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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our principal business consists of collecting deposits and making loans primarily secured by various types of collateral, including real estate and other assets in the markets in which we are located. Attracting and maintaining deposits is affected by a number of factors, including interest rates paid on competing deposits and other investments offered by other financial and non-financial institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of alternative lenders and regional economic conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from investment and mortgage-backed securities and income provided from operations.

Our earnings depend primarily on net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to investment management and trust services, net gains and losses on the sale of assets, including SBA loans, 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, 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 $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.

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Selected Financial and Other Data

The summary financial information presented below is derived in part from the Company’s Consolidated Financial Statements. The following is only a summary and should be read in conjunction with the Consolidated Financial Statements and notes included elsewhere in this document. The information at December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 is derived in part from the audited Consolidated Financial Statements that appear in this document.

At December 31,

(In thousands)

Selected Consolidated Financial Data:

Mortgage-backed securities available-for-sale 861,291 993,571

Loans receivable, net of allowance for credit losses:

Residential mortgage loans held-for-sale 8,768 9,913

For the years ended December 31,

(In thousands except per share data)

Selected Consolidated Operating Data:

Earnings per share:

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At or for the year ended December 31,

Selected Financial Ratios and Other Data:

Tangible common equity to tangible assets (10) 8.30 % 8.03 % 8.43 %

Noninterest expense to average assets (5), (6), (8), (9) 2.46 % 2.32 % 2.44 %

Noninterest income to average assets (7) 0.80 % 0.78 % 1.00 %

Net interest income to noninterest expense (5), (6), (8), (9) 1.24x 1.28x 1.12x

Nonperforming loans to net loans receivable 0.86 % 0.76 % 1.60 %

Nonperforming assets to total assets 0.67 % 0.58 % 1.10 %

Allowance for credit losses to nonperforming loans 129.01 % 143.98 % 64.38 %

Allowance for credit losses to loans receivable 1.10 % 1.08 % 1.02 %

(1)Represents net income divided by average assets.

(2)Represents net income divided by average equity.

(3)Represents average yield on interest-earning assets less average cost of interest-bearing liabilities (shown on a fully taxable equivalent (“FTE”) basis).

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

(5)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, 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.

Tangible common equity to assets

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

Critical Accounting Estimates

Our significant accounting policies are described in Note 1 of the notes to the Consolidated Financial Statements. Certain accounting policies are important to the understanding of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations. The following is the accounting estimate we believe is critical.

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Allowance for Credit Losses.We recognize that losses will be experienced on assets and that the risk of loss varies with the type of asset, the creditworthiness of a borrower, general economic conditions and the quality of the collateral, if any. We maintain an allowance for expected lifetime losses in the loan portfolio. The allowance for credit losses represents management’s estimate of lifetime expected losses based on all available information. The allowance for credit losses is based on management’s evaluation of relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The loan portfolio is reviewed regularly by management in its determination of the allowance for credit losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review our allowance for credit losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for credit losses, a combination of statistical models are applied to various pools of outstanding loans. We use a 24 month forecasting period and revert to historical average loss rates thereafter. Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment 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. Therefore, as the macroeconomic environment and related forecasts change or decisions are made to shorten or lengthen the forecasting period, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. We utilized a multi-scenario based macroeconomic forecast in determining the December 31, 2023 allowance for credit losses, which included a weighting of three scenarios: an upside scenario, a baseline scenario and a downside scenario. We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenarios. If we placed 100% weighting on the baseline scenario, the quantitative allowance for credit losses would have been approximately $15.3 million lower. These forecasts revert to our long-term historical average loss rate after a 24 month forecasting period. If we shortened the forecasting period to twelve months and reverted to our long-term historical loss rate thereafter, the quantitative allowance for credit losses would have been approximately $5.2 million lower.

Although management believes that it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously. Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. For further information related to our allowance for credit losses, see Note 1(f) of the notes to the Consolidated Financial Statements.

Recently Issued Accounting Standards

The following Accounting Standard Updates (“ASU”) issued by the 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.

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In December 2023, the FASB issued ASU No. 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

Assets. 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 $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. 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.

At December 31,

Amortizedcost Fairvalue Amortizedcost Fairvalue

(In thousands)

Residential mortgage-backed securities available-for-sale:

Marketable securities available-for-sale:

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

At December 31,

Amortizedcost Fairvalue Amortizedcost Fairvalue

(In thousands)

Residential mortgage-backed securities held-to-maturity:

Marketable securities held-to-maturity:

The following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated.

At December 31,

(In thousands)

Residential mortgage-backed securities:

Other (including non-agency) 5 6

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Marketable Securities Portfolio Maturities and Yields. The following table sets forth the scheduled maturities, carrying values, amortized cost, market values and weighted average yields for our marketable securities and mortgage-backed securities portfolios at December 31, 2023. The annualized weighted average yields are calculated by taking the interest of the marketable securities divided by the amortized cost. Adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust.

(Dollars in thousands)

Marketable securities available-for-sale:

Residential mortgage-backed securities available-for-sale:

Marketable securities held-to-maturity:

Residential mortgage-backed securities held-to-maturity:

Further information and analysis of our investment portfolio, including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity marketable securities and tables showing the fair value and gross unrealized losses on marketable securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in Note 4 of the Notes to the Consolidated Financial Statements.

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Loans Receivable. 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. 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.

At December 31,

Amount Percent Amount Percent

(Dollars in thousands)

Personal Banking:

Residential mortgage loans held-for-sale $ 8,768 0.1 % $ 9,913 0.1 %

Commercial Banking:

(1) Consists primarily of secured and unsecured personal loans.

The following table sets forth the maturity of our loan portfolio at December 31, 2023. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Adjustable and floating-rate loans are included in the period in which the contractual repayment is due or they contractually mature, if interest only, and fixed-rate loans are included in the period in which the contractual repayment is due.

Personal Banking:

Commercial Banking:

Net unearned income and unamortized premiums and discounts $ 68,340

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The following table sets forth at December 31, 2023, the dollar amount of all fixed-rate loans due one year or more after December 31, 2023.

Personal Banking:

Commercial Banking:

The following table sets forth at December 31, 2023, the dollar amount of all adjustable-rate loans due one year or more after December 31, 2023. Adjustable and floating-rate loans are included in the table based on the contractual due date of the loan.

Personal Banking:

Commercial Banking:

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The following table provides the various loan sectors in our commercial real estate portfolio at 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

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

Agricultural Real Estate 2.1

All Other Types 13.2

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

State Percent of portfolio

Pennsylvania 30.9

Indiana 7.9

All other 8.8

Deposits. 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%.

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

At December 31,

Balance Percent (1) Rate (2) Balance Percent (1) Rate (2)

(Dollars in thousands)

Time deposits:

(1) Represents percentage of total deposits.

(2) Represents weighted average nominal rate at year end.

The following table sets forth the dollar amount of deposits in each state by branch location as of December 31, 2023.

State Balance Percent

(Dollars in thousands)

The following table indicates the amount of our certificates of deposits of $250,000 or more by time remaining until maturity at December 31, 2023.

Maturity period Certificates of deposit

(In thousands)

Over three months through six months 156,901

Over six months through twelve months 505,596

Over twelve months 6,790

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

Balance Percent of total deposits Number of relationships

(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.

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Borrowings. 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.

During the years ended December 31,

(Dollars in thousands)

FHLB borrowings:

Maximum outstanding at end of any month during year 787,300 551,300

Weighted average interest rate during year 5.37 % 4.27 %

Weighted average interest rate at end of year 5.70 % 4.54 %

Collateralized borrowings:

Maximum outstanding at end of any month during year 101,059 135,736

Weighted average interest rate during year 1.09 % 0.19 %

Weighted average interest rate at end of year 1.72 % 0.27 %

Collateral received:

Maximum outstanding at end of any month during year 62,300 42,824

Weighted average interest rate during year 5.28 % 2.62 %

Weighted average interest rate at end of year 5.26 % 4.17 %

Subordinated borrowings:

Maximum outstanding at end of any month during year 114,189 123,638

Weighted average interest rate during year 4.00 % 4.00 %

Weighted average interest rate at end of year 4.00 % 4.00 %

Total borrowings:

Maximum outstanding at end of any month during year 1,009,462 795,006

Weighted average interest rate during year 4.82 % 2.74 %

Weighted average interest rate at end of year 5.02 % 3.88 %

Shareholders’ equity. 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

General. 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

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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.

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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 Note 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

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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

General. Net income for the year ended December 31, 2022 was $133.7 million, or $1.05 per diluted share, a decrease of $20.7 million, or 13.4%, from $154.3 million, or $1.21 per diluted share, for the year ended December 31, 2021. The decrease in net income resulted from an increase in the provision for credit losses of $44.1 million, or 279.3%, and a decrease in noninterest income of $32.0 million, or 22.4%. Partially offsetting these unfavorable variances was an increase in net interest income of $29.4 million, or 7.5%, a decrease in income tax expense of $6.8 million, or 14.5%, and a decrease in noninterest expense of $19.3 million, or 5.5%.

Net income for the year ended December 31, 2022 represents returns on average equity and average assets of 8.80% and 0.94%, respectively, compared to 9.91% and 1.08% for the year ended December 31, 2021. A discussion of significant changes follows.

Interest Income. Total interest income increased by $30.3 million, or 7.2%, to $448.8 million for the year ended December 31, 2022 from $418.5 million for the year ended December 31, 2021. This increase is the result of increases in the average yield on interest-earning assets as well as the average balance of interest-earning assets, and specifically the change in our interest-earning asset mix. The average yield earned on interest-earning assets increased to 3.39% for the year ended December 31, 2022 from 3.16% for the year ended December 31, 2021 due to the rising interest rate environment. The average balance of interest-earning assets increased by $17.6 million, or 0.1%, to $13.254 billion for the year ended December 31, 2022 from $13.236 billion for the year ended December 31, 2021.

Interest income on loans receivable increased by $17.5 million, or 4.5%, to $407.8 million for the year ended December 31, 2022 from $390.3 million for the year ended December 31, 2021. This increase in interest income on loans receivable is due to increases in the average yield on loans receivable as well as the average balance of loans receivable. The average yield earned on loans receivable increased to 3.95% for the year ended December 31, 2022 from 3.81% for the year ended December 31, 2021 primarily due to the increase in market interest rates. The average balance of loans receivable increased $79.3 million, or 0.8%, to $10.319 billion for the year ended December 31, 2022 from $10.240 billion for the year ended December 31, 2021 driven mainly by growth in our retail portfolio as commercial Paycheck Protection Program (“PPP”) loans continued to payoff.

Interest income on mortgage-backed securities increased by $9.3 million, or 43.5%, to $30.8 million for the year ended December 31, 2022 from $21.5 million for the year ended December 31, 2021. This increase is attributed to increases in both the average yield of mortgage-backed securities and the average balance. The average yield on mortgage-backed securities increased to 1.56% for the year ended December 31, 2022 from 1.26% for the year ended December 31, 2021 due to the purchase of fixed-rate mortgage-backed securities with yields higher than the existing portfolio. Additionally, the average balance of mortgage-backed securities increased by $264.5 million, or 15.5%, to $1.969 billion for the year ended December 31, 2022 from $1.704 billion for the year ended December 31, 2021. This increase was primarily a result of additional purchases as we deployed interest-earning deposits into higher yielding investments throughout 2022.

Interest income on investment securities increased by $736,000, or 14.4%, to $5.8 million for the year ended December 31, 2022 from $5.1 million for the year ended December 31, 2021. This increase is primarily the result of an increase in the average balance of investment securities of $30.7 million, or 8.8%, to $381.5 million for the year ended December 31, 2022 from $350.8 million for the year ended December 31, 2021. Additionally, the average yield on investment securities increased to 1.53% for the year ended December 31, 2022 from 1.45% for the year ended December 31, 2021.

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Dividends on FHLB stock increased by $323,000, or 79.4%, to $730,000 for the year ended December 31, 2022 from $407,000 for the year ended December 31, 2021. This increase is the result of an increase in the average yield on FHLB stock to 4.27% for the year ended December 31, 2022 from 2.01% for the year ended December 31, 2021 as the FHLB of Pittsburgh increased dividend rates on required stock holdings in relation to higher market interest rates. Partially offsetting this increase was a decrease in the average balance of FHLB stock of $3.2 million, or 15.6%, to $17.1 million for the year ended December 31, 2022 from $20.2 million for the year ended December 31, 2021. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits increased by $2.4 million, or 201.4%, to $3.6 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021. This increase is attributable to an increase in the average yield on interest-earning deposits to 0.63% for the year ended December 31, 2022 from 0.13% for the year ended December 31, 2021, as a result of increases in the targeted federal funds rate by the Federal Reserve. This was partially offset by a decrease in the average balance of interest-earning deposits by $353.8 million, or 38.4%, to $567.6 million for the year ended December 31, 2022 from $921.4 million for the year ended December 31, 2021 as we deployed funds into higher yielding loans and investments.

Interest Expense. Interest expense increased by $871,000, or 3.2%, to $28.1 million for the year ended December 31, 2022 from $27.2 million for the year ended December 31, 2021 due to an increase in the average cost of interest-bearing liabilities to 0.30% for the year ended December 31, 2022 from 0.29% for the year ended December 31, 2021. This increase was due to increases in the interest rates paid on borrowed funds and junior subordinated debentures in response to increases in market interest rates. Partially offsetting these increases was a decrease in the average balance of interest-bearing liabilities of $120.5 million, or 1.3%, to $9.381 billion for the year ended December 31, 2022 from $9.501 billion for the year ended December 31, 2021. This decrease in average balance was driven by a decrease in average deposits by $191.7 million, or 2.1%, as customers utilized funds for higher inflationary purchases and searched for higher alternative yields.

Net Interest Income. Net interest income increased by $29.4 million, or 7.5%, to $420.7 million for the year ended December 31, 2022 from $391.3 million for the year ended December 31, 2021. This increase was attributable to the factors discussed above, specifically the increase in interest income which was partially offset by the increase in interest expense on borrowed funds. Our interest rate spread increased to 3.09% for the year ended December 31, 2022 from 2.88% for the year ended December 31, 2021, and our net interest margin increased to 3.17% for the year ended December 31, 2022 from 2.96% for the year ended December 31, 2021 due to the change in market rates as well as the change in our interest-earning asset mix.

Provision for Credit Losses. We analyze the allowance for credit losses as described in Note 1(f) of the Notes to the Consolidated Financial Statements. 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. Total classified loans decreased by $126.9 million, or 34.9%, to $236.2 million at December 31, 2022 from $363.2 million at December 31, 2021. In addition, net charge-offs to average loans decreased to 0.02% for the year ended December 31, 2022 from 0.20% for the year ended December 31, 2021.

Noninterest Income. Noninterest income decreased by $32.0 million, or 22.4%, to $110.8 million for the year ended December 31, 2022 from $142.9 million for the year ended December 31, 2021. This decrease was primarily driven by the sale of our insurance business on April 30, 2021, resulting in a $25.3 million pre-tax gain during the prior year. This insurance business sale in the prior year also resulted in a decrease in insurance commission income of $3.6 million from the year ended December 31, 2021. Also contributing to this decrease was a decrease in mortgage banking income of $11.0 million, or 69.4%, to $4.9 million for the year ended December 31, 2022 from $15.9 million for the year ended December 31, 2021, due primarily to the volatile interest rate

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environment causing unfavorable pricing in the secondary market, as well as a slowdown in mortgage loan activity in general. Partially offsetting these decreases were increases in service charges and fees, other operating income, and income from bank-owned life insurance. Service charges and fees increased $3.4 million, or 6.5%, to $55.2 million for the year ended December 31, 2022 from $51.8 million for the year ended December 31, 2021 due to increased customer activity in 2022 after COVID-19 restricted behavior in the prior year. Other operating income increased $3.3 million, or 28.0%, to $15.3 million for the year ended December 31, 2022 from $12.0 million for the year ended December 31, 2022, resulting from gains on the sale of branch buildings associated with the previously announced branch consolidations and improvements in other fee income. Lastly, income from bank-owned life insurance increased $1.1 million, or 17.8%, to $7.1 million for the year ended December 31, 2022 from $6.1 million for the year ended December 31, 2021 due to additional death benefits received during the current year.

Noninterest Expense. Noninterest expense decreased by $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. This decrease in compensation and employee benefits, as well as a $1.5 million, or 4.7%, decrease in premises and occupancy costs, to $29.6 million for the year ended December 31, 2022 from $31.1 million for the year ended December 31, 2021, was driven primarily by the branch consolidations completed in April 2022. Processing expenses decreased $3.3 million, or 5.9%, to $52.5 million for the year ended December 31, 2022 from $55.8 million for the year ended December 31, 2021, due to the prior year investment in technology and infrastructure. Professional services decreased $2.9 million, or 16.6%, to $14.7 million for the year ended December 31, 2022 from $17.6 million for the year ended December 31, 2021 primarily due to the utilization of third-party experts to assist with our digital strategy rollout during the prior year. Lastly, amortization of intangible assets decreased $1.3 million, or 23.0%, to $4.3 million for the year ended December 31, 2022 compared to $5.6 million for the year ended December 31, 2021 due to previously acquired intangible assets being fully amortized. 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. The provision for income taxes decreased by $6.8 million, or 14.5%, to $40.0 million for the year ended December 31, 2022 from $46.8 million for the year ended December 31, 2021. This decrease in income tax expense is primarily due to the $27.4 million, or 13.6%, decrease in pretax income to $173.7 million for the year ended December 31, 2022 from $201.1 million for the year ended December 31, 2021. In addition, our effective tax rate for the year ended December 31, 2022 was 23.0% compared to 23.3% for the year ended December 31, 2021.

Asset Quality

We actively manage asset quality through our underwriting practices and collection procedures. Our underwriting practices are focused on balancing risk and return while our collection operations focus on diligently working with delinquent borrowers in an effort to minimize losses.

Collection procedures. Our collection procedures for personal loans generally provide that at 15 days delinquent, a notice of late charges is sent and personal contact efforts are attempted by telephone to strengthen the collection process and obtain reasons for the delinquency. Also, plans to establish a payment program are developed. Personal contact efforts are continued throughout the collection process, as necessary. Generally, if a loan becomes 30 days past due, a collection letter is sent and the loan becomes subject to possible legal action if suitable arrangements for payment have not been made. In addition, the borrower is given information which provides access to consumer counseling services to the extent required by the regulations of the Department of Housing and Urban Development and other applicable authorities. When a loan continues in a delinquent status for 60 days or more, and a payment schedule has not been developed or kept by the borrower, we may send the borrower a notice of intent to foreclose, providing for cure periods of at least 30 days. If not cured, foreclosure proceedings are initiated.

Nonperforming assets. Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of all contractual principal and/or interest is doubtful. Loans are automatically placed on nonaccrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual status is reversed and charged against interest income.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time that it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal. If the value of the property is less

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than the principal balance, less any related specific credit loss reserve allocations, the difference is charged against the allowance for credit losses. Any subsequent write-down of real estate owned or loss at the time of disposition is charged against earnings.

Nonaccrual, Past Due, Restructured Loans and Nonperforming Assets. The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan becomes 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual principal and/or interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.

At December 31,

(Dollars in thousands)

Loans 90 days or more past due:

Commercial real estate loans - owner occupied 177 278

Total real estate owned (REO) $ 104 413

Total loans 90 days or more past due to net loans receivable 0.22 % 0.19 %

Total loans 90 days or more past due and REO to total assets 0.17 % 0.15 %

Nonperforming assets:

Nonaccrual loans - loans 90 days or more past due $ 21,894 19,861

Nonaccrual loans - loans less than 90 days past due 72,490 61,375

Loans 90 days or more past due still accruing 2,698 744

Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans, or other assets including other real estate owned, considered to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable”. Assets classified as “loss” are those considered “uncollectible” so that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated as “special mention”. At December 31, 2023, we had 113 loans, with an aggregate principal balance of $130.8 million, designated as “special mention”.

We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. Our largest classified assets generally are also our largest nonperforming assets.

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The following table sets forth the aggregate amount of our classified assets at the dates indicated.

At December 31,

(In thousands)

Doubtful assets — —

Loss assets — —

Allowance for Credit Losses. Our Board of Directors has adopted an “Allowance for Credit Losses” (“ACL”) policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each region to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”. Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” have all the weakness inherent in those classified as “doubtful” and are considered uncollectible.

Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.

If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.

If a substandard or doubtful loan is not individually assessed, it is grouped with other loans that possess common characteristics for credit losses and analysis. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a 24 month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.

The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Losses Committee (“ACL Committee”) monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.

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In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and/or the Pennsylvania Department of Banking and Securities perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.

We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.

We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of December 31, 2023, we considered the most recent economic conditions and forecasts available. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by $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. 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. The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ACL levels and ratios compared to our peer group as well as state and national statistics.

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

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Analysis of the Allowance for Credit Losses. The following table sets forth the analysis of the allowance for credit losses for the periods indicated.

Years ended December 31,

(Dollars in thousands)

Allowance for credit losses

Charge-offs:

Residential mortgage loans (1,189) (2,033)

Commercial real estate loans (2,298) (7,366)

Commercial real estate loans - owner occupied (68) —

Recoveries:

Residential mortgage loans 1,636 792

Commercial real estate loans - owner occupied 66 85

Allowance for credit losses as a percentage of loans receivable 1.10 % 1.08 %

Net charge-offs as a percentage of average loans outstanding:

Residential mortgage loans (0.01) % 0.04 %

Home equity loans 0.01 % — %

Commercial real estate loans 0.01 % (0.12) %

Commercial real estate loans - owner occupied — % (0.02) %

Commercial loans 0.20 % (0.06) %

Total Average Loans Receivable 0.11 % 0.02 %

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Allocation of Allowance for Credit Losses. The following tables set forth the allocation of the allowance for credit losses by loan category at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category.

At December 31,

Amount % of totalloans (1) Amount % of totalloans (1)

(Dollars in thousands)

Balance at end of year applicable to:

Commercial real estate loans - owner occupied 3,775 3.0 % 4,004 3.4 %

(1)Represents percentage of loans in each category to total loans.

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Average Balance Sheets

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. Non-accrual loans are included in the computation of average balances. The yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense. The effect of these fees is not considered material. The average yield for loans receivable and investment securities are calculated on a FTE basis. There were no out-of-period adjustments or other exclusions from the amounts presented in the table.

For the years ended December 31,

(Dollars in thousands)

Interest-earning assets:

Interest-bearing liabilities:

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

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

(3)Interest income on tax-free loans is presented on a FTE basis including adjustments, as indicated.

(4)Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(5)Interest income on tax-free investment securities is presented on a FTE basis including adjustments, as indicated.

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

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

(8)Average cost of deposits was 0.91%, 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.

(10)Net interest margin represents net interest income as a percentage of average interest-earning assets.

(11)Shown on a FTE basis and in consideration of applicable current federal, state and local tax rates. GAAP basis yields for the years ended December 31, 2023, 2022 and 2021 were - Loans: 4.90%, 3.95%, and 3.81%, respectively, Investment securities: 1.57%, 1.53%, and 1.45%, respectively, Interest-earning assets: 4.40%, 3.39%, and 3.16%, respectively. GAAP basis net interest rate spreads were 2.83%, 3.09%, and 2.88%, respectively, and GAAP basis net interest margins were 3.26%, 3.17%, and 2.96% respectively.

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Rate/Volume Analysis

The following table presents, on a FTE basis, the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the year ended December 31, 2023 compared to 2022 and for the year ended December 31, 2022 compared to 2021. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the prior year rate; (2) changes in rate multiplied by the prior year volume; and (3) the total increase or decrease. Changes not solely attributable to rate or volume have been allocated proportionately to the change due to volume and the change due to rate. There were no out-of-period adjustments or other exclusions from the amounts presented in the table.

Rate Volume Rate Volume

(In thousands)

Interest-earning assets:

Interest-bearing liabilities:

Liquidity and Capital Resources

Northwest Bank is required to maintain a sufficient level of liquid assets, as determined by management and defined and reviewed for adequacy by the FDIC during their regular examinations. The FDIC, however, does not prescribe by regulation a minimum amount or percentage of liquid assets. The FDIC allows us to consider any unencumbered, available-for-sale marketable security, whose sale would not impair our capital adequacy, to be eligible for liquidity. Liquidity is monitored through the use of a standard liquidity ratio of liquid assets to borrowings plus deposits. Using this formula, Northwest Bank’s liquidity ratio was 9.51% as of December 31, 2023. We adjust our liquidity level in order to meet funding needs of deposit outflows, repayment of borrowings and loan commitments. We also adjust liquidity as appropriate to meet our asset and liability management objectives. Liquidity needs can also be met by temporarily drawing upon lines-of-credit established for such reasons.

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. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rate levels, economic conditions, and competition. We manage the pricing of our deposits to maintain a desired deposit balance. In addition, we invest excess funds in short-term interest earning and

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other assets, which provide liquidity to meet lending requirements. Short-term interest-earning deposits amounted to $35.9 million at December 31, 2023. For additional information about our cash flows from operating, financing, and investing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing, and financing activities. The primary sources of cash during the current year were net income, principal repayments on loans and mortgage-backed securities and net increase in deposits.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh and the Federal Reserve Bank of Cleveland, which provide an additional source of funds. At December 31, 2023, Northwest Bank had an outstanding balance of $338.5 million with the FHLB of Pittsburgh. We borrow from these sources to reduce interest rate risk and to provide liquidity when necessary.

At December 31, 2023, our customers had $1.186 billion of unused lines of credit available and $198.2 million in loan commitments. This amount does not include the unfunded portion of loans in process. Time deposits scheduled to mature in less than one year at December 31, 2023, totaled $2.464 billion. We believe that a significant portion of such deposits will remain with us.

Deposits are our primary source of externally generated funds. The level of deposit inflows during any given period is heavily influenced by factors outside of our control, such as consumer savings tendencies, the general level of short-term and long-term market interest rates, as well as higher alternative yields that investors may obtain on competing investments such as money market mutual funds. Financial institutions, such as Northwest Bank, are also subject to deposit outflows. Our net deposits 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, 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. We also sell a portion of the loans we originate as part of our mortgage banking operations, and the cash flows from such sales for the years ended December 31, 2023, 2022 and 2021 were $203.7 million, $383.9 million, and $804.7 million, respectively.

We experience significant cash flows from our portfolio of marketable securities as principal payments are received on mortgage-backed securities and as investment securities mature or are called. Cash flows from the repayment of principal and the maturity or call of marketable securities for the years ended December 31, 2023, 2022 and 2021 were $169.0 million, $330.4 million, and $517.9 million, respectively.

When necessary, we utilize borrowings as a source of liquidity and as a source of funds for long-term investment when market conditions permit. The net cash flow from the receipt and repayment of borrowings was a net 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. is a separate legal entity from Northwest Bank and must provide for its own liquidity to pay dividends to shareholders, to repurchase its common stock and for other corporate purposes. Northwest Bancshares’ primary source of liquidity is the dividend payments it receives from Northwest Bank. During 2020, Northwest Bancshares, Inc. issued $125.0 million of subordinated debt. At December 31, 2023, Northwest Bancshares, Inc. (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 $101.7 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. During 2023, our Board of Directors declared regular quarterly cash dividends totaling $0.80 per share of common stock.

We monitor the capital levels of Northwest Bank to provide for current and future business opportunities and to meet regulatory guidelines for “well capitalized” institutions. Northwest Bank is required by the Pennsylvania Department of Banking and Securities and the FDIC to meet minimum capital adequacy requirements. At December 31, 2023, Northwest Bank exceeded all regulatory minimum capital requirements and is considered to be “well capitalized”. In addition, as of December 31, 2023, we were not aware of any recommendation by a regulatory authority that, if it were implemented, would have a material effect on liquidity, capital resources or operations.

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Regulatory Capital Requirements. Northwest Bank is subject to minimum capital requirements established by the FDIC. See “Item 1. Business Supervision and Regulation — Capital Requirements and Prompt Corrective Action”. The following table summarizes Northwest Bank’s total shareholders’ equity, regulatory capital, total risk-based assets, and leverage and risk-based capital ratios at the dates indicated.

At December 31,

(Dollars in thousands)

Additions to Tier 1 capital — —

(1)Tier 2 capital consists of the allowance for credit losses, which is limited to 1.25% of total risk-weighted assets as detailed under the regulations of the FDIC, and 45% of pre-tax net unrealized gains on securities available-for-sale.

Northwest Bank is also subject to capital guidelines of the Pennsylvania Department of Banking. Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% total risk-based capital. See “Item 1. Business — Supervision and Regulation — Capital Requirements and Prompt Corrective Action”.

Contractual Obligations.We are obligated to make future payments according to various contracts. The following table presents the expected future payments of the contractual obligations aggregated by obligation type at December 31, 2023.

Payments due

(In thousands)

Supplemental Executive Retirement Plan (1) $ — — — 1,021 1,021

Term notes payable to the FHLB of Pittsburgh (2) 338,500 — — — 338,500

(1)See Note 15 to the Consolidated Financial Statements, Employee Benefit Plans, for additional information.

(2)See Note 11 to the Consolidated Financial Statements, Borrowed Funds, for additional information.

(3)See Note 3 to the Consolidated Financial Statements, Leases, for additional information.

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Impact of Inflation and Changing Prices. The Consolidated Financial Statements and notes thereto, presented elsewhere herein, have been prepared in accordance with United States generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

Off-Balance-Sheet Arrangements. As a financial services provider, we are routinely a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we routinely enter into commitments to purchase and sell residential mortgage loans.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap”. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or re-price within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or re-pricing within a specific time period and the amount of interest-bearing liabilities maturing or re-pricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to positively affect net interest income. Similarly, during a period of falling interest rates, a negative gap would tend to positively affect net interest income while a positive gap would tend to adversely affect net interest income.

Our practice is to reduce our exposure to interest rate risk generally by matching the maturities of our interest rate sensitive assets and liabilities and by increasing the interest rate sensitivity of our interest-earning assets. We purchase adjustable-rate investment securities and mortgage-backed securities, which at December 31, 2023, totaled $39.7 million, and originate adjustable-rate loans, which at December 31, 2023, totaled $4.032 billion or 35.5% of our gross loan portfolio. Of our $13.283 billion of interest-earning assets at December 31, 2023, $4.072 billion, or 30.7%, consisted of assets with adjustable rates of interest. When open market conditions are favorable, we also attempt to reduce interest rate risk by lengthening the maturities of our interest-bearing liabilities by using FHLB advances as a source of long-term fixed-rate funds, if necessary, and by promoting longer-term certificates of deposit. At times, the Company may also use derivatives to adjust our interest rate risk profile. As of December 31, 2023 we had $175 million of cash flow hedges.

At December 31, 2023, total interest-earning liabilities maturing or re-pricing within one year exceeded total interest-bearing assets maturing or re-pricing in the same period by $565.9 million, representing a negative one-year gap ratio of 3.92%.

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The following table sets forth, on a carrying value basis, the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2023, which are expected to re-price or mature, based upon certain assumptions, in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown that re-price or mature during a particular period were determined in accordance with the earlier of the term of re-pricing or the contractual term of the asset or liability. We believe that these assumptions approximate the standards used in the financial services industry and consider them appropriate and reasonable.

Amounts maturing or re-pricing

Within1 year Over 1-3 years Over 3-5 years Over 5-10 years Over 10 years Total

(Dollars in thousands)

Rate-sensitive assets:

Mortgage-backed securities:

Mortgage loans:

Home equity loans:

Rate-sensitive liabilities:

At December 31, 2022, we had a cumulative interest sensitivity gap as a percentage of total assets of 25.41%. We have an Asset/Liability Committee, consisting of members of management, which meets monthly to review market interest rates, economic conditions, the pricing of interest earning assets and interest bearing liabilities and our balance sheet structure. On a quarterly basis, this committee also reviews our interest rate risk position and our cash flow projections.

Our Board of Directors has a Risk Management Committee, which meets quarterly, and reviews interest rate risks and trends, our interest sensitivity position, our liquidity position and the market risk inherent in our investment portfolio.

In an effort to assess interest rate risk, we use a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net interest income, net income and the market value of our equity. Certain assumptions are made regarding loan prepayments and decay rates of savings and interest-bearing demand deposit accounts. Because it is difficult to

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accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest rates on these assumptions may differ from simulated results. We have established the following guidelines for assessing interest rate risk:

Net Interest Income Simulation. Given a parallel shift of 100 basis points (“bps”), 200 bps, and 300 bps in interest rates, the estimated net interest income may not decrease by more than 5%, 10%, and 15%, respectively, within a one-year period.

Net Income Simulation. Given a parallel shift of 100 bps, 200 bps, and 300 bps in interest rates, the estimated net income may not decrease by more than 10%, 20%, and 30%, respectively, within a one-year period.

Market Value of Equity Simulation. The market value of our equity is the present value of our assets and liabilities. Given a parallel shift of 100 bps, 200 bps, and 300 bps in interest rates, the market value of equity may not decrease by more than 15%, 30%, and 35%, respectively, from the computed economic value at current interest rate levels.

The following table illustrates the simulated impact of a parallel 100 bps, 200 bps or 300 bps upward or 100 bps, 200 bps, or 300 bps downward movement in interest rates on net interest income, net income, return on average equity, earnings per share, and market value of equity. These analyses were prepared assuming that total interest-earning asset and interest-bearing liability levels at December 31, 2023 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from December 31, 2023 levels.

Increase Decrease

The following table illustrates the simulated impact of a parallel 100 bps, 200 bps or 300 bps upward or 100 bps downward movement in interest rates on net interest income, net income, return on average equity, earnings per share, and market value of equity. These analyses were prepared assuming that total interest-earning asset and interest-bearing liability levels at December 31, 2022 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from December 31, 2022 levels.

Increase Decrease

The figures included in the tables above represent projections that were computed based upon certain assumptions including loan prepayment rates and deposit decay rates. These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates. Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in market conditions.

When assessing our interest rate sensitivity, analysis of historical trends indicates that loans will prepay at various speeds (or annual rates) depending on the variance between the weighted average portfolio rates and the current market rates. In preparing the table above, the following assumptions were used: (i) adjustable-rate mortgage loans will prepay at an annual rate of 8% to 23%; (ii) fixed-rate mortgage loans will prepay at an annual rate of 6% to 70%, depending on the type of loan; (iii) commercial loans will prepay at an annual rate of 10% to 30%; and (iv) consumer loans held by Northwest Bank will prepay at an annual rate of 13% to 23%. In regards to our deposits, it has been assumed that (i) fixed maturity deposits will not be withdrawn prior to maturity; (ii) a significant majority of money market accounts will re-price immediately; (iii) savings accounts will gradually re-price over three years; and (iv) checking accounts will re-price either when the rates on such accounts re-price as interest rate levels change, or when deposit holders withdraw funds from such accounts and select other types of deposit accounts, such as certificate accounts, which may have higher interest rates. For purposes of this analysis, management has estimated, based on historical trends, that $617.8 million, or 23.5%, of our interest-bearing demand accounts and $429.3 million, or 20.4%, of our savings deposits are interest sensitive and may re-price in one year or less, and that the remainder may re-price over longer time periods.

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The above assumptions are annual percentages based on remaining balances and should not be regarded as indicative of the actual prepayments and withdrawals that we may experience. Moreover, certain shortcomings are inherent in the analysis presented by the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to re-pricing, they may react in different degrees to changes in market interest rates. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of or lag behind changes in market interest rates. Additionally, certain assets, such as some adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Moreover, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in preparing the table.

In addition, we regularly measure and monitor the market value of our net assets and the changes therein. While fluctuations are expected because of changes in interest rates, we have established policy limits for various interest rate scenarios. Given interest rate shocks of +100 to +300 bps and -100 to -300 bps the market value of net assets is not expected to decrease by more than 15% to 35%.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

Management, including the principal executive officer and principal financial officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on such assessment, management concluded that, as of December 31, 2023, the Company’s internal control over financial reporting is effective based upon those criteria.

KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Report and has issued a report with respect to the effectiveness of the Company’s internal control over financial reporting.

/s/ Louis J. Torchio /s/ William W. Harvey, Jr.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Northwest Bancshares, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Northwest Bancshares, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2024 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Pittsburgh, Pennsylvania

February 23, 2024

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Northwest Bancshares, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial condition of Northwest Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses for loans evaluated on a collective basis

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans held for investment was $125.2 million as of December 31, 2023, a portion of which included the measurement of expected credit losses on a collective (pool) basis for those loans that share similar risk characteristics. The expected credit loss methodologies incorporate probability of default (PD) and loss given default (LGD) models to determine a PD and LGD loss assumption which is applied to loan level exposures on an undiscounted basis over the contractual term of the loans, adjusted for prepayments, certain of which use a prepayment model. The Company uses a twenty-four month reasonable and supportable forecast period, which is based on a probability-weighted multiple macroeconomic forecast approach (macroeconomic forecasts) and reverts to historical average loss rates over a twelve-month period for the remaining life of the loans. The following methodologies were developed for each significant loan portfolio segment: (1) the allowance for credit losses within the residential mortgage and home equity loan portfolios are calculated using a PD, LGD and prepayment model adjusted for asset specific characteristics at the loan-level using projected default rates, prepayment rates, and severity rates as well as macroeconomic forecasts determined at the pool level; (2) the allowance for credit losses within the vehicle loan portfolio is calculated using a PD, LGD and prepayment model adjusted for asset specific characteristics at the loan-level using projected default rates and prepayment rates, as well as macroeconomic forecasts determined at the pool level; (3) the allowance for credit losses for commercial real estate small business and commercial small business loan portfolios are calculated using PD and LGD models at the borrower-level using both a regression model and a fractional logit model, as well as macroeconomic forecasts and expected prepayment rates at the pool level; and (4) the allowance for credit losses for the commercial real estate and commercial loan portfolios are calculated using PD and LGD models at the pool-level using projected

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default and severity rates as well as macroeconomic forecasts and expected prepayment rates determined at the pool level. A portion of the collective ACL is comprised of adjustments to historical loss information for asset-specific risk characteristics to reflect the extent they do not exist in the historical loss information. These adjustments are based on qualitative factors not reflected in the quantitative models but are likely to impact the measurement of estimated credit losses.

We identified the assessment of the expected credit losses on a collective basis for all loans, except for consumer loans (the collective ACL) as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodologies, including the (1) PD, LGD and prepayment models and their significant assumptions, including the selection and weighting of the macroeconomic forecasts, and the reasonable and supportable forecast period, (2) adjustment for asset specific risk characteristics for residential mortgage, home equity and vehicle loans and (3) the qualitative factors and their significant assumptions. The assessment also included an evaluation of the conceptual soundness and performance of the models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s collective ACL estimate, including controls over the:

•development of the collective ACL methodologies

•development of the small business banking PD, LGD and prepayment models

•continued use and conceptual soundness of the PD, LGD and prepayment models

•performance monitoring of the models

•determination and measurement of the significant assumptions used in the models

•determination of the qualitative factors, including the significant assumptions used in the measurement of the qualitative factors

•analysis of the collective ACL results, trends, and ratios.

We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

•evaluating the Company’s collective ACL methodologies for compliance with U.S. generally accepted accounting principles

•evaluating judgments made by the Company relative to the development and performance testing of the model assumptions, inclusive of the metrics used for asset-specific risk characteristics for the mortgage, home equity, and vehicle models, by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices

•assessing the conceptual soundness and performance testing of the model assumptions by inspecting the model documentation to determine whether the models are suitable for their intended use

•evaluating the selection and weighting of the macroeconomic forecasts, by comparing it to the Company’s business environment and relevant industry practices

•evaluating the length of the reasonable and supportable forecast period by comparing it to specific portfolio risk characteristics and trends

•evaluating the methodology used to develop the qualitative factors and the effect of certain factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends.

We also assessed the sufficiency of the audit evidence obtained related to the collective ACL estimate by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices, and potential bias in the accounting estimate.

/s/ KPMG LLP

We have served as the Company’s auditor since 1963.

Pittsburgh, Pennsylvania

February 23, 2024

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, excluding share data)

December 31,

Assets

Total cash and cash equivalents and marketable securities 1,980,458 2,238,722

Liabilities and shareholders’ equity

Liabilities:

Advances by borrowers for taxes and insurance 45,253 47,613

Shareholders’ equity:

Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued — —

See accompanying notes to Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, excluding share data)

Years ended December 31,

Interest income:

Interest expense:

Provision for credit losses - unfunded commitments (1) 4,210 10,455 (3,905)

Noninterest income:

Loss on sale of investments (8,307) (8) (176)

Gain on sale of mortgage servicing rights 8,305 — —

Gain on sale of SBA loans 1,800 — —

Gain on sale of loans 726 — —

Insurance commission income — — 3,633

Gain on sale of insurance business — — 25,327

Noninterest expense:

Merger, asset disposition and restructuring expense 6,749 5,617 3,453

Provision for income taxes:

(1) Reclassified from other expenses for periods prior to December 31, 2023

See accompanying notes to Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Years ended December 31,

Other comprehensive income net of tax:

Net unrealized holding gains/(losses) on marketable securities:

Defined benefit plan:

See accompanying notes to Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, excluding per share data)

Comprehensive income:

Other comprehensive income, net of tax of $766 — — — (4,080) (4,080)

Stock-based compensation expense 3 4,739 — — 4,742

Stock-based compensation forfeited (1) 1 — — —

Comprehensive income:

Stock-based compensation expense 1 4,073 — — 4,074

Stock-based compensation forfeited (1) — — — (1)

Comprehensive income:

Exercise of stock options 1 629 — — 630

Stock-based compensation expense 1 4,575 — — 4,576

Stock-based compensation forfeited (1) 1 — — —

See accompanying notes to Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years ended December 31,

Operating activities:

Loss on sale of investments 8,307 — —

Gain on sale of SBA loans (1,754) — —

Gain on sale of mortgage servicing rights (8,305) — —

Gain on sale of loans (726) — —

Gain on sale of insurance business — — (25,327)

Noncash compensation expense related to stock benefit plans 4,576 4,074 4,742

Noncash write-down of real estate owned 100 54 173

Investing activities:

Purchase of marketable securities held-to-maturity — (212,892) (658,817)

Proceeds from sale of marketable securities available-for-sale 101,229 — 59,579

Proceeds from sale of mortgage servicing rights 13,118 — —

Proceeds from sale of real estate owned for investment, net — 305 305

Proceeds from sale of insurance business — — 28,238

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years ended December 31,

Financing activities:

Repayments of long-term borrowings — (10,094) (22,105)

Purchase of common stock for retirement — — (23,854)

Cash paid during the period for:

Noncash activities:

Sale of real estate owned financed by the Company 70 175 54

See accompanying notes to Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023, 2022 and 2021

(1) Summary of Significant Accounting Policies

(a)Nature of Operations

Northwest Bancshares, Inc., a Maryland corporation headquartered in Columbus, Ohio, is the bank holding company for its wholly owned subsidiary, Northwest Bank. Northwest Bank, a Pennsylvania chartered savings bank, offers a complete line of business and personal banking products, as well as treasury management solutions and wealth management services through its 142 banking locations in Pennsylvania, New York, Ohio, and Indiana. We have determined that we have one reportable business segment.

(b)Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all intercompany accounts and transactions.

(c)Cash and Cash Equivalents

For purposes of the statements of financial condition and cash flows, cash and cash equivalents include cash and amounts due from banks, interest-bearing deposits in other financial institutions, federal funds sold, and other short-term investments with original maturities of three months or less.

(d)Marketable Securities

We classify marketable securities at the time of purchase as held-to-maturity, available-for-sale, or trading. Securities for which management has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts on a level yield basis (amortized cost). If it is management’s intent at the time of purchase to hold securities for an indefinite period of time and/or to use such securities as part of its asset/liability management strategy, the securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of tax. Securities classified as available-for-sale include securities that may be sold in response to changes in interest rates, resultant prepayment risk, or other market factors. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with changes in fair value included in earnings. The cost of securities sold is determined on a specific identification basis. We held no securities classified as trading at or during the years ended December 31, 2023 and 2022. Fair values are determined as described in Note 16. Throughout the year we validate the prices received from third parties by comparing them to prices provided by a different independent pricing service. We have reviewed the detailed valuation methodologies provided to us by our pricing services.

On a quarterly basis, we measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type and all of our held-to-maturity debt securities are residential mortgage-backed securities. Accrued interest receivable on held-to-maturity debt securities totaled $2.5 million and $2.8 million at December 31, 2023 and December 31, 2022, respectively, and is excluded from estimated credit losses. All of our residential mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.

For available-for-sale debt securities in an unrealized loss position, on at least a quarterly basis, we review our investments for impairment. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. We consider both our intent to sell and the likelihood that we will not have to sell the investment securities before recovery of their amortized cost basis during our evaluation. If we intend to sell the investment security or if it is more likely than not that we will be required to sell the investment security, the entire impairment is recorded in earnings. For available-for-sale debt securities that do not meet this criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment we consider the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security, among other factors. Also, we may evaluate the business and financial outlook of the issuer, as well as broader economic performance indicators. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023, 2022 and 2021

recorded for the credit loss, limited by the amount that the fair value is less than amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security is confirmed or when there is an intent or requirement to sell the security.

Accrued interest receivable on available-for-sale debt securities totaled $1.6 million and $2.0 million at December 31, 2023 and December 31, 2022, respectively, and is excluded from the estimate of credit losses.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. The receivable for interest income that is accrued but not collected is reversed against interest income when the debt security is placed on nonaccrual status. No debt securities were on nonaccrual status as of December 31, 2023 and December 31, 2022.

(e)Loans Receivable

Our portfolio segments are based on the class of financing receivable. Additionally, the class of financing receivables are based on several factors including the method for monitoring and assessing credit risk and the risk characteristics of the financing receivables. Based on evaluation of the nature of our financing receivables, along with the nature and extent of exposure to credit risk arising from these receivables, our portfolio segments were determined to be Personal Banking and Business Banking loans.

•Personal Banking loans consist of the following classes of financing receivables:

◦Residential mortgage loans - fixed and adjustable rate mortgage loans

◦Home equity loans - first and second mortgage loans and home equity lines of credit

◦Vehicle loans - direct and indirect automobile and motorcycle loans

◦Consumer loans - unsecured lines of credit, credit card loans, and other consumer loans

•Business Banking loans consist of the following classes of financing receivables:

◦Commercial real estate - multi-family commercial real estate loans are secured by multi-family residences, such as rental properties and loans secured by nonresidential properties such as hotels, commercial offices, medical buildings, manufacturing facilities and retail establishments, excluding owner-occupied loans, and including small business commercial real estate loans

◦Commercial real estate - owner-occupied loans - commercial real estate loans secured by residential or non-residential properties

◦Commercial loans - other commercial loans, including small business commercial loans and equipment finance loans

NWBI US Equity

NWBI · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NWBI US Equity☆

NWBI · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NWBI US Equity