What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 107 added, 262 removed, 250 unchanged (60% of the section changed)

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• the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the outbreak of coronavirus (COVID-19) and the significant impact that such outbreak has had and may continue to have on our growth, operations and earnings;

• changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

• changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally;

• changes in laws or government regulations or policies affecting financial insitutions, including changes in regulatory fees and capital requirements;

• changes in federal, state, or local tax laws and tax rates;

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• technological changes that may be more difficult or expensive than expected;

• changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;

• the ability of third-party providers to perform their obligations to us;

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• our ability to receive regulatory approvals for proposed transactions or new lines of business;

• the effects of any federal government shutdown;

• the effects of any federal government shutdown or the inability of the federal government to manage debt limits;

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

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The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity.

This guidance is effective as of March 12, 2020 through December 31, 2022.

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.

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

Comparison of Financial Condition

Total assets at September 30, 2022 were $13.953 billion, a decrease of $548.4 million, or 3.8%, from $14.502 billion at December 31, 2021.

This decrease in assets was due to decreases in total cash and cash equivalents and marketable securities, partially offset by an increase in loans receivable, as described in further detail below.

Total cash and cash equivalents decreased by $1.161 billion, or 90.7%, to $118.5 million at September 30, 2022 from $1.279 billion at December 31, 2021.

This decrease was 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 nine months ended September 30, 2022.

Total marketable securities decreased by $165.5 million, or 7.1%, to $2.151 billion at September 30, 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.

Total loans receivable increased by $725.1 million, or 7.2%, to $10.742 billion at September 30, 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 loan portfolio increased by $649.8 million, or 10.6%, to $6.803 billion at September 30, 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.

Total deposits decreased by $422.8 million, or 3.4%, to $11.878 billion at September 30, 2022 from $12.301 billion at December 31, 2021.

This decrease was primarily due to decreases in time and demand deposit accounts of $393.6 million, or 5.3%.

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.

Total shareholders’ equity at September 30, 2022 was $1.460 billion, or $11.50 per share, a decrease of $123.8 million, or 7.8%, from $1.584 billion, or $12.51 per share, at December 31, 2021.

This decrease was primarily the result of an increase in accumulated other comprehensive loss of $153.5 million due to an increase in unrealized losses in the available-for-sale investment portfolio as a result of rising interest rates.

These decreases were partially offset by year-to-date earnings of $99.0 million, net of $76.1 million of cash dividend payments.

Total assets at March 31, 2023 were $14.194 billion, an increase of $80.5 million, or 0.6%, from $14.113 billion at December 31, 2022.

This increase in assets was driven by an increase in loans receivable, partially offset by decreases in both cash and cash equivalents and marketable securities.

A discussion of significant changes follows.

Total cash and cash equivalents decreased by $42.9 million, or 30.8%, to $96.5 million at March 31, 2023 from $139.4 million at December 31, 2022.

This decrease was primarily driven by organic loan growth.

Total marketable securities decreased by $27.8 million, or 1.3%, to $2.072 billion at March 31, 2023 from $2.099 billion at December 31, 2022.

Held-to-maturity securities decreased $15.2 million and available-for-sale marketable securities decreased $12.6 million due to the maturity and the monthly cash flows from marketable securities being redeployed into higher interest-earning products.

Gross loans receivable increased by $171.8 million, or 1.6%, to $11.092 billion at March 31, 2023, from $10.920 billion at December 31, 2022.

This increase was attributable to organic loan growth.

Our commercial and industrial (C&I) loan portfolio increased by $114.1 million, or 10.1%, to $1.246 billion at March 31, 2023, from $1.132 billion at December 31, 2022, and our consumer portfolio, comprised primarily of indirect automobile loans, increased by $63.5 million, or 2.9%, to $2.232 billion at March 31, 2023 compared to $2.169 billion at December 31, 2022.

Total deposits increased by $72.6 million, or 0.6%, to $11.537 billion at March 31, 2023 from $11.465 billion at December 31, 2022.

This increase was primarily driven by a $524.5 million, or 49.8%, increase in time deposits due to customer preferences for this fixed maturity product in a higher interest rate environment.

Partially offsetting this increase were decreases in demand deposit accounts of $242.1 million, or 4.3%, as we believe customers used funds during the period of higher inflationary costs.

In addition, savings and money market deposits decreased by $209.8 million, or 4.4%, due to customers choosing higher yielding product alternatives.

Total shareholders’ equity at March 31, 2023 was $1.513 billion, or $11.91 per share, an increase of $21.8 million, or 1.5%, from $1.491 billion, or $11.74 per share, at December 31, 2022.

This increase was the result of quarterly earnings of $33.7 million, as well as a decrease in accumulated other comprehensive loss of $12.6 million due to a decrease in unrealized losses in the available-for-sale investment portfolio as a result of the current rate environment.

These increases were partially offset by a $25.4 million payment of cash dividends.

Regulatory Capital

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Capital requirements are presented in the tables below (in thousands).

At September 30, 2022

At March 31, 2023

Actual Minimum capital requirements (1) Well capitalized requirements

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We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking and Securities during their regular examinations.

Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”).

Northwest Bank’s liquidity ratio at September 30, 2022 was 9.74%.

Northwest frequently monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”).

Northwest Bank’s liquidity ratio at March 31, 2023 was 10.71%.

We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments.

At September 30, 2022, Northwest had $3.502 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit which had a balance of $11.9 million at September 30, 2022, as well as $98.9 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks.

We paid $25.4 million in cash dividends during the quarters ended September 30, 2022 and 2021.

The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 69.0% and 74.1% for the quarters ended September 30, 2022 and September 30, 2021, respectively, on dividends of $0.20 per share.

On O ctober 24, 2022, the Board of Directors declared a cash dividend of $0.20 per share payable on November 14, 2022 to shareholders of record as of November 3, 2022.

At March 31, 2023, Northwest had $3.041 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit which had a drawn balance of $183.7 million at March 31, 2023, as well as $304.6 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks.

We paid $25.4 million and $25.3 million in cash dividends during the quarters ended March 31, 2023 and 2022, respectively.

The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 76.9% and 90.9% for the quarters ended March 31, 2023 and March 31, 2022, respectively, on dividends of $0.20 per share.

On April 19, 2023, the Board of Directors declared a cash dividend of $0.20 per share payable on May 15, 2023 to shareholders of record as of May 4, 2023.

This represents the 114 th consecutive quarter we have paid a cash dividend.

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Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands)

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Total nonaccrual loans to total loans 0.71 % 0.74 %

Nonaccrual TDR loans (1) $ 30,406 17,216

Accruing TDR loans 16,344 13,072

Total TDR loans $ 46,750 30,288

(1) Included in nonaccrual loans above.

Allowance for Credit Losses

We adopted CECL on January 1, 2020, as further described in Note 1(f) of the Notes to the Consolidated Financial Statements in Item 8 of Part II of our 2021 Annual Report on Form 10-K.

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

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

On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans.

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

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

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

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

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

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

conditions or values, highly questionable and improbable.

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

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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 Loss Committee (“ACL Committee”) monthly.

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.

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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 September 30, 2022, we considered the most recent economic conditions and forecasts available which incorporated the impact of material recent economic events.

As part of the analysis as of March 31, 2023, we considered the most recent economic conditions and forecasts available which incorporated the impact of material recent economic events.

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 $7.6 million, or 7.4%, to $109.8 million, or 1.02% of total loans at September 30, 2022 from $102.2 million, or 1.02% of total loans, at December 31, 2021.

Total classified loans decreased $125.4 million, or 34.5%, to $237.7 million at September 30, 2022 from $363.2 million at December 31, 2021.

This decrease was primarily due to the upgrade and payoff of loans in our commercial real estate portfolio during the current year.

The ACL increased by $3.2 million, or 2.7%, to $121.3 million, or 1.09% of total loans at March 31, 2023 from $118.0 million, or 1.08% of total loans, at December 31, 2022.

This increase was the result of continued deterioration in economic forecasts as well as organic loan growth.

Total classified loans decreased $27.6 million, or 11.7%, to $208.6 million at March 31, 2023 from $236.2 million at December 31, 2022.

This decrease was primarily driven by upgrades and payoffs of loans in our commercial real estate portfolio during the current quarter.

We also consider how the levels of nonaccrual loans and historical charge-offs have influenced the required amount of allowance for credit losses.

Nonaccrual loans of $83.6 million, or 0.78% of total loans receivable at September 30, 2022, decreased by $74.8 million, or 47.2%, from $158.5 million, or 1.59% of total loans receivable at December 31, 2021.

This decrease was primarily related to upgrades to loans within our commercial real estate portfolio.

We experienced an annualized net recovery during the quarter ended September 30, 2022 of 0.14%, as a percentage of average loans, compared to a total net charge-off 0.20% as a percentage of average loans for the year ended December 31, 2021.

The net recovery was primarily from the recovery of a previously charged-off commercial real estate loan.

Comparison of Operating Results for the Quarters Ended September 30, 2022 and 2021

Net income for the quarter ended September 30, 2022 was $37.3 million, or $0.29 per diluted share, an increase of $2.2 million, or 6.4%, from net income of $35.1 million, or $0.27 per diluted share, for the quarter ended September 30, 2021.

The increase in net income primarily resulted from a $14.3 million, or 14.6%, increase in net interest income, as well as a decrease in noninterest expense of $3.5 million, or 4.1%.

These increases were partially offset by an increase in the provision for credit losses of $12.0 million, or 276.6%, a decrease in noninterest income of $2.4 million, or 8.2%, and a $1.2 million, or 11.0%, increase in income tax expense.

Net income for the quarter ended September 30, 2022 represents annualized returns on average equity and average assets of 9.84% and 1.05%, respectively, compared to 8.86% and 0.97% for the same quarter last year.

Nonaccrual loans of $78.6 million, or 0.71% of total loans receivable at March 31, 2023, decreased by $2.6 million, or 3.2%, from $81.2 million, or 0.74% of total loans receivable at December 31, 2022.

This decrease was primarily related to upgrades of loans within our commercial real estate portfolio.

As a percentage of average loans, annualized net charge-offs increased to 0.08% for the quarter ended March 31, 2023 compared to 0.02% for the year ended December 31, 2022 due to several large recoveries during 2022.

Comparison of Operating Results for the Quarters Ended March 31, 2023 and 2022

Net income for the quarter ended March 31, 2023 was $33.7 million, or $0.26 per diluted share, an increase of $5.4 million, or 19.1%, from net income of $28.3 million, or $0.22 per diluted share, for the quarter ended March 31, 2022.

The increase in net income resulted primarily from an increase in net interest income of $21.8 million, or 24.1%, partially offset by increases in noninterest expense, the provision for credit losses, and the provision for income tax expense.

Noninterest expense increased $7.1 million, or 8.8%, the provision for credit losses increased $4.9 million, and the provision for income tax expense increased $2.7 million, or 35.4%.

Additionally, noninterest income decreased $1.8 million, or 6.9%.

Net income for the quarter ended March 31, 2023 represents annualized returns on average equity and average assets of 9.11% and 0.97%, respectively, compared to 7.17% and 0.80% for the same quarter last year.

A further discussion of notable changes follows.

Interest Income

Total interest income increased $13.6 million, or 13.0%, to $118.6 million for the quarter ended September 30, 2022 from $105.0 million for the quarter ended September 30, 2021.

This increase was due to an increase in the average yield earned on interest-earning assets to 3.58% for the quarter ended September 30, 2022 from 3.13% for the quarter ended September 30, 2021 due to the rising interest rate environment, as well as the change in our interest-earning asset mix.

This was partially offset by a decline in the average balance of interest-earning assets of $177.9 million, or 1.3%, to $13.156 billion for the quarter ended September 30, 2022 from $13.334 billion for the quarter ended September 30, 2021, driven by a decrease in other interest-earning deposits.

Interest income on loans receivable increased by $9.5 million, or 9.7%, to $106.9 million for the quarter ended September 30, 2022 compared to $97.5 million for the quarter ended September 30, 2021.

This increase in interest income was due to increases in both the average yield and average balance on loans receivable.

The average yield increased to 4.05% for the quarter ended September 30, 2022 , from 3.79% from the quarter ended September 30, 2021 , due to the increase in market interest rates.

The average balance of loans receivable increased by $254.6 million, or 2.5%, to $10.481 billion for the quarter ended September 30, 2022 from $10.226 billion for the quarter ended September 30, 2021 due to organic loan growth as well as the purchases 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 nine months ended September 30, 2022 .

Interest income on mortgage-backed securities increased by $2.8 million, or 48.7%, to $8.7 million for the quarter ended September 30, 2022 compared to $5.8 million for the quarter ended September 30, 2021.

This increase was driven by an increase in the average yield on mortgage-backed securities to 1.72% for the quarter ended September 30, 2022 from 1.27% for the quarter ended September 30, 2021 due to the purchase of mortgage-backed securities with yields higher than the existing portfolio.

Additionally, the average balance of mortgage-backed securities increased $186.8 million, or 10.2%, to $2.020 billion for the quarter ended September 30, 2022 from $1.833 billion for the quarter ended September 30, 2021.

This increase in average balance was primarily a result of additional purchases as we deployed interest-earning deposits into higher yielding investments.

Interest income on investment securities increased by $270,000, or 21.1%, for the quarter ended September 30, 2022 to $1.5 million from $1.3 million for the quarter ended September 30, 2021.

This increase was due to an increase in the average balance of investment securities by $40.1 million, or 11.5%, to $388.8 million for the quarter ended September 30, 2022 from $348.6 million for the quarter ended September 30, 2021.

The average yield on investment securities increased to 1.59% for the quarter ended September 30, 2022 from 1.47% for the quarter ended September 30, 2021.

Dividends on FHLB stock increased by $77,000, or 108.5%, to $148,000 for the quarter ended September 30, 2022 from $71,000 for the quarter ended September 30, 2021.

This increase was due to the average yield increasing to 4.19% for the quarter ended September 30, 2022 from 1.31% for the quarter ended September 30, 2021 due to increases in market interest rates.

This was partially offset by a decrease in the average balance of FHLB stock of $7.6 million, or 35.1%, to $14.0 million for the quarter ended September 30, 2022 from $21.6 million for the quarter ended September 30, 2021.

Total interest income increased $38.5 million, or 39.9%, to $134.9 million for the quarter ended March 31, 2023 from $96.4 million for the quarter ended March 31, 2022.

This increase is attributable to an increase in the average yield earned on interest-earning assets as well as the change in our interest-earning asset mix.

The average yield earned on interest-earning assets increased to 4.13% for the quarter ended March 31, 2023 from 2.91% for the quarter ended March 31, 2022 due to the continued rising interest rate environment.

This was partially offset by a decline in the average balance of interest-earning assets of $198.6 million, or 1.5%, to $13.252 billion for the quarter ended March 31, 2023 from $13.450 billion for the quarter ended March 31, 2022, primarily driven by a decrease in other interest-earning deposits, offset by an increase in the average balance of loans receivable, described further below.

Interest income on loans receivable increased by $35.6 million, or 40.3%, to $123.7 million for the quarter ended March 31, 2023 compared to $88.2 million for the quarter ended March 31, 2022.

This increase in interest income was the result of increases in both the average yield on loans receivable and the average balance of loans receivable.

The average yield on loans receivable increased to 4.61% for the quarter ended March 31, 2023 from 3.61% for the quarter ended March 31, 2022, due to the increase in market interest rates.

Additionally, the average balance of loans receivable increased $988.3 million, or 10.0%, to $10.887 billion for the quarter ended March 31, 2023 from $9.899 billion for the quarter ended March 31, 2022, due to organic loan growth in our retail portfolio.

Additionally contributing to loan growth were purchases of loan pools during 2022, including $182.8 million in small business equipment finance loans and $188.3 million of one- to four-family jumbo mortgage loans.

Interest income on mortgage-backed securities increased by $2.2 million, or 34.2%, to $8.5 million for the quarter ended March 31, 2023 compared to $6.4 million for the quarter ended March 31, 2022.

This increase was driven by an increase in the average yield on mortgage-backed securities to 1.79% for the quarter ended March 31, 2023 from 1.31% for the quarter ended March 31, 2022 due to the purchase of higher yielding mortgage-backed securities in the prior year.

This increase in the average yield was offset slightly by a $35.5 million, or 1.8%, decrease in the average balance of mortgage-backed securities to $1.910 billion for the quarter ended March 31, 2023 from $1.945 billion for the quarter ended March 31, 2022 due to regular payments and maturities.

Interest income on investment securities increased by $194,000, or 14.4%, to $1.5 million for the quarter ended March 31, 2023 from $1.4 million for the quarter ended March 31, 2022.

This increase was attributable to increases in both the average yield and average balance of investment securities.

The average yield on investment securities increased to 1.61% for the quarter ended

March 31, 2023 from 1.45% for the quarter ended March 31, 2022.

In addition, the average balance increased by $11.0 million, or 2.9%, to $384.7 million for the quarter ended March 31, 2023 from $373.7 million for the quarter ended March 31, 2022.

Dividends on FHLB stock increased by $609,000, or 751.9%, to $690,000 for the quarter ended March 31, 2023 from $81,000 for the quarter ended March 31, 2022.

This increase was due to the increase in the average balance of FHLB stock of $25.8 million, or 185.7%, to $39.6 million for the quarter ended March 31, 2023 from $13.9 million for the quarter ended March 31, 2022.

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 $943,000 to $1.3 million for the quarter ended September 30, 2022 from $352,000 for the quarter ended September 30, 2021.

This increase was driven by an increase in the average yield on interest-earning deposits to 2.00% for the quarter ended September 30, 2022 from 0.15% for the quarter ended September 30, 2021, due to the Federal Reserve Board raising targeted short-term interest rates.

The average balance of interest-earning deposits decreased by $651.9 million, or 72.0%, to $253.2 million for the quarter ended September 30, 2022 from $905.1 million for the quarter ended September 30, 2021 as the Bank has deployed these funds into higher yielding loans and investments.

In addition, the average yield increased to 7.06% for the quarter ended March 31, 2023 from 2.38% for the quarter ended March 31, 2022 due to increases in market interest rates.

Interest income on interest-earning deposits decreased by $44,000, or 9.4%, to $423,000 for the quarter ended March 31, 2023 from $467,000 for the quarter ended March 31, 2022.

The average balance of interest-earning deposits decreased by $1.188 billion, or 97.5%, to $30.8 million for the quarter ended March 31, 2023 from $1.219 billion for the quarter ended March 31, 2022 as the Bank redeployed these funds into higher yielding loans and investments.

Offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to 5.50% for the quarter ended March 31, 2023 from 0.15% for the quarter ended March 31, 2022, due to the aggressive campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

Interest Expense

Interest expense decreased by $729,000, or 11.1%, to $5.9 million for the quarter ended September 30, 2022 from $6.6 million for the quarter ended September 30, 2021.

This decrease in interest expense was primarily due to the decrease in the average

balance of interest-bearing deposits of $287.8 million, or 3.0%, to $9.246 billion for the quarter ended September 30, 2022 from $9.534 billion for the quarter ended September 30, 2021.

Additionally, there was a decline in the average cost of interest-bearing liabilities, which decreased to 0.25% for the quarter ended September 30, 2022 from 0.27% for the quarter ended September 30, 2021.

This decrease resulted from the overall change in the mix of deposit accounts as customers move from fixed-rate time deposits to more liquid deposit accounts.

In addition, d espite a rising interest rate environment, we have been able to keep our cost of deposits stable.

Interest expense increased by $16.7 million, or 286.9%, to $22.5 million for the quarter ended March 31, 2023 from $5.8 million for the quarter ended March 31, 2022 due to the increase in the average cost of interest-bearing liabilities to 0.96% for the quarter ended March 31, 2023 from 0.25% for the quarter ended March 31, 2022.

This increase in cost of funds was primarily attributable to increases in the interest rates paid on borrowed funds and deposit accounts in response to increases in market interest rates as well as a change in mix to higher funding cost products.

Partially offsetting this increase was a decrease in the average balance of interest-bearing liabilities of $61.1 million, or 0.64%, to $9.497 billion for the quarter ended March 31, 2023 from $9.559 billion for the quarter ended March 31, 2022.

This decrease in average balance was driven by a decrease in average deposits by $656.6 million, or 7.2%, as we believe customers used funds during a period of higher inflationary costs and searched for higher alternative yields.

The decrease in the average deposit balance was funded by an increase in average borrowed funds by $604.9 million.

Net Interest Income

Net interest income increased by $14.3 million, or 14.6%, to $112.7 million for the quarter ended September 30, 2022 from $98.4 million for the quarter ended September 30, 2021.

Net interest income increased by $21.8 million, or 24.1%, to $112.5 million for the quarter ended March 31, 2023 from $90.6 million for the quarter ended March 31, 2022.

This increase is attributable to the factors discussed above.

Additionally, our interest rate spread increased to 3.33% for the quarter ended September 30, 2022 from 2.86% for the quarter ended September 30, 2021, and our net interest margin increased to 3.40% for the quarter ended September 30, 2022 from 2.95% for the quarter ended September 30, 2021, primarily due to rising interest-earning asset yields in response to recent increases in market interest rates.

Our interest rate spread increased to 3.17% for the quarter ended March 31, 2023 from 2.66% for the quarter ended March 31, 2022 and our net interest margin increased to 3.44% for the quarter ended March 31, 2023 from 2.73% for the quarter ended March 31, 2022 due to the change in market rates as well as the change in our interest-earning asset mix.

Provision for Credit Losses

The provision for credit losses increased by $12.0 million, or 276.6%, to a current period provision expense of $7.7 million for the quarter ended September 30, 2022 from a negative provision of $4.4 million the quarter ended September 30, 2021.

The current period provision was driven by loan portfolio growth during the current year as well as a deterioration in the economic forecasts utilized in our allowance for credit loss models.

The credit to the provision in the prior year was driven by improvements in the economic forecasts compared to the uncertainty that existed in 2020 to the industries impacted by COVID-19.

In determining the amount of the current period provision, we considered current and forecasted economic conditions, including but not limited to unemployment levels, expected economic growth, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience.

The provision for credit losses increased by $4.9 million to $5.0 million for the quarter ended March 31, 2023 compared to $115,000 for the quarter ended March 31, 2022.

The current period provision for credit losses includes $4.9 million for credit losses - loans and $126,000 for credit losses - unfunded commitments.

The prior period provision for credit losses included a credit of $1.5 million for credit losses - loans and $1.6 million for credit losses - unfunded commitments.

T he $6.4 million increase in the provision for credit losses - loans was driven by continued growth within our loan portfolio, as well as forecasted economic deterioration reflected in our allowance for credit loss models.

This was partially offset by a $1.5 million decrease in our provision for credit losses - unfunded commitments compared to the same quarter last year based on the timing of the origination of loans with current off-balance sheet exposure.

As noted above, the Company continued to experience improvement in asset quality as total classified loans decreased by $111.3 million, or 34.8%, to $208.6 million at March 31, 2023 from $319.9 million at March 31, 2022 resulting primarily from upgrades and payoffs within our commercial real estate portfolio .

In determining the amount of the current period provision, we considered current and forecasted economic conditions, including but not limited to improvements in unemployment levels, expected economic growth, bankruptcy filings, and changes in real estate values and 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 September 30, 2022.

Noninterest Income

Noninterest income decreased by $2.4 million, or 8.2%, to $26.8 million for the quarter ended September 30, 2022 from $29.2 million for the quarter ended September 30, 2021.

This decrease was primarily due to a decline in our mortgage banking income of $3.2 million, or 80.6%, to $766,000 for the quarter ended September 30, 2022 from $3.9 million for the quarter ended September 30, 2021.

This decrease reflects the impact of less favorable pricing in the secondary market, due primarily to the volatile interest rate environment, as well as decreased mortgage volumes.

Partially offsetting this decrease was an increase in service charges and fees of $1.1 million, or 8.5%, to $14.3 million for the quarter ended September 30, 2022 compared to $13.2 million for the quarter ended September 30, 2021, as customer activity increased in 2022 after COVID-19 restricted behavior in the prior year.

Noninterest income decreased by $1.8 million, or 6.9%, to $24.0 million for the quarter ended March 31, 2023 from $25.7 million for the quarter ended March 31, 2022.

This decrease was primarily due to a decrease in mortgage banking income of $941,000, or 64.2%, to $524,000 for the quarter ended March 31, 2023 from $1.5 million for the quarter ended March 31, 2022 due to the volatile interest rate environment causing less favorable pricing in the secondary market, as well as a decrease in mortgage volumes primarily due to higher market interest rates.

In addition, income from bank-owned life insurance decreased $714,000, or 36.0%, to $1.3 million for the quarter ended March 31, 2023 from $2.0 million for the quarter ended March 31, 2022 due to death benefits received in the prior year.

Noninterest Expense

Noninterest expense decreased by $3.5 million, or 4.1%, to $82.6 million for the quarter ended September 30, 2022 from $86.1 million for the quarter ended September 30, 2021.

Almost all expense categories decreased as the Company continues to focus on controlling costs and improving efficiency.

Compensation and employee benefits decreased $2.4 million, or 4.8%, to $46.7 million for the quarter ended September 30, 2022 from $49.1 million for the quarter ended September 30, 2021, driven primarily by the branch consolidations completed in April 2022.

Professional services decreased $932,000, or 21.7%, to $3.4 million for the quarter ended September 30, 2022 from $4.3 million for the quarter ended September 30, 2021 due to the use of third-party consulting services during the prior year.

Offsetting these decreases was an increase in other expenses of $1.7 million, or 75.4%, to $3.9 million for the quarter ended September 30, 2022 from $2.2 million for the quarter ended September 30, 2021 due to an increase in our unfunded loan loss reserve associated with the origination of loans with current off balance sheet exposure.

The provision for income taxes increased by $1.2 million, or 11.0%, to $12.0 million for the quarter ended September 30, 2022 from $10.8 million for the quarter ended September 30, 2021.

Noninterest expense increased by $7.1 million, or 8.8%, to $87.5 million for the quarter ended March 31, 2023 from $80.3 million for the quarter ended March 31, 2022.

This increase was attributable to increases in professional services, processing expenses, acquisition expense, and federal deposit insurance premiums.

Professional service s increased $2.2 million, or 84.9%, to $4.8 million for the quarter ended March 31, 2023 from $2.6 million for the quarter ended March 31, 2022 due to the use of third-party consulting and staffing support.

Processing expenses increased $1.8 million, or 14.4%, to $14.4 million for the quarter ended March 31, 2023 from $12.5 million for the quarter ended March 31, 2022 due to the implementation of additional third party software programs.

Merger, asset disposition, and restructuring expense increased $1.4 million, or 103.9%, to $2.8 million for the quarter ended March 31, 2023 from $1.4 million for the quarter ended March 31, 2022 due to the severance and fixed asset charges related to the branch optimization and personnel reduction announced during the fourth quarter of 2022.

Lastly, FDIC insurance premiums increased $1.1 million, or 96.9%, to $2.2 million for the quarter ended March 31, 2023 from $1.1 million for the quarter ended March 31, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023.

The provision for income taxes increased by $2.7 million, or 35.4%, to $10.3 million for the quarter ended March 31, 2023 from $7.6 million for the quarter ended March 31, 2022.

This increase in income taxes was due to an increase in income before taxes in the current year.

We anticipate our effective tax rate to be between 22.5% and 24.5% for the year ending December 31, 2023.

Comparison of Operating Results for the Nine Months Ended September 30, 2022 and 2021

Net income for the nine months ended September 30, 2022 was $99.0 million, or $0.78 per diluted share, a decrease of $25.3 million, or 20.3%, from $124.3 million, or $0.97 per diluted share, for the nine months ended September 30, 2021.

The decrease in net income resulted primarily from a decrease in noninterest income of $32.9 million, or 28.4%, as well as an increase in the provision for credit losses of $18.8 million, or 188.6% .

These unfavorable fluctuations were partially offset by a $9.3 million, or 3.6%, decrease in noninterest expense, a $9.0 million, or 3.1%, increase in net interest income, and a decrease in income tax expense of $8.1 million, or 21.5%.

Net income for the nine months ended September 30, 2022 represents annualized returns on average equity and average assets of 8.61% and 0.93%, respectively, compared to 10.67% and 1.17% for the nine months ended September 30, 2021.

A further discussion of notable changes follows.

Interest Income

Total interest income increased by $5.4 million, or 1.7%, to $320.9 million for the nine months ended September 30, 2022 from $315.6 million for the nine months ended September 30, 2021.

This increase is the result of increases in the average yield earned 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 3.23% for the nine months ended September 30, 2022 from 3.20% for the nine months ended September 30, 2021 due to the recent rising interest rate environment.

The average balance of interest-earning assets increased by $143.0 million, or 1.1%, to $13.301 billion for the nine months ended September 30, 2022 from $13.158 billion for the nine months ended September 30, 2021 p rimarily driven by growth in the mortgage-backed securities portfolio which offset the decreases in the average balance of loans receivable.

Interest income on loans receivable decreased by $4.4 million, or 1.5%, to $290.7 million for the nine months ended September 30, 2022 from $295.0 million for the nine months ended September 30, 2021.

This decrease is attributed to a decrease in the average balance of loans receivable by $127.7 million, or 1.2%, to $10.182 billion for the nine months ended September 30, 2022 from $10.309 billion for the nine months ended September 30, 2021 due primarily to PPP loan forgiveness and the payoff of several classified commercial real estate loan relationships.

The average yield remained consistent at 3.82% for the nine months ended September 30, 2022 and September 30, 2021.

Interest income on mortgage-backed securities increased by $6.5 million, or 41.2%, to $22.2 million for the nine months ended September 30, 2022 from $15.7 million for the nine months ended September 30, 2021.

This increase is attributed to increases in both the average balance and the average yield of mortgage-backed securities.

The average balance increased $332.9 million, or 20.3%, to $1.973 billion for the nine months ended September 30, 2022 from $1.640 billion for the nine months ended September 30, 2021.

This increase was primarily a result of additional purchases as we deployed interest-earning deposits into higher yielding investments.

Additionally, the average yiel d on mortgage-backed securities increased to 1.50% for the nine months ended September 30, 2022 from 1.28% for the nine months ended September 30, 2021 due to the purchase of fixed-rate mortgage-backed securities with yields higher than the existing portfolio.

Interest income on investment securities increased by $523,000, or 13.9%, to $4.3 million for the nine months ended September 30, 2022 from $3.8 million for the nine months ended September 30, 2021.

This increase is primarily attributable to an increase in the average balance of investment securities by $31.7 million, or 9.1%, to $379.9 million for the nine months ended September 30, 2022 from $348.2 million for the nine months ended September 30, 2021.

Additionally, the average yield on investment securities increased to 1.51% for the nine months ended September 30, 2022 from 1.44% for the nine months ended September 30, 2021.

Dividends on FHLB stock decreased by $14,000, or 4.3%, to $311,000 for the nine months ended September 30, 2022 from $325,000 for the nine months ended September 30, 2021.

This decrease was due to an $8.4 million, or 37.9%, decrease in the average balance of FHLB stock to $13.8 million for the nine months ended September 30, 2022 from $22.2 million for the nine months ended September 30, 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.

Partially offsetting the decrease in the balance was an increase in the average yield on FHLB stock to 3.02% for the nine months ended September 30, 2022 from 1.95% for the nine months ended September 30, 2021 as the FHLB of Pittsburgh increased dividend rates on required stock holdings in relation to higher market interest rates.

Interest income on interest-earning deposits increased by $2.7 million to $3.4 million for the nine months ended September 30, 2022 from $727,000 for the nine months ended September 30, 2021.

This increase is attributable to an increase in the average yield on interest-earning deposits to 0.60% for the nine months ended September 30, 2022 from 0.11% for the nine months ended September 30, 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 $85.5 million, or 10.2%, to $753.5 million for the nine months ended September 30, 2022 from $839.0 million for the nine months ended September 30, 2021 as we deployed funds into higher yielding investments.

Interest Expense

Interest expense decreased by $3.7 million, or 17.5%, to $17.3 million for the nine months ended September 30, 2022 from $21.0 million for the nine months ended September 30, 2021.

This decrease in interest expense was driven by decreases in both the average cost and the average balance of interest-bearing liabilities.

The average cost of interest-bearing liabilities decreased to 0.25% for the nine months ended September 30, 2022 from 0.30% for the nine months ended September 30, 2021.

This decrease resulted from decreases in the interest rate paid on deposits as well as the change in deposit mix as customers chose to move funds from fixed-rate time deposits to more liquid deposit accounts.

Despite a rising interest rate environment, we have been able to keep our cost of deposits stable.

Additionally, the yield on time deposits has continued to decrease, from 0.87% for the nine months ended September 30, 2021 to 0.60% for the nine months ended September 30, 2022, as time deposits with higher rates matured and rolled into lower rate deposit products.

This decrease in time deposits has contributed largely to a decrease in the average balance of interest-bearing liabilities of $50.1 million, or 0.5%, to $9.425 billion for the nine months ended September 30, 2022 from $9.475 billion for the nine months ended September 30, 2021.

Net Interest Income

Net interest income increased by $9.0 million, or 3.1%, to $303.6 million for the nine months ended September 30, 2022 from $294.6 million for the nine months ended September 30, 2021.

This increase is attributable to the factors discussed above.

Our interest rate spread and net interest margin both increased over the course of the year.

Our interest rate spread increased to 2.98% for the nine months ended September 30, 2022 from 2.91% for the nine months ended September 30, 2021 and our net interest margin increased to 3.05% for the nine months ended September 30, 2022 from 2.99% for the nine months ended September 30, 2021.

These increases were driven largely by increasing interest rates and a change in balance sheet mix.

Provision for Credit Losses

The provision for credit losses increased by $18.8 million, or 188.6%, to a current period provision expense of $8.8 million for the nine months ended September 30, 2022 from a negative provision of $10.0 million for the nine months ended September 30, 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.

T he 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

Annualized net charge-offs to average loans decreased to 0.02% for the nine months ended September 30, 2022 from 0.19% for the nine months ended September 30, 2021.

Additionally, classified assets declined by $146.6 million, or 38.1%, to $237.7 million, or 2.21% of loans outstanding at September 30, 2022 from $384.4 million, or 3.77% of loans outstanding at September 30, 2021.

In determining the amount of the current period provision, we considered current economic conditions, including but not limited to unemployment levels, bankruptcy filings, and changes in real estate values and 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 September 30, 2022.

Noninterest Income

Noninterest income decreased by $32.9 million, or 28.4%, to $83.0 million for the nine months ended September 30, 2022 from $115.8 million for the nine months ended September 30, 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 nine month period.

This insurance business sale in the prior year also resulted in a decrease in insurance commission income of $3.6 million from the nine months ended September 30, 2021.

In addition, mortgage banking income decreased by $9.4 million, or 68.1%, due to the impact of less favorable secondary market pricing, as well as decreased mortgage volumes.

Partially offsetting these decreases was a $2.7 million, or 7.1%, increase in service charges and fees to $41.1 million for the nine months ended September 30, 2022 from $38.3 million for the nine months ended September 30, 2021 due to increased customer activity in 2022 after COVID-19 restricted behavior in the prior year.

In addition, other operating income increased $1.6 million, or 18.6%, to $10.4 million for the nine months ended September 30, 2022 from $8.8 million for the nine months ended September 30, 2021 due to an increase in swap fee income as well as a gain of approximately $1.0 million from the sale of branch buildings associated with the previously announced consolidation of 20 branch office facilities.

Noninterest Expense

Noninterest expense decreased by $9.3 million, or 3.6%, to $249.3 million for the nine months ended September 30, 2022, from $258.6 million for the nine months ended September 30, 2021.

Spread across almost all expense categories, this decrease was driven by a $3.8 million, or 29.3%, decrease in professional service expense to $9.3 million for the nine months ended September 30, 2022 from $13.1 million for the nine months ended September 30, 2021 due to the utilization of third-party experts to recruit talent, provide consulting services, and to assist with our digital strategy rollout during the prior year.

Compensation and employee benefits expense decreased $3.5 million, or 2.4%, to $141.7 million for the nine months ended September 30, 2022 from $145.2 million for the nine months ended September 30, 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 benefits as well as the $1.7 million, or 7.2%, decrease in premises and occupancy costs are due primarily to branch consolidations completed over the past two years.

Processing expenses decreased $3.2 million, or 7.6%, to $38.9 million for the nine months ended September 30, 2022 from $42.1 million for the nine months ended September 30, 2021 due to the prior year investment in technology and infrastructure.

Partially offsetting these decreases, was a $4.5 million, or 64.3%, increase in other expenses due to an increase in the reserve for unfunded commitments resulting from the origination of loans with current off balance sheet exposure.

The provision for income taxes decreased by $8.1 million, or 21.5%, to $29.5 million for the nine months ended September 30, 2022 from $37.5 million for the nine months ended September 30, 2021.

This decrease was primarily due to the decrease in income before tax of $33.3 million, or 20.6%.

We anticipate our effective tax rate to be between 22.0% and 24.0% for the year ending December 31, 2022.

Average Balance Sheet

3 unchanged sentences

Average balances are calculated using daily averages.

Quarter ended September 30,

balance Interest Avg.

cost (h) Average

balance Interest Avg.

Interest-earning assets:

Residential mortgage loans $ 3,331,173 29,414 3.53 % $ 2,959,794 25,398 3.43 %

Home equity loans 1,274,918 13,658 4.25 % 1,356,131 11,993 3.51 %

Consumer loans 1,981,754 17,256 3.45 % 1,728,563 16,220 3.72 %

Commercial real estate loans 2,842,597 34,158 4.70 % 3,205,839 35,305 4.31 %

Commercial loans 1,050,124 12,978 4.84 % 975,603 9,096 3.65 %

Loans receivable (a) (b) (d) (includes FTE adjustments of $521 and $537, respectively) 10,480,566 107,464 4.07 % 10,225,930 98,012 3.80 %

Mortgage-backed securities (c) 2,019,715 8,683 1.72 % 1,832,876 5,840 1.27 %

Investment securities (c) (d) (includes FTE adjustments of $215 and $189, respectively) 388,755 1,762 1.81 % 348,619 1,466 1.68 %

FHLB stock, at cost 14,028 148 4.19 % 21,607 71 1.31 %

Other interest-earning deposits 253,192 1,295 2.00 % 905,130 352 0.15 %

Total interest-earning assets (includes FTE adjustments of $736 and $726, respectively) 13,156,256 119,352 3.60 % 13,334,162 105,741 3.15 %

Noninterest-earning assets (e) 896,663 1,074,122

Total assets $ 14,052,919 $ 14,408,284

Liabilities and shareholders’ equity

Interest-bearing liabilities:

Savings deposits $ 2,350,248 594 0.10 % $ 2,271,365 603 0.11 %

Interest-bearing demand deposits 2,794,338 360 0.05 % 2,890,905 414 0.06 %

Money market deposit accounts 2,620,850 692 0.10 % 2,565,159 637 0.10 %

Time deposits 1,110,906 1,511 0.54 % 1,423,041 2,886 0.80 %

Borrowed funds (f) 127,073 239 0.75 % 131,199 154 0.47 %

Subordinated debentures 113,695 1,149 4.04 % 123,513 1,277 4.10 %

Junior subordinated debentures 129,207 1,322 4.00 % 128,946 625 1.90 %

Total interest-bearing liabilities 9,246,317 5,867 0.25 % 9,534,128 6,596 0.27 %

Noninterest-bearing demand deposits (g) 3,093,490 3,058,819

Noninterest-bearing liabilities 209,486 244,402

Total liabilities 12,549,293 12,837,349

Shareholders’ equity 1,503,626 1,570,935

Total liabilities and shareholders’ equity $ 14,052,919 $ 14,408,284

Net interest income/Interest rate spread 113,485 3.35 % 99,145 2.87 %

Net interest-earning assets/Net interest margin $ 3,909,939 3.42 % $ 3,800,034 2.97 %

Ratio of interest-earning assets to interest- bearing liabilities 1.42X 1.40X

(a) Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.

(b) Interest income includes accretion/amortization of deferred loan fees/expenses, which were not material.

(d) Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent (“FTE”) basis.

(e) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

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

(g) Average cost of total deposits was 0.11% and 0.15%, respectively.

(h) Annualized.

Shown on a FTE basis.

The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented.

We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

GAAP basis yields were:

loans — 4.05% and 3.79%, respectively;

investment securities — 1.59% and 1.47%, respectively;

interest-earning assets — 3.58% and 3.13%, respectively.

GAAP basis net interest rate spreads were 3.33% and 2.86%, respectively;

and GAAP basis net interest margins were 3.40% and 2.95%, respectively.

Rate/Volume Analysis

(in thousands)

The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated.

Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change.

Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.

For the quarter ended September 30, 2022 vs.

Increase/(decrease) due to Total

increase/(decrease)

Interest-earning assets:

Loans receivable $ 6,908 2,544 9,452

Mortgage-backed securities 2,061 782 2,843

Investment securities 116 180 296

FHLB stock, at cost 155 (78) 77

Other interest-earning deposits 4,188 (3,245) 943

Total interest-earning assets 13,428 183 13,611

Interest-bearing liabilities:

Savings deposits (56) 47 (9)

Interest-bearing demand deposits (65) 11 (54)

Money market deposit accounts 31 24 55

Time deposits (934) (441) (1,375)

Borrowed funds 92 (7) 85

Subordinated debt (19) (109) (128)

Junior subordinated debentures 693 4 697

Total interest-bearing liabilities (258) (471) (729)

Net change in net interest income $ 13,686 654 14,340

Average Balance Sheet

(in thousands)

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

Average balances are calculated using daily averages.

Nine months ended September 30,

Quarter ended March 31,

balance Interest Avg.

17 unchanged sentences

Interest-bearing liabilities:

Savings deposits $ 2,348,944 1,758 0.10 % $ 2,215,553 1,818 0.11 %

Interest-bearing demand deposits 2,842,071 1,008 0.05 % 2,838,822 1,250 0.06 %

Money market deposit accounts 2,647,301 2,067 0.10 % 2,533,676 1,914 0.10 %

Time deposits 1,207,444 5,416 0.60 % 1,499,583 9,845 0.87 %

Savings deposits (g) $ 2,198,988 690 0.13 % $ 2,334,494 592 0.10 %

Interest-bearing demand deposits (g) 2,612,883 951 0.15 % 2,875,430 321 0.05 %

Money market deposit accounts (g) 2,408,582 4,403 0.74 % 2,668,105 653 0.10 %

Time deposits (g) 1,293,609 5,194 1.63 % 1,292,608 2,185 0.69 %

Borrowed funds (f) 740,218 7,938 4.35 % 135,289 158 0.47 %

16 unchanged sentences

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

(g) Average cost of total deposits was 0.11% and 0.16%, respectively.

(g) Average cost of deposits were 0.40% and 0.12%, respectively, average cost of interest-bearing deposits were 0.54% and 0.17%, respectively .

(h) Annualized.

13 unchanged sentences

Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.

For the nine months ended September 30, 2022 vs.

For the quarter ended March 31, 2023 vs.

Increase/(decrease) due to Total

18 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis