What changed in this filing

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Item 1. Business

2024-02-23 compared with 2023-02-24 · 173 added, 62 removed, 431 unchanged (35% of the section changed)

41 unchanged sentences

As of December 31, 2023, the market’s average median household income has increased over the last year by 6.7%, to $67,574, compared to the national median income level of $75,874.

The household income growth rate in Pennsylvania of 11.7%, is projected to be slightly below the national average growth rates during the next five years of 13.4%.

As of December 31, 2022, the market’s unemployment rate was 3.3%, slightly lower than the Commonwealth of Pennsylvania rate of 3.9% and the same as the national average of 3.3%.

The household income growth rate in Pennsylvania of 10.3%, is projected to be slightly higher than the national average growth rates during the next five years of 10.1%.

As of December 31, 2023, the market’s unemployment rate was 2.8%, slightly lower than both the Commonwealth of Pennsylvania rate of 3.5% and the national average of 3.7%.

As of September 30, 2023, the most recent date for which data is available, the House Price Index for the last four quarters in the state of Pennsylvania increased by 8.1%, compared to an increase in the national average of 5.5%.

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Our New York market area has a total population of approximately 2.0 million and total households of approximately 864,000 as of December 31, 2023.

This area has experienced an increase in population between 2010 and 2022, of 1.0%.

This area has experienced an decrease in population between 2020 and 2024, of 0.7%.

The average median household income in this market increased by 0.6% over the last year to $65,563 as of December 31, 2023, compared to the national median income level of $75,874.

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This area has experienced an increase in population between 2020 and 2024, of 1.5%.

The median household income for our Ohio market decreased 0.1% over the last year to $63,928 as of December 31, 2022, compared to the national median income level of $73,503.

The median household income for our Ohio market increased 7.3% over the last year to $68,601 as of December 31, 2023, compared to the national median income level of $75,874.

As of December 31, 2023, the unemployment rate for our Ohio market was 3.1%, compared to the national average of 3.7%.

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Our Indiana market area has a total population of approximately 934,000 and total households of approximately 367,000 as of December 31, 2023.

This area has experienced a decrease in population between 2010 and 2022, of 3.0%.

The population of this area has remained stable between 2020 and 2024.

The median household income for our Indiana market increased 5.6% over the last year to $60,651 as of December 31, 2023, compared to the national median income level of $75,874.

As of December 31, 2022, the unemployment rate for our Indiana market was 3.0%, compared to the national average of 3.3%.

As of December 31, 2023, the unemployment rate for our Indiana market was 3.7%, the same as the national average.

As of September 30, 2023, the House Price Index for the last four quarters in our Indiana market area increased by 6.5%, compared to an increase in the national average of 5.5%.

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We currently sell low-yielding fixed-rate residential mortgage loans with maturities of more than 15 years, and on a more limited basis, those with maturities of 15 years or less, while retaining all adjustable-rate residential mortgage loans.

With the build out of our Columbus, Ohio mortgage fulfillment center, our intention is to sell more loans into the secondary market servicing released.

With the build out of our Columbus, Ohio mortgage fulfillment center, our intention is to sell more loans into the secondary market on a servicing released basis.

We also retain servicing on some of the mortgage loans we sell which generates monthly service fee income.

We generally retain in our portfolio all consumer loans that we originate while we periodically sell participation loans in the multi-family residential, commercial real estate or commercial business loans that we originate in an effort to reduce the concentration of certain individual credits and the risk associated with certain businesses, industries or geographies.

We generally retain in our portfolio all consumer loans that we originate while we periodically sell participation loans in the multi-family residential, commercial real estate and commercial business loans that we originate in an effort to reduce the concentration of certain individual credits and the risk associated with certain businesses, industries or geographies.

Residential Mortgage Loans .

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Limited special financing programs allow for insured loans with loan-to-value ratios of up to 97%, and uninsured loans with loan-to-value ratios up to 100%.

The appraisal process is managed by Northwest Appraisal Services, and appraisals are performed by our in-house appraiser staff or by appraisers deemed qualified by our Residential Appraising Manager.

The appraisal process is managed by the Northwest Appraising Department, and appraisals are performed by our in-house appraiser staff or by appraisers deemed qualified by our Residential Appraising Manager.

We require fire and casualty insurance, as well as a title guaranty regarding good title, on all properties securing our residential mortgage loans.

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Other Consumer Loans .

The principal types of other consumer loans we offer are direct and indirect automobile loans, sales finance loans, unsecured personal loans, credit card loans, and loans secured by deposit accounts.

The principal types of other consumer loans we offer are direct and indirect automobile loans, sales finance loans, unsecured personal loans, credit card loans, and loans secured by investment accounts.

These loans are typically offered with maturities of ten years or less.

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Creditworthiness of the applicant is of primary consideration;

however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

Consumer loans entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, mobile homes, boats, recreation vehicles, appliances and furniture.

however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount for secured products.

In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower.

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This relationship is also our largest commercial real estate loan relationship as of December 31, 2023, of which $117.2 million is attributed to commercial real estate loans.

All loans were performing in accordance with their terms as of December 31, 2022.

All of the underlying loans were performing in accordance with their terms as of December 31, 2023.

Multi-family commercial and commercial real estate loans are offered with both adjustable and fixed interest rates.

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Our general policy is to make no loans, either individually or in the aggregate to one borrower or single source of repayment, in excess of $30.0 million.

For loans originated and managed within the Corporate Finance portfolio the Total Credit Exposure limit is increased to $50.0 million for borrowers with a strong credit profile and a risk rating of 3 or better.

The Aggregate Credit Exposure limit is $100.0 million.

Under certain circumstances, for instance well-qualified customers or customers with multiple individually qualified projects, this limit may be exceeded subject to the approval of the Senior Loan Committee.

Criticized/classified loans exceeding $5.0 million or unusual loan requests are reviewed with the Risk Management Committee of the Board of Directors at each quarterly meeting.

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Deferred loan fees and costs are recognized as part of interest income immediately upon prepayment or the sale of the related loan.

At December 31, 2022, we had

$81.3 million of net deferred loan origination fees.

At December 31, 2023, we had $72.1 million of net deferred loan origination fees.

Loan origination fees vary with the volume and type of loans and commitments originated and purchased, principal repayments, and competitive conditions in the marketplace.

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As of December 31, 2023, we had deposits through the CDARS program with an aggregate balance of $200,000.

In addition, we acquired brokered certificates of deposit in our MutualBank acquisition transaction that have yet to mature.

Those deposits have a balance of $4.2 million as of

December 31, 2022.

In addition, we purchased $483.9 million of brokered certificates of deposit in 2023.

Deposit account terms vary according to the minimum balance required, the period of time during which the funds must remain on deposit, and the interest rate, among other factors.

We regularly execute changes in our deposit rates based upon general market interest rates, competition, and liquidity requirements.

As of December 31, 2023, $1.835 billion, or 15.32%, of total deposits were uninsured as they exceeded the FDIC ’ s $250,000 limit.

We may utilize borrowings to supplement our supply of lendable funds and to meet deposit withdrawal requirements.

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The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 4.00%, payable semi-annually in arrears commencing on March 15, 2021, and a floating rate of interest equivalent to the 3-month Term Secured Overnight Financing Rate ( “ SOFR”) plus 3.89% payable quarterly in arrears commencing on December 15, 2025.

During the year-ended December 31, 2022 the Company repurchased $10.2 million of subordinated notes leaving $114.8 million of subordinated notes outstanding.

During the year-ended December 31, 2023 the Company had $114.8 million of subordinated notes outstanding.

The subordinated debt issuance costs of approximately $1.8 million are being amortized over five years on a straight-line basis into interest expense.

Risk Management

Board and Board Committees.

Our Board of Directors, as a whole and through its committees, maintains responsibilities for the oversight of risk management, including monitoring the “tone at the top”, our risk appetite, our risk culture and overseeing emerging and strategic risks.

While our Board’s Risk Committee has primary responsibility for oversight of enterprise risk management, the Audit, Compensation, Innovation & Technology, Trust and Nominating & Corporate Governance Committees also oversee risks within their respective areas of responsibilities.

Each of these Board Committees consists entirely of independent directors and provides regular reports to the full Board regarding matters reviewed at their Committee meetings.

Risk Management Roles and Responsibilities.

In addition to our Board and Board Committees, responsibility for risk management also flows to individuals and entities throughout the Company, including various management committees and executive management.

Our Enterprise Risk Management (“ERM”) Framework defines our “three lines of defense” risk management model, which includes the following:

• The “first line of defense” is comprised of the business areas that engage in activities that generate revenue or provide operational support or services that introduce risk to the Company.

As the business owner, the first line of defense is responsible for, among other things, identifying, owning, managing and controlling key risks associated with their activities, timely addressing issues and remediation, and implementing processes and procedures to strengthen the risk and control environment.

The first line of defense identifies and manages key risk indicators and risks and controls consistent with the Company’s risk appetite.

The executive officers who serve as leaders in the “first line of defense,” are responsible for ensuring that their respective functions operate within established risk limits, in accordance with our risk appetite.

These leaders are also responsible for identifying risks, considering risk when developing strategic plans, budgets and new products, and implementing appropriate controls when pursuing business strategies and objectives.

In addition, these leaders are responsible for deploying sufficient financial resources and qualified personnel to manage the risks inherent in our business activities.

• The “second line of defense” includes an independent risk management team charged with oversight and monitoring of risk within the business.

The second line of defense is responsible for, among other things, formulating our ERM Framework and related policies and procedures, challenging the first line of defense and identifying, monitoring and reporting on aggregate risks of the business and support functions.

Our risk management team, which is led by our Chief Risk Officer (“CRO”) and includes compliance, provides oversight of our risk profile and is responsible for maintaining a compliance program that includes compliance risk assessment, policy development, testing and reporting activities.

The CRO manages our risk management team and is responsible for establishing and implementing standards for the identification, management, measurement, monitoring and reporting of risk on an Enterprise-wide basis.

The CRO is responsible for developing an appropriate risk appetite with corresponding limits that aligns with supervisory expectations and proposing our risk appetite to the Board of Directors.

The CRO regularly reports to the Risk Committee as well as the Bank’s Enterprise Risk Management Committee (“ERMC”) on risk management matters.

• The “third line of defense” is comprised of the Internal Audit organization.

The third line of defense provides an independent review and objective assessment of the design and operating effectiveness of the first and second lines of defense, governance, policies, procedures, processes and internal controls, and reports its findings to executive management and the Board, through the Audit Committee.

Internal Audit is responsible for performing periodic, independent reviews and testing compliance with the Company’s and the Bank’s risk management policies and standards, as well as with regulatory guidance and industry best practices.

Internal Audit also assesses the design of the Company ’ s and the Bank’s policies and standards and validates the effectiveness of risk management controls and reports the results of such reviews to the Audit Committee.

Management Committees.

The ERMC is the highest-level management committee at the Bank to oversee risks and is responsible for risk governance, risk oversight and making recommendations on the Banks’ risk appetite.

The ERMC monitors compliance with limits and related escalation requirements and oversees implementation of risk policies.

In addition to the ERMC, we maintain the following risk management committees to oversee the risks listed below:

Credit Committee;

Compliance Risk Management Committee;

Operational Risk Management Committee;

Model Risk Management Committee;

and the Asset & Liability Committee.

Each of these Committees is responsible for one or more of the Bank’s seven risk categories, which are described in greater detail below under the heading “Risk Categories”.

For its risk category(ies) of responsibility, each Committee provides risk governance, risk oversight and monitoring.

Each Committee reviews key risk exposures, trends and significant compliance matters, and provides guidance on steps to monitor, control and escalate significant risks.

We include the risk information provided by the ERMC, and these management risk committees, along with additional risk information that is identified at the holding company level in our determination and assessment of the risks that are presented to and discussed with our Board and Board Committees.

Risk Categories.

We have divided risk into the following seven categories:

credit, market, liquidity, operational, compliance, model and reputational risk.

We evaluate the potential impact of a risk event on us (including our subsidiaries) by assessing the customer, partner, financial, reputational, and legal and regulatory impacts.

Credit Risk is the risk arising from an obligor’s failure to meet the terms of any contract or otherwise perform as agreed.

Credit Risk is found in all activities in which settlement or repayment depends on counterparty, issuer, or borrower performance.

We are exposed to credit risk on the loans we make to our customers.

Our credit risk relates to the risk that our borrowers will not repay their loan balances.

To minimize our risk of loan write-offs, we have developed comprehensive policies and procedures outlining our underwriting guidelines across all loan types.

The loan policies contain guidance and establish requirements specific to loan types for each line of business.

They also establish appropriate and accurate financial information requirements to assist in making loan decisions, which may vary based on loan type, risk profile and secondary investor requirement, if applicable.

Loan portfolios of all types are monitored as part of ongoing independent credit review and administration functions which ensure underwriting quality, loan administration, collateral, diversity (by industry, geography, products and borrowers) adhere to policy requirements.

The credit risk on our loan portfolio is quantified through our allowance for credit losses which is recorded net within loans on our Consolidated Balance Sheets.

Credit risk is overseen and monitored by the Credit Committee.

Market Risk is the risk arising from changes in the financial or economic environment, including movements in interest rates.

Interest rate risk results from:

• differences in the timing of interest rate changes related to the Bank’s assets and liabilities (repricing risk);

• changing rate relationships among different yield curves affecting an organization’s activities (basis risk);

• changing rate relationships across the spectrum of maturities (yield curve risk);

• interest-related options embedded in certain products (optionality risk).

Our principal market risk exposures arise from volatility in interest rates and their impact on earnings and capital.

While we use various techniques to analyze, measure, assess and manage the financial impact of changes in interest rates, we believe an interest rate sensitivity analysis best reflects the risk inherent in our business.

The interest rate sensitivity analysis calculates the impact on net interest income from instantaneous and sustained increases or decreases in market interest rates.

Due to the mix of fixed and floating

rate assets and liabilities on our Consolidated Balance Sheet as of December 31, 2023, a hypothetical instantaneous 100 basis point increase or decrease in interest rates would have an immaterial impact on our net interest income results in the first year.

Actual changes in our net interest income will depend on many factors, and therefore may differ from our estimated risk to changes in interest rates.

The Asset & Liability Committee assists the Bank’s Board of Directors and Bank Management in overseeing, reviewing, and monitoring market risk.

Treasury Risk.

Treasury Risk is the risk arising from either 1) the inappropriate management of liquidity and/or capital, resulting in the Bank’s inability to meet obligations when they come due, whether caused by an inability to access funding sources or manage fluctuations in cash flows;

or 2) adverse or poorly implemented business decisions due to misaligned business goals and strategies, a lack of resources, or poor quality of implementation.

Treasury Risk can also result from an organization’s failure to recognize and address changes in market conditions or levels of systemic risk.

Operational Risk.

Operational Risk is the risk arising from failed internal processes, people, and systems or from adverse external events.

Operational losses result from internal fraud;

external fraud;

business disruption and systems failures;

damage to physical assets;

failure to secure confidential data;

inadequate or inappropriate employment practices and workplace safety;

improper design of new products or services;

and failures in execution, delivery, and process management.

Operational Risk is inherent in all business activities and can impact us through direct or indirect financial loss, brand damage, customer dissatisfaction, and legal and regulatory penalties.

The Company has implemented a comprehensive operational risk framework that is defined in the Operational Risk Management Policy.

The Operational Risk Management Committee, chaired by our Chief Operational Risk Officer, oversees and monitors operational risk exposures, including escalating issues and recommending policies, procedures and practices to manage operational risks.

Additionally, we maintain an information and cyber security program, which is led by our Chief Information Security Officer and is designed to protect the confidentiality, integrity, and availability of information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction.

The Program is built upon a foundation of advanced security technology, a well-staffed and highly trained team of experts, and robust operations based on industry best practices recommendations from the National Institute of Standards and Technology (NIST) Cybersecurity Framework, Federal Financial Institutions Examination Council (FFIEC) Guidelines, and Center for Internet Security (CIS) Benchmarks.

This consists of controls designed to identify, protect, detect, respond and recover from information and cyber security incidents.

We continue to invest in enhancements to cyber security capabilities and engage in industry and government forums to promote advancements to the broader financial services cyber security ecosystem.

Compliance Risk.

Compliance Risk is the risk arising from violations of laws or regulations, nonconformance with policies and procedures or ethical standards, or inadequate contractual arrangements.

This risk exposes the Bank to regulatory enforcement actions, civil money penalties, statutory or punitive damages.

Compliance Risk can result in diminished reputation and lessened expansion potential.

Our Compliance organization is responsible for establishing and maintaining our Compliance Risk Management Program.

Pursuant to this Program, we seek to manage and mitigate compliance risk by assessing, controlling, monitoring, measuring and reporting the legal and regulatory risks to which we are exposed.

The Compliance Risk Management Committee, chaired by the Chief Compliance Officer, oversees the implementation and execution of the Compliance Management System and monitors compliance exposures to manage compliance risks.

Model and Data Risk.

Model and Data Risk is the risk arising from decisions based on incorrect or misused model outputs and reports.

This risk may result from 1) input errors, including inaccurate data;

2) fundamental design errors resulting in inaccurate calculations, valuations, estimates, or forecasts;

or 3) incorrect or improper usage or a misunderstanding about a model’s limitations and assumptions.

We manage model risk through a comprehensive model governance framework, including policies and procedures for model development, maintenance and performance monitoring activities, independent model validation and change management capabilities.

We also assess model performance on an ongoing basis.

Model and Data Risk oversight and monitoring is conducted by the Model Risk Management Committee.

Reputational Risk.

Reputational Risk is the risk arising from negative public opinion.

This risk may impair our competitiveness by affecting our ability to establish new relationships or services, or continue servicing existing relationships.

Reputational Risk is inherent in all activities and requires us to exercise caution in dealing with stakeholders, such as customers, counterparties, correspondents, investors, regulators, employees, and the community.

Executive management is responsible for considering the Reputational Risk implications of business activities and strategies, and ensuring the relevant subject matter experts are engaged as needed.

Subsidiary Activities

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At December 31, 2023, Northwest Bancshares, Inc.’s investment in the Trusts totaled $4.0 million, and the Trusts had assets of $129.6 million, net of discounts due to fair value adjustments made at the time of acquisition of Union Community Bank and MutualFirst Financial, Inc.

At December 31, 2022, Northwest Bank had four active wholly-owned subsidiaries;

Great Northwest Corporation, Northwest Capital Group, Inc., Mutual Federal Interest Corporation, and Northwest Settlement Agency, LLC.

At December 31, 2023, Northwest Bank had three active wholly-owned subsidiaries;

Great Northwest Corporation, Northwest Capital Group, Inc., and Mutual Federal Interest Corporation.

For financial reporting purposes all of these companies are included in the Consolidated Financial Statements of Northwest Bancshares, Inc.

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For the year ended December 31, 2023, Mutual Federal Interest Corporation had net income of $28.0 million.

Northwest Settlement Agency, LLC provides title insurance to borrowers of Northwest Bank and other lenders.

Northwest Bank strategically ceased operating several business lines in prior periods.

Northwest Settlement Agency, LLC (which ceased operations and became inactive during the first quarter of 2023) provided title insurance to borrowers of Northwest Bank and other lenders.

At December 31, 2023, Northwest Bank had an equity investment in Northwest Settlement Agency, LLC of $3.7 million.

For the year ended December 31, 2023, Northwest Settlement Agency, LLC had a net loss of $52,000.

Northwest Bank strategically ceased operating several business lines in prior periods.

Allegheny Services, Inc.

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The insured institution must also provide the FDIC such information as may be required by applicable regulations and must conduct the activity in accordance with the rules and orders of the FDIC.

In addition to other enforcement and supervision powers, the FDIC may determine after notice and opportunity for a hearing that the continuation of a savings bank’s ownership of or relation to a subsidiary constitutes a serious risk to the safety, soundness or stability of the savings bank, or is inconsistent with the purposes of federal banking laws.

In addition to other enforcement and supervision powers, the FDIC may determine

after notice and opportunity for a hearing that the continuation of a savings bank’s ownership of or relation to a subsidiary constitutes a serious risk to the safety, soundness or stability of the savings bank, or is inconsistent with the purposes of federal banking laws.

Upon the making of such a determination, the FDIC may order the savings bank to divest the subsidiary or take other actions.

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This decrease is a result of our efforts to optimize our retail network.

As a financial institution, approximately 42% of our employee population are employed at our 150 banking offices across Pennsylvania, New York, Ohio and Indiana and approximately 4% are employed at our customer call centers.

Our annual turnover rate was 32.8% as of December 31, 2022.

As a financial institution, approximately 42% of our employee population are employed at our 134 full-service banking offices and eight free-standing drive-through locations across Pennsylvania, New York, Ohio, and Indiana, and approximately 4% are employed at our customer call centers.

Our annual turnover rate (voluntary and involuntary) was 32.8% as of December 31, 2023.

None of our employees are represented by a collective bargaining group.

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Inclusion and Diversity.

At Northwest Bank, we know that in order to succeed, we must create and maintain an environment where all employees, no matter their background or role, can contribute, innovate and thrive.

At Northwest Bank, we know that in order to succeed, we must create and maintain an environment where all employees, whatever their background or role, can contribute, innovate and thrive.

We established the Northwest Inclusion Council to foster a workplace where we all feel accepted, safe, seen and heard.

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The health and safety of our employees, their families and the communities we serve is our top priority.

In order to maintain safety in the workplace, Northwest Bank has an inclusive Safety Committee that includes various levels of positions up through senior leadership.

In order to maintain safety in the workplace, Northwest Bank has an inclusive Safety Focus Group that includes various levels of positions up through senior leadership.

The committee was established in order to encourage employee involvement and highlight the importance of safety in the workplace.

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Any change in these laws or regulations, whether by the Department of Banking or the FDIC, could have a material adverse impact on the Company, Northwest Bank and their respective operations.

Additionally, when the consolidated assets of a financial institution and its holding company exceed $10 billion, such as is the case with us, the financial institution becomes subject to additional statutory and regulatory requirements that will result in additional costs.

This includes enhanced risk management and corporate governance processes, and examination for compliance with federal financial consumer protection laws by the Consumer Financial Protection Bureau (“CFPB”) rather than the FDIC.

requirements that will result in additional costs.

Set forth below is a brief description of certain regulatory requirements that are applicable to Northwest Bank and Northwest Bancshares, Inc.

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The Department of Banking may also appoint a receiver or conservator for an institution in appropriate cases.

Northwest Bank is subject to capital guidelines of the Department of Banking.

Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% risk-based capital.

The components of leverage and risk-based capital are substantially the same as those defined by the FDIC, as discussed below.

Loans-to-One Borrower Limitation

In accordance with the Banking Code, a Pennsylvania chartered savings bank, with certain limited exceptions, may lend to a single or related group of borrowers on an “unsecured” basis an amount equal to 15% of its capital accounts, the aggregate of capital, surplus, undivided profits, capital securities and reserve for credit losses.

Under certain circumstances, for instance well qualified customers or customers with multiple individually qualified projects, this limit may be exceeded subject to the approval of the Senior Loan Committee.

December 31, 2022 we had 19 credit relationships that were equal to or exceeded our $30.0 million internal limit for individual borrower and one credit relationship that was equal to or exceeded the $100.0 million internal limit for Aggregate Credit Exposure.

In accordance with the Banking Code, a Pennsylvania chartered savings bank, with certain limited exceptions, may lend to a single or related group of borrowers an amount equal to up to 15% of its capital accounts, defined as the aggregate of capital, surplus, undivided profits, capital securities and reserve for credit losses.

The Northwest Bank Credit Committee has established an internal lending limit, either individually or in the aggregate to one customer, or a single source of repayment, of $30.0 million, or $50.0 million for loans originated and managed within the Corporate Finance portfolio for borrowers with a strong credit profile and a risk rating of 3 or better, and Aggregate Credit Exposure of $100.0 million.

As of December 31, 2023 we had 7 credit relationships that were equal to or exceeded our $30.0 million internal limit for individual borrowers, 4 credit relationships that were equal to or exceeded our $50.0 million internal limit for individual borrowers within the corporate finance portfolio, and one credit relationship that was equal to or exceeded the $100.0 million internal limit for Aggregate Credit Exposure.

The Company’s ability to pay dividends depends, to a large extent, upon Northwest Bank’s ability to pay dividends to the Company.

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The FDIC is required by law to examine each regulated institution every twelve months.

The FDIC has the authority to order any savings bank and its directors, officers, attorneys or employees to discontinue any violation of law or unsafe or unsound banking practice.

The FDIC has the authority to order any savings bank and its directors, officers, or employees to discontinue any violation of law or unsafe or unsound banking practice.

Insurance of Deposit Accounts

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Assessments for institutions with $10 billion or more of assets are primarily based on a scorecard approach by the FDIC, including factors such as examination ratings and modeling measuring the institution’s ability to withstand asset-related and funding-related stress and potential loss to the DIF should the bank fail.

The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets was 1.5 to 40 basis points effective through December 31, 2022.

The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023.

As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 42 basis points.

The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets was 2.5 to 42 basis points effective January 1, 2023.

On November 29, 2023, the FDIC adopted a final rule to implement a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the closures of two regional banks in the spring of 2023;

the special assessment will only be paid by banking organizations with $5 billion or more in assets.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC.

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Federal regulations require federally insured depository institutions to meet several minimum capital standards:

a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance-sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset.

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Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

The company did exercise this opt-out election during the year ended December 31, 2022.

Northwest Bank exercised this opt-out election during the year ended December 31, 2023.

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

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As of December 31, 2023, Northwest Bank’s capital exceeded all applicable regulatory requirements and it had an appropriate capital conservation buffer.

Northwest Bank is also subject to capital guidelines of the Department of Banking.

Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% risk-based capital.

The components of leverage and risk-based capital are substantially the same as those defined by the FDIC.

Prompt Corrective Action

Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements.

For this purpose, the law establishes five capital categories:

For this purpose, federal law establishes five capital categories:

well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater.

An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.

An institution is deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, or a common equity Tier 1 ratio of 4.5% or greater.

An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.

An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%.

An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

An institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

Institutions that fall into an “undercapitalized” category are subject to a variety of mandatory and discretionary supervisory actions, including a restriction on capital distributions and the requirement to file a capital restoration plan with the regulators.

Performance under the capital restoration plan must be guaranteed by the parent holding company up to the lesser of the amount of the capital deficiency when deemed undercapitalized or 5% of the institution’s total assets.

Federal regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized, and may require an adequately capitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not

reclassify a significantly undercapitalized institution as critically undercapitalized).

As of December 31, 2022, Northwest Bank was well-capitalized for this purpose.

As of December 31, 2023, Northwest Bank was well capitalized as defined above.

Transactions with Affiliates

Transactions between Northwest Bank and its affiliates, including the Company, are limited by Sections 23A and 23B of the Federal Reserve Act, applicable to FDIC-insured state nonmember banks by Section 18(j) of the Federal Deposit Insurance Act, and its implementing regulations.

In general, transactions with affiliates must be on terms that are at least as favorable to the bank as comparable transactions with non-affiliates.

In addition, certain types of affiliate transactions are restricted to an aggregate percentage of the bank’s capital.

In general, transactions with affiliates must be on terms and under circumstances that are substantially the same, or at least as favorable to the bank, as comparable transactions with non-affiliates.

In addition, certain types of transactions with affiliates are restricted to an aggregate percentage of the bank’s capital stock and surplus.

Certain transactions with affiliates are required to be secured by specified collateral.

6 unchanged sentences

The Federal Home Loan Bank System provides a central credit facility primarily for member institutions.

As a member of the Federal Home Loan Bank of Pittsburgh, Northwest Bank is required to acquire and hold share of capital stock in the Federal Home Loan Bank in specified amounts.

As a member of the

Federal Home Loan Bank of Pittsburgh, Northwest Bank is required to acquire and hold share of capital stock in the Federal Home Loan Bank in specified amounts.

As of December 31, 2023, Northwest Bank was in compliance with this requirement.

The USA PATRIOT Act

The USA Patriot Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.

The USA Patriot Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money-laundering activities in determining whether to approve a merger or other acquisition application of a member institution.

The Bank Secrecy Act and USA PATRIOT Act

The Bank Secrecy Act (“BSA”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) require Northwest Bank to implement a compliance program to detect and prevent money laundering, terrorist financing, and illicit crime.

Together, the BSA and USA PATRIOT Act require Northwest Bank to implement internal controls, conduct customer due diligence, maintain records, and file reports.

The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application.

Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process.

We have established policies, procedures and systems designed to comply with these regulations.

We have established policies, procedures and systems designed to comply with the BSA, USA PATRIOT Act, and regulations implemented thereunder.

Community Reinvestment Act

All FDIC-insured institutions have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.

In connection with its examination of a state-chartered savings bank, the FDIC is required to assess the institution’s record of compliance with the CRA.

On October 24, 2023, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations.

Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests:

the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.

The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.

Holding Company Regulation

14 unchanged sentences

Source of Strength Doctrine.

The “source of strength doctrine” requires bank holding companies to provide assistance to their subsidiary depository institutions in the event the subsidiary depository institution experiences financial difficulty.

The “source of strength doctrine” requires bank holding companies to provide assistance to their subsidiary depository institutions in the event such subsidiary depository institutions experience financial difficulty.

The Federal Reserve Board has issued regulations requiring that all bank holding companies serve as a source of financial and managerial strength to their subsidiary depository institutions.

25 unchanged sentences

The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the Securities and Exchange Commission, under the Exchange Act.

The Company has policies, procedures and systems designed to comply with these regulations.

The Company has policies, procedures and systems designed to comply with this Act and its implementing regulations.

FEDERAL AND STATE TAXATION

25 unchanged sentences

We are subject to audit by the Internal Revenue Service for the tax periods ended after December 31, 2019 and generally subject to audit by any state in which we conduct business for the tax periods ended after December 31, 2019.

We are under audit by the state of New York for tax years 2016 through 2018.

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

What changed 10-K

Item 1. Business