.4%, to $3.6 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021. This increase is attributable to an increase in the average yield on interest-earning deposits to 0.63% for the year ended December 31, 2022 from 0.13% for the year ended December 31, 2021, as a result of increases in the targeted federal funds rate by the Federal Reserve. This was partially offset by a decrease in the average balance of interest-earning deposits by $353.8 million, or 38.4%, to $567.6 million for the year ended December 31, 2022 from $921.4 million for the year ended December 31, 2021 as we deployed funds into higher yielding loans and investments. Interest Expense. Interest expense increased by $871,000, or 3.2%, to $28.1 million for the year ended December 31, 2022 from $27.2 million for the year ended December 31, 2021 due to an increase in the average cost of interest-bearing liabilities to 0.30% for the year ended December 31, 2022 from 0.29% for the year ended December 31, 2021. This increase was due to increases in the interest rates paid on borrowed funds and junior subordinated debentures in response to increases in market interest rates. Partially offsetting these increases was a decrease in the average balance of interest-bearing liabilities of $120.5 million, or 1.3%, to $9.381 billion for the year ended December 31, 2022 from $9.501 billion for the year ended December 31, 2021. This decrease in average balance was driven by a decrease in average deposits by $191.7 million, or 2.1%, as customers utilized funds for higher inflationary purchases and searched for higher alternative yields. 40 Table of Contents Net Interest Income. Net interest income increased by $29.4 million, or 7.5%, to $420.7 million for the year ended December 31, 2022 from $391.3 million for the year ended December 31, 2021. This increase was attributable to the factors discussed above, specifically the increase in interest income which was partially offset by the increase in interest expense on borrowed funds. Our interest rate spread increased to 3.09% for the year ended December 31, 2022 from 2.88% for the year ended December 31, 2021, and our net interest margin increased to 3.17% for the year ended December 31, 2022 from 2.96% for the year ended December 31, 2021 due to the change in market rates as well as the change in our interest-earning asset mix. Provision for Credit Losses. We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements. The provision for credit losses increased by $29.7 million, or 250.3%, to a provision expense of $17.9 million for the year ended December 31, 2022 compared to a provision credit of $11.9 million for the year ended December 31, 2021. The current period provision was driven primarily by growth within our loan portfolio as well as a deterioration in the most recent economic forecasts reflected in our allowance for credit loss models, including a reduction in home and used vehicle values. The negative provision in the prior year was driven by the improvements in the economic forecasts compared to the uncertainty that existed in 2020 for industries impacted by COVID-19. Total classified loans decreased by $126.9 million, or 34.9%, to $236.2 million at December 31, 2022 from $363.2 million at December 31, 2021. In addition, net charge-offs to average loans decreased to 0.02% for the year ended December 31, 2022 from 0.20% for the year ended December 31, 2021. In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in collateral values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”. The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2022. Noninterest Income. Noninterest income decreased by $32.0 million, or 22.4%, to $110.8 million for the year ended December 31, 2022 from $142.9 million for the year ended December 31, 2021. This decrease was primarily driven by the sale of our insurance business on April 30, 2021, resulting in a $25.3 million pre-tax gain during the prior year. This insurance business sale in the prior year also resulted in a decrease in insurance commission income of $3.6 million from the year ended December 31, 2021. Also contributing to this decrease was a decrease in mortgage banking income of $11.0 million, or 69.4%, to $4.9 million for the year ended December 31, 2022 from $15.9 million for the year ended December 31, 2021, due primarily to the volatile interest rate environment causing unfavorable pricing in the secondary market, as well as a slowdown in mortgage loan activity in general. Partially offsetting these decreases were increases in service charges and fees, other operating income, and income from bank-owned life insurance. Service charges and fees increased $3.4 million, or 6.5%, to $55.2 million for the year ended December 31, 2022 from $51.8 million for the year ended December 31, 2021 due to increased customer activity in 2022 after COVID-19 restricted behavior in the prior year. Other operating income increased $3.3 million, or 28.0%, to $15.3 million for the year ended December 31, 2022 from $12.0 million for the year ended December 31, 2022, resulting from gains on the sale of branch buildings associated with the previously announced branch consolidations and improvements in other fee income. Lastly, income from bank-owned life insurance increased $1.1 million, or 17.8%, to $7.1 million for the year ended December 31, 2022 from $6.1 million for the year ended December 31, 2021 due to additional death benefits received during the current year. Noninterest Expense. Noninterest expense decreased by $4.9 million, or 1.4%, to $340.0 million for the year ended December 31, 2022 from $344.9 million for the year ended December 31, 2021 due to decreases across the majority of expense categories. Compensation and employee benefits decreased $5.5 million, or 2.9%, to $188.4 million for the year ended December 31, 2022 from $193.9 million for the year ended December 31, 2021, despite recognizing approximately $1.4 million of additional expense related to the acceleration of compensation and stock benefits upon the passing of our former Chief Executive Officer. This decrease in compensation and employee benefits, as well as a $1.5 million, or 4.7%, decrease in premises and occupancy costs, to $29.6 million for the year ended December 31, 2022 from $31.1 million for the year ended December 31, 2021, was driven primarily by the branch consolidations completed in April 2022. Processing expenses decreased $3.3 million, or 5.9%, to $52.5 million for the year ended December 31, 2022 from $55.8 million for the year ended December 31, 2021, due to the prior year investment in technology and infrastructure. Professional services decreased $2.9 million, or 16.6%, to $14.7 million for the year ended December 31, 2022 from $17.6 million for the year ended December 31, 2021 primarily due to the utilization of third-party experts to assist with our digital strategy rollout during the prior year. Lastly, amortization of intangible assets decreased $1.3 million, or 23.0%, to $4.3 million for the year ended December 31, 2022 compared to $5.6 million for the year ended December 31, 2021 due to previously acquired intangbile assets being fully amortized. These decreases were partially offset by an increase in other expenses of $7.3 million, or 87.9%, to $15.7 million for the year ended December 31, 2022 from $8.3 million for the year ended December 31, 2021 primarily due to the increase in the reserve for unfunded commitments associated with the origination of loans with current off-balance sheet exposure. We experienced an increase of $2.2 million, or 62.7%, in merger, asset disposition and restructuring expense to $5.6 million for the year ended December 31, 2022 from $3.5 million for the year ended December 31, 2021 due to severance and fixed asset charges related to the branch and personnel optimization to be completed during the first quarter of 2023. 41 Table of Contents Income Taxes. The provision for income taxes decreased by $6.8 million, or 14.5%, to $40.0 million for the year ended December 31, 2022 from $46.8 million for the year ended December 31, 2021. This decrease in income tax expense is primarily due to the $27.4 million, or 13.6%, decrease in pretax income to $173.7 million for the year ended December 31, 2022 from $201.1 million for the year ended December 31, 2021. In addition, our effective tax rate for the year ended December 31, 2022 was 23.0% compared to 23.3% for the year ended December 31, 2021. Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020 General. Net income for the year ended December 31, 2021 was $154.3 million, or $1.21 per diluted share, an increase of $79.5 million, or 106.2%, from $74.9 million, or $0.62 per diluted share, for the year ended December 31, 2020. The increase in net income resulted from a decrease in provision for credit losses of $95.9 million, or 114.2%, an increase in noninterest income of $10.6 million, or 8.0%, and a decrease in noninterest expense of $2.6 million, or 0.7%. Partially offsetting these increases was an increase in income tax expense of $29.1 million, or 164.8%, and a decrease in net interest income of $466,000, or 0.1%. Net income for the year ended December 31, 2021 represents returns on average equity and average assets of 9.91% and 1.08%, respectively, compared to 4.72% and 0.58% for the year ended December 31, 2020. A discussion of significant changes follows. Interest Income. Total interest income decreased by $15.6 million, or 3.6%, to $418.5 million for the year ended December 31, 2021 from $434.1 million for the year ended December 31, 2020. This decrease is the result of decreases in the average yield on interest-earning assets to 3.16% for the year ended December 31, 2021 from 3.70% for the year ended December 31, 2020. This decrease in average yield is attributed to a decline in overall market interest rates. Partially offsetting this decrease in rates was an increase in the average balance of interest-earning assets of $1.503 billion, or 12.8%, to $13.236 billion for the year ended December 31, 2021 from $11.733 billion for the year ended December 31, 2020. Interest income on loans receivable decreased by $20.6 million, or 5.0%, to $390.3 million for the year ended December 31, 2021 from $410.9 million for the year ended December 31, 2020. This decrease in interest income on loans receivable is primarily due to a decrease in the average yield on loans receivable to 3.81% for the year ended December 31, 2021 from 4.07% for the year ended December 31, 2020 primarily due to the decrease in market interest rates. Partially offsetting this decrease was an increase in the average balance of loans receivable which increased $135.2 million, or 1.3%, to $10.240 billion for the year ended December 31, 2021 from $10.104 billion for the year ended December 31, 2020 primarily due to growth in our consumer portfolio. At December 31, 2021, there was $69.4 million in PPP loans outstanding, and included in loan interest income for the year ended December 31, 2021 was $14.6 million of accretion related to PPP fees, net of origination costs, compared to $5.7 million for the year ended December 31, 2020. Interest income on mortgage-backed securities increased by $4.0 million, or 23.2%, to $21.5 million for the year ended December 31, 2021 from $17.4 million for the year ended December 31, 2020. This increase is the result of an increase in the average balance of mortgage-backed securities by $814.3 million, or 91.5%, to $1.704 billion for the year ended December 31, 2021 from $889.7 million for the year ended December 31, 2020. This increase was primarily a result of additional purchases utilizing excess cash from deposit growth during the current year. Partially offsetting this increase in average balance was a decrease in the average yield on mortgage-backed securities to 1.26% for the year ended December 31, 2021 from 1.96% for the year ended December 31, 2020. This decrease in yield was the result of the new security purchases made at lower yields due to decreases in market interest rates. Interest income on investment securities increased by $1.1 million, or 26.1%, to $5.1 million for the year ended December 31, 2021 from $4.0 million for the year ended December 31, 2020. This increase is primarily the result of an increase in the average balance of investment securities of $154.7 million, or 78.9%, to $350.8 million for the year ended December 31, 2021 from $196.1 million for the year ended December 31, 2020, which was primarily due to the utilization of excess funds from deposit growth. Partially offsetting this increase in average balances was a decrease in the average yield on investment securities to 1.45% for the year ended December 31, 2021 from 2.06% for the year ended December 31, 2020 as new investment purchases were at lower yields than the existing portfolio due to lower market interest rates. Dividends on FHLB stock decreased by $574,000, or 58.5%, to $407,000 for the year ended December 31, 2021 from $981,000 for the year ended December 31, 2020. This decrease is the result of decreases in the average yield on FHLB stock which decreased to 2.01% for the year ended December 31, 2021 from 4.50% for the year ended December 31, 2020. The FHLB of Pittsburgh decreased yields on required stock holdings due to lower market interest rates. In addition, the average balance of FHLB stock decreased by $1.6 million, or 7.1%, to $20.2 million for the year ended December 31, 2021 from $21.8 million for the year ended December 31, 2020. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB. 42 Table of Contents Interest income on interest-earning deposits increased by $475,000, or 66.1%, to $1.2 million for the year ended December 31, 2021 from $719,000 for the year ended December 31, 2020. This increase is attributable to an increase in the average balance of interest-earning deposits. The average balance increased by $400.7 million, or 77.0%, to $921.4 million for the year ended December 31, 2021 from $520.7 million for the year ended December 31, 2020 due to excess liquidity from steady deposit inflows. Partially offsetting this increase was a decrease in the average yield on interesting-earning deposits to 0.13% for the year ended December 31, 2021 from 0.14% for the year ended December 31, 2020. Interest Expense. Interest expense decreased by $15.1 million, or 35.6%, to $27.2 million for the year ended December 31, 2021 from $42.3 million for the year ended December 31, 2020. This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities which decreased to 0.29% for the year ended December 31, 2021 from 0.49% for the year ended December 31, 2020. This decrease resulted from decreases in the interest rates paid on deposits and junior subordinated debentures in response to decreases in market interest rates. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $797.9 million, or 9.2%, to $9.501 billion for the year ended December 31, 2021 from $8.703 billion for the year ended December 31, 2020. This increase in average balance resulted from internal growth in deposits and the issuance of $125.0 million of fixed-to-floating subordinated debt in September of 2020. Net Interest Income. Net interest income remained relatively flat, decreasing by $466,000, or 0.1%, to $391.3 million for the year ended December 31, 2021 from $391.7 million for the year ended December 31, 2020. This decline was attributable to the overall decrease in interest income and interest expense that largely offset each other. Our interest rate spread decreased to 2.88% for the year ended December 31, 2021 from 3.21% for the year ended December 31, 2020 and our net interest margin also decreased to 2.96% for the year ended December 31, 2021 from 3.34% for the year ended December 31, 2020 primarily due to the change in interest-earning asset mix. Contributing to the decline was an increase in average cash balances of $400.7 million, earning 0.13%, due to deposit growth associated with PPP loan funds and consumer stimulus checks. Provision for Credit Losses. We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements. The provision for credit losses decreased by $95.9 million, or 114.2%, to a net credit of $11.9 million for the year ended December 31, 2021 compared to a provision expense of $84.0 million for the year ended December 31, 2020. The prior year provision was elevated due to the uncertainty of COVID-19 and the negative effects to the economic forecasts. Throughout 2021, we were able to release those credit loss reserves that were previously built up as the economic forecasts and our overall credit quality improved. Total classified loans decreased by $126.1 million, or 25.8%, to $363.2 million at December 31, 2021 from $489.3 million at December 31, 2020. In addition, net charge-offs to average loans decreased to 0.20% for the year ended December 31, 2021 from 0.27% for the year ended December 31, 2020. In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in real estate values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”. The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2021. Noninterest Income. Noninterest income increased by $10.6 million, or 8.0%, to $142.9 million for the year ended December 31, 2021 from $132.3 million for the year ended December 31, 2020. This increase is largely due to the $25.3 million gain recognized on the sale of the insurance business in the second quarter of 2021. Also contributing to this increase was a $7.0 million, or 33.5%, increase in trust and other financial services income to $27.9 million for the year ended December 31, 2021 from $20.9 million for the year ended December 31, 2020 as a result of growth in both customer accounts and market gains. Partially offsetting these increases, was a decrease in mortgage banking income of $15.5 million, or 49.4%, to $15.9 million for the year ended December 31, 2021 from $31.4 million for the year ended December 31, 2020, due primarily to the impact of less favorable pricing in the secondary market. Additionally, service charges and fees decreased $3.8 million, or 6.8%, to $51.8 million for the year ended December 31, 2021 from $55.6 million for the year ended December 31, 2020 due to the impact of the Durbin amendment on our interchange fees which came into effect in the second half of 2020. Noninterest Expense. Noninterest expense decreased by $2.6 million, or 0.7%, to $344.9 million for the year ended December 31, 2021 from $347.5 million for the year ended December 31, 2020. This decrease was primarily due to a decrease of $17.3 million, or 83.4%, in merger, asset disposition and restructuring expense to $3.5 million for the year ended December 31, 2021 from $20.8 million for the year ended December 31, 2020 due to expenses incurred in the prior year for the MutualBank acquisition and the 2020 branch optimization initiative. Also, other expenses decreased $8.1 million, or 49.4%, to $8.3 million for the year ended December 31, 2021 from $16.5 million for the year ended December 31, 2020 primarily due to the decrease in the reserve for unfunded commitments. The prior year was significantly impacted by the onset of COVID-19 and the uncertainty surrounding the possible negative effect on loan commitments and undrawn lines of credit. Partially offsetting these decreases was an increase in compensation and employee benefits of $15.5 million, or 8.7%, to $193.9 million for the year ended December 31, 2021 from $178.4 43 Table of Contents million for the year ended December 31, 2020 primarily due to increases in health insurance and other benefits costs, regular merit expense and the addition of MutualBank and other strategic personnel. Additionally, processing expenses increased $5.7 million, or 11.4%, to $55.8 million for the year ended December 31, 2021 from $50.1 million for the year ended December 31, 2020, as we continue to invest in technology and infrastructure as well as increases in activity-driven utilization fees for ATM, check card and online and mobile banking. Lastly, professional service expense increased $5.1 million, or 41.2%, to $17.6 million for the year ended December 31, 2021 from $12.5 million for the year ended December 31, 2020 primarily due to the utilization of third-party experts to assist with our digital strategy rollout. Income Taxes. The provision for income taxes increased by $29.1 million, or 164.8%, to $46.8 million for the year ended December 31, 2021 from $17.7 million for the year ended December 31, 2020. This increase in income tax expense is primarily due to the $108.6 million, or 117.4%, increase in pretax income to $201.1 million for the year ended December 31, 2021 from $92.5 million for the year ended December 31, 2020. In addition, our effective tax rate for the year ended December 31, 2021 was 23.3% compared to 19.1% for the year ended December 31, 2020. Asset Quality We actively manage asset quality through our underwriting practices and collection procedures. Our underwriting practices are focused on balancing risk and return while our collection operations focus on diligently working with delinquent borrowers in an effort to minimize losses. Collection procedures . Our collection procedures for personal loans generally provide that at 15 days delinquent, a notice of late charges is sent and personal contact efforts are attempted by telephone to strengthen the collection process and obtain reasons for the delinquency. Also, plans to establish a payment program are developed. Personal contact efforts are continued throughout the collection process, as necessary. Generally, if a loan becomes 30 days past due, a collection letter is sent and the loan becomes subject to possible legal action if suitable arrangements for payment have not been made. In addition, the borrower is given information which provides access to consumer counseling services to the extent required by the regulations of the Department of Housing and Urban Development and other applicable authorities. When a loan continues in a delinquent status for 60 days or more, and a payment schedule has not been developed or kept by the borrower, we may send the borrower a notice of intent to foreclose, providing for cure periods of at least 30 days. If not cured, foreclosure proceedings are initiated. Nonperforming assets . Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of all contractual principal and/or interest is doubtful. Loans are automatically placed on nonaccrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual status is reversed and charged against interest income. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time that it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal. If the value of the property is less than the principal balance, less any related specific credit loss reserve allocations, the difference is charged against the allowance for credit losses. Any subsequent write-down of real estate owned or loss at the time of disposition is charged against earnings. Nonaccrual, Past Due, Restructured Loans and Nonperforming Assets . The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan becomes 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual principal and/or interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan. 44 Table of Contents At December 31, 2022 2021 (Dollars in thousands) Loans 90 days or more past due: Residential mortgage loans $ 5,574 7,641 Home equity loans 2,257 4,262 Vehicle loans 2,471 1,635 Consumer loans 608 765 Commercial real estate loans 7,589 23,489 Commercial real estate loans - owner occupied 278 574 Commercial loans 1,829 1,105 Total loans 90 days or more past due $ 20,606 39,471 Total real estate owned (REO) $ 413 873 Total loans 90 days or more past due and REO 21,019 40,344 Total loans 90 days or more past due to net loans receivable 0.19 % 0.40 % Total loans 90 days or more past due and REO to total assets 0.15 % 0.28 % Nonperforming assets: Nonaccrual loans - loans 90 days or more past due $ 19,861 39,140 Nonaccrual loans - loans less than 90 days past due 61,375 119,331 Loans 90 days or more past due still accruing 744 331 Total nonperforming loans 81,980 158,802 Total nonperforming assets $ 82,393 159,675 Nonaccrual troubled debt restructuring loans (1) $ 29,239 17,216 Accruing troubled debt restructuring loans 11,442 13,072 Total troubled debt restructuring loans $ 40,681 30,288 (1) Also included in nonaccrual loans above. Classification of Assets . Our policies, consistent with regulatory guidelines, provide for the classification of loans, or other assets including other real estate owned, considered to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable”. Assets classified as “loss” are those considered “uncollectible” so that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated as “special mention”. At December 31, 2022, we had 122 loans, with an aggregate principal balance of $62.5 million, designated as “special mention”. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. Our largest classified assets generally are also our largest nonperforming assets. The following table sets forth the aggregate amount of our classified assets at the dates indicated. At December 31, 2022 2021 (In thousands) Substandard assets $ 236,653 364,035 Doubtful assets — — Loss assets — — Total classified assets $ 236,653 364,035 Allowance for Credit Losses . Our Board of Directors has adopted an “Allowance for Credit Losses” (“ACL”) policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines. 45 Table of Contents On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each region to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”. Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” have all the weakness inherent in those classified as “doubtful” and are considered uncollectible. Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed. If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly. If a substandard or doubtful loan is not individually assessed, it is grouped with other loans that possess common characteristics for credit losses and analysis. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a twenty four month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period. The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Losses Committee (“ACL Committee”) monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit. In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and/or the Pennsylvania Department of Banking and Securities perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly. We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated. We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of December 31, 2022, we considered the most recent economic conditions and forecasts available. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by $15.8 million, or 15.4%, to $118.0 million, or 1.08% of gross loans at December 31, 2022 from $102.2 million, or 1.02% of total loans, at December 31, 2021 . During 2021, we were able to release credit loss reserves that we had previously built up as a result of 46 Table of Contents the estimated economic impact of COVID-19. Throughout 2022, we have again seen a deterioration in economic forecasts, specifically including a reduction in home and used vehicle sales. These forecasts, in addition to organic loan growth, as well as the previously noted loan purchases, contributed to the increase in ACL in the current year. Quarterly, management’s Credit Committee reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas. The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ACL levels and ratios compared to our peer group as well as state and national statistics. We also consider how the levels of non-accrual loans and h istorical charge-offs have influenced the required amount of ACL. Nonaccrual loans of $81.2 million, or 0.74% of total gross loans receivable at December 31, 2022, decreased by $77.2 million, or 48.7%, from $158.5 million, or 1.59% of total gross loans receivable, at December 31, 2021. This decrease was primarily related to upgrades to loans within our commercial real estate portfolio. As a percentage of average loans, net charge-offs decreased to 0.02% for the year ended December 31, 2022 compared to 0.20% for the year ended December 31, 2021. Analysis of the Allowance for Credit Losses . The following table sets forth the analysis of the allowance for credit losses for the periods indicated. Years ended December 31, 2022 2021 (Dollars in thousands) Loans receivable $ 10,920,452 10,016,392 Average loans outstanding 10,318,898 10,239,620 Allowance for credit losses Balance at beginning of period 102,241 134,427 Provision for credit losses 17,860 (11,883) Charge-offs: Residential mortgage loans (2,033) (3,672) Home equity loans (1,469) (3,380) Vehicle loans (3,621) (4,632) Consumer loans (4,785) (5,417) Commercial real estate loans (7,366) (11,933) Commercial real estate loans - owner occupied — (890) Commercial loans (1,657) (4,213) Total charge-offs (20,931) (34,137) Recoveries: Residential mortgage loans 792 935 Home equity loans 1,531 900 Vehicle loans 2,334 2,536 Consumer loans 1,553 2,360 Commercial real estate loans 10,364 2,189 Commercial real estate loans - owner occupied 85 107 Commercial loans 2,207 4,807 Total recoveries 18,866 13,834 Balance at end of period $ 118,036 102,241 Allowance for credit losses as a percentage of loans receivable 1.08 % 1.02 % Net charge-offs as a percentage of average loans outstanding: Residential mortgage loans 0.04 % 0.09 % Home equity loans — % 0.18 % Vehicle loans 0.07 % 0.16 % Consumer loans 3.24 % 0.97 % Commercial real estate loans (0.12) % 0.35 % Commercial real estate loans - owner occupied (0.02) % 0.19 % Commercial loans (0.06) % (0.06) % Total Average Loans Receivable 0.02 % 0.20 % Allowance for credit losses as a percentage of nonperforming loans 143.98 % 64.38 % Allowance for credit losses as a percentage of nonperforming assets 143.26 % 64.03 % 47 Table of Contents Allocation of Allowance for Credit Losses . The following tables set forth the allocation of the allowance for credit losses by loan category at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category. At December 31, 2022 2021 Amount % of total loans (1) Amount % of total loans (1) (Dollars in thousands) Balance at end of year applicable to: Residential mortgage loans $ 19,261 32.0 % $ 7,373 29.9 % Home equity loans 5,902 11.9 % 5,300 13.2 % Vehicle loans 23,059 18.8 % 15,483 14.8 % Consumer loans 665 1.0 % 2,884 3.5 % Commercial real estate loans 44,506 22.5 % 54,141 26.2 % Commercial real estate loans - owner occupied 4,004 3.4 % 3,883 3.9 % Commercial loans 20,639 10.4 % 13,177 8.5 % Total $ 118,036 100.0 % $ 102,241 100.0 % (1) Represents percentage of loans in each category to total loans. 48 Table of Contents Average Balance Sheets The following tables set forth average balance sheets, average yields, on a fully taxable equivalent (“FTE”) basis, and average costs, and certain other information at and for the periods indicated. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances. The yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense. The effect of these fees is not considered material. The average yield for loans receivable and investment securities are calculated on a FTE basis. There were no out-of-period adjustments or other exclusions from the amounts presented in the table. For the years ended December 31, 2022 2021 2020 Average balance Interest Average yield/cost (11) Average balance Interest Average yield/cost (11) Average balance Interest Average yield/cost (11) (Dollars in thousands) Interest-earning assets: Loans receivable (includes FTE adjustments of $1,954, $1,922, and $2,223, respectively) (1), (2), (3) $ 10,318,898 409,782 3.97 % $ 10,239,620 392,265 3.83 % $ 10,104,453 413,131 4.09 % Mortgage-backed securities (4) 1,968,528 30,804 1.56 % 1,704,006 21,463 1.26 % 889,744 17,416 1.96 % Investment securities (includes FTE adjustments of $834, $747, and $797, respectively) (4), (5) 381,518 6,671 1.75 % 350,806 5,848 1.67 % 196,071 4,841 2.47 % FHLB stock, at cost 17,065 730 4.27 % 20,229 407 2.01 % 21,781 981 4.50 % Interest-earning deposits 567,609 3,599 0.63 % 921,360 1,194 0.13 % 520,666 719 0.14 % Total interest-earning assets (includes FTE adjustments of $2,788, $2,669, and $3,020, respectively) 13,253,618 451,586 3.41 % 13,236,021 421,177 3.18 % 11,732,715 437,088 3.73 % Noninterest-earning assets (6) 924,080 1,072,313 1,159,405 Total assets $ 14,177,698 $ 14,308,334 $ 12,892,120 Interest-bearing liabilities: Savings deposits $ 2,336,217 2,343 0.10 % $ 2,232,454 2,440 0.11 % $ 1,885,517 2,640 0.14 % Interest-bearing demand deposits 2,810,889 1,517 0.05 % 2,862,677 1,660 0.06 % 2,432,427 3,358 0.14 % Money market deposit accounts 2,613,422 3,377 0.13 % 2,554,975 2,570 0.10 % 2,224,904 6,995 0.31 % Time deposits 1,161,432 6,883 0.59 % 1,463,522 12,452 0.85 % 1,687,381 22,903 1.36 % Borrowed funds (7) 212,026 4,531 2.14 % 135,285 616 0.46 % 315,116 1,628 0.52 % Subordinated debt 117,625 4,750 4.04 % 123,457 4,980 4.03 % 31,326 1,562 4.99 % Junior subordinated debentures 129,175 4,716 3.60 % 128,915 2,528 1.93 % 126,683 3,254 2.53 % Total interest-bearing liabilities 9,380,786 28,117 0.30 % 9,501,285 27,246 0.29 % 8,703,354 42,340 0.49 % Noninterest-bearing demand deposits (8) 3,070,892 2,999,392 2,357,725 Noninterest-bearing liabilities 207,316 250,075 246,294 Total liabilities 12,658,994 12,750,752 11,307,373 Shareholders’ equity 1,518,704 1,557,582 1,584,747 Total liabilities and shareholders’ equity $ 14,177,698 $ 14,308,334 $ 12,892,120 Net interest income 423,469 393,931 394,748 Net interest rate spread (9) 3.11 % 2.89 % 3.24 % Net interest-earning assets/net interest margin (10) $ 3,872,832 3.20 % $ 3,734,736 2.98 % $ 3,029,361 3.36 % Ratio of average interest-earning assets to average interest-bearing liabilities 1.41X 1.39X 1.35X (1) Average gross loans receivable includes loans held as available-for-sale and loans placed on nonaccrual status. (2) Interest income includes accretion/amortization of deferred loan fees/expenses, which was not material. (3) Interest income on tax-free loans is presented on a FTE basis including adjustments, as indicated. (4) Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale. (5) Interest income on tax-free investment securities is presented on a FTE basis including adjustments, as indicated. (6) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale. (7) Average balances include FHLB borrowings and collateralized borrowings. (8) Average cost of deposits was 0.12%, 0.16% and 0.34%, respectively. (9) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (10) Net interest margin represents net interest income as a percentage of average interest-earning assets. (11) Shown on a FTE basis and in consideration of applicable current federal, state and local tax rates. GAAP basis yields for the years ended December 31, 2022, 2021 and 2020 were - Loans: 3.95%, 3.81%, and 4.07%, respectively, Investment securities: 1.53%, 1.45%, and 2.06%, respectively, Interest-earning assets: 3.39%, 3.16%, and 3.70%, respectively. GAAP basis net interest rate spreads were 3.09%, 2.88%, and 3.21%, respectively, and GAAP basis net interest margins were 3.17%, 2.96%, and 3.34% respectively. 49 Table of Contents Rate/Volume Analysis The following table presents, on a FTE basis, the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the year ended December 31, 2022 compared to 2021 and for the year ended December 31, 2021 compared to 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the prior year rate; (2) changes in rate multiplied by the prior year volume; and (3) the total increase or decrease. Changes not solely attributable to rate or volume have been allocated proportionately to the change due to volume and the change due to rate. There were no out-of-period adjustments or other exclusions from the amounts presented in the table. Years ended December 31, 2022 vs. 2021 Years ended December 31, 2021 vs. 2020 Increase/(decrease) due to Total increase/(decrease) Increase/(decrease) due to Total increase/(decrease) Rate Volume Rate Volume (In thousands) Interest-earning assets: Loans receivable $ 14,458 3,059 17,517 (26,044) 5,178 (20,866) Mortgage-backed securities 5,194 4,147 9,341 (6,209) 10,256 4,047 Investment securities 275 548 823 (1,572) 2,579 1,007 FHLB stock, at cost 458 (135) 323 (543) (31) (574) Interest-earning deposits 4,564 (2,159) 2,405 (42) 517 475 Total interest-earning assets 24,949 5,460 30,409 (34,410) 18,499 (15,911) Interest-bearing liabilities: Savings deposits (217) 120 (97) (579) 379 (200) Interest-bearing demand deposits (172) 29 (143) (1,947) 250 (1,697) Money market deposit accounts 746 61 807 (4,757) 332 (4,425) Time deposits (3,767) (1,802) (5,569) (8,547) (1,905) (10,452) Borrowed funds 2,269 1,646 3,915 (193) (819) (1,012) Subordinated debt 10 (240) (230) (298) 3,716 3,418 Junior subordinated debentures 2,184 4 2,188 (761) 35 (726) Total interest-bearing liabilities 1,053 (182) 871 (17,082) 1,988 (15,094) Net change in net interest income $ 23,896 5,642 29,538 (17,328) 16,511 (817) Liquidity and Capital Resources Northwest Bank is required to maintain a sufficient level of liquid assets, as determined by management and defined and reviewed for adequacy by the FDIC during their regular examinations. The FDIC, however, does not prescribe by regulation a minimum amount or percentage of liquid assets. The FDIC allows us to consider any unencumbered, available-for-sale marketable security, whose sale would not impair our capital adequacy, to be eligible for liquidity. Liquidity is monitored through the use of a standard liquidity ratio of liquid assets to borrowings plus deposits. Using this formula, Northwest Bank’s liquidity ratio was 9.59% as of December 31, 2022. We adjust our liquidity level in order to meet funding needs of deposit outflows, repayment of borrowings and loan commitments. We also adjust liquidity as appropriate to meet our asset and liability management objectives. Liquidity needs can also be met by temporarily drawing upon lines-of-credit established for such reasons. At December 31, 2022, Northwest Bank had $3.091 billion of additional borrowing capacity available with the FHLB of Pittsburgh, including a $250.0 million overnight line of credit, which had a balance of $51.3 million at December 31, 2022, as well as $96.0 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks. In addition to deposits, our primary sources of funds are the amortization and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rate levels, economic conditions, and competition. We manage the pricing of our deposits to maintain a desired deposit balance. In addition, we invest excess funds in short-term interest earning and other assets, which provide liquidity to meet lending requirements. Short-term interest-earning deposits amounted to $33.8 million at December 31, 2022. For additional information about our cash flows from operating, financing, and investing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements. 50 Table of Contents A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing, and financing activities. The primary sources of cash during the current year were net income, principal repayments on loans and mortgage-backed securities and net increase in deposits. Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh and the Federal Reserve Bank of Cleveland, which provide an additional source of funds. At December 31, 2022, Northwest Bank had an outstanding balance of $551.3 million with the FHLB of Pittsburgh. We borrow from these sources to reduce interest rate risk and to provide liquidity when necessary. At December 31, 2022, our customers had $1.095 billion of unused lines of credit available and $248.6 million in loan commitments. This amount does not include the unfunded portion of loans in process. Time deposits scheduled to mature in less than one year at December 31, 2022, totaled $ 754.6 million . We believe that a significant portion of such deposits will remain with us. Deposits are our primary source of externally generated funds. The level of deposit inflows during any given period is heavily influenced by factors outside of our control, such as consumer savings tendencies, the general level of short-term and long-term market interest rates, as well as higher alternative yields that investors may obtain on competing investments such as money market mutual funds. Financial institutions, such as Northwest Bank, are also subject to deposit outflows. Our net deposits decreased by $836.6 million for the year ended December 31, 2022, increased by $701.9 million for the year ended December 31, 2021 and increased by $3.007 billion for the year ended December 31, 2020. Similarly, the amount of principal repayments on loans and the amount of new loan originations is heavily influenced by the general level of market interest rates, consumer confidence and consumer spending. Funds received from loan maturities and principal payments on loans for the years ended December 31, 2022, 2021 and 2020 were $4.047 billion, $4.490 billion, $4.384 billion, respectively. Loan originations for the years ended December 31, 2022, 2021 and 2020 were $4.948 billion, $4.715 billion, and $5.386 billion, respectively. We also sell a portion of the loans we originate as part of our mortgage banking operations, and the cash flows from such sales for the years ended December 31, 2022, 2021 and 2020 were $383.9 million, $804.7 million, and $704.7 million, respectively. We experience significant cash flows from our portfolio of marketable securities as principal payments are received on mortgage-backed securities and as investment securities mature or are called. Cash flows from the repayment of principal and the maturity or call of marketable securities for the years ended December 31, 2022, 2021 and 2020 were $330.4 million, $517.9 million, and $396.3 million, respectively. When necessary, we utilize borrowings as a source of liquidity and as a source of funds for long-term investment when market conditions permit. The net cash flow from the receipt and repayment of borrowings was a net increase of $532.0 million, a net decrease of $20.7 million, and a net decrease of $192.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. Northwest Bancshares, Inc. is a separate legal entity from Northwest Bank and must provide for its own liquidity to pay dividends to shareholders, to repurchase its common stock and for other corporate purposes. Northwest Bancshares’ primary source of liquidity is the dividend payments it receives from Northwest Bank. During 2020, Northwest Bancshares, Inc. issued $125.0 million of subordinated debt. At December 31, 2022, Northwest Bancshares, Inc. (on an unconsolidated basis) had liquid assets of $174.1 million. Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $101.5 million million, $100.3 million, and $93.1 million for years the ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022, stockholders’ equity totaled $1.491 billion. During 2022, our Board of Directors declared regular quarterly cash dividends totaling $0.80 per share of common stock. We monitor the capital levels of Northwest Bank to provide for current and future business opportunities and to meet regulatory guidelines for “well capitalized” institutions. Northwest Bank is required by the Pennsylvania Department of Banking and Securities and the FDIC to meet minimum capital adequacy requirements. At December 31, 2022, Northwest Bank exceeded all regulatory minimum capital requirements and is considered to be “well capitalized”. In addition, as of December 31, 2022, we were not aware of any recommendation by a regulatory authority that, if it were implemented, would have a material effect on liquidity, capital resources or operations. 51 Table of Contents Regulatory Capital Requirements. Northwest Bank is subject to minimum capital requirements established by the FDIC. See “Item 1. Business Supervision and Regulation — Capital Requirements and Prompt Corrective Action”. The following table summarizes Northwest Bank’s total shareholders’ equity, regulatory capital, total risk-based assets, and leverage and risk-based capital ratios at the dates indicated. At December 31, 2022 2021 (Dollars in thousands) Total shareholders’equity (GAAP capital) $ 1,562,610 1,714,817 Add: Accumulated other comprehensive loss 159,511 25,980 Less: non-qualifying intangible assets (269,159) (273,435) CET 1 capital 1,452,962 1,467,362 Additions to Tier 1 capital — — Leverage or Tier 1 capital 1,452,962 1,467,362 Add: Tier 2 capital (1) 115,240 83,722 Total risk-based capital $ 1,568,202 1,551,084 Average assets for leverage ratio $ 14,017,646 14,251,169 Net risk-weighted assets including off-balance-sheet items $ 10,659,180 9,855,420 CET 1 capital ratio 13.631 % 14.889 % Minimum requirement 4.500 % 4.500 % Leverage capital ratio 10.365 % 10.296 % Minimum requirement 4.000 % 4.000 % Total risk-based capital ratio 14.712 % 15.738 % Minimum requirement 8.000 % 8.000 % (1) Tier 2 capital consists of the allowance for credit losses, which is limited to 1.25% of total risk-weighted assets as detailed under the regulations of the FDIC, and 45% of pre-tax net unrealized gains on securities available-for-sale. Northwest Bank is also subject to capital guidelines of the Pennsylvania Department of Banking. Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% total risk-based capital. See “Item 1. Business — Supervision and Regulation — Capital Requirements and Prompt Corrective Action”. Contractual Obligations. We are obligated to make future payments according to various contracts. The following table presents the expected future payments of the contractual obligations aggregated by obligation type at December 31, 2022. Payments due Less than one year One year to less than three years Three years to less than five years Five years or greater Total (In thousands) Supplemental Executive Retirement Plan (1) $ — — — 1,140 1,140 Term notes payable to the FHLB of Pittsburgh (2) 551,300 — — — 551,300 Collateralized borrowings (2) 105,766 — — — 105,766 Collateral received (2) 24,100 — — — 24,100 Subordinated debentures (2) — — — 114,800 114,800 Junior subordinated debentures (2) — — — 129,314 129,314 Operating leases (3) 6,007 10,275 9,570 49,294 75,146 Total $ 687,173 10,275 9,570 294,548 1,001,566 Commitments to extend credit $ 248,636 — — — 248,636 (1) See Note 14 to the Consolidated Financial Statements, Employee Benefit Plans, for additional information. (2) See Note 10 to the Consolidated Financial Statements, Borrowed Funds, for additional information. (3) See Note 2 to the Consolidated Financial Statements, Leases, for additional information. Impact of Inflation and Changing Prices. The Consolidated Financial Statements and notes thereto, presented elsewhere herein, have been prepared in accordance with United States generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. 52 Table of Contents Off-Balance-Sheet Arrangements. As a financial services provider, we are routinely a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we routinely enter into commitments to purchase and sell residential mortgage loans.