What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 216 added, 151 removed, 747 unchanged (33% of the section changed)

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Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities.

Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to investment management and trust services, net gains and losses on the sale of assets and mortgage banking income.

Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including employee compensation and benefits and occupancy and processing costs, as well as by state and federal income tax expense.

Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including employee compensation and benefits, occupancy expense and processing costs, as well as by state and federal income tax expense.

Our net income was $135.0 million, or $1.06 per diluted share, for the year ended December 31, 2023 compared to $133.7 million, or $1.05 per diluted share, for the year ended December 31, 2022, and $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021.

The provision for credit losses was $17.9 million for the year ended December 31, 2022 compared to a provision credit of $11.9 million for the year ended December 31, 2021 and a provision expense of $84.0 million for the year ended December 31, 2020.

The provision for credit losses was $22.9 million for the year ended December 31, 2023 compared to $28.3 million for the year ended December 31, 2022, and a provision credit of $15.8 million for the year ended December 31, 2021.

Selected Financial and Other Data

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(4) Represents net interest income as a percentage of average interest-earning assets (shown on a FTE basis).

(5) 2020 includes $20.8 million acquisition/branch optimization expense, $41.6 million estimated provision for credit losses related to COVID-19 and $18.2 million estimated provision for credit losses related to the effect of CECL on the acquisition of MutualBank.

(5) Provision for unfunded commitments was reclassified from other expenses for periods prior to December 31, 2023.

Respective ratios were updated to reflect the reclassification.

(6) 2021 includes $3.5 million in merger, asset disposition and restructuring expense.

(7) 2021 includes $25.3 million gain on sale of insurance business.

(8) 2022 includes $5.6 million in merger, assets disposition and restructuring expense.

(8) 2022 includes $5.6 million in merger, asset disposition and restructuring expense.

(9) 2023 includes $6.7 million in merger, asset disposition and restructuring expense.

(10) Excludes goodwill and other intangible assets (non-GAAP).

The following non-GAAP financial measures used by the Company provide information useful to investors in understanding our operating performance and trends, and facilitate comparisons with the performance of our peers.

The following table summarizes the non-GAAP financial measures derived from amounts reported in the Company’s Consolidated Statements of Financial Condition.

2023 December 31,

2022 December 31,

Tangible common equity to assets

Total shareholders’ equity $ 1,551,317 1,491,486 1,583,571

goodwill and intangible assets (386,287) (389,557) (393,833)

Tangible common equity $ 1,165,030 1,101,929 1,189,738

Total assets $ 14,419,105 14,113,324 14,501,508

goodwill and intangible assets (386,287) (389,557) (393,833)

Tangible assets $ 14,032,818 13,723,767 14,107,675

Tangible common equity to tangible assets 8.30 % 8.03 % 8.43 %

Critical Accounting Estimates

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Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations.

The following are the accounting estimates we believe are critical.

The following is the accounting estimate we believe is critical.

Allowance for Credit Losses.

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Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool.

If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.

The allowance calculation is also supplemented with qualitative reserves that takes into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.

If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment is performed.

The allowance calculation is also supplemented with qualitative reserves that take into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, delinquency level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.

Our allowance for credit losses is sensitive to a number of inputs, most notably the macroeconomic forecast assumptions as well as the reasonable and supportable forecasting periods that are incorporated in our estimate of credit losses.

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an upside scenario, a baseline scenario and a downside scenario.

We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenario.

We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenarios.

If we placed 100% weighting on the baseline scenario, the quantitative allowance for credit losses would have been approximately $15.3 million lower.

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Recently Issued Accounting Standards

The following Accounting Standard Updates (“ASU”) issued by the FASB have not yet been adopted.

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met.

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

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

The following Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) have not yet been adopted.

In October 2023, the FASB issued ASU No.

2023-06, “Disclosure Improvements.” This ASU includes amendments on several subtopics in the FASB Accounting Standards Codification (“Codification”) to incorporate certain disclosures and presentation requirements currently residing in SEC Regulations S-X and S-K.

The adoption of this ASU may lead to certain disclosure being relocated into the financial statements.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

These amendments are to be applied prospectively.

If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

We do not believe this guidance will have a material impact on the Company ’ s financial statements.

In December 2023, the FASB issued ASU No.

2022-06, “ Reference Rate Reform (Topic 848):

Deferral of the Sunset Date to Topic 848 ” .

This guidance extends the guidance of ASU 2022-04 from December 31, 2022 to December 31, 2024.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform.” This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform.

We established a cross-functional working group to manage the LIBOR transition.

A transition plan was created to identify and modify the Company’s loan and other financial instrument contracts that are impacted by LIBOR transition.

The Company chose the Secured Overnight Financing Rate (“SOFR”) as its alternative replacement for LIBOR on both back-to-back swaps and variable rate loans.

We have not offered LIBOR for any new contracts since December 31, 2021.

We are continuing to evaluate the amendments on our financial statements, with no material impacts expected, and execute on our transition plan.

In March 2022, the FASB issued ASU No.

2022-02, “Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings (“TDR”) and Vintage Disclosure.” This ASU eliminates the accounting guidance for troubled debt restructurings, while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty.

This ASU also requires the disclosure of current period gross write-offs by year for origination for financing receivables.

This guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, with early adoption permitted.

This ASU is applied prospectively to modifications and write-offs beginning on the first day of the fiscal year of adoption.

An entity may elect to adopt a modified retrospective transition method on the recognition and measurement of the TDR guidance.

We do not believe this guidance will have a material impact on the Company’s financial statements, but will result in additional disclosures.

2023-09, “Improvements to Income Tax Disclosures.” This ASU requires additional disaggregated disclosures on entity ’ s effective tax rate reconciliation and additional details on income taxes paid.

This guidance is effective for annual periods beginning after December 15, 2025, with early adoption permitted.

This ASU is applied prospectively with the option to apply the ASU retrospectively.

We do not believe this guidance will have a material impact on the Company’s financial statements.

Balance Sheet Analysis

Total assets at December 31, 2022 were $14.113 billion, a decrease of $388.2 million, or 2.7%, from $14.502 billion at December 31, 2021.

This decrease in assets was driven by a decrease in both marketable securities and total cash and cash equivalents.

Total assets at December 31, 2023 were $14.419 billion, an increase of $305.8 million, or 2.2%, from $14.113 billion at December 31, 2022.

This increase in assets was driven by an increase in total loans receivable.

A discussion of significant changes follows.

Cash and cash equivalents .

Cash and cash equivalents decreased by $1.140 billion, or 89.1%, to $139.4 million at December 31, 2022, from $1.279 billion at December 31, 2021.

This decrease was primarily driven by organic loan growth and deposit outflow, described in further detail below, as well as the purchase of three small business equipment finance loan pools totaling $182.8 million and two one- to four-family jumbo mortgage loan packages totaling $188.3 million during the year ended December 31, 2022.

Cash and cash equivalents decreased by $17.1 million, or 12.3%, to $122.3 million at December 31, 2023, from $139.4 million at December 31, 2022.

This decrease was primarily to fund organic loan growth, described in further detail below.

Marketable securities .

Marketable securities decreased by $241.2 million, or 11.5%, to $1.858 billion at December 31, 2023, from $2.099 billion at December 31, 2022.

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.

Held-to-maturity securities decreased $66.4 million, and available-for-sale marketable securities decreased $174.7 million.

These decreases were driven by the maturity and regular monthly cash flows, in addition to the sale of approximately $110.0 million of available-for-sale securities during the year in order to reallocate these funds into higher interest-earning products.

The following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated.

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Gross loans receivable increased by $494.4 million, or 4.5%, to $11.415 billion at December 31, 2023, from $10.920 billion at December 31, 2022.

This increase was due to organic loan growth as well as the purchases of small business equipment finance and one- to four-family jumbo mortgage loan pools during the year.

Our personal banking loan portfolio increased by $811.6 million, or 13.2%, to $6.965 billion at December 31, 2022 from $6.153 billion at December 31, 2021.

Continued growth in our consumer indirect auto loans and fewer sales of residential mortgages into the secondary market contributed to the increase in total loans receivable.

In addition, our commercial loan portfolio increased by $92.4 million, or 2.4%, to $3.956 billion at December 31, 2022 from $3.863 billion at December 31, 2021.

This increase was due to organic loan growth.

Our business banking portfolio increased by $677.2 million, or 17.1%, to $4.633 billion at December 31, 2023 from $3.956 billion at December 31, 2022, primarily as a result of the new commercial lending verticals that we initiated during the current year.

Specifically, our commercial and industrial (C&I) loan portfolio increased by $526.8 million, or 46.5%.

The increase in our total business banking was partially offset by a decrease in our personal banking loan portfolio by $182.9 million, or 2.6%, to $6.782 billion at December 31, 2023 from $6.965 billion at December 31, 2022.

Cash flows from both our marketable securities portfolio and personal banking portfolio were redirected to partially fund business banking growth.

Set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated.

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Commercial real estate 2,628,457 23.0 % 2,448,028 22.5 %

Commercial real estate - owner occupied 345,553 3.0 % 375,527 3.4 %

Commercial loans 1,658,729 14.5 % 1,131,969 10.4 %

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Total Loans $ 1,761,954 1,175,915 317,982 3,255,851

Total deposits decreased by $836.6 million, or 6.8%, to $11.465 billion at December 31, 2022 from $12.301 billion at December 31, 2021.

This decrease was primarily due to decreases in time and demand deposit accounts of $635.6 million, or 8.6%, as well as a decrease in money market deposit accounts by $172.3 million, or 6.6%.

We believe these decreases were primarily the result of customer spending activity returning to pre-pandemic levels at a time when inflationary pressures have caused higher prices and government stimulus programs have ended.

The following table provides the various loan sectors in our commercial real estate portfolio at December 31, 2023:

December 31, 2023

Property type Percent of portfolio

5 or More Unit Dwelling 14.5 %

Nursing Home 12.8

Retail Building 12.0

Commercial Office Building - non-owner occupied 9.3

Residential acquisition & development - 1-4 family, townhouses and apartments 4.8

Manufacturing & Industrial Building 4.8

Multi-use building - commercial, retail and residential 4.4

Warehouse/Storage Building 3.9

Commercial office building - owner occupied 3.3

Multi-use building - office and warehouse 3.3

Single Family Dwelling 2.7

Other Medical Facility 2.5

Student Housing 2.2

Hotel/Motel 2.1

2-4 Family 2.1

Agricultural Real Estate 2.1

All Other Types 13.2

Total 100.0 %

The following table describes our commercial real estate portfolio by state at December 31, 2023:

December 31, 2023

State Percent of portfolio

New York 32.4 %

Pennsylvania 30.9

All other 8.8

Total 100.0 %

Total deposits increased by $515.4 million, or 4.5%, to $11.980 billion at December 31, 2023 from $11.465 billion at December 31, 2022.

This increase was driven by a $1.551 billion, or 147.4%, increase in time deposits due to customer preferences for this fixed maturity product.

Partially offsetting this increase were decreases in savings and money market deposits totaling $659.1 million, or 13.9%, as customers moved balances to higher yielding product alternatives.

In addition, demand deposit accounts decreased by $376.1 million, or 6.6%, as we believe customers used funds during this period of higher inflationary costs.

During the year ended December 31, 2023, we purchased $483.9 million of brokered deposits, which made up 18.6% of our time deposits and 4.0% of our total deposit balance at year end.

The balance carried an average all-in cost of 5.42% and an average original term of 11.8 months.

These purchases were through a registered broker, as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources.

In addition, at year end we had $356.6 million of deposits through our participation in the Intrafi Network Deposits (formerly ICS) program.

These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC coverage by placing multiple interest-bearing demand accounts at other member banks and Northwest receives an equal amount of deposits from other member banks.

The balance carried an average cost of 3.43%.

The following table sets forth the dollar amount of deposits in the various types of accounts we offered at the dates indicated.

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Total $ 788,277

At December 31, 2022 and 2021, we had deposits in excess of $250,000 (the limit for FDIC insurance) of $4.031 billion and $4.194 billion, respectively.

At December 31, 2023 and 2022, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $1.835 billion and $4.031 billion, respectively.

At those dates, we had no deposits that were uninsured for any other reason.

Borrowings increased by $532.3 million, or 202.7%, to $795.0 million at December 31, 2022 from $262.7 million at December 31, 2021.

This increase was a result of securing $551.3 million of notes payable to the FHLB during the current year.

The following table provides details regarding the Company’s uninsured deposits portfolio:

As of December 31, 2023

Balance Percent of

total deposits Number of relationships

Uninsured deposits per the Call Report (1) $ 2,810,966 23.46 % 4,924

Less intercompany deposit accounts 976,113 8.15 % 12

Less collateralized deposit accounts 432,443 3.61 % 239

Uninsured deposits excluding intercompany and collateralized accounts $ 1,402,410 11.71 % 4,673

(1) Uninsured deposits presented may be different from actual amounts due to titling of accounts.

Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $19.0 million, or 0.16% of total deposits, as of December 31, 2023.

Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $105.8 million, or 0.88% of total deposits, as of December 31, 2023.

The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $300,000 as of December 31, 2023.

Borrowings decreased by $281.9 million, or 35.5%, to $513.1 million at December 31, 2023 from $795.0 million at December 31, 2022.

This decrease was a result of growth in lower cost deposits which enabled the paydown of FHLB advances during the year.

The following table sets forth information concerning our borrowings at the dates and for the periods indicated.

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Shareholders’ equity .

Total shareholders’ equity at December 31, 2022 was $1.491 billion, or $11.74 per share, a decrease of $92.1 million, or 5.8%, from $1.584 billion, or $12.51 per share, at December 31, 2021.

This decrease in equity was primarily the result of an increase in accumulated other comprehensive loss of $151.9 million due to an increase in unrealized losses in the available-for-sale investment portfolio as a result of rising interest rates, as well as the payment of cash dividends of $101.5 million during the year ended December 31, 2022.

These decreases were partially offset by net income of $133.7 million for the year ended December 31, 2022.

Total shareholders’ equity at December 31, 2023 was $1.551 billion, or $12.20 per share, an increase of $59.8 million, or 4.0%, from $1.491 billion, or $11.74 per share, at December 31, 2022.

This increase was the result of net income of $135.0 million for the year ended December 31, 2023, as well as a decrease in accumulated other comprehensive loss of $21.7 million due primarily to a decrease in unrealized loss in the available-for-sale investment portfolio.

These changes were partially offset by $101.7 million of cash dividend payments during the year ended December 31, 2023.

Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022

Net income for the year ended December 31, 2023 was $135.0 million, or $1.06 per diluted share, an increase of $1.3 million, or 1.0%, from $133.7 million, or $1.05 per diluted share, for the year ended December 31, 2022.

The increase in net income resulted from an increase in net interest income of $15.0 million, or 3.6%, a decrease in the provision for credit losses of $5.4 million, or 19.2%, and an increase in noninterest income of $3.0 million, or 2.7%, partially offset by an increase in noninterest expense of $22.0 million, or 6.7%.

Net income for the year ended December 31, 2023 represents a return on average equity and

average assets of 8.94% and 0.95%, respectively, compared to 8.80% and 0.94% for the year ended December 31, 2022.

A discussion of significant changes follows.

Interest Income.

Total interest income increased by $139.1 million, or 31.0%, to $587.9 million for the year ended December 31, 2023 from $448.8 million for the year ended December 31, 2022.

This increase is the result of increases in both the average yield and the average balance of interest-earning assets, as well as the change in our interest-earning asset mix.

The average yield earned on interest-earning assets increased to 4.40% for the year ended December 31, 2023 from 3.39% for the year ended December 31, 2022 due to the rising interest rate environment.

Additionally, the average balance of interest-earning assets increased by $113.6 million, or 0.9%, to $13.367 billion for the year ended December 31, 2023 from $13.254 billion for the year ended December 31, 2022.

The changes in interest-earning asset mix are described further below.

Interest income on loans receivable increased by $135.8 million, or 33.3%, to $543.7 million for the year ended December 31, 2023 from $407.8 million for the year ended December 31, 2022.

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

The average yield earned on loans receivable increased to 4.90% for the year ended December 31, 2023 from 3.95% for the year ended December 31, 2022 due to the increase in market interest rates.

The average balance of loans receivable increased $781.2 million, or 7.6%, to $11.100 billion for the year ended December 31, 2023 from $10.319 billion for the year ended December 31, 2022 due to organic loan growth in our commercial, residential mortgage, and consumer loan portfolios.

Interest income on mortgage-backed securities increased by $2.1 million, or 6.8%, to $32.9 million for the year ended December 31, 2023 from $30.8 million for the year ended December 31, 2022.

This increase is the result of an increase in the average yield on mortgage-backed securities to 1.80% for the year ended December 31, 2023 from 1.56% for the year ended December 31, 2022 due to the purchase of higher yielding mortgage-backed securities in the prior year.

Partially offsetting this increase was a decrease in the average balance of mortgage-backed securities of $146.2 million, or 7.4%, to $1.822 billion for the year ended December 31, 2023 from $1.969 billion for the year ended December 31, 2022 due to the sale of available-for-sale securities during the year coupled with regularly scheduled payments and maturities, the cashflows of which were redirected to higher yielding loans.

Interest income on investment securities decreased by $229,000, or 3.9%, to $5.6 million for the year ended December 31, 2023 from $5.8 million for the year ended December 31, 2022.

This decrease is the result of a decrease in the average balance of investment securities of $24.1 million, or 6.3%, to $357.4 million for the year ended December 31, 2023 from $381.5 million for the year ended December 31, 2022.

Partially offsetting this decrease in average balance was an increase in the average yield on investment securities to 1.57% for the year ended December 31, 2023 from 1.53% for the year ended December 31, 2022.

Dividends on FHLB stock increased by $2.1 million, or 292.9%, to $2.9 million for the year ended December 31, 2023 from $730,000 for the year ended December 31, 2022.

This increase is the result of increases in both the average balance and the average yield of FHLB stock.

The average balance of FHLB stock increased $22.4 million, or 131.3%, to $39.5 million for the year ended December 31, 2023 from $17.1 million for the year ended December 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.

Additionally, the average yield increased to 7.27% for the year ended December 31, 2023 from 4.27% for the year ended December 31, 2022 due to increases in market interest rates.

Interest income on interest-earning deposits decreased by $698,000, or 19.4%, to $2.9 million for the year ended December 31, 2023 from $3.6 million for the year ended December 31, 2022.

This decrease is attributable to a decrease in the average balance of interest-earning deposits by $519.8 million, or 91.6%, to $47.8 million for the year ended December 31, 2023 from $567.6 million for the year ended December 31, 2022 as the Bank deployed funds into higher yielding loans.

Partially offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to 6.07% for the year ended December 31, 2023 from 0.63% for the year ended December 31, 2022, due to the campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

Interest Expense.

Interest expense increased by $124.1 million, or 441.4%, to $152.2 million for the year ended December 31, 2023 from $28.1 million for the year ended December 31, 2022 due to increases in both the average cost and average balance of interest-bearing liabilities, as well as the change in liability mix.

The average cost of interest-bearing liabilities increased to 1.56% for the year ended December 31, 2023 from 0.30% for the year ended December 31, 2022 resulting primarily from the rising interest rate environment.

In addition, customers shifted balances from savings and market deposit accounts into higher yielding time deposits.

The average balance of interest-bearing liabilities increased $355.6 million, or 3.8%, to $9.736 billion for the year ended December 31, 2023 from $9.381 billion for the year ended December 31, 2022 driven by an increase in average borrowed funds of $479.6 million, or 226.2%.

Wholesale borrowings were utilized to fund loan growth as well as replace the decrease in the average balance of interest-bearing deposits, which declined by $120.6 million, or 1.4%.

Lastly, the average balance of noninterest-bearing demand deposits decreased by $285.6 million, or 9.3%, as we believe customers used funds during a period of higher inflationary costs and searched for higher yield alternatives.

Net Interest Income.

Net interest income increased by $15.0 million, or 3.6%, to $435.7 million for the year ended December 31, 2023 from $420.7 million for the year ended December 31, 2022.

This increase was attributable to the factors discussed above.

Our interest rate spread decreased to 2.83% for the year ended December 31, 2023 from 3.09% for the year ended December 31, 2022, and our net interest margin increased to 3.26% for the year ended December 31, 2023 from 3.17% for the year ended December 31, 2022 due to the change in market rates as well as the change in our interest-earning asset and funding mix.

Provision for Credit Losses.

We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements.

The provision for credit losses decreased by $5.4 million, or 19.2%, to 22.9 million for the year ended December 31, 2023 compared to $28.3 million for the year ended December 31, 2022.

The current period provision for credit losses includes $18.7 million for credit losses - loans and $4.2 million for credit losses - unfunded commitments.

The prior period provision for credit losses includes $17.9 million for credit losses - loans and $10.5 million for credit losses - unfunded commitments.

The $804,000 increase in the provision for credit losses - loans was driven by continued growth within our loan portfolio, and the $6.2 million decrease in our provision for credit losses - unfunded commitments was driven by the timing of the origination of loans with current off-balance sheet exposure as our undrawn commitments increased more rapidly during the prior year.

Net charge-offs to average loans increased to 0.11% for the year ended December 31, 2023 from 0.02% for the year ended December 31, 2022 due to several large recoveries during 2022.

Total substandard loans declined by $17.8 million, or 7.5%, to $218.5 million, or 1.91% of loans outstanding at December 31, 2023 from $236.2 million, or 2.16% of loans outstanding at December 31, 2022.

This decrease was assisted by the note sale of approximately $8.0 million of nonperforming loans for a net gain of approximately $726,000.

In addition, delinquencies remain well controlled.

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in collateral values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience.

We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”.

The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2023.

Noninterest Income.

Noninterest income increased by $3.0 million, or 2.7%, to $113.8 million for the year ended December 31, 2023 from $110.8 million for the year ended December 31, 2022.

This increase was driven by increases in service charges and fees, gains on sales of SBA loans, income from bank owned life insurance, and net gains on sales of real estate owned.

Service charges and fees increased $4.0 million, or 7.3%, to $59.2 million for the year ended December 31, 2023 from $55.2 million for the year ended December 31, 2022, driven by commercial loan fees and an increase in deposit related fees based on customer activity in the current year.

We also recognized $1.8 million in gains on the sales of SBA loans during the current year due to this newly launched lending vertical.

Income from bank owned life insurance increased $1.5 million, or 20.5%, to $8.6 million for the year ended December 31, 2023 from $7.1 million for the year ended December 31, 2022, resulting from death benefits received in the current year.

Lastly, the net gain on sales of real estate owned increased $1.4 million, or 232.7%, to $2.0 million for the year ended December 31, 2023 from $603,000 for the year ended December 31, 2022 as a result of gains on foreclosed property sales in the current year.

These increases were partially offset by decreases in other operating income and mortgage banking income.

Other operating income decreased $3.5 million, or 23.1%, to $11.8 million for the year ended December 31, 2023 from $15.3 million for the year ended December 31, 2022 due to prior year gains on the sales of branch buildings associated with the branch consolidations announced during the prior year.

Mortgage banking income decreased $2.4 million, or 50.0%, to $2.4 million for the year ended December 31, 2023 from $4.9 million for the year ended December 31, 2022 due primarily to the volatile interest rate environment causing unfavorable pricing in the secondary market, as well as a slowdown in mortgage loan activity due to higher market interest rates.

In addition, during the current year we sold the mortgage servicing rights on approximately $1.3 billion of one- to four family mortgage loans for an $8.3 million gain, while also selling $110.0 million of investment securities for an equivalent loss, resulting in no impact to capital.

However, we were able to reallocate these funds from investments yielding approximately 2.0% into commercial loans yielding over 7.0%.

Noninterest Expense.

Noninterest expense increased by $22.0 million, or 6.7%, to $351.6 million for the year ended December 31, 2023 from $329.5 million for the year ended December 31, 2022.

This increase was due to increases in almost all expense categories due to both inflationary costs as well as the continued build out of talent and infrastructure necessary to propel the organization to a higher level of performance.

In particular, compensation and employee benefits increased $7.3 million, or 3.9%, to $195.7 million for the year ended December 31, 2023 from $188.4 million for the year ended December 31, 2022, driven primarily by the buildout of the commercial business and related credit, risk management, and internal audit support functions over the past twelve months.

Processing expenses increased $6.2 million, or 11.8%, to $58.7 million for the year ended December 31, 2023 from $52.5 million for the year ended December 31, 2022 due to the implementation of additional third-party software platforms.

FDIC insurance premiums increased $4.5 million, or 94.0%, to $9.3 million for the year ended December 31, 2023 from $4.8 million for the year

ended December 31, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023.

Professional services increased $3.1 million, or 21.2%, to $17.8 million for the year ended December 31, 2023 from $14.7 million for the year ended December 31, 2022 primarily due to the use of third-party consulting and staffing support.

Merger, asset disposition and restructuring expense increased $1.1 million, or 20.2%, to $6.7 million for the year ended December 31, 2023 from $5.6 million for the year ended December 31, 2022 due to the severance and fixed asset charges related to the branch optimization and personnel reductions previously announced.

Lastly, other expenses increased $1.1 million, or 21.7%, to $6.4 million for the year ended December 31, 2023 from $5.2 million for the year ended December 31, 2022 due to an increase in employee relocation and other expenses.

Partially offsetting these increases was a $1.0 million, or 23.5%, decrease in amortization of intangible assets to $3.3 million for the year ended December 31, 2023 compared to $4.3 million for the year ended December 31, 2022 due to previously acquired intangible assets being fully amortized in the prior year.

Income Taxes.

The provision for income taxes increased by $95,000, or 0.2%, to $40.1 million for the year ended December 31, 2023 from $40.0 million for the year ended December 31, 2022.

This increase in income tax expense is primarily due to the $1.4 million, or 0.8%, increase in pretax income to $175.1 million for the year ended December 31, 2023 from $173.7 million for the year ended December 31, 2022.

Our effective tax rate for the year ended December 31, 2023 was 22.9% compared to 23.0% for the year ended December 31, 2022.

Comparison of Results of Operations for the Years Ended December 31, 2022 and 2021

Net income for the year ended December 31, 2022 was $133.7 million, or $1.05 per diluted share, a decrease of $20.7 million, or 13.4%, from $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021.

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We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements.

The provision for credit losses increased by $29.7 million, or 250.3%, to a provision expense of $17.9 million for the year ended December 31, 2022 compared to a provision credit of $11.9 million for the year ended December 31, 2021.

The current period provision was driven primarily by growth within our loan portfolio as well as a deterioration in the most recent economic forecasts reflected in our allowance for credit loss models, including a reduction in home and used vehicle values.

The provision for credit losses increased by $44.1 million, or 279.3%, to a total provision expense of $28.3 million for the year ended December 31, 2022 compared to a provision credit of $15.8 million for the year ended December 31, 2021.

The provision for the year ended December 31, 2022 includes $17.9 million for credit losses - loans and $10.5 million for credit losses - unfunded commitments.

The prior period provision for credit losses includes a credit of 11.9 million for credit losses - loans and a credit of $3.9 million for credit losses - unfunded commitments.

The $29.7 million, or 250.3%, increase to provision for credit losses - loans was driven primarily by growth within our loan portfolio, and the $14.4 million, or 367.7%, increase to a provision for credit losses - unfunded commitments was driven primarily by the origination of loans with off-balance sheet exposure.

Both increases were also impacted by a deterioration in the most recent economic forecasts reflected in our allowance for credit loss models, including a reduction in home and used vehicle values.

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

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This insurance business sale in the prior year also resulted in a decrease in insurance commission income of $3.6 million from the year ended December 31, 2021.

Also contributing to this decrease was a decrease in mortgage banking income of $11.0 million, or 69.4%, to $4.9 million for the year ended December 31, 2022 from $15.9 million for the year ended December 31, 2021, due primarily to the volatile interest rate environment causing unfavorable pricing in the secondary market, as well as a slowdown in mortgage loan activity in general.

environment causing unfavorable pricing in the secondary market, as well as a slowdown in mortgage loan activity in general.

Partially offsetting these decreases were increases in service charges and fees, other operating income, and income from bank-owned life insurance.

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Noninterest expense decreased by $19.3 million, or 5.5%, to $329.5 million for the year ended December 31, 2022 from $348.8 million for the year ended December 31, 2021 due to decreases across the majority of expense categories.

Other expenses decreased $7.0 million, or 57.3%, to $5.2 million for the year ended December 31, 2022 from $12.3 million for the year ended December 31, 2021 driven by an increase in the discount rate used to calculate our pension liability and related pension expense.

Compensation and employee benefits decreased $5.5 million, or 2.9%, to $188.4 million for the year ended December 31, 2022 from $193.9 million for the year ended December 31, 2021, despite recognizing approximately $1.4 million of additional expense related to the acceleration of compensation and stock benefits upon the passing of our former Chief Executive Officer.

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Professional services decreased $2.9 million, or 16.6%, to $14.7 million for the year ended December 31, 2022 from $17.6 million for the year ended December 31, 2021 primarily due to the utilization of third-party experts to assist with our digital strategy rollout during the prior year.

Lastly, amortization of intangible assets decreased $1.3 million, or 23.0%, to $4.3 million for the year ended December 31, 2022 compared to $5.6 million for the year ended December 31, 2021 due to previously acquired intangbile assets being fully amortized.

These decreases were partially offset by an increase in other expenses of $7.3 million, or 87.9%, to $15.7 million for the year ended December 31, 2022 from $8.3 million for the year ended December 31, 2021 primarily due to the increase in the reserve for unfunded commitments associated with the origination of loans with current off-balance sheet exposure.

We experienced an increase of $2.2 million, or 62.7%, in merger, asset disposition and restructuring expense to $5.6 million for the year ended December 31, 2022 from $3.5 million for the year ended December 31, 2021 due to severance and fixed asset charges related to the branch and personnel optimization to be completed during the first quarter of 2023.

These decreases were partially offset by an increase of $2.2 million, or 62.7%, in merger, asset disposition and restructuring expense to $5.6 million for the year ended December 31, 2022 from $3.5 million for the year ended December 31, 2021 due to severance and fixed asset charges related to the branch and personnel optimization to be completed during the first quarter of 2023.

Income Taxes.

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In addition, our effective tax rate for the year ended December 31, 2022 was 23.0% compared to 23.3% for the year ended December 31, 2021.

Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020

Net income for the year ended December 31, 2021 was $154.3 million, or $1.21 per diluted share, an increase of $79.5 million, or 106.2%, from $74.9 million, or $0.62 per diluted share, for the year ended December 31, 2020.

The increase in net income resulted from a decrease in provision for credit losses of $95.9 million, or 114.2%, an increase in noninterest income of $10.6 million, or 8.0%, and a decrease in noninterest expense of $2.6 million, or 0.7%.

Partially offsetting these increases was an increase in income tax expense of $29.1 million, or 164.8%, and a decrease in net interest income of $466,000, or 0.1%.

Net income for the year ended December 31, 2021 represents returns on average equity and average assets of 9.91% and 1.08%, respectively, compared to 4.72% and 0.58% for the year ended December 31, 2020.

A discussion of significant changes follows.

Interest Income.

Total interest income decreased by $15.6 million, or 3.6%, to $418.5 million for the year ended December 31, 2021 from $434.1 million for the year ended December 31, 2020.

This decrease is the result of decreases in the average yield on interest-earning assets to 3.16% for the year ended December 31, 2021 from 3.70% for the year ended December 31, 2020.

This decrease in average yield is attributed to a decline in overall market interest rates.

Partially offsetting this decrease in rates was an increase in the average balance of interest-earning assets of $1.503 billion, or 12.8%, to $13.236 billion for the year ended December 31, 2021 from $11.733 billion for the year ended December 31, 2020.

Interest income on loans receivable decreased by $20.6 million, or 5.0%, to $390.3 million for the year ended December 31, 2021 from $410.9 million for the year ended December 31, 2020.

This decrease in interest income on loans receivable is primarily due to a decrease in the average yield on loans receivable to 3.81% for the year ended December 31, 2021 from 4.07% for the year ended December 31, 2020 primarily due to the decrease in market interest rates.

Partially offsetting this decrease was an increase in the average balance of loans receivable which increased $135.2 million, or 1.3%, to $10.240 billion for the year ended December 31, 2021 from $10.104 billion for the year ended December 31, 2020 primarily due to growth in our consumer portfolio.

At December 31, 2021, there was $69.4 million in PPP loans outstanding, and included in loan interest income for the year ended December 31, 2021 was $14.6 million of accretion related to PPP fees, net of origination costs, compared to $5.7 million for the year ended December 31, 2020.

Interest income on mortgage-backed securities increased by $4.0 million, or 23.2%, to $21.5 million for the year ended December 31, 2021 from $17.4 million for the year ended December 31, 2020.

This increase is the result of an increase in the average balance of mortgage-backed securities by $814.3 million, or 91.5%, to $1.704 billion for the year ended December 31, 2021 from $889.7 million for the year ended December 31, 2020.

This increase was primarily a result of additional purchases utilizing excess cash from deposit growth during the current year.

Partially offsetting this increase in average balance was a decrease in the average yield on mortgage-backed securities to 1.26% for the year ended December 31, 2021 from 1.96% for the year ended December 31, 2020.

This decrease in yield was the result of the new security purchases made at lower yields due to decreases in market interest rates.

Interest income on investment securities increased by $1.1 million, or 26.1%, to $5.1 million for the year ended December 31, 2021 from $4.0 million for the year ended December 31, 2020.

This increase is primarily the result of an increase in the average balance of investment securities of $154.7 million, or 78.9%, to $350.8 million for the year ended December 31, 2021 from $196.1 million for the year ended December 31, 2020, which was primarily due to the utilization of excess funds from deposit growth.

Partially offsetting this increase in average balances was a decrease in the average yield on investment securities to 1.45% for the year ended December 31, 2021 from 2.06% for the year ended December 31, 2020 as new investment purchases were at lower yields than the existing portfolio due to lower market interest rates.

Dividends on FHLB stock decreased by $574,000, or 58.5%, to $407,000 for the year ended December 31, 2021 from $981,000 for the year ended December 31, 2020.

This decrease is the result of decreases in the average yield on FHLB stock which decreased to 2.01% for the year ended December 31, 2021 from 4.50% for the year ended December 31, 2020.

The FHLB of Pittsburgh decreased yields on required stock holdings due to lower market interest rates.

In addition, the average balance of FHLB stock decreased by $1.6 million, or 7.1%, to $20.2 million for the year ended December 31, 2021 from $21.8 million for the year ended December 31, 2020.

Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $475,000, or 66.1%, to $1.2 million for the year ended December 31, 2021 from $719,000 for the year ended December 31, 2020.

This increase is attributable to an increase in the average balance of interest-earning deposits.

The average balance increased by $400.7 million, or 77.0%, to $921.4 million for the year ended December 31, 2021 from $520.7 million for the year ended December 31, 2020 due to excess liquidity from steady deposit inflows.

Partially offsetting this increase was a decrease in the average yield on interesting-earning deposits to 0.13% for the year ended December 31, 2021 from 0.14% for the year ended December 31, 2020.

Interest Expense.

Interest expense decreased by $15.1 million, or 35.6%, to $27.2 million for the year ended December 31, 2021 from $42.3 million for the year ended December 31, 2020.

This decrease in interest expense was primarily due to the decline in the average cost of interest-bearing liabilities which decreased to 0.29% for the year ended December 31, 2021 from 0.49% for the year ended December 31, 2020.

This decrease resulted from decreases in the interest rates paid on deposits and junior subordinated debentures in response to decreases in market interest rates.

Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities by $797.9 million, or 9.2%, to $9.501 billion for the year ended December 31, 2021 from $8.703 billion for the year ended December 31, 2020.

This increase in average balance resulted from internal growth in deposits and the issuance of $125.0 million of fixed-to-floating subordinated debt in September of 2020.

Net Interest Income.

Net interest income remained relatively flat, decreasing by $466,000, or 0.1%, to $391.3 million for the year ended December 31, 2021 from $391.7 million for the year ended December 31, 2020.

This decline was attributable to the overall decrease in interest income and interest expense that largely offset each other.

Our interest rate spread decreased to 2.88% for the year ended December 31, 2021 from 3.21% for the year ended December 31, 2020 and our net interest margin also decreased to 2.96% for the year ended December 31, 2021 from 3.34% for the year ended December 31, 2020 primarily due to the change in interest-earning asset mix.

Contributing to the decline was an increase in average cash balances of $400.7 million, earning 0.13%, due to deposit growth associated with PPP loan funds and consumer stimulus checks.

Provision for Credit Losses.

We analyze the allowance for credit losses as described in No te 1(f) of the Notes to the Consolidated Financial Statements.

The provision for credit losses decreased by $95.9 million, or 114.2%, to a net credit of $11.9 million for the year ended December 31, 2021 compared to a provision expense of $84.0 million for the year ended December 31, 2020.

The prior year provision was elevated due to the uncertainty of COVID-19 and the negative effects to the economic forecasts.

Throughout 2021, we were able to release those credit loss reserves that were previously built up as the economic forecasts and our overall credit quality improved.

Total classified loans decreased by $126.1 million, or 25.8%, to $363.2 million at December 31, 2021 from $489.3 million at December 31, 2020.

In addition, net charge-offs to average loans decreased to 0.20% for the year ended December 31, 2021 from 0.27% for the year ended December 31, 2020.

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in real estate values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience.

We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”.

Noninterest Income.

Noninterest income increased by $10.6 million, or 8.0%, to $142.9 million for the year ended December 31, 2021 from $132.3 million for the year ended December 31, 2020.

This increase is largely due to the $25.3 million gain recognized on the sale of the insurance business in the second quarter of 2021.

Also contributing to this increase was a $7.0 million, or 33.5%, increase in trust and other financial services income to $27.9 million for the year ended December 31, 2021 from $20.9 million for the year ended December 31, 2020 as a result of growth in both customer accounts and market gains.

Partially offsetting these increases, was a decrease in mortgage banking income of $15.5 million, or 49.4%, to $15.9 million for the year ended December 31, 2021 from $31.4 million for the year ended December 31, 2020, due primarily to the impact of less favorable pricing in the secondary market.

Additionally, service charges and fees decreased $3.8 million, or 6.8%, to $51.8 million for the year ended December 31, 2021 from $55.6 million for the year ended December 31, 2020 due to the impact of the Durbin amendment on our interchange fees which came into effect in the second half of 2020.

Noninterest Expense.

Noninterest expense decreased by $2.6 million, or 0.7%, to $344.9 million for the year ended December 31, 2021 from $347.5 million for the year ended December 31, 2020.

This decrease was primarily due to a decrease of $17.3 million, or 83.4%, in merger, asset disposition and restructuring expense to $3.5 million for the year ended December 31, 2021 from $20.8 million for the year ended December 31, 2020 due to expenses incurred in the prior year for the MutualBank acquisition and the 2020 branch optimization initiative.

Also, other expenses decreased $8.1 million, or 49.4%, to $8.3 million for the year ended December 31, 2021 from $16.5 million for the year ended December 31, 2020 primarily due to the decrease in the reserve for unfunded commitments.

The prior year was significantly impacted by the onset of COVID-19 and the uncertainty surrounding the possible negative effect on loan commitments and undrawn lines of credit.

Partially offsetting these decreases was an increase in compensation and employee benefits of $15.5 million, or 8.7%, to $193.9 million for the year ended December 31, 2021 from $178.4

million for the year ended December 31, 2020 primarily due to increases in health insurance and other benefits costs, regular merit expense and the addition of MutualBank and other strategic personnel.

Additionally, processing expenses increased $5.7 million, or 11.4%, to $55.8 million for the year ended December 31, 2021 from $50.1 million for the year ended December 31, 2020, as we continue to invest in technology and infrastructure as well as increases in activity-driven utilization fees for ATM, check card and online and mobile banking.

Lastly, professional service expense increased $5.1 million, or 41.2%, to $17.6 million for the year ended December 31, 2021 from $12.5 million for the year ended December 31, 2020 primarily due to the utilization of third-party experts to assist with our digital strategy rollout.

Income Taxes.

The provision for income taxes increased by $29.1 million, or 164.8%, to $46.8 million for the year ended December 31, 2021 from $17.7 million for the year ended December 31, 2020.

This increase in income tax expense is primarily due to the $108.6 million, or 117.4%, increase in pretax income to $201.1 million for the year ended December 31, 2021 from $92.5 million for the year ended December 31, 2020.

In addition, our effective tax rate for the year ended December 31, 2021 was 23.3% compared to 19.1% for the year ended December 31, 2020.

Asset Quality

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When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal.

If the value of the property is less than the principal balance, less any related specific credit loss reserve allocations, the difference is charged against the allowance for credit losses.

If the value of the property is less

than the principal balance, less any related specific credit loss reserve allocations, the difference is charged against the allowance for credit losses.

Any subsequent write-down of real estate owned or loss at the time of disposition is charged against earnings.

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Total nonperforming assets $ 97,186 82,393

Nonaccrual troubled debt restructuring loans (1) $ 29,239 17,216

Accruing troubled debt restructuring loans 11,442 13,072

Total troubled debt restructuring loans $ 40,681 30,288

(1) Also included in nonaccrual loans above.

Classification of Assets .

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The allowance for credit losses is measured using a combination of statistical models and qualitative assessments.

We use a twenty four month forecasting period and revert to historical average loss rates thereafter.

We use a 24 month forecasting period and revert to historical average loss rates thereafter.

Reversion to average loss rates takes place over twelve months.

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The ACL increased by $7.2 million, or 6.1%, to $125.2 million, or 1.10% of gross loans at December 31, 2023 from $118.0 million, or 1.08% of total loans, at December 31, 2022 .

During 2021, we were able to release credit loss reserves that we had previously built up as a result of

the estimated economic impact of COVID-19.

Throughout 2022, we have again seen a deterioration in economic forecasts, specifically including a reduction in home and used vehicle sales.

These forecasts, in addition to organic loan growth, as well as the previously noted loan purchases, contributed to the increase in ACL in the current year.

This increase was the result of organic loan growth, as well as a continued deterioration in economic forecasts, specifically including a reduction in used vehicle prices, as well as increased vacancy rates and decreased rents impacting commercial real estate.

Quarterly, management’s Credit Committee reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas.

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We also consider how the levels of non-accrual loans and h istorical charge-offs have influenced the required amount of ACL.

Nonaccrual loans of $81.2 million, or 0.74% of total gross loans receivable at December 31, 2022, decreased by $77.2 million, or 48.7%, from $158.5 million, or 1.59% of total gross loans receivable, at December 31, 2021.

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

As a percentage of average loans, net charge-offs decreased to 0.02% for the year ended December 31, 2022 compared to 0.20% for the year ended December 31, 2021.

Nonaccrual loans of $94.4 million, or 0.83% of total gross loans receivable at December 31, 2023, increased by $13.1 million, or 16.2%, from $81.2 million, or 0.74% of total gross loans receivable, at December 31, 2022.

This increase was primarily related to current commercial real estate loans.

As a percentage of average loans, net charge-offs increased to 0.11% for the year ended December 31, 2023 compared to 0.02% for the year ended December 31, 2022 due to some large recoveries in the prior year.

Analysis of the Allowance for Credit Losses .

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Balance at beginning of period 118,036 102,241

ASU 2022-02 Adoption 426 —

Provision for credit losses 18,664 17,860

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Average Balance Sheets

The following tables set forth average balance sheets, average yields, on a fully taxable equivalent (“FTE”) basis, and average costs, and certain other information at and for the periods indicated.

The following table sets forth average balance sheets, average yields, on a fully taxable equivalent (“FTE”) basis, and average costs, and certain other information at and for the periods indicated.

All average balances are daily average balances.

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

(8) Average cost of deposits was 0.12%, 0.16% and 0.34%, respectively.

(8) Average cost of deposits was 0.91%, 0.12% and 0.16%, respectively and average cost of interest-bearing deposits were 1.20%, 0.16%, and 0.21%, respectively.

(9) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

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Liquidity needs can also be met by temporarily drawing upon lines-of-credit established for such reasons.

Following the first quarter of 2023 bank failures, the Federal Reserve Board (“FRB”) established the Bank Term Funding Program (“BTFP”) as an additional source of available liquidity to support depository institutions through pledging qualifying assets as collateral.

The Bank has taken steps to support readiness but has not participated through December 31, 2023.

In January 2024, the FRB announced it will stop extending loans under the BTFP after March 11, 2024.

At December 31, 2023, Northwest Bank had $3.286 billion of additional borrowing capacity available with the FHLB of Pittsburgh, including a $250.0 million overnight line of credit, which had a balance of $163.5 million at December 31, 2023, as well as $297.5 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks.

We believe the Bank has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and for the foreseeable future.

In addition to deposits, our primary sources of funds are the amortization and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations.

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We manage the pricing of our deposits to maintain a desired deposit balance.

In addition, we invest excess funds in short-term interest earning and other assets, which provide liquidity to meet lending requirements.

In addition, we invest excess funds in short-term interest earning and

other assets, which provide liquidity to meet lending requirements.

Short-term interest-earning deposits amounted to $35.9 million at December 31, 2023.

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This amount does not include the unfunded portion of loans in process.

Time deposits scheduled to mature in less than one year at December 31, 2022, totaled $ 754.6 million .

Time deposits scheduled to mature in less than one year at December 31, 2023, totaled $2.464 billion.

We believe that a significant portion of such deposits will remain with us.

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Financial institutions, such as Northwest Bank, are also subject to deposit outflows.

Our net deposits decreased by $836.6 million for the year ended December 31, 2022, increased by $701.9 million for the year ended December 31, 2021 and increased by $3.007 billion for the year ended December 31, 2020.

Our net deposits increased by $515.4 million for the year ended December 31, 2023, decreased by $836.6 million for the year ended December 31, 2022, and increased by $701.9 million for the year ended December 31, 2021.

Similarly, the amount of principal repayments on loans and the amount of new loan originations is heavily influenced by the general level of market interest rates, consumer confidence and consumer spending.

Funds received from loan maturities and principal payments on loans for the years ended December 31, 2022, 2021 and 2020 were $4.047 billion, $4.490 billion, $4.384 billion, respectively.

Funds received from loan maturities and principal payments on loans for the years ended December 31, 2023, 2022 and 2021 were $3.447 billion, $4.047 billion, and $4.490 billion, respectively.

Loan originations for the years ended December 31, 2023, 2022 and 2021 were $4.162 billion, $4.948 billion, and $4.715 billion, respectively.

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When necessary, we utilize borrowings as a source of liquidity and as a source of funds for long-term investment when market conditions permit.

The net cash flow from the receipt and repayment of borrowings was a net increase of $532.0 million, a net decrease of $20.7 million, and a net decrease of $192.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The net cash flow from the receipt and repayment of borrowings was a net decrease of $282.3 million, a net increase of $532.0 million, and a net decrease of $20.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Northwest Bancshares, Inc.

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(on an unconsolidated basis) had liquid assets of $276.0 million.

Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $101.5 million million, $100.3 million, and $93.1 million for years the ended December 31, 2022, 2021 and 2020, respectively.

Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $101.7 million, $101.5 million, and $100.3 million for years the ended December 31, 2023, 2022 and 2021, respectively.

At December 31, 2023, stockholders’ equity totaled $1.551 billion.

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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 7. Management’s Discussion and Analysis