UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March 31,~~June 30, 2023

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-34582

NORTHWEST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland

27-0950358

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3 Easton Oval

Suite 500

Columbus

Ohio

43219

(Address of Principal Executive Offices)

(Zip Code)

(814) 726-2140

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

NWBI

NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☒ Large accelerated filer ☐ Accelerated filer

☐ Non-accelerated filer ☐ Smaller reporting company

☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock ($0.01 par value), ~~127,063,405~~127,095,607 shares outstanding as of ~~April 30,~~July 31, 2023.

Table of Contents

NORTHWEST BANCSHARES, INC.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Financial Condition at ~~March 31, 202~~June 3 0 , 2023 and December 31, ~~202~~2 2022 (Unaudited)

Consolidated Statements of Income for the ~~quarter~~s quarter and six months ended ~~March 31, 202~~3June 30 , 2023 and ~~202~~2 2022 (Unaudited)

Consolidated Statements of Comprehensive Income /(L oss) for the ~~quarter~~squarter and six months ended ~~March 31, 202~~3June 30 , 2023 and ~~202~~2 2022 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the quarter s and six months ended ~~March 31, 202~~3June 30 , 2023 and ~~202~~2 2022 (Unaudited)

Consolidated Statements of Cash Flows for the ~~quarter~~ssix months ended ~~March 31, 202~~3June 30 , 2023 and ~~202~~2 2022 (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3843

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

4857

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

5159

Item 3.

Defaults Upon Senior Securities

5159

Item 4.

Mine Safety Disclosures

Item 1. FINANCIAL STATEMENTS

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(in thousands, except share data)


		March 31, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Assets	Assets				Assets
Cash and cash equivalents	Cash and cash equivalents	$	96,497	139,365	Cash and cash equivalents	$	127,627	139,365

Marketable securities available-for-sale (amortized cost of $1,402,805 and $1,431,728, respectively)		1,205,510		1,218,108
Marketable securities held-to-maturity (fair value of $750,345 and $751,384, respectively)		866,022		881,249
Marketable securities available-for-sale (amortized cost of $1,287,101 and $1,431,728, respectively)					Marketable securities available-for-sale (amortized cost of $1,287,101 and $1,431,728, respectively)	1,073,952		1,218,108
Marketable securities held-to-maturity (fair value of $718,676 and $751,384, respectively)					Marketable securities held-to-maturity (fair value of $718,676 and $751,384, respectively)	847,845		881,249
Total cash and cash equivalents and marketable securities	Total cash and cash equivalents and marketable securities	2,168,029		2,238,722	Total cash and cash equivalents and marketable securities	2,049,424		2,238,722

Loans held-for-sale	Loans held-for-sale	7,006		9,913	Loans held-for-sale	16,077		9,913

Loans held for investment	Loans held for investment	11,085,265		10,910,539	Loans held for investment	11,255,154		10,910,539

Allowance for credit losses	Allowance for credit losses	(121,257)		(118,036)	Allowance for credit losses	(124,423)		(118,036)
Loans receivable, net	Loans receivable, net	10,971,014		10,802,416	Loans receivable, net	11,146,808		10,802,416

FHLB stock, at cost	FHLB stock, at cost	41,519		40,143	FHLB stock, at cost	44,613		40,143
Accrued interest receivable	Accrued interest receivable	36,177		35,528	Accrued interest receivable	37,281		35,528
Real estate owned, net	Real estate owned, net	524		413	Real estate owned, net	371		413
Premises and equipment, net	Premises and equipment, net	140,301		145,909	Premises and equipment, net	139,915		145,909
Bank-owned life insurance	Bank-owned life insurance	256,310		255,062	Bank-owned life insurance	257,614		255,062
Goodwill	Goodwill	380,997		380,997	Goodwill	380,997		380,997
Other intangible assets, net	Other intangible assets, net	7,651		8,560	Other intangible assets, net	6,809		8,560
Other assets	Other assets	191,294		205,574	Other assets	227,659		205,574
Total assets	Total assets	$	14,193,816	14,113,324	Total assets	$	14,291,491	14,113,324

Liabilities and shareholders’ equity	Liabilities and shareholders’ equity				Liabilities and shareholders’ equity
Liabilities:	Liabilities:				Liabilities:
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	2,896,092	2,993,243	Noninterest-bearing demand deposits	$	2,820,563	2,993,243
Interest-bearing demand deposits	Interest-bearing demand deposits	2,541,503		2,686,431	Interest-bearing demand deposits	2,577,653		2,686,431
Money market deposit accounts	Money market deposit accounts	2,328,050		2,457,569	Money market deposit accounts	2,154,253		2,457,569
Savings deposits	Savings deposits	2,194,743		2,275,020	Savings deposits	2,120,215		2,275,020
Time deposits	Time deposits	1,576,791		1,052,285	Time deposits	1,989,711		1,052,285
Total deposits	Total deposits	11,537,179		11,464,548	Total deposits	11,662,395		11,464,548

Borrowed funds	Borrowed funds	688,641		681,166	Borrowed funds	632,313		681,166
Subordinated debt	Subordinated debt	113,927		113,840	Subordinated debt	114,015		113,840
Junior subordinated debentures	Junior subordinated debentures	129,379		129,314	Junior subordinated debentures	129,444		129,314
Advances by borrowers for taxes and insurance	Advances by borrowers for taxes and insurance	49,893		47,613	Advances by borrowers for taxes and insurance	57,143		47,613
Accrued interest payable	Accrued interest payable	2,236		3,231	Accrued interest payable	4,936		3,231
Other liabilities	Other liabilities	159,286		182,126	Other liabilities	179,744		182,126
Total liabilities	Total liabilities	12,680,541		12,621,838	Total liabilities	12,779,990		12,621,838

Shareholders’ equity:	Shareholders’ equity:				Shareholders’ equity:
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	—		—	Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	—		—
Common stock, $0.01 par value: 500,000,000 shares authorized, 127,065,400 and 127,028,848 shares issued and outstanding, respectively		1,271		1,270
Common stock, $0.01 par value: 500,000,000 shares authorized, 127,088,963 and 127,028,848 shares issued and outstanding, respectively					Common stock, $0.01 par value: 500,000,000 shares authorized, 127,088,963 and 127,028,848 shares issued and outstanding, respectively	1,271		1,270
Additional paid-in capital	Additional paid-in capital	1,020,855		1,019,647	Additional paid-in capital	1,022,189		1,019,647
Retained earnings	Retained earnings	649,672		641,727	Retained earnings	657,292		641,727

Accumulated other comprehensive loss	Accumulated other comprehensive loss	(158,523)		(171,158)	Accumulated other comprehensive loss	(169,251)		(171,158)
Total shareholders’ equity	Total shareholders’ equity	1,513,275		1,491,486	Total shareholders’ equity	1,511,501		1,491,486
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	14,193,816	14,113,324	Total liabilities and shareholders’ equity	$	14,291,491	14,113,324

See accompanying notes to unaudited Consolidated Financial Statements.

Table of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except share data)


		Quarter ended March 31,			Quarter ended June 30,				Six months ended June 30,
		2023		2022			2023		2022	2023	2022
Interest income:	Interest income:					Interest income:
Loans receivable	Loans receivable	$	123,745	88,174		Loans receivable	$	132,724	95,574	256,469	183,748
Mortgage-backed securities	Mortgage-backed securities	8,537		6,360		Mortgage-backed securities	8,326		7,158	16,863	13,518
Taxable investment securities	Taxable investment securities	845		677		Taxable investment securities	841		715	1,686	1,392
Tax-free investment securities	Tax-free investment securities	700		674		Tax-free investment securities	667		683	1,367	1,357
FHLB stock dividends	FHLB stock dividends	690		81		FHLB stock dividends	844		82	1,534	163
Interest-earning deposits	Interest-earning deposits	423		467		Interest-earning deposits	594		1,684	1,017	2,151
Total interest income	Total interest income	134,940		96,433		Total interest income	143,996		105,896	278,936	202,329
Interest expense:	Interest expense:					Interest expense:
Deposits	Deposits	11,238		3,751		Deposits	21,817		3,341	33,055	7,092
Borrowed funds	Borrowed funds	11,238		2,059		Borrowed funds	13,630		2,290	24,868	4,349
Total interest expense	Total interest expense	22,476		5,810		Total interest expense	35,447		5,631	57,923	11,441
Net interest income	Net interest income	112,464		90,623		Net interest income	108,549		100,265	221,013	190,888
Provision for credit losses - loans	Provision for credit losses - loans	4,870		(1,481)		Provision for credit losses - loans	6,010		2,629	10,880	1,148
Provision for credit losses - unfunded commitments	Provision for credit losses - unfunded commitments	126		1,596		Provision for credit losses - unfunded commitments	2,920		3,396	3,046	4,992
Net interest income after provision for credit losses	Net interest income after provision for credit losses	107,468		90,508		Net interest income after provision for credit losses	99,619		94,240	207,087	184,748
Noninterest income:	Noninterest income:					Noninterest income:
Loss on sale of investments	Loss on sale of investments	—		(2)		Loss on sale of investments	(8,306)		(3)	(8,306)	(5)
Gain on sale of mortgage servicing rights						Gain on sale of mortgage servicing rights	8,305		—	8,305	—
Gain on sale of SBA loans						Gain on sale of SBA loans	832		—	1,111	—

Service charges and fees	Service charges and fees	13,189		13,067		Service charges and fees	14,833		13,673	28,022	26,740

Trust and other financial services income	Trust and other financial services income	6,449		7,012		Trust and other financial services income	6,866		7,461	13,315	14,473

Gain/(loss) on real estate owned, net		108		(29)
Gain on real estate owned, net						Gain on real estate owned, net	785		291	893	262
Income from bank-owned life insurance	Income from bank-owned life insurance	1,269		1,983		Income from bank-owned life insurance	1,304		2,008	2,573	3,991
Mortgage banking income	Mortgage banking income	524		1,465		Mortgage banking income	1,028		2,157	1,552	3,622

Other operating income	Other operating income	2,430		2,244		Other operating income	4,150		4,861	6,301	7,105
Total noninterest income	Total noninterest income	23,969		25,740		Total noninterest income	29,797		30,448	53,766	56,188
Noninterest expense:	Noninterest expense:					Noninterest expense:
Compensation and employee benefits	Compensation and employee benefits	46,604		46,917		Compensation and employee benefits	47,650		48,073	94,254	94,990
Premises and occupancy costs	Premises and occupancy costs	7,471		7,797		Premises and occupancy costs	7,579		7,280	15,050	15,077
Office operations	Office operations	3,010		3,383		Office operations	2,800		3,162	5,810	6,545
Collections expense	Collections expense	387		520		Collections expense	429		403	816	923
Processing expenses	Processing expenses	14,350		12,548		Processing expenses	14,648		12,947	28,998	25,495
Marketing expenses	Marketing expenses	2,892		2,128		Marketing expenses	2,856		2,047	5,748	4,175
Federal deposit insurance premiums	Federal deposit insurance premiums	2,223		1,129		Federal deposit insurance premiums	2,064		1,130	4,287	2,259
Professional services	Professional services	4,758		2,573		Professional services	3,804		3,333	8,562	5,906
Amortization of intangible assets	Amortization of intangible assets	909		1,183		Amortization of intangible assets	842		1,115	1,751	2,298
Real estate owned expense	Real estate owned expense	181		37		Real estate owned expense	83		72	264	109
Merger, asset disposition and restructuring expense	Merger, asset disposition and restructuring expense	2,802		1,374		Merger, asset disposition and restructuring expense	1,593		—	4,395	1,374

Other expenses	Other expenses	1,863		759		Other expenses	1,510		1,849	3,373	2,608
Total noninterest expense	Total noninterest expense	87,450		80,348		Total noninterest expense	85,858		81,411	173,308	161,759
Income before income taxes	Income before income taxes	43,987		35,900		Income before income taxes	43,558		43,277	87,545	79,177
Federal and state income taxes expense	Federal and state income taxes expense	10,308		7,613		Federal and state income taxes expense	10,514		9,851	20,822	17,464
Net income	Net income	$	33,679	28,287		Net income	$	33,044	33,426	66,723	61,713
Basic earnings per share	Basic earnings per share	$	0.27	0.22		Basic earnings per share	$	0.26	0.26	0.53	0.49
Diluted earnings per share	Diluted earnings per share	$	0.26	0.22		Diluted earnings per share	$	0.26	0.26	0.52	0.49

See accompanying notes to unaudited Consolidated Financial Statements.

Table of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~INCOME/(LOSS) (Unaudited)

(in thousands)

Quarter ended March 31,
2023 2022
Net income $ 33,679 28,287
Other comprehensive income/(loss) net of tax:
Net unrealized holding gains/(losses) on marketable securities:
Unrealized holding gains/(losses), net of tax of ($3,308) and $18,877, respectively 13,017 (64,783)
Reclassification adjustment for gains/(losses) included in net income, net of tax of $0 and $0, respectively — (1)
Net unrealized holding gains/(losses) on marketable securities 13,017 (64,784)
Defined benefit plan:
Actuarial reclassification adjustments for prior period service costs and actuarial gains included in net income, net of tax of $152 and $50, respectively (382) (131)
Other comprehensive income/(loss) 12,635 (64,915)
Total comprehensive income/(loss) $ 46,314 (36,628)


	Quarter ended June 30,			Six months ended June 30,
	2023		2022	2023	2022
Net income	$	33,044	33,426	66,723	61,713
Other comprehensive (loss)/income net of tax:
Net unrealized holding (losses)/gains on marketable securities:
Unrealized holding losses, net of tax of $3,771, $11,973, $463 and $30,850, respectively	(17,719)		(39,954)	(4,702)	(104,737)
Reclassification adjustment for losses/(gains) included in net income, net of tax of ($1,731), $0, ($1,731) and $0, respectively	5,636		(1)	5,636	(2)
Net unrealized holding (losses)/gains on marketable securities	(12,083)		(39,955)	934	(104,739)

Change in fair value of interest rate swaps, net of tax of ($508), $0, ($508) and $0, respectively	1,737		—	1,737	—


Defined benefit plan:
Actuarial reclassification adjustments for prior period service costs and actuarial gains included in net income, net of tax of $152, $51, $304 and $101, respectively	(382)		(131)	(764)	(262)



Other comprehensive (loss)/income	(10,728)		(40,086)	1,907	(105,001)

Total comprehensive income/(loss)	$	22,316	(6,660)	68,630	(43,288)

See accompanying notes to unaudited Consolidated Financial Statements.

Table of Contents

NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, expect share data)


					Additional paid-in capital	Retained earnings	Accumulated other comprehensive income/(loss)	Total shareholders’ equity					Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss		Total shareholders’ equity
		Common stock								Common stock
Quarter ended March 31, 2023		Shares	Amount
Beginning balance at December 31, 2022		127,028,848	$	1,270	1,019,647	641,727	(171,158)	1,491,486

Quarter ended June 30, 2023									Quarter ended June 30, 2023	Shares	Amount			Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss		Total shareholders’ equity
Beginning balance at March 31, 2023									Beginning balance at March 31, 2023	127,065,400	$	1,271

Comprehensive income:	Comprehensive income:								Comprehensive income:
Net income	Net income	—	—		—	33,679	—	33,679	Net income	—	—		—	33,044	—		33,044

Other comprehensive income, net of tax of ($3,157)		—	—		—	—	12,635	12,635
Other comprehensive loss, net of tax of $1,684									Other comprehensive loss, net of tax of $1,684	—	—		—	—	(10,728)		(10,728)

Total comprehensive income		—	—		—	33,679	12,635	46,314
Total comprehensive income/(loss)									Total comprehensive income/(loss)	—	—		—	33,044	(10,728)		22,316

Adoption of ASU No. 2022-02		—	—		—	(329)	—	(329)

Exercise of stock options	Exercise of stock options	38,218	1		464	—	—	465	Exercise of stock options	3,466	—		33	—	—		33

Stock-based compensation expense	Stock-based compensation expense	33,048	—		744	—	—	744	Stock-based compensation expense	40,727	1		1,300	—	—		1,301

Stock-based compensation forfeited	Stock-based compensation forfeited	(34,714)	—		—	—	—	—	Stock-based compensation forfeited	(20,630)	(1)		1	—	—		—

Dividends paid ($0.20 per share)	Dividends paid ($0.20 per share)	—	—		—	(25,405)	—	(25,405)	Dividends paid ($0.20 per share)	—	—		—	(25,424)	—		(25,424)

Ending balance at March 31, 2023		127,065,400	$	1,271	1,020,855	649,672	(158,523)	1,513,275
Ending balance at June 30, 2023									Ending balance at June 30, 2023	127,088,963	$	1,271	1,022,189	657,292	(169,251)		1,511,501


					Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Total shareholders’ equity					Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss		Total shareholders’ equity
		Common stock								Common stock
Quarter ended March 31, 2022		Shares	Amount
Beginning balance at December 31, 2021		126,612,183	$	1,266	1,010,405	609,529	(37,629)	1,583,571
Quarter ended June 30, 2022									Quarter ended June 30, 2022	Shares	Amount			Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss		Total shareholders’ equity
Beginning balance at March 31, 2022									Beginning balance at March 31, 2022	126,686,373	$	1,267

Comprehensive income:	Comprehensive income:								Comprehensive income:
Net income	Net income	—	—		—	28,287	—	28,287	Net income	—	—		—	33,426	—		33,426

Other comprehensive loss, net of tax of $18,927		—	—		—	—	(64,915)	(64,915)
Other comprehensive loss, net of tax of $12,024									Other comprehensive loss, net of tax of $12,024	—	—		—	—	(40,086)		(40,086)

Total comprehensive income/(loss)	Total comprehensive income/(loss)	—	—		—	28,287	(64,915)	(36,628)	Total comprehensive income/(loss)	—	—		—	33,426	(40,086)		(6,660)

Exercise of stock options	Exercise of stock options	101,613	1		1,204	—	—	1,205	Exercise of stock options	139,795	1		1,618	—	—		1,619

Stock-based compensation expense	Stock-based compensation expense	10,222	—		699	—	—	699	Stock-based compensation expense	65,155	2		1,422	—	—		1,424

Stock-based compensation forfeited	Stock-based compensation forfeited	(37,645)	—		—	—	—	—	Stock-based compensation forfeited	(9,557)	(1)		1	—	—		—

Dividends paid ($0.20 per share)	Dividends paid ($0.20 per share)	—	—		—	(25,335)	—	(25,335)	Dividends paid ($0.20 per share)	—	—		—	(25,356)	—		(25,356)

Ending balance at March 31, 2022		126,686,373	$	1,267	1,012,308	612,481	(102,544)	1,523,512
Ending balance at June 30, 2022									Ending balance at June 30, 2022	126,881,766	$	1,269	1,015,349	620,551	(142,630)		1,494,539

See accompanying notes to unaudited Consolidated Financial Statements.

Table of Contents

NORTHWEST BANCSHARES, INC. ~~AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in ~~thousands)~~thousands, expect share data)

Quarter ended March 31,
2023 2022
Operating activities:
Net income $ 33,679 28,287
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses 4,996 115
Net loss on sale of assets 1,254 780
Mortgage banking activity (179) 677
Net depreciation, amortization and accretion 2,154 3,595
Decrease/(increase) in other assets 6,958 (30,666)
Decrease in other liabilities (24,494) (33,221)
Net amortization on marketable securities 876 1,505
Noncash compensation expense related to stock benefit plans 744 699
Noncash write-down of real estate owned 37 29
Origination of loans held-for-sale (30,712) (104,535)
Proceeds from sale of loans held-for-sale 34,530 110,278
Net cash provided by/(used in) operating activities 29,843 (22,457)
Investing activities:
Purchase of marketable securities available-for-sale — (61,640)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity 15,028 30,092
Proceeds from maturities and principal reductions of marketable securities available-for-sale 28,246 83,295
Proceeds from bank-owned life insurance 1,633 1,354
Loan originations (923,686) (901,499)
Loan purchases — (210,775)
Proceeds from loan maturities and principal reductions 748,472 985,218
Net (redemptions)/proceeds of FHLB stock (1,376) 866
Proceeds from sale of real estate owned 186 —
Proceeds from sale of real estate owned for investment, net — 76
Disposals of premises and equipment, net 1,340 329
Net cash used in investing activities (130,157) (72,684)


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive income/(loss)	Total shareholders’ equity
	Common stock
Six months ended June 30, 2023	Shares	Amount
Beginning balance at December 31, 2022	127,028,848	$	1,270	1,019,647	641,727	(171,158)	1,491,486

Comprehensive income:
Net income	—	—		—	66,723	—	66,723

Other comprehensive income, net of tax of ($1,472)	—	—		—	—	1,907	1,907

Total comprehensive income	—	—		—	66,723	1,907	68,630



Adoption of ASU No. 2022-02	—	—		—	(329)	—	(329)

Exercise of stock options	41,684	1		497	—	—	498

Stock-based compensation expense	73,775	1		2,044	—	—	2,045





Stock-based compensation forfeited	(55,344)	(1)		1	—	—	—

Dividends paid ($0.40 per share)	—	—		—	(50,829)	—	(50,829)

Ending balance at June 30, 2023	127,088,963	$	1,271	1,022,189	657,292	(169,251)	1,511,501


				Additional paid-in capital	Retained earnings	Accumulated other comprehensive income/(loss)	Total shareholders’ equity
	Common stock
Six months ended June 30, 2022	Shares	Amount
Beginning balance at December 31, 2021	126,612,183	$	1,266	1,010,405	609,529	(37,629)	1,583,571

Comprehensive income:
Net income	—	—		—	61,713	—	61,713

Other comprehensive loss, net of tax of $30,951	—	—		—	—	(105,001)	(105,001)

Total comprehensive income/(loss)	—	—		—	61,713	(105,001)	(43,288)

Exercise of stock options	241,408	2		2,822	—	—	2,824

Stock-based compensation expense	75,377	2		2,121	—	—	2,123

Stock-based compensation forfeited	(47,202)	(1)		1	—	—	—

Dividends paid ($0.40 per share)	—	—		—	(50,691)	—	(50,691)

Ending balance at June 30, 2022	126,881,766	$	1,269	1,015,349	620,551	(142,630)	1,494,539

See accompanying notes to unaudited Consolidated Financial Statements.

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NORTHWEST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ~~(continued)~~

(in thousands)


		Three months ended March 31,				Six months ended June 30,
		2023		2022		2023		2022
Financing activities:
Net increase in deposits		$	72,631	19,235
Operating activities:					Operating activities:
Net income					Net income	$	66,723	61,713
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:					Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses					Provision for credit losses	13,926		1,148
Loss on sale of investments					Loss on sale of investments	8,306		5
Net loss/(gain) on sale of assets					Net loss/(gain) on sale of assets	691		(630)
Mortgage banking activity					Mortgage banking activity	5,900		(2,660)
Gain on sale of SBA loans					Gain on sale of SBA loans	(1,112)		—
Gain on sale of mortgage servicing rights					Gain on sale of mortgage servicing rights	(8,305)		—
Net depreciation, amortization and accretion					Net depreciation, amortization and accretion	8,798		2,860
Decrease in other assets					Decrease in other assets	(40,281)		(23,489)
Decrease in other liabilities					Decrease in other liabilities	(2,545)		(16,891)
Net amortization on marketable securities					Net amortization on marketable securities	1,724		2,783
Noncash compensation expense related to stock benefit plans					Noncash compensation expense related to stock benefit plans	2,045		2,123
Noncash write-down of real estate owned					Noncash write-down of real estate owned	37		41

Net increase/(decrease) in short-term borrowings		7,475		(17,657)
Increase/(decrease) in advances by borrowers for taxes and insurance		2,280		(560)
Deferred income tax expense					Deferred income tax expense	1,010		2,256

Origination of loans held-for-sale					Origination of loans held-for-sale	(82,984)		(225,091)
Proceeds from sale of loans held-for-sale					Proceeds from sale of loans held-for-sale	78,822		222,662

Net cash provided by operating activities					Net cash provided by operating activities	52,755		26,830

Investing activities:					Investing activities:
Purchase of marketable securities held-to-maturity					Purchase of marketable securities held-to-maturity	—		(212,892)
Purchase of marketable securities available-for-sale					Purchase of marketable securities available-for-sale	(23,502)		(102,178)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity					Proceeds from maturities and principal reductions of marketable securities held-to-maturity	32,998		57,254
Proceeds from maturities and principal reductions of marketable securities available-for-sale					Proceeds from maturities and principal reductions of marketable securities available-for-sale	57,276		148,260
Proceeds from sale of marketable securities available-for-sale					Proceeds from sale of marketable securities available-for-sale	101,229		—
Proceeds from bank-owned life insurance					Proceeds from bank-owned life insurance	1,633		2,553
Loan originations					Loan originations	(2,024,737)		(2,158,246)
Proceeds from sale of mortgage servicing rights					Proceeds from sale of mortgage servicing rights	13,118		—
Loan purchases					Loan purchases	—		(304,163)
Proceeds from loan maturities and principal reductions					Proceeds from loan maturities and principal reductions	1,673,841		2,054,203

Net (redemptions)/proceeds of FHLB stock					Net (redemptions)/proceeds of FHLB stock	(4,470)		822
Proceeds from sale of real estate owned					Proceeds from sale of real estate owned	1,257		424
Proceeds from sale of real estate owned for investment, net					Proceeds from sale of real estate owned for investment, net	—		153
(Purchases)/disposals of premises and equipment, net					(Purchases)/disposals of premises and equipment, net	(1,330)		1,687
Net cash used in investing activities					Net cash used in investing activities	(172,687)		(512,123)

Financing activities:					Financing activities:
Net increase/(decrease) in deposits					Net increase/(decrease) in deposits	197,847		(233,910)

Repayments of long-term borrowings					Repayments of long-term borrowings	—		(10,094)
Net decrease in short-term borrowings					Net decrease in short-term borrowings	(48,852)		(8,603)
Increase in advances by borrowers for taxes and insurance					Increase in advances by borrowers for taxes and insurance	9,530		11,040
Cash dividends paid on common stock	Cash dividends paid on common stock	(25,405)		(25,335)	Cash dividends paid on common stock	(50,829)		(50,691)

Proceeds from stock options exercised	Proceeds from stock options exercised	465		1,205	Proceeds from stock options exercised	498		2,824

Net cash provided by/(used in) financing activities	Net cash provided by/(used in) financing activities	57,446		(23,112)	Net cash provided by/(used in) financing activities	108,194		(289,434)

Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(42,868)	(118,253)	Net decrease in cash and cash equivalents	$	(11,738)	(774,727)

Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	$	139,365	1,279,259	Cash and cash equivalents at beginning of period	$	139,365	1,279,259
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(42,868)		(118,253)	Net decrease in cash and cash equivalents	(11,738)		(774,727)
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	96,497	1,161,006	Cash and cash equivalents at end of period	$	127,627	504,532

Cash paid during the period for:	Cash paid during the period for:				Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $10,676 and $3,650, respectively)		$	23,471	7,051
Interest on deposits and borrowings (including interest credited to deposit accounts of $30,790 and $6,943, respectively)					Interest on deposits and borrowings (including interest credited to deposit accounts of $30,790 and $6,943, respectively)	$	56,218	11,520
Income taxes	Income taxes	291		84	Income taxes	24,106		11,581

Non-cash activities:	Non-cash activities:				Non-cash activities:
Loan foreclosures and repossessions	Loan foreclosures and repossessions	$	847	1,142	Loan foreclosures and repossessions	$	1,803	2,591

Sale of real estate owned financed by the Company					Sale of real estate owned financed by the Company	70		—

See accompanying notes to unaudited Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Basis of Presentation and Informational Disclosures

Northwest Bancshares, Inc. (the “Company” or “NWBI”), a Maryland corporation headquartered in Columbus, Ohio, is a bank holding company regulated by the Board of Governors of the Federal Reserve System (“FRB”). The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking. Northwest operates ~~150~~142 community-banking offices throughout Pennsylvania, Western New York, Eastern Ohio, and Indiana.

The accompanying unaudited Consolidated Financial Statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Capital Group, Inc., Great Northwest Corporation, and MutualFirst Interest Company, Inc. The unaudited Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The Consolidated Financial Statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 updated, as required, for any new pronouncements or changes.

Certain items previously reported have been reclassified to conform to the current year’s reporting format. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Income and Consolidated Statements of Cash Flows for the quarter and six months ended ~~March 31,~~June 30, 2022, to reclassify the provision for credit losses - unfunded commitments, previously presented in other expense, to provide additional transparency to financial statement users.

The results of operations for the quarter ended are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period.

Stock-Based Compensation

On March 15, 2023, the Company awarded employees 176,623 restricted stock units (“RSUs”) with a weighted average discounted grant date fair value of $11.28. The RSUs vest over a three-year period with the first vesting occurring one year from the grant date. The Company awarded directors 33,048 restricted stock awards (“RSAs”) with a grant date fair value of $12.80 which fully vest one-year from the grant date. Also, the Company awarded employees 176,623 performance share units (“PSUs”) with a discounted grant date fair value of $10.54. The number of PSUs earned will be based on attainment of certain performance criteria over a three-year period, with the actual number of shares issuable ranging between 0% and 150% of the number of PSUs granted. The PSUs have a three-year cliff vesting, from the date of grant, and any PSUs earned will be issued after the vesting period. ~~During the quarter ended March 31,~~As of June 30, 2023, we awarded discretionary grants of ~~112,021~~168,639 RSUs with a weighted average grant date fair value of ~~$11.41.~~$10.92. These shares vest over a two or three years period with the first vesting occurring one year from the grant date. Stock-based compensation expense of ~~$744,000~~$1.3 million and ~~$699,000~~$1.4 million for the quarters ended ~~March 31,~~June 30, 2023 and 2022, respectively, was recognized in compensation expense relating to our stock benefit plans. At ~~March 31,~~June 30, 2023, there was compensation expense of ~~$643,000~~$532,000 to be recognized for awarded but unvested stock options, ~~$3.4~~$2.7 million for unvested restricted common shares, ~~$4.3~~$4.1 million to be recognized for awarded but unvested RSUs, ~~$470,000~~$300,000 to be recognized for awarded but unvested RSAs, and ~~$2.7~~$2.3 million to be recognized for awarded but unvested PSUs.

Income Taxes-Uncertain Tax Positions

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. We had $473,000 of liability for unrecognized tax benefits as of both ~~March 31,~~June 30, 2023 and December 31, 2022.

We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income. We recognize penalties (if any) in other expenses. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2022, 2021, 2020 and 2019.

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Recently Adopted Accounting Standards

In March 2022, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure.” This ASU eliminates the accounting guidance for troubled debt restructurings ~~("TDRs"~~(“TDRs”), while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. This ASU also requires the disclosure of current period gross write-offs by year for origination for financing receivables. This guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, with early adoption permitted. This ASU is applied prospectively to modifications and write-offs beginning on the first day of the fiscal year of adoption. An entity may elect to adopt a modified retrospective transition method on the recognition and measurement of the TDR guidance.

We adopted ASU 2022-02 using a modified retrospective transition approach related to the recognition and measurement of the TDR guidance and on a prospective basis for modification and write-offs. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required ASU 2022-02 disclosure for periods before the date of adoption (i.e. January 1, 2023). This change did not have a material effect on our consolidated financial statements.

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance was effective as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date to Topic 848”. This guidance extends the guidance of ASU 2022-04 from December 31, 2022 to December 31, 2024. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform.” This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform. This ASU is effective upon issuance through December 31, 2024, and can be adopted at any time during this period.

During the quarter-ended June 30, 2023, we completed our LIBOR transition plan and modified the Company’s loan and other financial instrument contracts that are impacted by the transition. The Company chose the Secured Overnight Financing Rate (“SOFR”) as its alternative replacement for LIBOR on both back-to-back swaps and variable rate loans. There was no material impact to the Company's financial statements as a result of the transition.

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(2) Marketable Securities

The following table shows the portfolio of marketable securities available-for-sale at ~~March 31,~~June 30, 2023 (in thousands):


		Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value		Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S government and agencies:	Debt issued by the U.S government and agencies:						Debt issued by the U.S government and agencies:
Due after one year through five years	Due after one year through five years	$	20,000	—	(1,421)	18,579	Due after one year through five years	$	20,000	—	(1,676)	18,324
Due after ten years	Due after ten years	52,089		—	(9,653)	42,436	Due after ten years	51,124		—	(10,627)	40,497

Debt issued by government-sponsored enterprises:	Debt issued by government-sponsored enterprises:						Debt issued by government-sponsored enterprises:

Due after one year through five years	Due after one year through five years	20,983		—	(2,680)	18,303	Due after one year through five years	20,984		—	(2,940)	18,044
Due after five years through ten years	Due after five years through ten years	25,600		—	(3,623)	21,977	Due after five years through ten years	25,516		—	(4,027)	21,489

Municipal securities:	Municipal securities:						Municipal securities:
Due within one year	Due within one year	503		—	—	503	Due within one year	500		—	—	500
Due after one year through five years	Due after one year through five years	990		27	(12)	1,005	Due after one year through five years	950		17	(9)	958
Due after five years through ten years	Due after five years through ten years	38,384		1	(1,612)	36,773	Due after five years through ten years	20,481		—	(1,845)	18,636
Due after ten years	Due after ten years	87,322		131	(11,059)	76,394	Due after ten years	64,589		59	(10,409)	54,239

Corporate debt issues:	Corporate debt issues:						Corporate debt issues:

Due after five years through ten years	Due after five years through ten years	13,528		—	(958)	12,570	Due after five years through ten years	8,463		—	(917)	7,546

Residential mortgage-backed securities:	Residential mortgage-backed securities:						Residential mortgage-backed securities:
Fixed rate pass-through	Fixed rate pass-through	221,361		49	(28,136)	193,274	Fixed rate pass-through	219,643		4	(28,705)	190,942
Variable rate pass-through	Variable rate pass-through	8,287		4	(149)	8,142	Variable rate pass-through	7,861		2	(215)	7,648

Fixed rate agency CMOs	Fixed rate agency CMOs	886,717		—	(137,663)	749,054	Fixed rate agency CMOs	821,371		—	(151,317)	670,054
Variable rate agency CMOs	Variable rate agency CMOs	27,041		35	(576)	26,500	Variable rate agency CMOs	25,619		35	(579)	25,075
Total residential mortgage-backed securities	Total residential mortgage-backed securities	1,143,406		88	(166,524)	976,970	Total residential mortgage-backed securities	1,074,494		41	(180,816)	893,719
Total marketable securities available-for-sale	Total marketable securities available-for-sale	$	1,402,805	247	(197,542)	1,205,510	Total marketable securities available-for-sale	$	1,287,101	117	(213,266)	1,073,952

Table of Contents

The following table shows the portfolio of marketable securities available-for-sale at December 31, 2022 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by the U.S. government and agencies:
Due after one year through five years	$	20,000	—	(1,799)	18,201
Due after ten years	53,152		—	(10,761)	42,391

Debt issued by government-sponsored enterprises:

Due after one year through five years	993		—	(49)	944

Due after five years through ten years	45,814		—	(7,557)	38,257




Municipal securities:
Due within one year	506		—	(1)	505
Due after one year through five years	986		21	(13)	994
Due after five years through ten years	36,332		—	(2,290)	34,042
Due after ten years	89,631		8	(13,414)	76,225

Corporate debt issues:

Due after five years through ten years	13,540		—	(562)	12,978

Residential mortgage-backed securities:
Fixed rate pass-through	227,122		35	(31,171)	195,986
Variable rate pass-through	8,837		10	(184)	8,663

Fixed rate agency CMOs	906,962		—	(145,284)	761,678
Variable rate agency CMOs	27,853		31	(640)	27,244
Total residential mortgage-backed securities	1,170,774		76	(177,279)	993,571
Total marketable securities available-for-sale	$	1,431,728	105	(213,725)	1,218,108

The following table shows the portfolio of marketable securities held-to-maturity at ~~March 31,~~June 30, 2023 (in thousands):


		Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value		Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by government-sponsored enterprises:	Debt issued by government-sponsored enterprises:						Debt issued by government-sponsored enterprises:
Due after one year through five years	Due after one year through five years	$	29,477	—	(3,131)	26,346	Due after one year through five years	$	49,471	—	(6,541)	42,930
Due after five years through ten years	Due after five years through ten years	94,978		—	(15,560)	79,418	Due after five years through ten years	74,985		—	(13,586)	61,399

Residential mortgage-backed securities:	Residential mortgage-backed securities:						Residential mortgage-backed securities:
Fixed rate pass-through	Fixed rate pass-through	159,504		—	(22,260)	137,244	Fixed rate pass-through	155,431		—	(23,770)	131,661
Variable rate pass-through	Variable rate pass-through	521		—	(7)	514	Variable rate pass-through	495		—	(10)	485
Fixed rate agency CMOs	Fixed rate agency CMOs	581,013		—	(74,710)	506,303	Fixed rate agency CMOs	566,934		—	(85,253)	481,681
Variable rate agency CMOs	Variable rate agency CMOs	529		—	(9)	520	Variable rate agency CMOs	529		—	(9)	520
Total residential mortgage-backed securities	Total residential mortgage-backed securities	741,567		—	(96,986)	644,581	Total residential mortgage-backed securities	723,389		—	(109,042)	614,347
Total marketable securities held-to-maturity	Total marketable securities held-to-maturity	$	866,022	—	(115,677)	750,345	Total marketable securities held-to-maturity	$	847,845	—	(129,169)	718,676

910

Table of Contents

The following table shows the portfolio of marketable securities held-to-maturity at December 31, 2022 (in thousands):


	Amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Debt issued by government-sponsored enterprises:
Due after one year through five years	$	29,478	—	(3,676)	25,802
Due after five years through ten years	94,977		—	(18,157)	76,820


Residential mortgage-backed securities:
Fixed rate pass-through	163,196		—	(24,684)	138,512
Variable rate pass-through	542		—	(12)	530
Fixed rate agency CMOs	592,527		—	(83,325)	509,202
Variable rate agency CMOs	529		—	(11)	518
Total residential mortgage-backed securities	756,794		—	(108,032)	648,762
Total marketable securities held-to-maturity	$	881,249	—	(129,865)	751,384

The following table shows the contractual maturity of our residential mortgage-backed securities available-for-sale at ~~March 31,~~June 30, 2023 (in thousands):


		Amortized cost		Fair value		Amortized cost		Fair value

Residential mortgage-backed securities:	Residential mortgage-backed securities:				Residential mortgage-backed securities:
Due within one year	Due within one year	$	33	32	Due within one year	$	16	16
Due after one year through five years	Due after one year through five years	33,776		31,288	Due after one year through five years	20,874		18,781
Due after five years through ten years	Due after five years through ten years	44,464		41,905	Due after five years through ten years	34,546		32,342
Due after ten years	Due after ten years	1,065,133		903,745	Due after ten years	1,019,058		842,580
Total residential mortgage-backed securities	Total residential mortgage-backed securities	$	1,143,406	976,970	Total residential mortgage-backed securities	$	1,074,494	893,719

The following table shows the contractual maturity of our residential mortgage-backed securities held-to-maturity at ~~March 31,~~June 30, 2023 (in thousands):


		Amortized cost		Fair value		Amortized cost		Fair value

Residential mortgage-backed securities:	Residential mortgage-backed securities:				Residential mortgage-backed securities:

Due after one year through five years	Due after one year through five years	$	20,514	17,902	Due after one year through five years	$	20,430	17,529
Due after five years through ten years	Due after five years through ten years	20,242		16,208	Due after five years through ten years	20,234		15,973
Due after ten years	Due after ten years	700,811		610,471	Due after ten years	682,725		580,845
Total residential mortgage-backed securities	Total residential mortgage-backed securities	$	741,567	644,581	Total residential mortgage-backed securities	$	723,389	614,347

The following table shows the fair value of and gross unrealized losses on available for sale investment securities and held to maturity investment securities, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at ~~March 31,~~June 30, 2023 (in thousands):


		Less than 12 months			12 months or more		Total			Less than 12 months			12 months or more		Total
		Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss		Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss
U.S. government-sponsored enterprises	U.S. government-sponsored enterprises	$	594	(6)	206,465	(36,062)	207,059	(36,068)	U.S. government-sponsored enterprises	$	—	—	202,683	(39,397)	202,683	(39,397)
Municipal securities	Municipal securities	7,623		(166)	100,054	(12,517)	107,677	(12,683)	Municipal securities	7,375		(306)	60,351	(11,957)	67,726	(12,263)
Corporate issues	Corporate issues	12,570		(958)	—	—	12,570	(958)	Corporate issues	4,339		(644)	3,207	(273)	7,546	(917)

Residential mortgage-backed securities - agency	Residential mortgage-backed securities - agency	245,143		(7,650)	1,371,351	(255,860)	1,616,494	(263,510)	Residential mortgage-backed securities - agency	191,673		(8,906)	1,313,801	(280,952)	1,505,474	(289,858)

Total	Total	$	265,930	(8,780)	1,677,870	(304,439)	1,943,800	(313,219)	Total	$	203,387	(9,856)	1,580,042	(332,579)	1,783,429	(342,435)

1011

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	Less than 12 months			12 months or more		Total
	Fair value		Unrealized loss	Fair value	Unrealized loss	Fair value	Unrealized loss
U.S. government-sponsored enterprises	$	1,735	(82)	200,679	(41,917)	202,414	(41,999)
Corporate debt issues	12,979		(562)	—	—	12,979	(562)

Municipal securities	60,676		(4,047)	44,493	(11,671)	105,169	(15,718)
Residential mortgage-backed securities - agency	373,186		(22,796)	1,264,042	(262,515)	1,637,228	(285,311)
Total	$	448,576	(27,487)	1,509,214	(316,103)	1,957,790	(343,590)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of ~~March 31,~~June 30, 2023, which were comprised of ~~632~~543 individual securities, represents a credit loss impairment. All of these securities were issued by U.S. government agencies, U.S. government-sponsored enterprises, local municipalities, or represent corporate debt. The securities issued by the U.S. government agencies or U.S. government-sponsored enterprises 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. The securities issued by local municipalities and the corporate debt issues were all highly rated by major rating agencies and have no history of credit losses. The unrealized losses were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities. The Company does not have the intent to sell these investment securities and it is more likely than not that we will not be required to sell these securities before their anticipated recovery, which may be at maturity.

All of the Company’s held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. 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. The decline in fair value of the held-to-maturity debt securities were primarily attributable to changes in the interest rate environment and not due to the credit quality of these investment securities, therefore, the Company did not record an allowance for credit losses for these securities as of ~~March 31,~~June 30, 2023.

The following table presents the credit quality of our held-to-maturity securities, based on the latest information available as of ~~March 31,~~June 30, 2023 (in thousands). The credit ratings are sourced from nationally recognized rating agencies, which include Moody’s and S&P, and they are presented based on asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of ~~March 31,~~June 30, 2023.


		AA+		Total		AA+		Total

Held-to-maturity securities (at amortized cost):	Held-to-maturity securities (at amortized cost):				Held-to-maturity securities (at amortized cost):
Debt issued by the U.S. government-sponsored enterprises	Debt issued by the U.S. government-sponsored enterprises	$	124,455	124,455	Debt issued by the U.S. government-sponsored enterprises	$	124,456	124,456
Residential mortgage-backed securities	Residential mortgage-backed securities	741,567		741,567	Residential mortgage-backed securities	723,389		723,389
Total marketable securities held-to-maturity	Total marketable securities held-to-maturity	$	866,022	866,022	Total marketable securities held-to-maturity	$	847,845	847,845

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(3) Loans Receivable

The following table shows a summary of our loans receivable at amortized cost basis at ~~March 31,~~June 30, 2023 and December 31, 2022 (in thousands):


		March 31, 2023				December 31, 2022				June 30, 2023				December 31, 2022
		Originated (1)		Acquired (2)	Total	Originated (1)	Acquired (2)	Total		Originated (1)		Acquired (2)	Total	Originated (1)	Acquired (2)	Total
Personal Banking:	Personal Banking:								Personal Banking:

Residential mortgage loans (3)	Residential mortgage loans (3)	$	3,341,084	164,381	3,505,465	3,327,879	170,720	3,498,599	Residential mortgage loans (3)	$	3,338,525	156,632	3,495,157	3,327,879	170,720	3,498,599
Home equity loans	Home equity loans	1,129,817		151,729	1,281,546	1,131,641	166,033	1,297,674	Home equity loans	1,135,044		141,018	1,276,062	1,131,641	166,033	1,297,674
Vehicle loans	Vehicle loans	2,037,094		84,708	2,121,802	1,965,385	91,398	2,056,783	Vehicle loans	2,009,881		77,449	2,087,330	1,965,385	91,398	2,056,783
Consumer loans	Consumer loans	103,376		6,955	110,331	104,284	7,588	111,872	Consumer loans	107,304		6,428	113,732	104,284	7,588	111,872
Total Personal Banking	Total Personal Banking	6,611,371		407,773	7,019,144	6,529,189	435,739	6,964,928	Total Personal Banking	6,590,754		381,527	6,972,281	6,529,189	435,739	6,964,928

Commercial Banking:	Commercial Banking:								Commercial Banking:
Commercial real estate loans ~~(4)~~	Commercial real estate loans ~~(4)~~	2,178,258		290,782	2,469,040	2,135,607	312,421	2,448,028	Commercial real estate loans ~~(4)~~	2,251,248		275,891	2,527,139	2,135,607	312,421	2,448,028
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	328,519		29,545	358,064	341,704	33,823	375,527	Commercial real estate loans - owner occupied	341,559		26,526	368,085	341,704	33,823	375,527
Commercial loans	Commercial loans	1,202,504		43,519	1,246,023	1,082,914	49,055	1,131,969	Commercial loans	1,357,216		46,510	1,403,726	1,082,914	49,055	1,131,969
Total Commercial Banking	Total Commercial Banking	3,709,281		363,846	4,073,127	3,560,225	395,299	3,955,524	Total Commercial Banking	3,950,023		348,927	4,298,950	3,560,225	395,299	3,955,524
Total loans receivable, gross	Total loans receivable, gross	10,320,652		771,619	11,092,271	10,089,414	831,038	10,920,452	Total loans receivable, gross	10,540,777		730,454	11,271,231	10,089,414	831,038	10,920,452

Allowance for credit losses	Allowance for credit losses	(111,443)		(9,814)	(121,257)	(107,379)	(10,657)	(118,036)	Allowance for credit losses	(115,875)		(8,548)	(124,423)	(107,379)	(10,657)	(118,036)
Total loans receivable, net ~~(5)~~(4)	Total loans receivable, net ~~(5)~~(4)	$	10,209,209	761,805	10,971,014	9,982,035	820,381	10,802,416	Total loans receivable, net ~~(5)~~(4)	$	10,424,902	721,906	11,146,808	9,982,035	820,381	10,802,416

(1) Includes originated and loan pools purchased in an asset acquisition.

(2) Includes loans subject to purchase accounting in a business combination.

(3) Includes ~~$6.4~~$16.1 million and $9.9 million of loans held-for-sale at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

(4) Includes ~~$619,000 and $0 of loans held-for-sale at March 31, 2023 and December 31, 2022, respectively.~~

~~(5) Includes $78.3~~$75.8 million and $76.1 million of net unearned income, unamortized premiums and discounts and deferred fees and costs at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

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The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended ~~March 31,~~June 30, 2023 (in thousands):


		Balance as of March 31, 2023		Current period provision	Charge-offs	Recoveries	ASU 2022-02 Adoption	Balance as of December 31, 2022		Balance as of June 30, 2023		Current period provision	Charge-offs	Recoveries	Balance as of March 31, 2023
Allowance for Credit Losses	Allowance for Credit Losses								Allowance for Credit Losses
Personal Banking:	Personal Banking:								Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	19,238	(1)	(207)	185	—	19,261	Residential mortgage loans	$	17,556	(1,676)	(545)	539	19,238
Home equity loans	Home equity loans	5,481		(450)	(164)	193	—	5,902	Home equity loans	5,002		(456)	(235)	212	5,481
Vehicle loans	Vehicle loans	26,166		4,253	(1,668)	522	—	23,059	Vehicle loans	27,283		2,030	(1,539)	626	26,166
Consumer loans	Consumer loans	732		796	(1,066)	337	—	665	Consumer loans	1,010		1,231	(1,233)	280	732
Total Personal Banking	Total Personal Banking	51,617		4,598	(3,105)	1,237	—	48,887	Total Personal Banking	50,851		1,129	(3,552)	1,657	51,617

Commercial Banking:	Commercial Banking:								Commercial Banking:
Commercial real estate loans	Commercial real estate loans	45,404		121	(657)	1,008	426	44,506	Commercial real estate loans	50,056		4,576	(415)	491	45,404
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	3,351		(674)	—	21	—	4,004	Commercial real estate loans - owner occupied	3,498		189	(68)	26	3,351
Commercial loans	Commercial loans	20,885		825	(865)	286	—	20,639	Commercial loans	20,018		116	(1,209)	226	20,885
Total Commercial Banking	Total Commercial Banking	69,640		272	(1,522)	1,315	426	69,149	Total Commercial Banking	73,572		4,881	(1,692)	743	69,640
Total	Total	$	121,257	4,870	(4,627)	2,552	426	118,036	Total	$	124,423	6,010	(5,244)	2,400	121,257

Allowance for Credit Losses - off-balance sheet exposure ~~(1)~~	Allowance for Credit Losses - off-balance sheet exposure ~~(1)~~								Allowance for Credit Losses - off-balance sheet exposure ~~(1)~~
Personal Banking:	Personal Banking:								Personal Banking:

Residential mortgage loans	Residential mortgage loans	$	3	(1)	—	—	—	4	Residential mortgage loans	$	4	1	—	—	3
Home equity loans	Home equity loans	60		(14)	—	—	—	74	Home equity loans	64		4	—	—	60

Total Personal Banking	Total Personal Banking	63		(15)	—	—	—	78	Total Personal Banking	68		5	—	—	63

Commercial Banking:	Commercial Banking:								Commercial Banking:
Commercial real estate loans	Commercial real estate loans	5,924		549	—	—	—	5,375	Commercial real estate loans	7,655		1,731	—	—	5,924
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	441		62	—	—	—	379	Commercial real estate loans - owner occupied	320		(121)	—	—	441
Commercial loans	Commercial loans	6,611		(470)	—	—	—	7,081	Commercial loans	7,916		1,305	—	—	6,611
Total Commercial Banking	Total Commercial Banking	12,976		141	—	—	—	12,835	Total Commercial Banking	15,891		2,915	—	—	12,976
Total off-balance sheet exposure	Total off-balance sheet exposure	$	13,039	126	—	—	—	12,913	Total off-balance sheet exposure	$	15,959	2,920	—	—	13,039

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the quarter ended June 30, 2022 (in thousands):


	Balance as of June 30, 2022		Current period provision	Charge-offs	Recoveries	Balance as of March 31, 2022
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	16,158	2,723	(138)	267	13,306
Home equity loans	5,232		(583)	(255)	427	5,643
Vehicle loans	15,738		1,888	(934)	603	14,181
Consumer loans	779		(1,685)	(978)	333	3,109
Total Personal Banking	37,907		2,343	(2,305)	1,630	36,239

Commercial Banking:
Commercial real estate loans	39,641		(1,917)	(4,392)	1,378	44,572
Commercial real estate loans - owner occupied	4,095		(188)	—	7	4,276
Commercial loans	16,712		2,391	(329)	442	14,208
Total Commercial Banking	60,448		286	(4,721)	1,827	63,056
Total	$	98,355	2,629	(7,026)	3,457	99,295

Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:
Residential mortgage loans	$	6	—	—	—	6
Home equity loans	64		9	—	—	55

Total Personal Banking	70		9	—	—	61

Commercial Banking:
Commercial real estate loans	3,463		1,671	—	—	1,792
Commercial real estate loans - owner occupied	328		120	—	—	208
Commercial loans	3,589		1,596	—	—	1,993
Total Commercial Banking	7,380		3,387	—	—	3,993
Total off-balance sheet exposure	$	7,450	3,396	—	—	4,054

Table of Contents

The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the six months ended June 30, 2023 (in thousands):


	Balance June 30, 2023		Current period provision	Charge-offs	Recoveries	ASU 2022-02 Adoption	Balance December 31, 2022
Allowance for Credit Losses
Personal Banking:
Residential mortgage loans	$	17,556	(1,677)	(752)	724	—	19,261
Home equity loans	5,002		(906)	(399)	405	—	5,902
Vehicle loans	27,283		6,283	(3,207)	1,148	—	23,059
Consumer loans	1,010		2,027	(2,299)	617	—	665
Total Personal Banking	50,851		5,727	(6,657)	2,894	—	48,887

Commercial Banking:
Commercial real estate loans	50,056		4,697	(1,072)	1,499	426	44,506
Commercial real estate loans - owner occupied	3,498		(485)	(68)	47	—	4,004
Commercial loans	20,018		941	(2,074)	512	—	20,639
Total Commercial Banking	73,572		5,153	(3,214)	2,058	426	69,149
Total	$	124,423	10,880	(9,871)	4,952	426	118,036

Allowance for Credit Losses - off-balance sheet exposure (1)
Personal Banking:
Residential mortgage loans	$	4	—	—	—	—	4
Home equity loans	64		(10)	—	—	—	74

Total Personal Banking	68		(10)	—	—	—	78

Commercial Banking:
Commercial real estate loans	7,655		2,280	—	—	—	5,375
Commercial real estate loans - owner occupied	320		(59)	—	—	—	379
Commercial loans	7,916		835	—	—	—	7,081
Total Commercial Banking	15,891		3,056	—	—	—	12,835
Total off-balance sheet exposure	$	15,959	3,046	—	—	—	12,913

(1) The table above has been revised to reflect the correct ending balance for total off-balance-sheet exposure at December 31, 2022. We evaluated the effect of the revision, both qualitatively and quantitatively, and concluded that the impact of the revision was not material.

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The following table provides information related to the allowance for credit losses by portfolio segment and by class of financing receivable for the ~~quarter~~six months ended ~~March 31,~~June 30, 2022 (in thousands):


		Balance as of March 31, 2022		Current period provision	Charge-offs	Recoveries	Balance as of December 31, 2021		Balance as of June 30, 2022		Current period provision	Charge-offs	Recoveries	Balance as of December 31, 2021
Allowance for Credit Losses	Allowance for Credit Losses							Allowance for Credit Losses
Personal Banking:	Personal Banking:							Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	13,306	6,962	(1,183)	154	7,373	Residential mortgage loans	$	16,158	9,685	(1,321)	421	7,373
Home equity loans	Home equity loans	5,643		369	(447)	421	5,300	Home equity loans	5,232		(214)	(702)	848	5,300
Vehicle loans	Vehicle loans	14,181		(1,305)	(647)	650	15,483	Vehicle loans	15,738		583	(1,581)	1,253	15,483
Consumer loans	Consumer loans	3,109		994	(1,076)	307	2,884	Consumer loans	779		(691)	(2,054)	640	2,884
Total Personal Banking	Total Personal Banking	36,239		7,020	(3,353)	1,532	31,040	Total Personal Banking	37,907		9,363	(5,658)	3,162	31,040

Commercial Banking:	Commercial Banking:							Commercial Banking:
Commercial real estate loans	Commercial real estate loans	44,572		(9,665)	(1,024)	1,120	54,141	Commercial real estate loans	39,641		(11,582)	(5,416)	2,498	51,141
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	4,276		389	—	4	3,883	Commercial real estate loans - owner occupied	4,095		201	—	11	3,883
Commercial loans	Commercial loans	14,208		775	(681)	937	13,177	Commercial loans	16,712		3,166	(1,010)	1,379	13,177
Total Commercial Banking	Total Commercial Banking	63,056		(8,501)	(1,705)	2,061	71,201	Total Commercial Banking	60,448		(8,215)	(6,426)	3,888	71,201
Total	Total	$	99,295	(1,481)	(5,058)	3,593	102,241	Total	$	98,355	1,148	(12,084)	7,050	102,241

Allowance for Credit Losses - off-balance sheet exposure	Allowance for Credit Losses - off-balance sheet exposure							Allowance for Credit Losses - off-balance sheet exposure
Personal Banking:	Personal Banking:							Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	6	4	—	—	2	Residential mortgage loans	$	6	4	—	—	2
Home equity loans	Home equity loans	55		16	—	—	39	Home equity loans	64		25	—	—	39

Total Personal Banking	Total Personal Banking	61		20	—	—	41	Total Personal Banking	70		29	—	—	41

Commercial Banking:	Commercial Banking:							Commercial Banking:
Commercial real estate loans	Commercial real estate loans	1,792		911	—	—	881	Commercial real estate loans	3,463		2,582	—	—	881
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	208		66	—	—	142	Commercial real estate loans - owner occupied	328		186	—	—	142
Commercial loans	Commercial loans	1,993		599	—	—	1,394	Commercial loans	3,589		2,195	—	—	1,394
Total Commercial Banking	Total Commercial Banking	3,993		1,576	—	—	2,417	Total Commercial Banking	7,380		4,963	—	—	2,417
Total off-balance sheet exposure	Total off-balance sheet exposure	$	4,054	1,596	—	—	2,458	Total off-balance sheet exposure	$	7,450	4,992	—	—	2,458

During the ~~quarter~~six months ended ~~March 31,~~June 30, 2022, the Company purchased a ~~$72.7~~total of $115.8 million small business equipment finance loan ~~pool~~pools and a ~~$138.1~~total of $188.3 million one- to four-family jumbo mortgage loan ~~pool.~~

pools.

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The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at ~~March 31,~~June 30, 2023 (in thousands):


		Total loans receivable		Allowance for credit losses	Nonaccrual loans	Loans 90 days past due and accruing		Total loans receivable		Allowance for credit losses	Nonaccrual loans	Loans 90 days past due and accruing
Personal Banking:	Personal Banking:						Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	3,505,465	19,238	6,330	—	Residential mortgage loans	$	3,495,157	17,556	8,083	—
Home equity loans	Home equity loans	1,281,546		5,481	3,630	—	Home equity loans	1,276,062		5,002	3,454	—
Vehicle loans	Vehicle loans	2,121,802		26,166	4,009	—	Vehicle loans	2,087,330		27,283	3,465	—
Consumer loans	Consumer loans	110,331		732	256	488	Consumer loans	113,732		1,010	246	414
Total Personal Banking	Total Personal Banking	7,019,144		51,617	14,225	488	Total Personal Banking	6,972,281		50,851	15,248	414

Commercial Banking:	Commercial Banking:						Commercial Banking:
Commercial real estate loans	Commercial real estate loans	2,469,040		45,404	60,759	—	Commercial real estate loans	2,527,139		50,056	58,521	—
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	358,064		3,351	551	—	Commercial real estate loans - owner occupied	368,085		3,498	429	—
Commercial loans	Commercial loans	1,246,023		20,885	3,074	164	Commercial loans	1,403,726		20,018	4,391	118
Total Commercial Banking	Total Commercial Banking	4,073,127		69,640	64,384	164	Total Commercial Banking	4,298,950		73,572	63,341	118

Total	Total	$	11,092,271	121,257	78,609	652	Total	$	11,271,231	124,423	78,589	532

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2022, prior to the adoption of ASU 2022-02 (in thousands):


	Total loans receivable		Allowance for credit losses	Nonaccrual loans (1)	Loans 90 days past due and accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	3,498,599	19,261	7,574	—	6,279	1,069	—
Home equity loans	1,297,674		5,902	4,145	—	1,470	546	—
Vehicle loans	2,056,783		23,059	3,771	2	—	—	—
Consumer loans	111,872		665	256	405	—	—	—
Total Personal Banking	6,964,928		48,887	15,746	407	7,749	1,615	—

Commercial Banking:
Commercial real estate loans	2,448,028		44,506	62,239	—	31,980	638	400
Commercial real estate loans - owner occupied	375,527		4,004	624	—	94	31	—
Commercial loans	1,131,969		20,639	2,627	337	858	116	4
Total Commercial Banking	3,955,524		69,149	65,490	337	32,932	785	404

Total	$	10,920,452	118,036	81,236	744	40,681	2,400	404

(1)Includes $29.2 million of nonaccrual TDRs.

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We present the amortized cost of our loans on nonaccrual status including such loans with no allowance. The following table presents the amortized cost of our loans on nonaccrual status as of the beginning and end of the ~~quarter~~period ended ~~March 31,~~June 30, 2023 (in thousands):


				March 31, 2023							June 30, 2023
		Nonaccrual loans at January 1, 2023		Nonaccrual loans with an allowance	Nonaccrual loans with no allowance	Total nonaccrual loans at the end of the period	Loans 90 days past due and accruing		Nonaccrual loans at January 1, 2023		Nonaccrual loans with an allowance	Nonaccrual loans with no allowance	Total nonaccrual loans at the end of the period	Loans 90 days past due and accruing
Personal Banking:	Personal Banking:							Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	7,574	6,330	—	6,330	—	Residential mortgage loans	$	7,574	8,083	—	8,083	—
Home equity loans	Home equity loans	4,145		3,446	184	3,630	—	Home equity loans	4,145		3,278	176	3,454	—
Vehicle loans	Vehicle loans	3,771		2,857	1,152	4,009	—	Vehicle loans	3,771		2,522	943	3,465	—
Consumer loans	Consumer loans	256		251	5	256	488	Consumer loans	256		246	—	246	414
Total Personal Banking	Total Personal Banking	15,746		12,884	1,341	14,225	488	Total Personal Banking	15,746		14,129	1,119	15,248	414

Commercial Banking:	Commercial Banking:							Commercial Banking:
Commercial real estate loans	Commercial real estate loans	62,239		22,529	38,230	60,759	—	Commercial real estate loans	62,239		22,507	36,014	58,521	—
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	624		551	—	551	—	Commercial real estate loans - owner occupied	624		429	—	429	—
Commercial loans	Commercial loans	2,627		2,718	356	3,074	164	Commercial loans	2,627		3,886	505	4,391	118
Total Commercial Banking	Total Commercial Banking	65,490		25,798	38,586	64,384	164	Total Commercial Banking	65,490		26,822	36,519	63,341	118

Total	Total	$	81,236	38,682	39,927	78,609	652	Total	$	81,236	40,951	37,638	78,589	532

During the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2023, we did not recognize interest income on nonaccrual loans.

The following table presents the amortized cost of our loans on nonaccrual status as of the year ended December 31, 2022 (in thousands):


			December 31, 2022
	Nonaccrual loans at January 1, 2022		Nonaccrual loans with an allowance	Nonaccrual loans with no allowance	Total nonaccrual loans at the end of the period	Loans 90 days past due and accruing
Personal Banking:
Residential mortgage loans	$	10,402	7,574	—	7,574	—
Home equity loans	5,758		3,887	258	4,145	—
Vehicle loans	3,263		2,175	1,596	3,771	2
Consumer loans	675		256	—	256	405
Total Personal Banking	20,098		13,892	1,854	15,746	407

Commercial Banking:
Commercial real estate loans	129,666		22,182	40,057	62,239	—
Commercial real estate loans - owner occupied	1,233		624	—	624	—
Commercial loans	7,474		2,024	603	2,627	337
Total Commercial Banking	138,373		24,830	40,660	65,490	337

Total	$	158,471	38,722	42,514	81,236	744

During the year ended December 31, 2022, we recognized $678,000 of interest income on nonaccrual and troubled debt restructuring loans.

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The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of ~~March 31,~~June 30, 2023 (in thousands):


		Real estate		Equipment	Total		Real estate		Total

Commercial Banking:	Commercial Banking:					Commercial Banking:
Commercial real estate loans	Commercial real estate loans	$	54,903	—	54,903	Commercial real estate loans	$	53,910	53,910

Commercial loans	Commercial loans	170		183	353	Commercial loans	308		308
Total Commercial Banking	Total Commercial Banking	55,073		183	55,256	Total Commercial Banking	54,218		54,218

Total	Total	$	55,073	183	55,256	Total	$	54,218	54,218

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2022 (in thousands):


	Real estate		Equipment	Total
Personal Banking:
Residential mortgage loans	$	569	—	569
Home equity loans	100		—	100


Total Personal Banking	669		—	669

Commercial Banking:
Commercial real estate loans	57,056		—	57,056

Commercial loans	175		210	385
Total Commercial Banking	57,231		210	57,441

Total	$	57,900	210	58,110

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extensions, an other-than-insignificant payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions to one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay, and/or an ~~interset~~interest rate reduction.

The following table presents the amortized cost basis of loans as of ~~March 31,~~June 30, 2023 that were both experiencing financial difficulty and modified during the ~~quarter ended March 31, 2023,~~periods indicated, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

Term extension Combination term extension and interest rate reduction Total class of financing receivable
Personal Banking:
Residential mortgage loans $ 180 — 0.01 %
Home equity loans 110 — 0.01 %
Consumer loans — 3 — %
Total Personal Banking 290 3 — %
Commercial Banking:
Commercial real estate loans 242 — 0.01 %
Commercial loans 765 — 0.06 %
Total Commercial Banking 1,007 — 0.02 %
Total $ 1,297 3 0.01 %

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	For the quarter ended June 30, 2023		For the six months ended June 30, 2023
	Term extension		Total class of financing receivable		Term extension	Combination term extension and interest rate reduction	Total class of financing receivable
Personal Banking:
Residential mortgage loans	$	82	0.00	%	262	—	0.01	%
Home equity loans	118		0.01	%	166	—	0.01	%

Consumer loans	—		—	%	—	3	—	%
Total Personal Banking	200		—	%	428	3	0.01	%

Commercial Banking:
Commercial real estate loans	—		—	%	220	—	0.01	%

Commercial loans	—		—	%	660	—	0.05	%
Total Commercial Banking	—		—	%	880	—	0.02	%

Total	$	200	0.00	%	1,308	3	0.01	%

The Company has committed to lend additional amounts totaling $31,000 to the borrowers included in the previous table.

The following table presents the effect of the loan modifications presented above to borrowers experiencing financial difficulty for the ~~quarter ended~~ ~~March 31, 2023:~~periods indicated:


						For the quarter ended June 30, 2023	For the six months ended June 30, 2023
		Weighted-average interest rate reduction		Weighted-average term extension in months		Weighted-average term extension in months	Weighted-average interest rate reduction		Weighted-average term extension in months
Personal Banking:	Personal Banking:				Personal Banking:
Residential mortgage loans	Residential mortgage loans	—	%	147	Residential mortgage loans	100	—		132
Home equity loans	Home equity loans	—	%	115	Home equity loans	42	—		73

Consumer loans	Consumer loans	12	%	356	Consumer loans	9	12	%	319
Total Personal Banking	Total Personal Banking	12	%	137	Total Personal Banking	66	12	%	111

Commercial Banking:	Commercial Banking:				Commercial Banking:
Commercial real estate loans	Commercial real estate loans	—	%	24	Commercial real estate loans	0	—		25

Commercial loans	Commercial loans	—	%	9	Commercial loans	0	—		9
Total Commercial Banking	Total Commercial Banking	—	%	13	Total Commercial Banking	0	—		13
Total loans	Total loans	12	%	41	Total loans	66	12	%	45

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. ~~All~~The following table presents the performance of loans that such loans have been modified since the adoption of ASU ~~2022-02 are current on their payments as of~~ 2022-02:


	Current		30-59 days delinquent	60-89 days delinquent	90 days or greater delinquent
Personal Banking:
Residential mortgage loans	$	262	—	—	—
Home equity loans	166		—	—	—

Consumer loans	3		—	—	—
Total Personal Banking	431		—	—	—

Commercial Banking:
Commercial real estate loans	81		139	—	—

Commercial loans	—		660	—	—
Total Commercial Banking	81		799	—	—
Total loans	$	512	799	—	—

~~March 31, 2023.~~No loans modified since the adoption of ASU 2022-02 subsequently defaulted during the quarter ended ~~March 31,~~June 30, 2023.

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The modifications to borrowers experiencing financial distress are included in their respective portfolio segment and the current loan balance and updated loan terms are run through their respective ACL models to arrive at the quantitative portion of the ACL. Subsequent performance of the loans will be measured by delinquency status and will be captured through our ACL models or our qualitative factor assessment, as deemed appropriate. If we no longer believe the loan demonstrates similar risks to their respective portfolio segment an individual assessment will be performed. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The following ~~table provides~~tables provide a roll forward of troubled debt restructurings for the ~~period~~periods indicated, prior to the adoption of ASU 2022-02 (dollars in thousands):

For the quarter ended March 31, 2022
Number of
contracts Amount
Beginning TDR balance: 134 $ 30,288
New TDRs — —
Re-modified TDRs 1 202
Net paydowns — (1,030)
Charge-offs:
Residential mortgage loans 1 (3)
Paid-off loans:
Residential mortgage loans 1 (201)
Home equity loans 1 (64)
Commercial real estate loans 1 (289)
Ending TDR balance: 130 $ 28,701
Accruing TDRs $ 12,686
Nonaccrual TDRs 16,015


	For the quarter ended June 30, 2022			For the six months ended June 30, 2022
	Number of contracts	Amount		Number of Contracts	Amount
Beginning TDR balance:	130	$	28,701	134	$	30,288
New TDRs	2	26,115		2	26,115
Re-modified TDRs	5	6,403		6	6,603
Net paydowns	—	(479)		—	(1,509)
Charge-offs:
Residential mortgage loans	—	—		1	(3)





Paid-off loans:
Residential mortgage loans	—	—		1	(201)
Home equity loans	1	(13)		2	(77)

Commercial real estate loans	2	(80)		3	(369)

Commercial loans	1	(7)		1	(7)
Ending TDR balance:	128	$	54,237	128	$	54,237
Accruing TDRs		$	16,590		$	16,590
Nonaccrual TDRs		37,647			37,647

The following table provides information related to TDRs (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated, prior to the adoption of ASU 2022-02 (in thousands):


	For the quarter ended June 30, 2022					For the six months ended June 30, 2022
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance








Commercial Banking:
Commercial real estate loans	3	$	58,042	29,292	1,122	4	$	58,372	29,492	1,133

Commercial loans	4	3,524		3,226	410	4	3,524		3,226	411
Total Commercial Banking	7	61,566		32,518	1,532	8	61,896		32,718	1,544

Total	7	$	61,566	32,518	1,532	8	$	61,896	32,718	1,544

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For the quarter ended March 31, 2022
Number of
contracts Recorded
investment
at the time of
modification Current
recorded
investment Current
allowance
Commercial Banking:
Commercial real estate loans 1 $ 330 202 11
Total Commercial Banking 1 330 202 11
Total 1 $ 330 202 11

The following table provides information as of ~~March 31,~~June 30, 2022 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended ~~March 31,~~June 30, 2022, prior to the adoption of ASU 2022-02 (in thousands):


	Type of modification
	Number of contracts	Rate		Maturity date	Total







Commercial Banking:
Commercial real estate loans	3	$	4,179	25,113	29,292

Commercial loans	4	—		3,226	3,226
Total Commercial Banking	7	4,179		28,339	32,518

Total	7	$	4,179	28,339	32,518

Type of modification
Number of contracts Maturity date Total
Commercial Banking:
Commercial real estate loans 1 $ 202 202
Total Commercial Banking 1 202 202
Total 1 $ 202 202
The following table provides information as of June 30, 2022 for TDRs (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the six months ended June 30, 2022, prior to the adoption of ASU 2022-02 (in thousands):


	Type of modification
	Number of contracts	Rate		Maturity date	Total







Commercial Banking:
Commercial real estate loans	4	$	4,179	25,313	29,492

Commercial loans	4	—		3,226	3,226
Total Commercial Banking	8	4,179		28,539	32,718

Total	8	$	4,179	28,539	32,718

The following table provides information related to troubled debt restructurings modified within the previous twelve months of ~~March 31,~~June 30, 2022 that subsequently defaulted, prior to the adoption of ASU 2022-02:


	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance






Commercial Banking:
Commercial real estate loans	1	$	4,167	3,823	—

Total Commercial Banking	1	4,167		3,823	—

Total	1	$	4,167	3,823	—

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The following table provides information related to the amortized cost basis of loan payment delinquencies at ~~March 31,~~June 30, 2023 (in thousands):

~~Table of Contents~~


		30-59 days delinquent		60-89 days delinquent	90 days or greater delinquent	Total delinquency	Current	Total loans receivable	90 days or greater delinquent and accruing		30-59 days delinquent		60-89 days delinquent	90 days or greater delinquent	Total delinquency	Current	Total loans receivable	90 days or greater delinquent and accruing

Personal Banking:	Personal Banking:									Personal Banking:
Residential mortgage loans	Residential mortgage loans	$	26,992	1,922	3,300	32,214	3,473,251	3,505,465	—	Residential mortgage loans	$	627	3,521	6,290	10,438	3,484,719	3,495,157	—
Home equity loans	Home equity loans	4,235		1,061	2,190	7,486	1,274,060	1,281,546	—	Home equity loans	3,395		1,614	1,965	6,974	1,269,088	1,276,062	—
Vehicle loans	Vehicle loans	6,574		1,763	2,622	10,959	2,110,843	2,121,802	—	Vehicle loans	7,440		2,124	1,890	11,454	2,075,876	2,087,330	—
Consumer loans	Consumer loans	356		320	657	1,333	108,998	110,331	488	Consumer loans	515		460	557	1,532	112,200	113,732	414
Total Personal Banking	Total Personal Banking	38,157		5,066	8,769	51,992	6,967,152	7,019,144	488	Total Personal Banking	11,977		7,719	10,702	30,398	6,941,883	6,972,281	414

Commercial Banking:	Commercial Banking:									Commercial Banking:
Commercial real estate loans	Commercial real estate loans	4,372		1,875	7,804	14,051	2,454,989	2,469,040	—	Commercial real estate loans	2,710		853	8,501	12,064	2,515,075	2,527,139	—
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied	462		74	206	742	357,322	358,064	—	Commercial real estate loans - owner occupied	—		435	74	509	367,576	368,085	—
Commercial loans	Commercial loans	4,253		1,088	1,302	6,643	1,239,380	1,246,023	164	Commercial loans	15,658		11,092	2,414	29,164	1,374,562	1,403,726	118
Total Commercial Banking	Total Commercial Banking	9,087		3,037	9,312	21,436	4,051,691	4,073,127	164	Total Commercial Banking	18,368		12,380	10,989	41,737	4,257,213	4,298,950	118
Total loans	Total loans	$	47,244	8,103	18,081	73,428	11,018,843	11,092,271	652	Total loans	$	30,345	20,099	21,691	72,135	11,199,096	11,271,231	532

The following table provides information related to the amortized cost basis of loan payment delinquencies at December 31, 2022 (in thousands):


	30-59 days delinquent		60-89 days delinquent	90 days or greater delinquent	Total delinquency	Current	Total loans receivable	90 days or greater delinquent and accruing

Personal Banking:
Residential mortgage loans	$	29,487	5,563	5,574	40,624	3,457,975	3,498,599	—
Home equity loans	6,657		975	2,257	9,889	1,287,785	1,297,674	—
Vehicle loans	8,677		2,770	2,471	13,918	2,042,865	2,056,783	2
Consumer loans	758		300	608	1,666	110,206	111,872	405
Total Personal Banking	45,579		9,608	10,910	66,097	6,898,831	6,964,928	407

Commercial Banking:
Commercial real estate loans	3,947		2,377	7,589	13,913	2,434,115	2,448,028	—
Commercial real estate loans - owner occupied	61		—	278	339	375,188	375,527	—
Commercial loans	2,648		1,115	1,829	5,592	1,126,377	1,131,969	337
Total Commercial Banking	6,656		3,492	9,696	19,844	3,935,680	3,955,524	337
Total originated loans	$	52,235	13,100	20,606	85,941	10,834,511	10,920,452	744

Credit Quality Indicators: For Commercial Banking we categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass:

Special Mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics. A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations. Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring.

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Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

~~Table of Contents~~

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, those weaknesses make collection or liquidation in full highly questionable and improbable. A loan classified as doubtful exhibits discernible loss potential, but a complete loss seems very unlikely. The possibility of a loss on a doubtful loan is high, but because of certain important and reasonably specific pending factors that may strengthen the loan, its classification as an estimated loss is deferred until a more exact status can be determined.

Loss — Loans classified as loss are considered uncollectible and of such value that the continuance as a loan is not warranted. A loss classification does not mean that the loan has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off all or a portion of a basically worthless loan even though partial recovery may be possible in the future.

For Personal Banking loans a pass risk rating is maintained until they are 90 days or greater past due, and risk rating reclassification is based primarily on past due status of the loan. The risk rating categories can generally be described by the following groupings:

Pass — Loans classified as pass are homogeneous loans that are less than 90 days past due from the required payment date at month-end.

Substandard — Loans classified as substandard are homogeneous loans that are greater than 90 days past due from the required payment date at month-end, or homogenous retail loans that are greater than 180 days past due from the required payment date at month-end that has been written down to the value of underlying collateral, less costs to sell.

Doubtful — Loans classified as doubtful are homogeneous loans that are greater than 180 days past due from the required payment date at month-end and not written down to the value of underlying collateral. These loans are generally charged-off in the month in which the 180 day period elapses.

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The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator and the current period charge-offs by year of origination for each portfolio segment as of ~~March 31,~~June 30, 2023 (in thousands):


		YTD March 31, 2023		2022	2021	2020	2019	Prior	Revolving loans	Revolving loans converted to term loans		Total loans receivable		YTD June 30, 2023		2022	2021	2020	2019	Prior	Revolving loans	Revolving loans converted to term loans	Total loans receivable
Personal Banking:	Personal Banking:												Personal Banking:
Residential mortgage loans	Residential mortgage loans												Residential mortgage loans
Pass	Pass	$	51,579	678,388	830,471	537,283	261,565	1,139,849	—	—		3,499,135	Pass	$	108,010	674,875	814,044	529,235	255,852	1,101,082	—	—	3,483,098
Substandard	Substandard	—		—	79	581	300	5,370	—	—		6,330	Substandard	—		382	787	229	204	10,457	—	—	12,059
Total residential mortgage loans	Total residential mortgage loans	51,579		678,388	830,550	537,864	261,865	1,145,219	—	—		3,505,465	Total residential mortgage loans	108,010		675,257	814,831	529,464	256,056	1,111,539	—	—	3,495,157
Residential mortgage current period charge-offs	Residential mortgage current period charge-offs	—		—	(5)	(130)	—	(72)	—	—		(207)	Residential mortgage current period charge-offs	—		—	(5)	(130)	—	(617)	—	—	(752)
Home equity loans	Home equity loans												Home equity loans
Pass	Pass	26,357		112,100	121,813	166,339	106,447	238,302	463,880	42,677		1,277,915	Pass	53,862		108,324	116,224	160,519	102,498	223,342	464,504	43,090	1,272,363
Substandard	Substandard	—		194	—	38	283	1,706	565	845		3,631	Substandard	—		—	—	12	214	1,754	930	789	3,699
Total home equity loans	Total home equity loans	26,357		112,294	121,813	166,377	106,730	240,008	464,445	43,522		1,281,546	Total home equity loans	53,862		108,324	116,224	160,531	102,712	225,096	465,434	43,879	1,276,062
Home equity current period charge-offs	Home equity current period charge-offs	—		(14)	(46)	—	(4)	(100)	—	—		(164)	Home equity current period charge-offs	—		(53)	(46)	—	(4)	(225)	(1)	(70)	(399)
Vehicle loans	Vehicle loans												Vehicle loans
Pass	Pass	260,159		895,489	551,391	200,686	115,545	94,522	—	—		2,117,792	Pass	416,175		817,965	496,017	175,268	97,646	80,794	—	—	2,083,865
Substandard	Substandard	—		716	1,367	498	671	758	—	—		4,010	Substandard	47		789	1,186	368	580	495	—	—	3,465
Total vehicle loans	Total vehicle loans	260,159		896,205	552,758	201,184	116,216	95,280	—	—		2,121,802	Total vehicle loans	416,222		818,754	497,203	175,636	98,226	81,289	—	—	2,087,330
Vehicle current period charge-offs	Vehicle current period charge-offs	(139)		(459)	(502)	(151)	(136)	(281)	—	—		(1,668)	Vehicle current period charge-offs	(255)		(904)	(905)	(304)	(318)	(521)	—	—	(3,207)
Consumer loans	Consumer loans												Consumer loans
Pass	Pass	6,861		17,186	8,551	3,646	2,809	7,056	62,505	973		109,587	Pass	14,463		15,140	7,481	3,018	2,153	6,413	63,480	925	113,073
Substandard	Substandard	—		9	48	—	38	52	535	62		744	Substandard	10		46	24	3	19	48	433	76	659
Total consumer loans	Total consumer loans	6,861		17,195	8,599	3,646	2,847	7,108	63,040	1,035		110,331	Total consumer loans	14,473		15,186	7,505	3,021	2,172	6,461	63,913	1,001	113,732
Consumer loan current period charge-offs	Consumer loan current period charge-offs	(546)		(79)	(56)	(49)	(69)	(267)	—	—		(1,066)	Consumer loan current period charge-offs	(1,138)		(165)	(162)	(99)	(131)	(525)	(73)	(6)	(2,299)
Total Personal Banking	Total Personal Banking	344,956		1,704,082	1,513,720	909,071	487,658	1,487,615	527,485	44,557		7,019,144	Total Personal Banking	592,567		1,617,521	1,435,763	868,652	459,166	1,424,385	529,347	44,880	6,972,281
Business Banking:	Business Banking:												Business Banking:
Commercial real estate loans	Commercial real estate loans												Commercial real estate loans
Pass	Pass	26,079		356,787	358,622	356,953	239,799	870,794	24,999	14,439		2,248,472	Pass	98,225		394,071	356,637	342,021	231,138	828,998	23,273	25,715	2,300,078
Special mention	Special mention	—		—	17,672	26,946	2,978	19,856	41	15		67,508	Special mention	—		7,233	18,560	25,942	2,953	17,029	111	—	71,828
Substandard	Substandard	—		—	899	2,219	47,441	101,821	503	177		153,060	Substandard	—		—	1,512	3,375	50,912	99,141	132	161	155,233

Total commercial real estate loans	Total commercial real estate loans	26,079		356,787	377,193	386,118	290,218	992,471	25,543	14,631		2,469,040	Total commercial real estate loans	98,225		401,304	376,709	371,338	285,003	945,168	23,516	25,876	2,527,139
Commercial real estate current period charge-offs	Commercial real estate current period charge-offs	—		—	(45)	—	(51)	(561)	—	—		(657)	Commercial real estate current period charge-offs	—		—	(45)	—	(51)	(976)	—	—	(1,072)
Commercial real estate loans - owner occupied	Commercial real estate loans - owner occupied												Commercial real estate loans - owner occupied
Pass	Pass	1,196		60,992	49,100	15,144	46,777	159,083	2,653	2,259		337,204	Pass	15,335		63,894	48,767	16,740	46,092	154,995	1,397	2,237	349,457
Special mention	Special mention	—		125	—	12	—	2,192	—	—		2,329	Special mention	—		123	—	8	—	2,211	—	—	2,342
Substandard	Substandard	—		—	—	1,364	4,987	11,416	—	764		18,531	Substandard	—		—	128	1,354	4,825	9,250	—	729	16,286

Total commercial real estate loans - owner occupied	Total commercial real estate loans - owner occupied	1,196		61,117	49,100	16,520	51,764	172,691	2,653	3,023		358,064	Total commercial real estate loans - owner occupied	15,335		64,017	48,895	18,102	50,917	166,456	1,397	2,966	368,085
Commercial real estate - owner occupied current period charge-offs	Commercial real estate - owner occupied current period charge-offs	—		—	—	—	—	—	—	—		—	Commercial real estate - owner occupied current period charge-offs	—		—	—	—	—	(68)	—	—	(68)
Commercial loans	Commercial loans												Commercial loans
Pass	Pass	126,312		465,338	85,830	34,172	43,470	66,679	390,608	4,935	]	1,217,344	Pass	236,447		451,264	81,930	30,337	40,649	60,620	471,516	5,218	1,377,981
Special mention	Special mention	24		355	2,058	437	1,481	205	1,821	—		6,381	Special mention	59		335	64	413	387	185	1,597	—	3,040
Substandard	Substandard	—		2,665	589	731	2,021	1,721	12,415	2,156		22,298	Substandard	—		3,812	598	610	2,576	1,098	12,144	1,867	22,705

Total commercial loans	Total commercial loans	126,336		468,358	88,477	35,340	46,972	68,605	404,844	7,091		1,246,023	Total commercial loans	236,506		455,411	82,592	31,360	43,612	61,903	485,257	7,085	1,403,726
Commercial loans current period charge-offs	Commercial loans current period charge-offs	—		(147)	(268)	(180)	—	(270)	—	—		(865)	Commercial loans current period charge-offs	—		(720)	(517)	(222)	(10)	(603)	—	(2)	(2,074)
Total Business Banking	Total Business Banking	153,611		886,262	514,770	437,978	388,954	1,233,767	433,040	24,745		4,073,127	Total Business Banking	350,066		920,732	508,196	420,800	379,532	1,173,527	510,170	35,927	4,298,950

Total loans	Total loans	$	498,567	2,590,344	2,028,490	1,347,049	876,612	2,721,382	960,525	69,302		11,092,271	Total loans	$	942,633	2,538,253	1,943,959	1,289,452	838,698	2,597,912	1,039,517	80,807	11,271,231

For the ~~quarter~~six months ended ~~March 31,~~June 30, 2023, ~~$4.9~~$10.0 million of revolving loans were converted to term loans.

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The following table presents the amortized cost basis of our loan portfolio by year of origination and credit quality indicator for each portfolio segment as of December 31, 2022 (in thousands):


	2022		2021	2020	2019	2018	Prior	Revolving loans	Revolving loans converted to term loans	Total loans receivable
Personal Banking:
Residential mortgage loans
Pass	$	659,930	837,823	546,604	265,520	131,599	1,043,394	—	—	3,484,870
Substandard	422		187	474	796	531	11,319	—	—	13,729
Total residential mortgage loans	660,352		838,010	547,078	266,316	132,130	1,054,713	—	—	3,498,599
Home equity loans
Pass	114,598		126,608	173,044	110,495	50,314	198,971	475,229	42,887	1,292,146
Substandard	—		46	—	127	324	3,066	683	1,282	5,528
Total home equity loans	114,598		126,654	173,044	110,622	50,638	202,037	475,912	44,169	1,297,674
Vehicle loans
Pass	966,432		611,310	227,897	135,134	70,071	42,166	—	—	2,053,010
Substandard	292		1,096	667	689	657	372	—	—	3,773
Total vehicle loans	966,724		612,406	228,564	135,823	70,728	42,538	—	—	2,056,783
Consumer loans
Pass	19,302		9,874	4,327	3,557	2,409	5,094	65,610	1,037	111,210
Substandard	24		9	37	9	3	48	432	100	662
Total consumer loans	19,326		9,883	4,364	3,566	2,412	5,142	66,042	1,137	111,872
Total Personal Banking	1,761,000		1,586,953	953,050	516,327	255,908	1,304,430	541,954	45,306	6,964,928
Business Banking:
Commercial real estate loans
Pass	322,050		346,355	369,868	244,188	209,500	696,628	24,954	13,314	2,226,857
Special mention	—		17,216	16,782	87	1,000	15,887	157	15	51,144
Substandard	—		4,561	3,617	48,879	41,521	70,384	459	606	170,027


Total commercial real estate loans	322,050		368,132	390,267	293,154	252,021	782,899	25,570	13,935	2,448,028
Commercial real estate - owner occupied
Pass	62,905		51,673	17,989	49,600	43,570	123,278	2,477	1,460	352,952
Special mention	126		—	18	—	2,297	1,106	385	—	3,932
Substandard	—		—	—	5,085	2,440	9,250	—	1,868	18,643


Total commercial real estate - owner occupied loans	63,031		51,673	18,007	54,685	48,307	133,634	2,862	3,328	375,527
Commercial loans
Pass	481,797		90,320	52,833	46,966	17,250	53,107	354,402	4,032	1,100,707
Special mention	628		2,190	506	1,704	227	—	2,129	—	7,384
Substandard	1,833		603	908	2,097	1,605	735	12,941	3,156	23,878


Total commercial loans	484,258		93,113	54,247	50,767	19,082	53,842	369,472	7,188	1,131,969
Total Business Banking	869,339		512,918	462,521	398,606	319,410	970,375	397,904	24,451	3,955,524

Total loans	$	2,630,339	2,099,871	1,415,571	914,933	575,318	2,274,805	939,858	69,757	10,920,452

For the year ended December 31, 2022, $20.7 million of revolving loans were converted to term loans.

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(4) Goodwill and Other Intangible Assets

The following table provides information for intangible assets subject to amortization at the dates indicated (in thousands):


		March 31, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Amortizable intangible assets:	Amortizable intangible assets:				Amortizable intangible assets:
Core deposit intangibles - gross	Core deposit intangibles - gross	$	74,899	74,899	Core deposit intangibles - gross	$	74,899	74,899

Less: accumulated amortization	Less: accumulated amortization	(67,265)		(66,367)	Less: accumulated amortization	(68,097)		(66,367)
Core deposit intangibles - net	Core deposit intangibles - net	$	7,634	8,532	Core deposit intangibles - net	$	6,802	8,532
Customer and Contract intangible assets - gross	Customer and Contract intangible assets - gross	$	12,775	12,775	Customer and Contract intangible assets - gross	$	12,775	12,775

Less: accumulated amortization	Less: accumulated amortization	(12,758)		(12,747)	Less: accumulated amortization	(12,768)		(12,747)
Customer and Contract intangible assets - net	Customer and Contract intangible assets - net	17		28	Customer and Contract intangible assets - net	7		28
Total intangible assets - net	Total intangible assets - net	$	7,651	8,560	Total intangible assets - net	$	6,809	8,560

The following table shows the actual aggregate amortization expense for the quarters ended ~~March 31,~~June 30, 2023 and 2022, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):


For the quarter ended ~~March 31,~~June 30, 2023	$	~~909~~842
For the quarter ended ~~March 31,~~June 30, 2022	~~1,183~~1,115
For the six months ended June 30, 2023	1,751
For the six months ended June 30, 2022	2,298
For the year ending December 31, 2023	3,270
For the year ending December 31, 2024	2,452
For the year ending December 31, 2025	1,662
For the year ending December 31, 2026	871
For the year ending December 31, 2027	305

The following table provides information for the changes in the carrying amount of goodwill (in thousands):


	Total



Balance at December 31, 2022	$	380,997


Balance at ~~March 31,~~June 30, 2023	$	380,997

We performed our annual goodwill impairment test as of June 30, ~~2022~~2023 in accordance with ASC 350 ~~as updated by ASU 2017-04 (“Step 0”),~~ and concluded that goodwill was not impaired. ~~As of March 31, 2023, there were no events or changes in circumstances that would cause us to update that goodwill impairment test and we have concluded there is no impairment of goodwill.~~

(5) Borrowed Funds

(a) Borrowings

Borrowed funds at ~~March 31,~~June 30, 2023 and December 31, 2022 are presented in the following table:


		March 31, 2023				December 31, 2022					June 30, 2023				December 31, 2022
		Amount		Average rate		Amount		Average rate			Amount		Average rate		Amount		Average rate
Term notes payable to the FHLB of Pittsburgh, due within one year	Term notes payable to the FHLB of Pittsburgh, due within one year	$	403,000	5.17	%	$	500,000	4.55	%	Term notes payable to the FHLB of Pittsburgh, due within one year	$	500,000	5.43	%	$	500,000	4.55	%
Notes payable to the FHLB of Pittsburgh, due within one year	Notes payable to the FHLB of Pittsburgh, due within one year	183,700		5.15	%	51,300		4.45	%	Notes payable to the FHLB of Pittsburgh, due within one year	28,000		5.39	%	51,300		4.45	%

Collateralized borrowings, due within one year	Collateralized borrowings, due within one year	83,290		1.16	%	105,766		0.27	%	Collateralized borrowings, due within one year	63,863		1.24	%	105,766		0.27	%
Collateral received, due within one year	Collateral received, due within one year	18,651		5.17	%	24,100		4.17	%	Collateral received, due within one year	40,450		5.16	%	24,100		4.17	%
Total borrowed funds	Total borrowed funds	$	688,641			$	681,166			Total borrowed funds	$	632,313			$	681,166

Borrowings from the Federal Home Loan Bank (“FHLB”) of Pittsburgh, if any, are secured by our residential first mortgage and other qualifying loans. At June 30, 2023, the carrying value of these loans was $6.013 billion. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment.

The revolving line of credit with the FHLB of Pittsburgh carries a commitment of $250.0 million. The rate is adjusted daily by the FHLB of Pittsburgh, and any borrowings on this line may be repaid at any time without penalty. At ~~March 31,~~June 30, 2023 and December 31, 2022, the balance of the revolving line of credit was ~~$183.7~~$28.0 million and $51.3 million, respectively.

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At ~~March 31,~~June 30, 2023 and December 31, 2022, collateralized borrowings due within one year were ~~$83.3~~$63.9 million and $105.8 million, respectively. These borrowings are collateralized by cash or various securities held in safekeeping by the FHLB. At June 30, 2023, the carrying value of the cash and securities used as collateral was $94.6 million.

At ~~March 31,~~June 30, 2023 and December 31, 2022, collateral received was ~~$18.7~~$40.5 million and $24.1 million, respectively. This represents collateral posted to us from our derivative counterparties.

At ~~March 31,~~each of the periods ended June 30, 2023 and December 31, 2022, term notes payable to the FHLB of Pittsburgh due within one year were ~~$403.0 million and~~ $500.0 ~~million, respectively.~~million. The ~~March 31,~~June 30, 2023 total is made up of ~~five~~eight advances: ~~$3.0 million at 5.20% maturing April 3, 2023;~~ $100.0 million at ~~5.27%~~5.52% maturing ~~April~~July 7, 2023; $100.0 million at ~~5.15%~~5.37% maturing ~~April~~July 14, 2023; $100.0 million at ~~5.15%~~5.39% maturing ~~April~~July 21, 2023; $100.0 million at 5.39% maturing July 28, 2023; $25.0 million at 5.46% maturing August 11, 2023; $25.0 million at 5.45% maturing August 14, 2023; $25.0 million at 5.48% maturing August 21, 2023; and ~~$100.0~~$25.0 million at ~~5.13%~~5.51% maturing ~~April 28,~~August 31, 2023.

On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity date of September 15, 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 4.00%, payable semi-annually in arrears commencing on March 15, 2021, and a floating rate of interest equivalent to the 3-month Secured Overnight Financing Rate (“SOFR”) plus 3.89% payable quarterly in arrears commencing on December 15, 2025. During the year-ended December 31, 2022 the Company repurchased $10.2 million of subordinated notes leaving $114.8 million of subordinated notes outstanding. The subordinated debt issuance costs of approximately $1.8 million are being amortized over five years on a straight-line basis into interest expense. At ~~March 31,~~June 30, 2023 and December 31, 2022, subordinated debentures, net of issuance costs, were ~~$113.9~~$114.0 million and $113.8 million, respectively.

(b) Trust Preferred Securities

The Company has seven statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust, LNB Trust II, a Delaware statutory business trust, Union National Capital Trust I (“UNCT I”), a Delaware statutory business trust, Union National Capital Trust II (“UNCT II”), a Delaware statutory business trust, MFBC Statutory Trust I, a Delaware statutory trust, and Universal Preferred Trust, a Delaware statutory trust (the “Trusts”). The Trusts exist solely to issue preferred securities to third parties for cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed.

The Trusts have invested the proceeds of the offerings in junior subordinated deferrable interest debentures issued by the Company. The structure of these debentures mirrors the structure of the trust-preferred securities. These subordinated debentures are the sole assets of the Trusts. As the shareholders of the trust preferred securities are the primary beneficiaries of the Trusts, the Trusts are not consolidated in our financial statements.

The following table sets forth a summary of the cumulative trust preferred securities and the junior subordinated debt held by the Trust as of the date listed.


		Maturity date	Interest rate	Capital debt securities		March 31, 2023		December 31, 2022		Maturity date	Interest rate	Capital debt securities		June 30, 2023		December 31, 2022
Northwest Bancorp Capital Trust III	Northwest Bancorp Capital Trust III	December 30, 2035	3-month LIBOR plus 1.38%	$	50,000	$	51,547	51,547	Northwest Bancorp Capital Trust III	December 30, 2035	3-month LIBOR plus 1.38%	$	50,000	$	51,547	51,547
Northwest Bancorp Statutory Trust IV	Northwest Bancorp Statutory Trust IV	December 15, 2035	3-month LIBOR plus 1.38%	50,000		51,547		51,547	Northwest Bancorp Statutory Trust IV	December 15, 2035	3-month LIBOR plus 1.38%	50,000		51,547		51,547
LNB Trust II	LNB Trust II	June 15, 2037	3-month LIBOR plus 1.48%	7,875		8,119		8,119	LNB Trust II	June 15, 2037	3-month LIBOR plus 1.48%	7,875		8,119		8,119
Union National Capital Trust I (1)	Union National Capital Trust I (1)	January 23, 2034	3-month LIBOR plus 2.85%	8,000		7,981		7,975	Union National Capital Trust I (1)	January 23, 2034	3-month LIBOR plus 2.85%	8,000		7,987		7,975
Union National Capital Trust II (1)	Union National Capital Trust II (1)	November 23, 2034	3-month LIBOR plus 2.00%	3,000		2,775		2,768	Union National Capital Trust II (1)	November 23, 2034	3-month LIBOR plus 2.00%	3,000		2,782		2,768
MFBC Statutory Trust I (1)	MFBC Statutory Trust I (1)	September 15, 2035	3-month LIBOR plus 1.70%	5,000		3,710		3,684	MFBC Statutory Trust I (1)	September 15, 2035	3-month LIBOR plus 1.70%	5,000		3,736		3,684
Universal Preferred Trust (1)	Universal Preferred Trust (1)	October 7, 2035	3-month LIBOR plus 1.69%	5,000		3,700		3,674	Universal Preferred Trust (1)	October 7, 2035	3-month LIBOR plus 1.69%	5,000		3,726		3,674
						$	129,379	129,314						$	129,444	129,314

(1) Net of discounts due to the fair value adjustment made at the time of acquisition.

Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts. We have the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust securities also are deferred. To date there have been no interest deferrals. Interest on the subordinated debentures and distributions on the trust securities is cumulative. Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.

The Trusts must redeem the preferred securities when the debentures are paid at maturity or upon an earlier redemption of the debentures to the extent the debentures are redeemed. All or part of the debentures may be redeemed at any time. Also, the debentures

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may be redeemed at any time if existing laws or regulations, or the interpretation or application of these laws or regulations, change causing:

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•the interest on the debentures to no longer be deductible by the Company for federal income tax purposes;

•the trusts to become subject to federal income tax or to certain other taxes or governmental charges;

•the trusts to register as an investment company; or

•the preferred securities to no longer qualify as Tier I capital.

We may, at any time, dissolve any of the Trusts and distribute the debentures to the trust security holders, subject to receipt of any required regulatory approvals.

(6) Guarantees

We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At ~~March 31,~~June 30, 2023, the maximum potential amount of future payments we could be required to make under these non-recourse standby letters of credit was ~~$44.8~~$39.9 million, of which ~~$31.2~~$26.3 million is fully collateralized. At ~~March 31,~~June 30, 2023, we had a liability which represents deferred income of ~~$917,000~~$870,000 related to the standby letters of credit.

In addition, we maintain a $5.0 million unsecured line of credit with a correspondent bank for private label credit card facilities for certain existing commercial clients of the Bank, of which ~~$1.1~~$2.2 million in notional value of credit cards have been issued. These issued credit cards had an outstanding balance of ~~$125,000~~$443,000 at ~~March 31,~~June 30, 2023. The clients of the Bank are responsible for repaying any balances due on these credit cards directly to the correspondent bank; however, if the customer fails to repay their balance, the Bank could be required to satisfy the obligation to correspondent bank and initiate collection from our customer as part of the existing credit facility of that customer.

(7) Earnings Per Share

Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The following table sets forth the computation of basic and diluted EPS (in thousands, except share data and per share amounts):


		Quarter ended March 31,			Quarter ended June 30,				Six months ended June 30,
		2023		2022			2023		2022	2023	2022
Net income	Net income	$	33,679	28,287		Net income	$	33,044	33,426	66,723	61,713
Less: Dividends and undistributed earnings allocated to participating securities	Less: Dividends and undistributed earnings allocated to participating securities	146		177		Less: Dividends and undistributed earnings allocated to participating securities	86		159	174	294
Net income available to common shareholders	Net income available to common shareholders	$	33,533	28,110		Net income available to common shareholders	$	32,958	33,267	66,549	61,419

Weighted average common shares outstanding	Weighted average common shares outstanding	126,498,512		125,861,738		Weighted average common shares outstanding	126,620,383		126,059,165	126,559,784	125,960,997
Add: Participating shares outstanding	Add: Participating shares outstanding	551,751		791,217		Add: Participating shares outstanding	331,088		604,613	331,088	604,613
Total weighted average common shares and dilutive potential shares	Total weighted average common shares and dilutive potential shares	127,050,263		126,652,955		Total weighted average common shares and dilutive potential shares	126,951,471		126,663,778	126,890,872	126,565,610

Basic earnings per share	Basic earnings per share	$	0.27	0.22		Basic earnings per share	$	0.26	0.26	0.53	0.49

Diluted earnings per share	Diluted earnings per share	$	0.26	0.22		Diluted earnings per share	$	0.26	0.26	0.52	0.49

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(8) Pension and Other Post-Retirement Benefits

The following table sets forth the net periodic costs for the defined benefit pension plans and post-retirement healthcare plans for the periods indicated (in thousands):


		Quarter ended March 31,						Quarter ended June 30,
		Pension benefits			Other post-retirement benefits			Pension benefits			Other post-retirement benefits
		2023		2022	2023	2022		2023		2022	2023	2022
Service cost	Service cost	$	1,560	2,599	—	—	Service cost	$	1,560	2,599	—	—
Interest cost	Interest cost	2,245		1,671	7	10	Interest cost	2,245		1,671	7	10
Expected return on plan assets	Expected return on plan assets	(3,479)		(3,864)	—	—	Expected return on plan assets	(3,479)		(3,864)	—	—
Amortization of prior service cost	Amortization of prior service cost	(564)		(564)	—	—	Amortization of prior service cost	(564)		(564)	—	—
Amortization of the net loss	Amortization of the net loss	20		381	10	2	Amortization of the net loss	20		381	10	2
Net periodic cost	Net periodic cost	$	(218)	223	17	12	Net periodic cost	$	(218)	223	17	12



	Six months ended June 30,
	Pension benefits			Other post-retirement benefits
	2023		2022	2023	2022
Service cost	$	3,120	5,198	—	—
Interest cost	4,490		3,342	14	20
Expected return on plan assets	(6,958)		(7,728)	—	—
Amortization of prior service cost	(1,128)		(1,128)	—	—
Amortization of the net loss	40		762	20	4
Net periodic cost	$	(436)	446	34	24

Because of the current funding status, we do not anticipate a funding requirement during the year ending December 31, 2023.

(9) Disclosures About Fair Value of Financial Instruments

We are required to disclose fair value information about financial instruments whether or not recognized in the Consolidated Statement of Financial Condition. Fair value information of certain financial instruments and all nonfinancial instruments is not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for using a three-level hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. This hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used.

Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:

• Level 1 - Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.

• Level 2 - Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing.

• Level 3 - Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:

◦Quotes from brokers or other external sources that are not considered binding;

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◦Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price; and

◦Quotes and other information from brokers or other external sources where the inputs are not deemed observable.

We are responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. We perform due diligence to understand the inputs used or how the data was calculated or derived. We also corroborate the reasonableness of external inputs in the valuation process.

The carrying amounts reported in the Consolidated Statement of Financial Condition approximate fair value for the following financial instruments: cash and cash equivalents, marketable securities available-for-sale, residential mortgage loans held-for-sale, accrued interest receivable, interest rate lock commitments, forward commitments, interest rate swaps, savings and checking deposits, foreign exchange swaps, risk participation agreements, and accrued interest payable.

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Marketable Securities

Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Debt Securities — available-for-sale - Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and U.S. government obligations. Certain debt securities which were AAA rated at purchase do not have an active market and as such we have used an alternative method to determine the fair value of these securities. The fair value has been determined using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. As such, securities which otherwise would have been classified as Level 2 securities if an active market for those assets or similar assets existed are included herein as Level 3 assets.

Debt Securities — held-to-maturity - The fair value of debt securities held-to-maturity is determined in the same manner as debt securities available-for-sale.

Loans Receivable

Loans with comparable characteristics including collateral and re-pricing structures are segregated for valuation purposes. Each loan pool is separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows are discounted to present value using a market rate for comparable loans, which is not considered an exit price. Characteristics of comparable loans include remaining term, coupon interest, and estimated prepayment speeds. Delinquent loans are separately evaluated given the impact delinquency has on the projected future cash flow of the loan including the approximate discount or market rate, which is not considered an exit price.

Loans Held-for-Sale

The estimated fair value of loans held-for-sale is based on market bids obtained from potential buyers.

FHLB Stock

Due to the restrictions placed on transferability of FHLB stock, it is not practical to determine the fair value. FHLB stock is recorded at cost.

Deposit Liabilities

The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding ~~maturity.~~maturity

Table of Contents

Borrowed Funds

Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost. The carrying amount of repurchase agreements approximates their fair value.

Subordinated Debentures

The fair value of our subordinated debentures is calculated using the discounted cash flows at rates observable for other similarly traded liabilities.

~~Table of Contents~~

Junior Subordinated Debentures

The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest.

Interest Rate Lock Commitments and Forward Commitments

The fair value of interest rate lock commitments is based on the value of underlying loans held-for-sale which is based on quoted prices for similar loans in the secondary market. This value is then adjusted based on the probability of the loan closing (i.e., the “pull-through” amount, a significant unobservable input). The fair value of forward sale commitments is based on quoted prices from the secondary market based on the settlement date of the contracts.

Cash Flow Hedges, Interest Rate and Foreign Exchange Swap Agreements and Risk Participation Agreements

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the SOFR discount curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then discounted to time zero using SOFR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable. The fair value of the foreign exchange swap is derived from proprietary models rather than actual market quotations. The proprietary models are based upon financial principles and assumptions we believe to be reasonable. Risk participation agreements are entered into when Northwest purchases a portion of a commercial loan that has an interest rate swap. Northwest assumes credit risk on its portion of the interest rate swap should the borrower fail to pay as agreed. The value of risk participation agreements is determined based on the value of the swap after considering the credit quality, probability of default, and loss given default of the borrower.

Off-Balance Sheet Financial Instruments

These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At ~~March 31,~~June 30, 2023 and December 31, 2022, there was no significant unrealized appreciation or depreciation on these financial instruments.

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The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at ~~March 31,~~June 30, 2023 (in thousands):


		Carrying amount		Estimated fair value	Level 1	Level 2	Level 3		Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:	Financial assets:							Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	96,497	96,497	96,497	—	—	Cash and cash equivalents	$	127,627	127,627	127,627	—	—
Securities available-for-sale	Securities available-for-sale	1,205,510		1,205,510	—	1,205,510	—	Securities available-for-sale	1,073,952		1,073,952	—	1,073,952	—
Securities held-to-maturity	Securities held-to-maturity	866,022		750,345	—	750,345	—	Securities held-to-maturity	847,845		718,676	—	718,676	—
Loans receivable, net	Loans receivable, net	10,964,008		10,001,275	—	—	10,001,275	Loans receivable, net	11,130,731		10,095,362	—	—	10,095,362
Loans held-for-sale	Loans held-for-sale	7,006		7,077	—	690	6,387	Loans held-for-sale	16,077		16,077	—	—	16,077
Accrued interest receivable	Accrued interest receivable	36,177		36,177	36,177	—	—	Accrued interest receivable	37,281		37,281	37,281	—	—
Interest rate lock commitments	Interest rate lock commitments	386		386	—	—	386	Interest rate lock commitments	761		761	—	—	761
Forward commitments	Forward commitments	126		126	—	126	—	Forward commitments	101		101	—	101	—
Foreign exchange swaps	Foreign exchange swaps	1		1	—	1	—	Foreign exchange swaps	5		5	—	5	—
Interest rate swaps designated as hedging instruments								Interest rate swaps designated as hedging instruments	2,244		2,244	—	2,244	—
Interest rate swaps not designated as hedging instruments	Interest rate swaps not designated as hedging instruments	21,364		21,364	—	21,364	—	Interest rate swaps not designated as hedging instruments	45,851		45,851	—	45,851	—
FHLB stock	FHLB stock	41,519		41,519	—	—	—	FHLB stock	44,613		44,613	—	—	—
Total financial assets	Total financial assets	$	13,238,616	12,160,277	132,674	1,978,036	10,008,048	Total financial assets	$	13,327,088	12,162,550	164,908	1,840,829	10,112,200

Financial liabilities:	Financial liabilities:							Financial liabilities:
Savings and checking deposits	Savings and checking deposits	$	9,960,388	9,960,388	9,960,388	—	—	Savings and checking deposits	$	9,672,684	9,672,684	9,672,684	—	—
Time deposits	Time deposits	1,576,791		1,575,221	—	—	1,575,221	Time deposits	1,989,711		1,982,529	—	—	1,982,529

Borrowed funds	Borrowed funds	688,641		688,614	688,614	—	—	Borrowed funds	632,313		640,695	640,695	—	—
Subordinated debt	Subordinated debt	113,927		102,626	—	102,626	—	Subordinated debt	114,015		101,043	—	101,043	—
Junior subordinated debentures	Junior subordinated debentures	129,379		139,492	—	—	139,492	Junior subordinated debentures	129,444		140,431	—	—	140,431

Foreign exchange swaps	Foreign exchange swaps	53		53	—	53	—	Foreign exchange swaps	47		47	—	47	—

Interest rate swaps not designated as hedging instruments	Interest rate swaps not designated as hedging instruments	35,968		35,968	—	35,968	—	Interest rate swaps not designated as hedging instruments	47,134		47,134	—	47,134	—
Risk participation agreements	Risk participation agreements	12		12	—	12	—	Risk participation agreements	11		11	—	11	—
Accrued interest payable	Accrued interest payable	2,236		2,236	2,236	—	—	Accrued interest payable	4,936		4,936	4,936	—	—
Total financial liabilities	Total financial liabilities	$	12,507,395	12,504,610	10,651,238	138,659	1,714,713	Total financial liabilities	$	12,590,295	12,589,510	10,318,315	148,235	2,122,960

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The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the Consolidated Statement of Financial Condition at December 31, 2022 (in thousands):


	Carrying amount		Estimated fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	139,365	139,365	139,365	—	—
Securities available-for-sale	1,218,108		1,218,108	—	1,218,108	—
Securities held-to-maturity	881,249		751,384	—	751,384	—
Loans receivable, net	10,792,503		9,910,852	—	—	9,910,852
Residential mortgage loans held-for-sale	9,913		9,913	—	—	9,913
Accrued interest receivable	35,528		35,528	35,528	—	—
Interest rate lock commitments	559		559	—	—	559
Forward commitments	128		128	—	128	—
Interest rate swaps not designated as hedging instruments	26,642		26,642	—	26,642	—
FHLB stock	40,143		40,143	—	—	—
Total financial assets	$	13,144,138	12,132,622	174,893	1,996,262	9,921,324

Financial liabilities:
Savings and checking accounts	$	10,412,263	10,412,263	10,412,263	—	—
Time deposits	1,052,285		1,059,790	—	—	1,059,790
Borrowed funds	681,166		680,996	680,996	—	—
Subordinated debt	113,840		102,554	—	102,554	—
Junior subordinated debentures	129,314		133,546	—	—	133,546
Foreign exchange swaps	23		23	—	23	—
Interest rate swaps not designated as hedging instruments	45,464		45,464	—	45,464	—
Risk participation agreements	18		18	—	18	—
Accrued interest payable	3,231		3,231	3,231	—	—
Total financial liabilities	$	12,437,604	12,437,885	11,096,490	148,059	1,193,336

Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both ~~March 31,~~June 30, 2023 and December 31, 2022.

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The following table represents assets and liabilities measured at fair value on a recurring basis at ~~March 31,~~June 30, 2023 (in thousands):


		Level 1		Level 2	Level 3	Total assets at fair value		Level 1		Level 2	Level 3	Total assets at fair value

Debt securities:	Debt securities:						Debt securities:
U.S. government and agencies	U.S. government and agencies	$	—	61,015	—	61,015	U.S. government and agencies	$	—	58,821	—	58,821
Government-sponsored enterprises	Government-sponsored enterprises	—		40,280	—	40,280	Government-sponsored enterprises	—		39,533	—	39,533
States and political subdivisions	States and political subdivisions	—		114,675	—	114,675	States and political subdivisions	—		74,333	—	74,333
Corporate	Corporate	—		12,570	—	12,570	Corporate	—		7,546	—	7,546
Total debt securities	Total debt securities	—		228,540	—	228,540	Total debt securities	—		180,233	—	180,233

Residential mortgage-backed securities:	Residential mortgage-backed securities:						Residential mortgage-backed securities:
GNMA	GNMA	—		12,040	—	12,040	GNMA	—		18,184	—	18,184
FNMA	FNMA	—		115,566	—	115,566	FNMA	—		107,145	—	107,145
FHLMC	FHLMC	—		73,804	—	73,804	FHLMC	—		73,256	—	73,256
Non-agency	Non-agency	—		6	—	6	Non-agency	—		5	—	5
Collateralized mortgage obligations:	Collateralized mortgage obligations:						Collateralized mortgage obligations:
GNMA	GNMA	—		358,262	—	358,262	GNMA	—		341,329	—	341,329
FNMA	FNMA	—		182,111	—	182,111	FNMA	—		156,242	—	156,242
FHLMC	FHLMC	—		235,181	—	235,181	FHLMC	—		197,558	—	197,558

Total mortgage-backed securities	Total mortgage-backed securities	—		976,970	—	976,970	Total mortgage-backed securities	—		893,719	—	893,719

Interest rate lock commitments	Interest rate lock commitments	—		—	386	386	Interest rate lock commitments	—		—	761	761
Forward commitments	Forward commitments	—		126	—	126	Forward commitments	—		101	—	101
Foreign exchange swaps	Foreign exchange swaps	—		1	—	1	Foreign exchange swaps	—		5	—	5
Interest rate swaps designated as hedging instruments							Interest rate swaps designated as hedging instruments	—		2,244	—	2,244
Interest rate swaps not designated as hedging instruments	Interest rate swaps not designated as hedging instruments	—		21,364	—	21,364	Interest rate swaps not designated as hedging instruments	—		45,851	—	45,851
Total assets	Total assets	$	—	1,227,001	386	1,227,387	Total assets	$	—	1,122,153	761	1,122,914

Foreign exchange swaps	Foreign exchange swaps	—		53	—	53	Foreign exchange swaps	$	—	47	—	47
Interest rate swaps not designated as hedging instruments	Interest rate swaps not designated as hedging instruments	—		35,968	—	35,968	Interest rate swaps not designated as hedging instruments	—		47,134	—	47,134
Risk participation agreements	Risk participation agreements	—		12	—	12	Risk participation agreements	—		11	—	11
Total liabilities	Total liabilities	$	—	36,033	—	36,033	Total liabilities	$	—	47,192	—	47,192

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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2022 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value


Debt securities:
U.S. government and agencies	$	—	60,592	—	60,592
Government-sponsored enterprises	—		39,201	—	39,201
States and political subdivisions	—		111,766	—	111,766
Corporate	—		12,978	—	12,978
Total debt securities	—		224,537	—	224,537

Residential mortgage-backed securities:
GNMA	—		12,434	—	12,434
FNMA	—		117,218	—	117,218
FHLMC	—		74,991	—	74,991
Non-agency	—		6	—	6
Collateralized mortgage obligations:
GNMA	—		364,553	—	364,553
FNMA	—		185,588	—	185,588
FHLMC	—		238,781	—	238,781


Total mortgage-backed securities	—		993,571	—	993,571

Interest rate lock commitments	—		—	559	559
Forward commitments	—		128	—	128
Interest rate swaps not designated as hedging instruments	—		26,642	—	26,642
Total assets	$	—	1,244,878	559	1,245,437

Foreign exchange swaps	$	—	23	—	23
Interest rate swaps not designated as hedging instruments	—		45,464	—	45,464
Risk participation agreements	—		18	—	18
Total liabilities	$	—	45,505	—	45,505

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):


		For the quarter ended March 31,			For the quarter ended June 30,				For the six months ended June 30,
		2023		2022			2023		2022	2023	2022
Beginning balance January 1,		$	559	1,684
Beginning balance,						Beginning balance,	$	386	1,680	559	1,684

Interest rate lock commitments:	Interest rate lock commitments:					Interest rate lock commitments:

Net activity	Net activity	(173)		(4)		Net activity	375		(160)	202	(164)

Ending balance	Ending balance	$	386	1,680		Ending balance	$	761	1,520	761	1,520

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held-for-sale, loans individually assessed, real estate owned, and mortgage servicing rights.

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The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of ~~March 31,~~June 30, 2023 (in thousands):


		Level 1		Level 2	Level 3	Total assets at fair value		Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	Loans individually assessed	$	—	—	13,467	13,467	Loans individually assessed	$	—	—	13,467	13,467
Mortgage servicing rights	Mortgage servicing rights	—		—	105	105	Mortgage servicing rights	—		—	202	202
Real estate owned, net	Real estate owned, net	—		—	524	524	Real estate owned, net	—		—	371	371
Total assets	Total assets	$	—	—	14,096	14,096	Total assets	$	—	—	14,040	14,040

The following table represents the fair market measurement for only those nonrecurring assets that had a fair market value below the carrying amount as of December 31, 2022 (in thousands):


	Level 1		Level 2	Level 3	Total assets at fair value
Loans individually assessed	$	—	—	15,416	15,416
Mortgage servicing rights	—		—	95	95
Real estate owned, net	—		—	413	413
Total assets	$	—	—	15,924	15,924

Individually Assessed Loans - A loan is considered to be individually assessed as described in Note 1(f) of the Notes to the Consolidated Financial Statements in Item 8 of Part II of our 2022 Annual Report on Form 10-K. We classify loans individually assessed as nonrecurring Level 3.

Mortgage servicing rights - Mortgage servicing rights represent the value of servicing residential mortgage loans, when the mortgage loans have been sold into the secondary market and the associated servicing has been retained. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common characteristics. Adjustments are only made when the estimated discounted future cash flows are less than the carrying value, as determined by individual pool. As such, mortgage servicing rights are classified as nonrecurring Level 3.

Real Estate Owned - Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify real estate owned as nonrecurring Level 3.

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at ~~March 31,~~June 30, 2023 (in thousands):

Fair value

Valuation techniques

Significant
unobservable inputs

Range (weighted average)

Fair value

Valuation techniques

Significant
unobservable inputs

Range (weighted average)

Loans individually assessed

13,467

Appraisal value (1)

Estimated cost to sell

10.0%

Loans individually assessed

13,467

Appraisal value (1)

Estimated cost to sell

10.0%

Mortgage servicing rights

105

Discounted cash flow

Annual service cost

$86

Mortgage servicing rights

202

Discounted cash flow

Annual service cost

$92

Prepayment rate

6.5% to 12.3% (8.7%)

Prepayment rate

6.6% to 16.3% (10.3%)

Expected life (months)

59.0 to 104.6 (78.3)

Expected life (months)

52.1 to 104.2 (74.8)

Option adjusted spread

700 basis points

Option adjusted spread

707 basis points

Forward yield curve

4.66% to 5.38%

Forward yield curve

5.25% to 5.31%

Real estate owned, net

524

Appraisal value (1)

Estimated cost to sell

15.0%

Real estate owned, net

371

Appraisal value (1)

Estimated cost to sell

15.0%

Loans held for sale

6,387

Quoted prices for similar loans in active markets adjusted by an expected pull-through rate

Estimated pull-through rate

100.0%

Loans held for sale

16,077

Quoted prices for similar loans in active markets adjusted by an expected pull-through rate

Estimated pull-through rate

100.0%

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

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(10) Derivative Financial Instruments

We are a party to derivative financial instruments in the normal course of business to manage our own exposure to fluctuations in interest rates and to meet the needs of our customers. The primary derivatives that we use are interest rate swaps and caps and foreign exchange contracts, which are entered into with counterparties that meet established credit standards. We believe that the credit risk inherent in all of our derivative contracts is minimal based on our credit standards and the netting and collateral provisions of the interest rate swap agreements.

Derivatives Designated as Hedging Instruments

During May 2023, the Company entered into four separate pay-fixed interest rate swaps in order to synthetically convert short-term three month FHLB advances to fixed-rate term funding with an aggregate value of $100 million with maturities ranging from three to five years. Our risk management objective and strategy for these interest rate swaps at such time was to reduce our exposure to variability in interest-related cash outflows attributable to changes in the USD-SOFR swap rate, the designated benchmark interest rate being hedged. Based upon our contemporaneous quantitative analysis at the inception of the interest rate swaps, we have determined these interest rate swaps qualifies for hedge accounting in accordance with ASC 815, Derivatives and Hedging. Our cash flow hedges are recorded within other assets on the Consolidated Statement of Financial Condition at their estimated fair value.

As long as the hedge remains highly effective the changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. A hedging relationship that is determined to not be highly effective no longer qualifies for hedge accounting and any gain or loss is recognized immediately into earnings. Amount reclassified into earnings are included in interest expense in the Consolidated Statement of Income.

Derivatives Not Designated as Hedging Instruments

We act as an interest rate or foreign exchange swap counterparty for certain commercial borrowers in the normal course of servicing our customers, which are accounted for at fair value. We manage our exposure to such interest rate or foreign exchange swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the swaps we have with the commercial borrowers. These positions (referred to as “customer swaps”) directly offset each other and our exposure is the fair value of the derivatives due to changes in credit risk of our commercial borrowers and third parties. Customer swaps are recorded within other assets or other liabilities on the consolidated statement of financial condition at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the Consolidated Statement of Income.

We enter into interest rate lock commitments for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative financial instruments under applicable accounting guidance. Interest rate lock commitments on loans held-for-sale are carried at fair value in other assets on the consolidated statement of financial condition. Northwest sells loans to the secondary market on a mandatory or best efforts basis. The loans sold on a mandatory basis commit us to deliver a specific principal amount of mortgage loans to an investor at a specified price, by a specified date, or the commitment must be paired off. These forward commitments entered into on a mandatory delivery basis meet the definition of a derivative financial instrument. All closed loans to be sold on a mandatory delivery basis are classified as held-for-sale on the Consolidated Statement of Financial Condition. Changes to the fair value of the interest rate lock commitments and the forward commitments are recorded in mortgage banking income in the Consolidated Statements of Income.

We enter into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. These risk participation agreements are recorded within other liabilities on the Consolidated Statement of Financial Condition at their estimated fair value. Changes to the fair value of the the risk participation agreements are included in other operating income in the Consolidated Statement of Income.

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The following table presents information regarding our derivative financial instruments for the periods indicated (in thousands):


		Asset derivatives			Liability derivatives			Asset derivatives			Liability derivatives
		Notional amount		Fair value	Notional amount	Fair value		Notional amount		Fair value	Notional amount	Fair value
At March 31, 2023

At June 30, 2023							At June 30, 2023
Derivatives designed as hedging instruments:							Derivatives designed as hedging instruments:
Interest rate swap agreements							Interest rate swap agreements	$	100,000	2,244	—	—
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Interest rate swap agreements	Interest rate swap agreements	$	742,618	21,364	742,618	35,968	Interest rate swap agreements	738,151		45,851	738,151	47,134
Foreign exchange swap agreements	Foreign exchange swap agreements	364		1	4,610	53	Foreign exchange swap agreements	4,485		5	671	47
Interest rate lock commitments	Interest rate lock commitments	30,646		386	—	—	Interest rate lock commitments	36,216		761	—	—
Forward commitments	Forward commitments	6,513		126	—	—	Forward commitments	8,590		101	—	—
Risk participation agreements	Risk participation agreements	—		—	106,684	12	Risk participation agreements	—		—	98,037	11
Total Derivatives	Total Derivatives	$	780,141	21,877	853,912	36,033	Total Derivatives	$	887,442	48,962	836,859	47,192

At December 31, 2022	At December 31, 2022						At December 31, 2022

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Interest rate swap agreements	Interest rate swap agreements	$	651,114	26,642	651,114	45,464	Interest rate swap agreements	$	651,114	26,642	651,114	45,464
Foreign exchange swap agreements	Foreign exchange swap agreements	—		—	2,328	23	Foreign exchange swap agreements	—		—	2,328	23
Interest rate lock commitments	Interest rate lock commitments	19,727		559	—	—	Interest rate lock commitments	19,727		559	—	—
Forward commitments	Forward commitments	4,909		128	—	—	Forward commitments	4,909		128	—	—
Risk participation agreements	Risk participation agreements	—		—	114,159	18	Risk participation agreements	—		—	114,159	18
Total derivatives	Total derivatives	$	675,750	27,329	767,601	45,505	Total derivatives	$	675,750	27,329	767,601	45,505

The following table presents income or expense recognized on derivatives for the periods indicated (in thousands):


		For the quarter ended March 31,			For the quarter ended June 30,				For the six months ended June 30,
		2023		2022			2023		2022	2023	2022

Hedging derivatives:						Hedging derivatives:
Decrease in interest expense						Decrease in interest expense	$	(203)	—	(203)	—

Non-hedging swap derivatives:	Non-hedging swap derivatives:					Non-hedging swap derivatives:
(Decrease)/increase in other income	(Decrease)/increase in other income	$	(202)	61		(Decrease)/increase in other income	$	(128)	53	(330)	114
Increase in mortgage banking income		174		418
Increase/(decrease) in mortgage banking income						Increase/(decrease) in mortgage banking income	$	349	(96)	176	322

The following table presents information regarding our derivative financial instruments designated as hedging for the quarter ended June 30, 2023 (in thousands):


	Notional amount		Effective rate		Estimated increase/(decrease) to interest expense in the next twelve months	Maturity date	Remaining term (in months)
Interest rate products:
Issued May 11, 2023	$	25,000	3.59	%	(523)	5/11/2027	47
Issued May 12, 2023	25,000		3.62	%	(510)	5/12/2028	59
Issued May 19, 2023	25,000		3.95	%	(435)	11/19/2027	53
Issued May 25, 2023	25,000		4.18	%	(380)	11/30/2026	41
Total	$	100,000			(1,848)

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(11) Legal Proceedings

We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of ~~March 31,~~June 30, 2023, we do not anticipate that the aggregate ultimate liability arising out of any pending or threatened legal proceedings will be material to our Consolidated Financial Statements. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings.

(12) Changes in Accumulated Other Comprehensive Income

The following tables show the changes in accumulated other comprehensive income by component for the periods indicated (in thousands):

For the quarter ended March 31, 2023
Unrealized
losses
on securities
available-for-sale Change in
defined benefit
pension plans Total
Balance as of December 31, 2022 $ (164,206) (6,952) (171,158)
Other comprehensive income before reclassification adjustments (1) 13,017 — 13,017
Amounts reclassified from accumulated other comprehensive income (2) — (382) (382)
Net other comprehensive income 13,017 (382) 12,635
Balance as of March 31, 2023 $ (151,189) (7,334) (158,523)


	For the quarter ended June 30, 2023
	Unrealized losses on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of March 31, 2023	$	(151,189)	—	(7,334)	(158,523)



Other comprehensive (loss)/income before reclassification adjustments (1) (3)	(17,719)		1,737	—	(15,982)
Amounts reclassified from accumulated other comprehensive income (2) (4)	5,636		—	(382)	5,254

Net other comprehensive (loss)/income	(12,083)		1,737	(382)	(10,728)

Balance as of June 30, 2023	$	(163,272)	1,737	(7,716)	(169,251)

~~Table of Contents~~


		For the quarter ended March 31, 2022			For the quarter ended June 30, 2022
		Unrealized gains/(losses) on securities available-for-sale		Change in defined benefit pension plans		Total		Unrealized losses on securities available-for-sale		Change in defined benefit pension plans	Total
Balance as of December 31, 2021		$	(12,317)	(25,312)		(37,629)
Balance as of March 31, 2022							Balance as of March 31, 2022	$	(77,101)	(25,443)	(102,544)

Other comprehensive loss before reclassification adjustments ~~(3)~~(5)	Other comprehensive loss before reclassification adjustments ~~(3)~~(5)	(64,783)		—		(64,783)	Other comprehensive loss before reclassification adjustments ~~(3)~~(5)	(39,954)		—	(39,954)
Amounts reclassified from accumulated other comprehensive income (4) (5)		(1)		(131)		(132)
Amounts reclassified from accumulated other comprehensive income (6) (7)							Amounts reclassified from accumulated other comprehensive income (6) (7)	(1)		(131)	(132)

Net other comprehensive (loss)/income	Net other comprehensive (loss)/income	(64,784)		(131)		(64,915)	Net other comprehensive (loss)/income	(39,955)		(131)	(40,086)

Balance as of March 31, 2022		$	(77,101)	(25,443)		(102,544)
Balance as of June 30, 2022							Balance as of June 30, 2022	$	(117,056)	(25,574)	(142,630)

(1)Consists of unrealized holding ~~gains,~~losses, net of tax of $3,771.

(2)Consists of realized losses, net of tax of ($~~3,308)~~1,731).

~~(2)~~(3)Change in fair value of interest rate swaps, net of tax ($508).

(4)Consists of realized gains, net of tax of $152.

~~(3)~~(5)Consists of unrealized holding losses, net of tax ~~$18,877.~~$11,973.

(6)Consists of realized gains, net of tax $0.

(7)Consists of realized gains, net of tax of $51.

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	For the six months ended June 30, 2023
	Unrealized gains and losses on securities available-for-sale		Change in fair value of interest rate swaps	Change in defined benefit pension plans	Total
Balance as of December 31, 2022	$	(164,206)	—	(6,952)	(171,158)



Other comprehensive (loss)/income before reclassification adjustments (1) (3)	(4,702)		1,737	—	(2,965)
Amounts reclassified from accumulated other comprehensive income (2) (4)	5,636		—	(764)	4,872

Net other comprehensive income/(loss)	934		1,737	(764)	1,907

Balance as of June 30, 2023	$	(163,272)	1,737	(7,716)	(169,251)


	For the six months ended June 30, 2022
	Unrealized losses on securities available-for-sale		Change in defined benefit pension plans	Total
Balance as of December 31, 2021	$	(12,317)	(25,312)	(37,629)



Other comprehensive (loss)/income before reclassification adjustments (5)	(104,737)		—	(104,737)
Amounts reclassified from accumulated other comprehensive income (6) (7)	(2)		(262)	(264)

Net other comprehensive (loss)/income	(104,739)		(262)	(105,001)

Balance as of June 30, 2022	$	(117,056)	(25,574)	(142,630)

(1)Consists of unrealized holding losses, net of tax of $463.

(2)Consists of realized losses, net of tax of ($1,731).

(3)Change in fair value of interest rate swaps, net of tax ($508).

(4)Consists of realized gains, net of tax of $304.

(5)Consists of unrealized holding losses, net of tax $30,850.

(6)Consists of realized gains, net of tax $0.

~~(5)~~(7)Consists of realized gains, net of tax of ~~$50.~~

$101.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this document may contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

Important factors that might cause such a difference include, but are not limited to:

• inflation and changes in the interest rate environment that reduce our margins, our loan origination, or the fair value of financial instruments;

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

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

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

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

• general economic conditions, either nationally or in our market areas, that are different than expected;

• adverse changes in the securities and credit markets;

• cyber-security concerns, including an interruption or breach in the security of our website or other information systems;

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

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

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

• competition among depository and other financial institutions, including with respect to deposit gathering, service charges and fees;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• our ability to manage our internal growth and our ability to successfully integrate acquired entities, businesses or branch offices;

• changes in consumer spending, borrowing and savings habits;

• our ability to continue to increase and manage our commercial and personal loans;

• possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;

• the impact of the economy on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;

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

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

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

• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters;

• changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;

• our ability to access cost-effective funding;

• the effect of global or national war, conflict, or terrorism;

• our ability to manage market risk, credit risk and operational risk;

• the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, and the significant impact that any such outbreaks may have on our growth, operations and earnings;

• our ability to retain key employees; and

• our compensation expense associated with equity allocated or ~~awards~~awarded to our employees.

3843

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Overview of Critical Accounting Policies Involving Estimates

Please refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2022 Annual Report on Form 10-K.

~~Recently Issued Accounting Standards~~

~~The following accounting standard updates issued by the FASB have not yet been adopted.~~

~~In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~.” This ASU provides temporary optional guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance provides expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include contract modifications and hedge accounting, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance was effective as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date to Topic 848”. This guidance extends the guidance of ASU 2022-04 from December 31, 2022 to December 31, 2024. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform.” This ASU provides amendments, which are elective, and apply to all entities that have derivative instruments that use an interest rate for margining, discounting or contract price alignment of certain derivative instruments that are modified as a result of the reference rate reform. We established a cross-functional working group to manage the LIBOR transition. A transition plan was created to identify and modify the Company’s loan and other financial instrument contracts that are impacted by LIBOR transition. The Company chose the Secured Overnight Financing Rate (“SOFR”) as its alternative replacement for LIBOR on both back-to-back swaps and variable rate loans. We have not offered LIBOR for any new contracts since December 31, 2021. We are continuing to evaluate the amendments on our financial statements, with no material impacts expected, and execute on our transition plan.

Comparison of Financial Condition

Total assets at ~~March 31,~~June 30, 2023 were ~~$14.194~~$14.291 billion, an increase of ~~$80.5~~$178.2 million, or ~~0.6%~~1.3%, from $14.113 billion at December 31, 2022. This increase in assets was driven by an increase in loans receivable, partially offset by decreases in both cash and cash equivalents and marketable securities. A discussion of significant changes follows.

Total cash and cash equivalents decreased by ~~$42.9~~$11.7 million, or ~~30.8%~~8.4%, to ~~$96.5~~$127.6 million at ~~March 31,~~June 30, 2023 from $139.4 million at December 31, 2022. This decrease was primarily driven by organic loan growth.

Total marketable securities decreased by ~~$27.8~~$177.6 million, or ~~1.3%~~8.5%, to ~~$2.072~~$1.922 billion at ~~March 31,~~June 30, 2023 from $2.099 billion at December 31, 2022. Held-to-maturity securities decreased ~~$15.2~~$33.4 million and available-for-sale marketable securities decreased ~~$12.6 million due to~~$144.2 million. These decreases were driven by the maturity and the monthly cash flows from marketable securities, ~~being redeployed~~in addition to the sale of approximately $110.0 million of available-for-sale investment securities during the quarter in order to reallocate these funds into higher interest-earning products.

Gross loans receivable increased by ~~$171.8~~$350.8 million, or ~~1.6%~~3.2%, to ~~$11.092~~$11.271 billion at ~~March 31,~~June 30, 2023, from $10.920 billion at December 31, 2022. This increase was attributable to organic loan growth. Our commercial ~~and industrial (C&I)~~ loan portfolio increased by ~~$114.1~~$271.8 million, or ~~10.1%~~24.0%, to ~~$1.246~~$1.404 billion at ~~March 31,~~June 30, 2023, from $1.132 billion at December 31, 2022, primarily as a result of the new lending verticals that we recently implemented. Our commercial real estate loan portfolio increased by $71.7 million, or 2.5%, to $2.895 billion at June 30, 2023, from $2.824 billion at December 31, 2022, and our consumer portfolio, comprised primarily of indirect automobile loans, increased by ~~$63.5~~$32.4 million, or ~~2.9%~~1.5%, to ~~$2.232~~$2.201 billion at ~~March 31,~~June 30, 2023 compared to $2.169 billion at December 31, 2022.

Total deposits increased by ~~$72.6~~$197.8 million, or ~~0.6%~~1.7%, to ~~$11.537~~$11.662 billion at ~~March 31,~~June 30, 2023 from $11.465 billion at December 31, 2022. This increase was ~~primarily~~ driven by a ~~$524.5~~$937.4 million, or ~~49.8%~~89.1%, increase in time deposits due to customer preferences for this fixed maturity product in a higher interest rate environment. Partially offsetting this increase were decreases in savings and money market deposits of $458.1 million, or 9.7%, due to customers choosing higher yielding product alternatives. In addition, demand deposit accounts ~~of $242.1~~decreased by $281.5 million, or ~~4.3%~~5.0%, as we believe customers used funds during the period of higher inflationary costs. ~~In addition, savings and money market deposits decreased by $209.8 million, or 4.4%, due to customers choosing~~ ~~higher yielding product alternatives.~~

Total shareholders’ equity at ~~March 31,~~June 30, 2023 was ~~$1.513~~$1.512 billion, or ~~$11.91~~$11.89 per share, an increase of ~~$21.8~~$20.0 million, or ~~1.5%~~1.3%, from $1.491 billion, or $11.74 per share, at December 31, 2022. This increase was the result of ~~quarterly~~year-to-date earnings of ~~$33.7~~$66.7 million, as well as a decrease in accumulated other comprehensive loss of $12.6 million due to a decrease in unrealized losses in the available-for-sale investment portfolio as a result of the current rate environment. These increases were partially offset by ~~a $25.4~~$50.8 million ~~payment~~ of cash ~~dividends.~~dividend payments for the six months ended June 30, 2023.

~~Table of Contents~~

Regulatory Capital

Financial institutions and their holding companies are subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct, material effect on a company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting guidelines. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.

Applicable rules limit an organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a “capital conservation buffer” consisting of 2.5% of Total, Tier 1 and Common Equity Tier 1 (“CET1”) capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

Quantitative measures, established by regulation to ensure capital adequacy, require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of Total, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Capital requirements are presented in the tables below (in thousands).

At March 31, 2023
Actual Minimum capital requirements (1) Well capitalized requirements
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc. $ 1,759,983 16.399 % $ 1,126,866 10.500 % $ 1,073,206 10.000 %
Northwest Bank 1,468,316 13.695 % 1,125,772 10.500 % 1,072,164 10.000 %
Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,522,196 14.184 % 912,225 8.500 % 858,565 8.000 %
Northwest Bank 1,344,457 12.540 % 911,339 8.500 % 857,731 8.000 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,396,806 13.015 % 751,244 7.000 % 697,584 6.500 %
Northwest Bank 1,344,457 12.540 % 750,515 7.000 % 696,907 6.500 %
Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc. 1,522,196 10.774 % 565,117 4.000 % 706,397 5.000 %
Northwest Bank 1,344,457 9.520 % 564,912 4.000 % 706,140 5.000 %

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~~(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).~~


		At December 31, 2022													At June 30, 2023
		Actual				Minimum capital requirements (1)				Well capitalized requirements					Actual				Minimum capital requirements (1)				Well capitalized requirements
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)													Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	Northwest Bancshares, Inc.	$	1,682,487	17.056	%	$	1,035,786	10.500	%	$	986,463	10.000	%	Northwest Bancshares, Inc.	$	1,776,017	16.233	%	$	1,148,771	10.500	%	$	1,094,067	10.000	%
Northwest Bank	Northwest Bank	1,551,084		15.738	%	1,034,819		10.500	%	985,542		10.000	%	Northwest Bank	1,512,791		13.839	%	1,147,796		10.500	%	1,093,139		10.000	%

Tier I capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)														Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	Northwest Bancshares, Inc.	1,475,190		14.954	%	838,494		8.500	%	789,170		8.000	%	Northwest Bancshares, Inc.	1,532,058		14.003	%	929,957		8.500	%	875,254		8.000	%
Northwest Bank	Northwest Bank	1,467,362		14.889	%	837,711		8.500	%	788,434		8.000	%	Northwest Bank	1,382,847		12.650	%	929,168		8.500	%	874,511		8.000	%

CET1 capital (to risk weighted assets)	CET1 capital (to risk weighted assets)													CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	Northwest Bancshares, Inc.	1,350,125		13.687	%	690,524		7.000	%	641,201		6.500	%	Northwest Bancshares, Inc.	1,406,604		12.857	%	765,847		7.000	%	711,144		6.500	%
Northwest Bank	Northwest Bank	1,467,362		14.889	%	689,879		7.000	%	640,602		6.500	%	Northwest Bank	1,382,847		12.650	%	765,197		7.000	%	710,540		6.500	%

Tier I capital (leverage) (to average assets)
Tier 1 capital (leverage) (to average assets)														Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc.	Northwest Bancshares, Inc.	1,475,190		10.349	%	570,160		4.000	%	712,699		5.000	%	Northwest Bancshares, Inc.	1,532,058		10.744	%	570,363		4.000	%	712,954		5.000	%
Northwest Bank	Northwest Bank	1,467,362		10.296	%	570,047		4.000	%	712,558		5.000	%	Northwest Bank	1,382,847		9.700	%	570,275		4.000	%	712,843		5.000	%

(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).


	At December 31, 2022
	Actual				Minimum capital requirements (1)				Well capitalized requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,745,701	16.363	%	$	1,120,216	10.500	%	$	1,066,872	10.000	%
Northwest Bank	1,568,202		14.712	%	1,119,214		10.500	%	1,065,918		10.000	%

Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,516,621		14.216	%	906,841		8.500	%	853,498		8.000	%
Northwest Bank	1,452,962		13.631	%	906,030		8.500	%	852,734		8.000	%

CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,391,296		13.041	%	746,810		7.000	%	693,467		6.500	%
Northwest Bank	1,452,962		13.631	%	746,143		7.000	%	692,847		6.500	%

Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,516,621		10.817	%	560,816		4.000	%	701,020		5.000	%
Northwest Bank	1,452,962		10.365	%	560,706		4.000	%	700,882		5.000	%

40(1) Amounts and ratios include the capital conservation buffer of 2.5%, which does not apply to Tier 1 capital to average assets (leverage ratio).

~~Table of Contents~~

Liquidity

We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking and Securities during their regular examinations. Northwest frequently monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). Northwest Bank’s liquidity ratio at ~~March 31,~~June 30, 2023 was ~~10.71%~~9.91%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At ~~March 31,~~June 30, 2023, Northwest had ~~$3.041~~$3.154 billion of additional borrowing capacity available with the FHLB, including $250.0 million on an overnight line of credit, which had a drawn balance of ~~$183.7~~$28.0 million at ~~March 31,~~June 30, 2023, as well as ~~$304.6~~$308.6 million of borrowing capacity available with the Federal Reserve Bank and $105.0 million with two correspondent banks.

Dividends

We paid $25.4 million ~~and $25.3 million~~ in cash dividends during the quarters ended ~~March 31,~~June 30, 2023 and ~~2022, respectively.~~2022. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) was 76.9% ~~and 90.9%~~ for ~~the~~both quarters ~~ended March 31, 2023 and March 31, 2022, respectively,~~ on dividends of $0.20 per share. On ~~April~~July 19, 2023, the Board of Directors declared a cash dividend of $0.20 per share payable on ~~May 15,~~August 14, 2023 to shareholders of record as of ~~May 4,~~August 3, 2023. This represents the ~~114~~115th consecutive quarter we have paid a cash dividend.

Table of Contents

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 is 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 the 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 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.


		March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
		(in thousands)						(in thousands)
Loans 90 days or more past due:	Loans 90 days or more past due:						Loans 90 days or more past due:
Residential mortgage loans	Residential mortgage loans	$	3,300		5,574		Residential mortgage loans	$	6,290		5,574
Home equity loans	Home equity loans	2,190			2,257		Home equity loans	1,965			2,257
Vehicle loans	Vehicle loans	2,622			2,471		Vehicle loans	1,890			2,471
Other consumer loans	Other consumer loans	657			608		Other consumer loans	557			608
Commercial real estate loans	Commercial real estate loans	7,804			7,589		Commercial real estate loans	8,501			7,589
Commercial real estate - owner occupied	Commercial real estate - owner occupied	206			278		Commercial real estate - owner occupied	74			278
Commercial loans	Commercial loans	1,302			1,829		Commercial loans	2,414			1,829
Total loans 90 days or more past due	Total loans 90 days or more past due	$	18,081		20,606		Total loans 90 days or more past due	$	21,691		20,606
Total real estate owned (REO)	Total real estate owned (REO)	$	524		413		Total real estate owned (REO)	$	371		413
Total loans 90 days or more past due and REO	Total loans 90 days or more past due and REO	18,605			21,019		Total loans 90 days or more past due and REO	22,062			21,019
Total loans 90 days or more past due to net loans receivable	Total loans 90 days or more past due to net loans receivable	0.16		%	0.19	%	Total loans 90 days or more past due to net loans receivable	0.19		%	0.19	%
Total loans 90 days or more past due and REO to total assets	Total loans 90 days or more past due and REO to total assets	0.13		%	0.15	%	Total loans 90 days or more past due and REO to total assets	0.15		%	0.15	%
Nonperforming assets:	Nonperforming assets:						Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due	Nonaccrual loans - loans 90 days or more past due	$	17,430		19,861		Nonaccrual loans - loans 90 days or more past due	$	21,159		19,861
Nonaccrual loans - loans less than 90 days past due	Nonaccrual loans - loans less than 90 days past due	61,179			61,375		Nonaccrual loans - loans less than 90 days past due	57,430			61,375
Loans 90 days or more past due still accruing	Loans 90 days or more past due still accruing	652			744		Loans 90 days or more past due still accruing	532			744
Total nonperforming loans	Total nonperforming loans	79,261			81,980		Total nonperforming loans	79,121			81,980
Total nonperforming assets	Total nonperforming assets	$	79,785		82,393		Total nonperforming assets	$	79,492		82,393
Total nonaccrual loans to total loans	Total nonaccrual loans to total loans	0.71		%	0.74	%	Total nonaccrual loans to total loans	0.70		%	0.74	%

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Allowance for Credit Losses

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

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dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.

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

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

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

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

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We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of ~~March 31,~~June 30, 2023, we considered the most recent economic conditions and forecasts available which incorporated the impact of material recent economic events. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by ~~$3.2~~$6.4 million, or ~~2.7%~~5.4%, to ~~$121.3~~$124.4 million, or ~~1.09%~~1.10% of total loans at ~~March 31,~~June 30, 2023 from $118.0 million, or 1.08% of total loans, at December 31, 2022. This increase was the result of ~~continued deterioration in economic forecasts~~growth within our commercial loan portfolio during the year, as well as ~~organic loan growth.~~forecasted economic deterioration in our allowance for credit loss models.

Total classified loans decreased ~~$27.6~~$22.1 million, or ~~11.7%~~9.4%, to ~~$208.6~~$214.1 million at ~~March 31,~~June 30, 2023 from $236.2 million at December 31, 2022. This decrease was primarily driven by upgrades and payoffs of loans in our commercial real estate portfolio during the current ~~quarter.~~year.

We also consider how the levels of nonaccrual loans and historical charge-offs have influenced the required amount of allowance for credit losses. Nonaccrual loans of $78.6 million, or ~~0.71%~~0.70% of total loans receivable at ~~March 31,~~June 30, 2023, decreased by $2.6 million, or ~~3.2%~~3.3%, from $81.2 million, or 0.74% of total loans receivable at December 31, 2022. This decrease was primarily related to upgrades of loans within our commercial real estate portfolio. As a percentage of average loans, annualized net charge-offs increased to ~~0.08%~~0.10% for the quarter ended ~~March 31,~~June 30, 2023 compared to 0.02% for the year ended December 31, 2022 due to several large recoveries during 2022.

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Comparison of Operating Results for the Quarters Ended ~~March 31,~~June 30, 2023 and 2022

Net income for the quarter ended ~~March 31,~~June 30, 2023 was ~~$33.7~~$33.0 million, or $0.26 per diluted share, ~~an increase~~a decrease of ~~$5.4 million,~~$382,000, or ~~19.1%~~1.1%, from net income of ~~$28.3~~$33.4 million, or ~~$0.22~~$0.26 per diluted share, for the quarter ended ~~March 31,~~June 30, 2022. The ~~increase~~decrease in net income resulted primarily from increases in noninterest expense and the provision for credit losses. Noninterest expense increased $4.4 million, or 5.5%, and the provision for credit losses increased $2.9 million, or 48.2%. These changes were partially offset by an increase in net interest income of ~~$21.8~~$8.3 million, or 24.1%, partially offset by increases in noninterest expense, the provision for credit losses, and the provision for income tax expense. Noninterest expense increased $7.1 million, or 8.8%, the provision for credit losses increased $4.9 million, and the provision for income tax expense increased $2.7 million, or 35.4%. Additionally, noninterest income decreased $1.8 million, or 6.9%8.3%. Net income for the quarter ended ~~March 31,~~June 30, 2023 represents annualized returns on average equity and average assets of ~~9.11%~~8.72% and ~~0.97%~~0.93%, respectively, compared to ~~7.17%~~8.90% and ~~0.80%~~0.94% for the same quarter last year. A further discussion of notable changes follows.

Interest Income

Total interest income increased ~~$38.5~~by $38.1 million, or ~~39.9%~~36.0%, to ~~$134.9~~$144.0 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$96.4~~$105.9 million for the quarter ended ~~March 31,~~June 30, 2022. This increase is attributable to an increase in the average yield earned on interest-earning assets as well as the change in our interest-earning asset mix. The average yield earned on interest-earning assets increased to ~~4.13%~~4.32% for the quarter ended ~~March 31,~~June 30, 2023 from ~~2.91%~~3.18% for the quarter ended ~~March 31,~~June 30, 2022 due to the continued rising interest rate environment. ~~This was partially offset by a decline in the~~The average balance of interest-earning assets ~~of $198.6~~increased $37.3 million, or ~~1.5%~~0.3%, to ~~$13.252~~$13.384 billion for the quarter ended ~~March 31,~~June 30, 2023 from ~~$13.450~~$13.347 billion for the quarter ended ~~March 31,~~June 30, 2022, primarily driven by a ~~decrease in other interest-earning deposits, offset by an~~$907.8 million increase in the average balance of loans receivable, offset partially by an $807.2 million decrease in other interest-earning deposits. These changes are described further below.

Interest income on loans receivable increased by ~~$35.6~~$37.2 million, or ~~40.3%~~38.9%, to ~~$123.7~~$132.7 million for the quarter ended ~~March 31,~~June 30, 2023 compared to ~~$88.2~~$95.6 million for the quarter ended ~~March 31,~~June 30, 2022. This increase in interest income was the result of increases in both the average yield on loans receivable and the average balance of loans receivable. The average yield on loans receivable increased to ~~4.61%~~4.81% for the quarter ended ~~March 31,~~June 30, 2023 from ~~3.61%~~3.77% for the quarter ended ~~March 31,~~June 30, 2022, due to the increase in market interest rates. Additionally, the average balance of loans receivable increased ~~$988.3~~$907.8 million, or ~~10.0%~~8.9%, to ~~$10.887~~$11.066 billion for the quarter ended ~~March 31,~~June 30, 2023 from ~~$9.899~~$10.158 billion for the quarter ended ~~March 31,~~June 30, 2022, due to organic loan growth in our ~~retail portfolio.~~residential mortgage, consumer, and commercial portfolios. Additionally contributing to loan growth were purchases of loan pools during 2022, including $182.8 million in small business equipment finance loans and $188.3 million of one- to four-family jumbo mortgage ~~loans.~~loans

Interest income on mortgage-backed securities increased by ~~$2.2~~$1.2 million, or ~~34.2%~~16.3%, to ~~$8.5~~$8.3 million for the quarter ended ~~March 31,~~June 30, 2023 compared to ~~$6.4~~$7.2 million for the quarter ended ~~March 31,~~June 30, 2022. This increase was driven by an increase in the average yield on mortgage-backed securities to 1.79% for the quarter ended ~~March 31,~~June 30, 2023 from ~~1.31%~~1.47% for the quarter ended ~~March 31,~~June 30, 2022 due to the purchase of higher yielding mortgage-backed securities in the prior year. This increase in the average yield was offset ~~slightly~~ by a ~~$35.5~~$92.9 million, or ~~1.8%~~4.8%, decrease in the average balance of mortgage-backed securities to ~~$1.910~~$1.859 billion for the quarter ended ~~March 31,~~June 30, 2023 from ~~$1.945~~$1.952 billion for the quarter ended ~~March 31,~~June 30, 2022 due to ~~regular~~the sale of available-for-sale investment securities during the quarter along with scheduled payments and maturities.

Interest income on investment securities increased by ~~$194,000,~~$110,000, or ~~14.4%~~7.9%, to $1.5 million for the quarter ended ~~March 31,~~June 30, 2023 from $1.4 million for the quarter ended ~~March 31,~~June 30, 2022. This increase was attributable to ~~increases~~an increase in ~~both~~ the ~~average yield and average balance of investment securities. The~~ average yield on investment securities which increased to 1.61% for the quarter ended

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~~March 31,~~ June 30, 2023 from ~~1.45%~~1.48% for the quarter ended ~~March 31,~~June 30, 2022. ~~In addition,~~This increase in the average yield was offset slightly by a decrease in the average balance ~~increased~~of investment securities by ~~$11.0~~$2.4 million, or ~~2.9%~~0.6%, to ~~$384.7~~$374.6 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$373.7~~$376.9 million for the quarter ended ~~March 31,~~June 30, 2022.

Dividends on FHLB stock increased by ~~$609,000,~~$762,000, or ~~751.9%~~929.3%, to ~~$690,000~~$844,000 for the quarter ended ~~March 31,~~June 30, 2023 from ~~$81,000~~$82,000 for the quarter ended ~~March 31,~~June 30, 2022. This increase was due to increases in both the ~~increase in~~average balance and the average yield on FHLB stock. The average balance of FHLB stock ~~of $25.8~~increased by $32.1 million, or ~~185.7%~~238.9%, to ~~$39.6~~$45.5 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$13.9~~$13.4 million for the quarter ended ~~March 31,~~June 30, 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. In addition, the average yield increased to ~~7.06%~~7.44% for the quarter ended ~~March 31,~~June 30, 2023 from ~~2.38%~~2.44% for the quarter ended ~~March 31,~~June 30, 2022 due to increases in market interest rates.

Interest income on interest-earning deposits decreased by ~~$44,000,~~$1.1 million, or ~~9.4%~~64.7%, to ~~$423,000~~$594,000 for the quarter ended ~~March 31,~~June 30, 2023 from ~~$467,000~~$1.7 million for the quarter ended ~~March 31,~~June 30, 2022. The average balance of interest-earning deposits decreased by ~~$1.188 billion,~~$807.2 million, or ~~97.5%~~95.4%, to ~~$30.8~~$38.9 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$1.219 billion~~$846.1 million for the quarter ended ~~March 31,~~June 30, 2022 as the Bank redeployed these funds into higher yielding loans and investments. Offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to ~~5.50%~~6.12% for the quarter ended ~~March 31,~~June 30, 2023 from ~~0.15%~~0.79% for the quarter ended ~~March 31,~~June 30, 2022, due to the aggressive campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

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Interest Expense

Interest expense increased by ~~$16.7~~$29.8 million, or ~~286.9%~~529.5%, to ~~$22.5~~$35.4 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$5.8~~$5.6 million for the quarter ended ~~March 31,~~June 30, 2022 due to the increase in the average cost of interest-bearing liabilities to ~~0.96%~~1.47% for the quarter ended ~~March 31,~~June 30, 2023 from ~~0.25%~~0.24% for the quarter ended ~~March 31,~~June 30, 2022. This increase in cost of funds was primarily attributable to increases in the interest rates paid on deposit accounts and borrowed funds ~~and deposit accounts~~ in response to increases in market interest rates, as well as a change in mix to higher funding cost products. ~~Partially offsetting this~~In addition, the average balance of interest-bearing liabilities increased $214.5 million, or 2.27%, to $9.680 billion for the quarter ended June 30, 2023 from $9.466 billion for the quarter ended June 30, 2022 while the average balance of noninterest-bearing demand deposits decreased by $269.4 million, or 8.7%, to $2.821 billion at June 30, 2023 from $3.090 billion at June 30, 2022. The increase in average balance of interest-bearing liabilities was driven by an increase in average borrowed funds of $713.6 million, or 576.7%, which were utlized to fund loan growth and offset a decrease in the average balance of interest-bearing ~~liabilities of $61.1~~deposits which declined by $493.8 million, or 0.64%, to $9.497 billion for the quarter ended March 31, 2023 from $9.559 billion for the quarter ended March 31, 2022. This decrease in average balance was driven by a decrease in average deposits by $656.6 million, or 7.2%5.4%, as we believe customers used funds during a period of higher inflationary costs and searched for higher alternative yields. ~~The decrease in the average deposit balance was funded by an increase in average borrowed funds by $604.9 million.~~

Net Interest Income

Net interest income increased by ~~$21.8~~$8.3 million, or ~~24.1%~~8.3%, to ~~$112.5~~$108.5 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$90.6~~$100.3 million for the quarter ended ~~March 31,~~June 30, 2022. This increase is attributable to the factors discussed above. Our interest rate spread ~~increased~~decreased to ~~3.17%~~2.85% for the quarter ended ~~March 31,~~June 30, 2023 from ~~2.66%~~2.94% for the quarter ended ~~March 31,~~June 30, 2022 due to the increase in our cost of interest bearing liabilities, and our net interest margin increased to ~~3.44%~~3.25% for the quarter ended ~~March 31,~~June 30, 2023 from ~~2.73%~~3.05% for the quarter ended ~~March 31,~~June 30, 2022 due to the change in market rates as well as the change in our interest-earning asset mix.

Provision for Credit Losses

The provision for credit losses increased by ~~$4.9~~$2.9 million, or 48.2%, to ~~$5.0~~$8.9 million for the quarter ended ~~March 31,~~June 30, 2023 compared to ~~$115,000~~$6.0 million for the quarter ended ~~March 31,~~June 30, 2022. The current period provision for credit losses includes ~~$4.9~~$6.0 million for credit losses - loans and ~~$126,000~~$2.9 million for credit losses - unfunded commitments. The prior period provision for credit losses included ~~a credit of $1.5~~$2.6 million for credit losses - loans and ~~$1.6~~$3.4 million for credit losses - unfunded commitments. The ~~$6.4~~$3.4 million increase in the provision for credit losses - loans was driven by continued growth within our loan portfolio, as well as forecasted economic deterioration reflected in our allowance for credit loss models. This was partially offset by a ~~$1.5 million~~$476,000 decrease in our provision for credit losses - unfunded commitments compared to the same quarter last year based on the timing of the origination of loans with current off-balance sheet exposure. ~~As noted above, the Company continued to experience improvement in asset quality as total classified loans decreased by $111.3 million, or 34.8%, to $208.6 million at~~ ~~March 31, 2023~~ ~~from $319.9 million at~~ ~~March 31, 2022 resulting primarily from upgrades and payoffs within our commercial real estate portfolio~~.

In determining the amount of the current period provision, we considered current and forecasted economic conditions, including but not limited to improvements in unemployment levels, expected economic growth, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses.” The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at ~~March 31,~~June 30, 2023.

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Noninterest Income

Noninterest income decreased by ~~$1.8 million,~~$651,000, or ~~6.9%~~2.1%, to ~~$24.0~~$29.8 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$25.7~~$30.4 million for the quarter ended ~~March 31,~~June 30, 2022. This decrease was primarily due to a decrease in mortgage banking income of ~~$941,000,~~$1.1 million, or ~~64.2%~~52.3%, to ~~$524,000 for the quarter ended March 31, 2023 from $1.5~~$1.0 million for the quarter ended ~~March 31,~~June 30, 2023 from $2.2 million for the quarter ended June 30, 2022 due to the volatile interest rate environment causing less favorable pricing in the secondary market, as well as a decrease in mortgage volumes primarily due to higher market interest rates.In addition, income from bank-owned life insurance decreased ~~$714,000,~~$704,000, or ~~36.0%~~35.1%, to $1.3 million for the quarter ended ~~March 31,~~June 30, 2023 from $2.0 million for the quarter ended ~~March 31,~~June 30, 2022 due to death benefits received in the prior year. Partially offsetting this decrease was an increase in service charges and fees of $1.2 million, or 8.5%, to $14.8 million for the quarter ended June 30, 2023 from $13.7 million for the quarter ended June 30, 2022 driven by loan fees resulting from one commercial relationship and an increase in deposit related fees based on customer activity in the current quarter.

In addition, during the current quarter we sold the mortgage servicing rights on approximately $1.3 billion of one- to four family mortgage loans for an $8.3 million gain, which enabled us to sell approximately $110.0 million of investment securities for an equivalent loss, resulting in no impact to tangible capital. However, we were able to reallocate these funds from investments yielding approximately 2.0% into commercial loans yielding over 7.0%.

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Noninterest Expense

Noninterest expense increased by ~~$7.1~~$4.4 million, or ~~8.8%~~5.5%, to ~~$87.5~~$85.9 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$80.3~~$81.4 million for the quarter ended ~~March 31,~~June 30, 2022. This increase was primarily attributable to increases in ~~professional services,~~ processing expenses, ~~acquisition~~restructuring expense, and federal deposit insurance premiums. ~~Professional service~~sProcessing expenses increased ~~$2.2~~$1.7 million, or ~~84.9%~~13.1%, to ~~$4.8~~$14.6 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$2.6~~$12.9 million for the quarter ended ~~March 31, 2022 due to the use of third-party consulting and staffing support.~~ ~~Processing expenses increased $1.8 million, or 14.4%, to $14.4 million for the quarter ended~~ ~~March 31, 2023 from $12.5 million for the quarter ended March 31,~~June 30, 2022 due to the implementation of additional ~~third party~~third-party software programs. Also contributing to this increase was a ~~Merger, asset disposition, and~~ restructuring expense of $1.6 million during the quarter ended June 30, 2023 due to the severance charge for personnel changes. Lastly, FDIC insurance premiums increased ~~$1.4 million,~~$934,000, or ~~103.9%~~82.7%, to ~~$2.8~~$2.1 million for the quarter ended March 31, 2023 from $1.4 million for the quarter ended March 31, 2022 due to the severance and fixed asset charges related to the branch optimization and personnel reduction announced during the fourth quarter of 2022. Lastly, ~~FDIC insurance premiums increased $1.1 million, or 96.9%, to $2.2 million for the quarter ended~~ ~~March 31,~~June 30, 2023 from $1.1 million for the quarter ended ~~March 31,~~June 30, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023.

Income Taxes

The provision for income taxes increased by ~~$2.7 million,~~$663,000, or ~~35.4%~~6.7%, to ~~$10.3~~$10.5 million for the quarter ended ~~March 31,~~June 30, 2023 from ~~$7.6~~$9.9 million for the quarter ended ~~March 31,~~June 30, 2022. This increase in income taxes was due to an increase in income before taxes in the current year. We anticipate our effective tax rate to be between 22.5% and 24.5% for the year ending December 31, 2023.

Comparison of Operating Results for the Six Months Ended June 30, 2023 and 2022

Net income for the six months ended June 30, 2023 was $66.7 million, or $0.52 per diluted share, an increase of $5.0 million, or 8.1%, from $61.7 million, or $0.49 per diluted share, for the six months ended June 30, 2022. The increase in net income resulted from an increase in net interest income of $30.1 million, or 15.8%, partially offset by an increase of $11.5 million, or 7.1%, in noninterest expense, an increase in provision for credit losses of $7.8 million, or 126.8%, an increase in income tax expense of $3.4 million, or 19.2%, and a decrease in noninterest income of $2.4 million, or 4.3%. Net income for the six months ended June 30, 2023 represents annualized returns on average equity and average assets of 8.91% and 0.95%, respectively, compared to 8.01% and 0.87% for the six months ended June 30, 2022. A further discussion of notable changes follows.

Interest Income

Total interest income increased by $76.6 million, or 37.9%, to $278.9 million for the six months ended June 30, 2023 from $202.3 million for the six months ended June 30, 2022. This increase is the result of an increase in the average yield earned on interest-earning assets to 4.22% for the six months ended June 30, 2023 from 3.05% for the six months ended June 30, 2022. This increase in average yield is attributed to the increased interest rate environment. Partially offsetting this increase was a decrease in the average balance of interest-earning assets of $52.6 million, or 0.4%, to $13.318 billion for the six months ended June 30, 2023 from $13.371 billion for the six months ended June 30, 2022 driven by a decrease in the average balance of other interest-earning deposits, offset by an increase in the average balance of loans receivable, described further below.

Interest income on loans receivable increased by $72.7 million, or 39.6%, to $256.5 million for the six months ended June 30, 2023 from $183.7 million for the six months ended June 30, 2022. This increase is attributed to an increase in the average yield on loans receivable to 4.71% for the six months ended June 30, 2023 from 3.69% for the six months ended June 30, 2022 due to the increase in market interest rates. Additionally, the average balance of loans receivable increased $947.4 million, or 9.4%, to $10.977 billion for the six months ended June 30, 2023 from $10.030 billion for the six months ended June 30, 2022 due to organic loan growth in our residential mortgage, consumer, and commercial portfolios. Additionally contributing to loan growth were purchases of loan pools during 2022 of small business equipment finance loans and one- to four-family jumbo mortgage loans.

Interest income on mortgage-backed securities increased by $3.3 million, or 24.7%, to $16.9 million for the six months ended June 30, 2023 from $13.5 million for the six months ended June 30, 2022. This increase is attributed to an increase in the average yield on mortgage-backed securities to 1.79% for the six months ended June 30, 2023 from 1.39% for the six months ended June 30, 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 $64.4 million, or 3.3%, to $1.884 billion for the six months ended June 30, 2023 from $1.949 billion for the six months ended June 30, 2022 due to the sale of available-for-sale investment securities during the year coupled with regularly scheduled payments and maturities.

Interest income on investment securities increased by $304,000, or 11.1%, to $3.1 million for the six months ended June 30, 2023 from $2.7 million for the six months ended June 30, 2022. This increase is attributable to increases in both the average yield and the average balance of investment securities. The average yield on investment securities increased to 1.61% for the six months ended June 30, 2023 from 1.46% for the six months ended June 30, 2022, and the average balance increased $4.3 million, or 1.1%, to $379.6 million for the six months ended June 30, 2023 from $375.3 million for the six months ended June 30, 2022.

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Dividends on FHLB stock increased by $1.4 million, or 841.1%, to $1.5 million for the six months ended June 30, 2023 from $163,000 for the six months ended June 30, 2022. This increase was due to increases in both the average yield and the average balance of FHLB stock. The average balance of FHLB stock increased $28.9 million, or 212.0%, to $42.6 million for the six months ended June 30, 2023 from $13.6 million for the six months ended June 30, 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 7.26% for the six months ended June 30, 2023 from 2.41% for the six months ended June 30, 2022 due to increases in market interest rates.

Interest income on interest-earning deposits decreased by $1.1 million, or 52.7%, to $1.0 million for the six months ended June 30, 2023 from $2.2 million for the six months ended June 30, 2022. This decrease is attributable to a decrease in the average balance of interest-earning deposits by $968.8 million, or 96.5%, to $34.8 million for the six months ended June 30, 2023 from $1.004 billion for the six months ended June 30, 2022 as the Bank redeployed these funds into higher yielding loans and investments. Partially offsetting this decrease in average balance was an increase in the average yield on interest-earning deposits to 5.88% for the six months ended June 30, 2023 from 0.43% for the six months ended June 30, 2022, due to the aggressive campaign by the Federal Reserve Board over the last year to raise targeted short-term interest rates to combat inflation.

Interest Expense

Interest expense increased by $46.5 million, or 406.3%, to $57.9 million for the six months ended June 30, 2023 from $11.4 million for the six months ended June 30, 2022. This increase in interest expense was due to increases in the average cost of interest-bearing liabilities and the average balance of interest-bearing liabilities as well as the change in liability mix. The average cost of interest-bearing liabilities increased to 1.22% for the six months ended June 30, 2023 from 0.24% for the six months ended June 30, 2022 resulting primarily from the rising rate environment. The average balance of interest-bearing liabilities increased by $77.5 million, or 0.8%, to $9.589 billion for the six months ended June 30, 2023 from $9.512 billion for the six months ended June 30, 2022 driven by an increase in average borrowed funds by $659.6 million, or 509.4%. 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 $574.7 million, or 6.3%. In addition, noninterest-bearing demand deposits decreased by $220.4 million, or 7.2%, as we believe customers used funds during a period of higher inflationary costs and searched for higher alternative yields.

Net Interest Income

Net interest income increased by $30.1 million, or 15.8%, to $221.0 million for the six months ended June 30, 2023 from $190.9 million for the six months ended June 30, 2022. This increase is attributable to the factors discussed above. Our interest rate spread increased to 3.01% for the six months ended June 30, 2023 from 2.81% for the six months ended June 30, 2022 and our net interest margin increased to 3.35% for the six months ended June 30, 2023 from 2.86% for the six months ended June 30, 2022 due to the change in market rates as well as the change in our interest-earning asset mix.

Provision for Credit Losses

The provision for credit losses increased by $7.8 million, or 126.8%, to $13.9 million for the six months ended June 30, 2023 from $6.1 million for the six months ended June 30, 2022. The current period provision for credit losses includes $10.9 million for credit losses - loans and $3.0 million for credit losses - unfunded commitments. The prior period provision for credit losses includes $1.1 million for credit losses - loans and $5.0 million for credit losses - unfunded commitments. The $9.7 million increase in the provision for credit losses - loans was driven by continued growth within our loan portfolio, as well as forecasted economic deterioration reflected in our allowance for credit loss models. This was partially offset by a $1.9 million decrease in our provision for credit losses - unfunded commitments compared to the same period last year based on the timing of the origination of loans with current off-balance sheet exposure.

Annualized net charge-offs to average loans decreased to 0.09% for the six months ended June 30, 2023 from 0.10% for the six months ended June 30, 2022. Additionally, classified assets declined by $63.3 million, or 22.8%, to $214.1 million, or 1.90% of loans outstanding at June 30, 2023 from $277.4 million, or 2.66% of loans outstanding at June 30, 2022 resulting primarily from upgrades and payoffs within our commercial real estate portfolio.

In determining the amount of the current period provision, we considered current economic conditions, including but not limited to unemployment levels, bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled "Allowance for Credit Losses." The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at June 30, 2023.

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Noninterest Income

Noninterest income decreased by $2.4 million, or 4.3%, to $53.8 million for the six months ended June 30, 2023 from $56.2 million for the six months ended June 30, 2022. This decrease was primarily due to a decrease in mortgage banking income of $2.1 million, or 57.2%, due to the volatile interest rate environment causing less favorable pricing in the secondary market, as well as a decrease in mortgage volumes primarily due to higher market interest rates. In addition, income from bank-owned life insurance decreased $1.4 million, or 35.5%, to $2.6 million for the six months ended June 30, 2023 from $4.0 million for the six months ended June 30, 2022 due to death benefits received in the prior year. Trust and other financial services income decreased by $1.2 million, or 8.0%, to $13.3 million for the six months ended June 30, 2023 from $14.5 million for the six months ended June 30, 2022 as a result of decreases in our trust advisory services. Partially offsetting these decreases were increases in service charges and fees and the gain on the sale of SBA loans. Service charges and fees increased by $1.3 million, or 4.8%, to $28.0 million for the six months ended June 30, 2023 from $26.7 million for the six months ended June 30, 2022driven primarily by commercial loan fees and an increase in deposit related fees based on customer activity in the current year. We also recognized a $1.1 million gain on the sale of SBA loans during the six months ended June 30, 2023 due to this newly launched lending vertical. Lastly, as described in our quarterly results above, we recognized an $8.3 million gain on the sale of the servicing rights for a $1.3 billion 1-4 family mortgage portfolio.We tried to maximize our profit in the current interest rate environment as we pivot towards a commercial bank, and it also enabled us to accelerate the cash flow from our investment portfolio by selling approximately $110.0 million of investment securities yielding just 2.0% for an equivalent $8.3 million loss and reinvesting these proceeds into commercial loans yielding over 7.0%.

Noninterest Expense

Noninterest expense increased by $11.5 million, or 7.1%, to $173.3 million for the six months ended June 30, 2023, from $161.8 million for the six months ended June 30, 2022. This increase was due to increases in processing expenses, restructuring expense, professional services, federal deposit insurance premiums, and marketing expenses. Processing expenses increased by $3.5 million, or 13.7%, to $29.0 million for the six months ended June 30, 2023, from $25.5 million for the six months ended June 30, 2022 due to the implementation of third party software programs. Merger, asset disposition and restructuring expense increased $3.0 million, or 219.9%, to $4.4 million for the six months ended June 30, 2023, from $1.4 million for the six months ended June 30, 2022 due to the severance and fixed asset charges related to the branch optimization and personnel reduction previously announced. Additionally, professional service expense increased by $2.7 million, or 45.0%, to $8.6 million for the six months ended June 30, 2023, from $5.9 million for the six months ended June 30, 2022 due to the use of third-party consulting and staffing support. FDIC insurance premiums increased $2.0 million, or 89.8%, to $4.3 million for the six months ended June 30, 2023, from $2.3 million for the six months ended June 30, 2022 due to an increase in the deposit insurance assessment rate beginning in the first quarter of 2023. Lastly, marketing expenses increased by $1.6 million, or 37.7%, to $5.7 million for the six months ended June 30, 2023, from $4.2 million for the six months ended June 30, 2022 due primarily to deposit marketing campaigns.

Income Taxes

The provision for income taxes increased by $3.4 million, or 19.2%, to $20.8 million for the six months ended June 30, 2023 from $17.5 million for the six months ended June 30, 2022. This increase was primarily due to the increase in income before tax of $8.4 million, or 10.6%. We anticipate our effective tax rate to be between 22.5% and 24.5% for the year ending December 31, 2023.

Table of Contents

Average Balance Sheet

(in thousands)

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are calculated using daily averages.


		Quarter ended March 31,											Quarter ended June 30,
		2023					2022						2023					2022
		Average balance		Interest	Avg. yield/ cost (h)		Average balance		Interest	Avg. yield/ cost (h)			Average balance		Interest	Avg. yield/ cost (h)		Average balance		Interest	Avg. yield/ cost (h)
Assets	Assets											Assets
Interest-earning assets:	Interest-earning assets:											Interest-earning assets:
Residential mortgage loans	Residential mortgage loans	$	3,493,617	32,009	3.66	%	$	2,980,788	25,542	3.43	%	Residential mortgage loans	$	3,485,517	32,485	3.73	%	$	3,171,469	27,327	3.45	%
Home equity loans	Home equity loans	1,284,425		16,134	5.09	%	1,293,986		11,472	3.60	%	Home equity loans	1,273,298		16,898	5.32	%	1,277,440		11,961	3.76	%
Consumer loans	Consumer loans	2,123,672		20,794	3.97	%	1,799,037		14,907	3.36	%	Consumer loans	2,143,804		22,662	4.24	%	1,880,769		15,777	3.36	%

Commercial real estate loans	Commercial real estate loans	2,824,120		37,031	5.24	%	3,000,204		29,757	3.97	%	Commercial real estate loans	2,836,443		38,426	5.43	%	2,915,750		31,844	4.32	%
Commercial loans	Commercial loans	1,161,298		18,353	6.32	%	824,770		6,897	3.34	%	Commercial loans	1,326,598		22,872	6.92	%	912,454		9,090	3.94	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $576 and $401, respectively)		10,887,132		124,321	4.63	%	9,898,785		88,575	3.63	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $619 and $425, respectively)												Loans receivable (a) (b) (d) (includes FTE adjustments of $619 and $425, respectively)	11,065,660		133,343	4.83	%	10,157,882		95,999	3.79	%
Mortgage-backed securities (c)	Mortgage-backed securities (c)	1,909,676		8,537	1.79	%	1,945,173		6,360	1.31	%	Mortgage-backed securities (c)	1,859,427		8,326	1.79	%	1,952,375		7,158	1.47	%
Investment securities (c) (d) (includes FTE adjustments of $216 and $189, respectively)		384,717		1,761	1.83	%	373,694		1,540	1.65	%
Investment securities (c) (d) (includes FTE adjustments of $207 and $192, respectively)												Investment securities (c) (d) (includes FTE adjustments of $207 and $192, respectively)	374,560		1,715	1.83	%	376,935		1,590	1.69	%
FHLB stock, at cost	FHLB stock, at cost	39,631		690	7.06	%	13,870		81	2.38	%	FHLB stock, at cost	45,505		844	7.44	%	13,428		82	2.44	%
Other interest-earning deposits	Other interest-earning deposits	30,774		423	5.50	%	1,218,960		467	0.15	%	Other interest-earning deposits	38,912		594	6.12	%	846,142		1,684	0.79	%
Total interest-earning assets (includes FTE adjustments of $792 and $590, respectively)		13,251,930		135,732	4.15	%	13,450,482		97,023	2.93	%
Total interest-earning assets (includes FTE adjustments of $826 and $617, respectively)												Total interest-earning assets (includes FTE adjustments of $826 and $617, respectively)	13,384,064		144,822	4.34	%	13,346,762		106,513	3.20	%
Noninterest-earning assets (e)	Noninterest-earning assets (e)	869,566					973,092					Noninterest-earning assets (e)	861,853					909,943

Total assets	Total assets	$	14,121,496				$	14,423,574				Total assets	$	14,245,917				$	14,256,705

Liabilities and shareholders’ equity	Liabilities and shareholders’ equity											Liabilities and shareholders’ equity
Interest-bearing liabilities:	Interest-bearing liabilities:											Interest-bearing liabilities:
Savings deposits (g)	Savings deposits (g)	$	2,198,988	690	0.13	%	$	2,334,494	592	0.10	%	Savings deposits (g)	$	2,142,941	1,393	0.26	%	$	2,361,919	589	0.10	%
Interest-bearing demand deposits (g)	Interest-bearing demand deposits (g)	2,612,883		951	0.15	%	2,875,430		321	0.05	%	Interest-bearing demand deposits (g)	2,469,666		1,648	0.27	%	2,857,336		310	0.04	%
Money market deposit accounts (g)	Money market deposit accounts (g)	2,408,582		4,403	0.74	%	2,668,105		653	0.10	%	Money market deposit accounts (g)	2,221,713		6,113	1.10	%	2,653,467		668	0.10	%
Time deposits (g)	Time deposits (g)	1,293,609		5,194	1.63	%	1,292,608		2,185	0.69	%	Time deposits (g)	1,765,454		12,663	2.88	%	1,220,815		1,774	0.58	%
Borrowed funds (f)	Borrowed funds (f)	740,218		7,938	4.35	%	135,289		158	0.47	%	Borrowed funds (f)	837,358		10,202	4.89	%	123,749		167	0.54	%
Subordinated debentures	Subordinated debentures	113,870		1,148	4.03	%	123,608		1,250	4.05	%	Subordinated debentures	113,958		1,148	4.03	%	119,563		1,203	4.03	%
Junior subordinated debentures	Junior subordinated debentures	129,335		2,152	6.66	%	129,077		651	2.02	%	Junior subordinated debentures	129,401		2,280	6.97	%	129,142		920	2.82	%
Total interest-bearing liabilities	Total interest-bearing liabilities	9,497,485		22,476	0.96	%	9,558,611		5,810	0.25	%	Total interest-bearing liabilities	9,680,491		35,447	1.47	%	9,465,991		5,631	0.24	%
Noninterest-bearing demand deposits (g)	Noninterest-bearing demand deposits (g)	2,889,973					3,060,698					Noninterest-bearing demand deposits (g)	2,820,928					3,090,372
Noninterest-bearing liabilities	Noninterest-bearing liabilities	235,213					203,537					Noninterest-bearing liabilities	224,508					193,510

Total liabilities	Total liabilities	12,622,671					12,822,846					Total liabilities	12,725,927					12,749,873
Shareholders’ equity	Shareholders’ equity	1,498,825					1,600,728					Shareholders’ equity	1,519,990					1,506,832
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	14,121,496				$	14,423,574				Total liabilities and shareholders’ equity	$	14,245,917				$	14,256,705
Net interest income/Interest rate spread	Net interest income/Interest rate spread			113,256	3.19	%			91,213	2.68	%	Net interest income/Interest rate spread			109,375	2.87	%			100,882	2.96	%
Net interest-earning assets/Net interest margin	Net interest-earning assets/Net interest margin	$	3,754,445		3.47	%	$	3,891,871		2.75	%	Net interest-earning assets/Net interest margin	$	3,703,573		3.28	%	$	3,880,771		3.07	%
Ratio of interest-earning assets to interest- bearing liabilities	Ratio of interest-earning assets to interest- bearing liabilities	1.40X					1.41X					Ratio of interest-earning assets to interest- bearing liabilities	1.38X					1.41X

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

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

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

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

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

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

(g)Average cost of deposits were ~~0.40%~~0.77% and ~~0.12%~~0.11%, respectively, average cost of interest-bearing deposits were ~~0.54%~~1.02% and ~~0.17%~~0.15%, respectively .

(h)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — ~~4.61%~~4.81% and ~~3.61%~~3.77%, respectively; investment securities — 1.61% and ~~1.45%~~1.48%, respectively; interest-earning assets — ~~4.13%~~4.32% and ~~2.91%~~3.18%, respectively. GAAP basis net interest rate spreads were ~~3.17%~~2.85% and ~~2.66%~~2.94%, respectively; and GAAP basis net interest margins were ~~3.44%~~3.25% and ~~2.73%~~3.05%, respectively.

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Rate/Volume Analysis

(in thousands)

The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.


		For the quarter ended March 31, 2023 vs. 2022					For the quarter ended June 30, 2023 vs. 2022
		Increase/(decrease) due to			Total increase/(decrease)		Increase/(decrease) due to			Total increase/(decrease)
		Rate		Volume			Rate		Volume
Interest-earning assets:	Interest-earning assets:					Interest-earning assets:
Loans receivable	Loans receivable	$	24,460	11,286	35,746	Loans receivable	$	26,406	10,938	37,344
Mortgage-backed securities	Mortgage-backed securities	2,336		(159)	2,177	Mortgage-backed securities	1,584		(416)	1,168
Investment securities	Investment securities	171		50	221	Investment securities	136		(11)	125
FHLB stock, at cost	FHLB stock, at cost	162		447	609	FHLB stock, at cost	166		596	762
Other interest-earning deposits	Other interest-earning deposits	16,286		(16,330)	(44)	Other interest-earning deposits	11,261		(12,351)	(1,090)
Total interest-earning assets	Total interest-earning assets	43,415		(4,706)	38,709	Total interest-earning assets	39,553		(1,244)	38,309

Interest-bearing liabilities:	Interest-bearing liabilities:					Interest-bearing liabilities:
Savings deposits	Savings deposits	140		(42)	98	Savings deposits	946		(142)	804
Interest-bearing demand deposits	Interest-bearing demand deposits	726		(96)	630	Interest-bearing demand deposits	1,597		(259)	1,338
Money market deposit accounts	Money market deposit accounts	4,224		(474)	3,750	Money market deposit accounts	6,634		(1,189)	5,445
Time deposits	Time deposits	3,005		4	3,009	Time deposits	6,982		3,907	10,889
Borrowed funds	Borrowed funds	1,294		6,486	7,780	Borrowed funds	1,341		8,694	10,035
Subordinated debt	Subordinated debt	(5)		(97)	(102)	Subordinated debt	1		(56)	(55)
Junior subordinated debentures	Junior subordinated debentures	1,497		4	1,501	Junior subordinated debentures	1,356		4	1,360
Total interest-bearing liabilities	Total interest-bearing liabilities	10,881		5,785	16,666	Total interest-bearing liabilities	18,857		10,959	29,816

Net change in net interest income	Net change in net interest income	$	32,534	(10,491)	22,043	Net change in net interest income	$	20,696	(12,203)	8,493

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Average Balance Sheet

(in thousands)


	Six months ended June 30,
	2023					2022
	Average balance		Interest	Avg. yield/ cost (i)		Average balance		Interest	Avg. yield/ cost (i)
Assets
Interest-earning assets:
Residential mortgage loans	$	3,489,545	64,494	3.70	%	$	3,077,155	52,868	3.44	%
Home equity loans	1,278,831		33,033	5.21	%	1,285,668		23,433	3.68	%
Consumer loans	2,133,794		43,457	4.11	%	1,840,110		30,684	3.36	%

Commercial real estate loans	2,830,316		75,463	5.38	%	2,957,744		61,601	4.14	%
Commercial loans	1,244,404		41,225	6.68	%	868,854		15,987	3.66	%
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,203 and $825, respectively)	10,976,890		257,672	4.73	%	10,029,531		184,573	3.71	%
Mortgage-backed securities (c)	1,884,412		16,863	1.79	%	1,948,794		13,518	1.39	%
Investment securities (c) (d) (includes FTE adjustments of $425 and $381, respectively)	379,611		3,478	1.83	%	375,323		3,130	1.67	%
FHLB stock, at cost	42,584		1,534	7.26	%	13,648		163	2.41	%
Other interest-earning deposits	34,842		1,017	5.88	%	1,003,627		2,151	0.43	%
Total interest-earning assets (includes FTE adjustments of $1,628 and $1,206, respectively)	13,318,339		280,564	4.25	%	13,370,923		203,535	3.07	%
Noninterest-earning assets (e)	865,711					969,111

Total assets	$	14,184,050				$	14,340,034

Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits	$	2,187,355	2,082	0.19	%	$	2,348,282	1,181	0.10	%
Interest-bearing demand deposits	2,540,879		2,599	0.21	%	2,866,333		631	0.04	%
Money market deposit accounts	2,314,631		10,516	0.92	%	2,660,745		1,321	0.10	%
Time deposits	1,514,289		17,858	2.38	%	1,256,513		3,959	0.64	%
Borrowed funds (f)	789,057		18,139	4.64	%	129,487		324	0.50	%
Subordinated debentures (g)	113,914		2,296	4.03	%	121,574		2,454	4.04	%
Junior subordinated debentures	129,368		4,433	6.82	%	129,109		1,571	2.42	%
Total interest-bearing liabilities	9,589,493		57,923	1.22	%	9,512,043		11,441	0.24	%
Noninterest-bearing demand deposits (h)	2,855,260					3,075,617
Noninterest-bearing liabilities	229,831					198,854

Total liabilities	12,674,584					12,786,514

Shareholders’ equity	1,509,466					1,553,520

Total liabilities and shareholders’ equity	$	14,184,050				$	14,340,034

Net interest income/Interest rate spread			222,641	3.03	%			192,094	2.83	%

Net interest-earning assets/Net interest margin	$	3,728,846		3.37	%	$	3,858,880		2.87	%

Ratio of interest-earning assets to interest-bearing liabilities	1.39X					1.41X

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

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

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

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

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

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

(g)On September 9, 2020, the Company issued $125.0 million of 4.00% fixed-to-floating rate subordinated notes with a maturity of September 15, 2030.

(h)Average cost of deposits were 0.58% and 0.12%, respectively and average cost of Interest-bearing deposits were 0.78% and0.16%, respectively.

(i)Annualized. Shown on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate applicable to each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: loans — 4.71% and 3.69%, respectively; investment securities — 1.61% and 1.46%, respectively; interest-earning assets — 4.22% and 3.05%, respectively. GAAP basis net interest rate spreads were 3.01% and 2.81%, respectively; and GAAP basis net interest margins were 3.35% and 2.86%, respectively.

Table of Contents

Rate/Volume Analysis

(in thousands)


	For the six months ended June 30, 2023 vs. 2020
	Increase/(decrease) due to			Total increase/(decrease)
	Rate		Volume
Interest-earning assets:
Loans receivable	$	50,859	22,240	73,099
Mortgage-backed securities	3,921		(576)	3,345
Investment securities	309		39	348
FHLB stock, at cost	320		1,051	1,371
Other interest-earning deposits	27,131		(28,265)	(1,134)
Total interest-earning assets	82,540		(5,511)	77,029

Interest-bearing liabilities:
Savings deposits	1,054		(153)	901
Interest-bearing demand deposits	2,301		(333)	1,968
Money market deposit accounts	10,768		(1,573)	9,195
Time deposits	10,858		3,041	13,899
Borrowed funds	2,653		15,162	17,815
Subordinated debt	(3)		(155)	(158)
Junior subordinated debentures	2,852		10	2,862
Total interest-bearing liabilities	30,483		15,999	46,482

Net change in net interest income	$	52,057	(21,510)	30,547

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the holding company for a savings bank, one of our primary market risks is interest rate risk. Interest rate risk is the sensitivity of net interest income to variations in interest rates over a specified time period. The sensitivity results from differences in the time periods in which interest rate sensitive assets and liabilities mature or re-price. We attempt to control interest rate risk by matching, within acceptable limits, the re-pricing periods of assets and liabilities. We have attempted to limit our exposure to interest sensitivity by increasing core deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. We also have the ability to sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, we purchase shorter term or adjustable-rate investment securities and mortgage-backed securities.

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 the balance sheet structure. On a quarterly basis, this Committee also reviews the interest rate risk position and cash flow projections.

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

In an effort to assess interest rate risk and market risk, we utilize a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of equity. Certain assumptions are made regarding loan prepayments and decay rates of savings and interest-bearing demand accounts. Because it is difficult to 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 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 equity is the present value of 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 100 bps, 200 bps or 300 bps upward or a 100 bps, 200 bps or 300 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2023 levels.


		Increase									Decrease										Increase									Decrease
Parallel shift in interest rates over the next 12 months	Parallel shift in interest rates over the next 12 months	100 bps			200 bps			300 bps			100 bps			200 bps			300 bps			Parallel shift in interest rates over the next 12 months	100 bps			200 bps			300 bps			100 bps			200 bps			300 bps
Projected percentage increase/(decrease) in net interest income	Projected percentage increase/(decrease) in net interest income	(1.4)		%	(3.0)		%	(4.7)		%	(1.4		%)	(5.9		%)	(11.0		%)	Projected percentage increase/(decrease) in net interest income	(1.0)		%	(2.1)		%	(3.2)		%	(1.7		%)	(6.8		%)	(12.2		%)
Projected percentage increase/(decrease) in net income	Projected percentage increase/(decrease) in net income	(3.4)		%	(7.1)		%	(11.3)		%	(3.8		%)	(15.4		%)	(28.5		%)	Projected percentage increase/(decrease) in net income	(2.3)		%	(5.0)		%	(7.6)		%	(4.4		%)	(17.4		%)	(31.1		%)
Projected increase/(decrease) in return on average equity	Projected increase/(decrease) in return on average equity	(3.2)		%	(6.8)		%	(10.8)		%	(3.7		%)	(14.9		%)	(27.6		%)	Projected increase/(decrease) in return on average equity	(2.2)		%	(4.8)		%	(7.3)		%	(4.3		%)	(16.8		%)	(30.1		%)
Projected increase/(decrease) in earnings per share	Projected increase/(decrease) in earnings per share	$	(0.03)		$	(0.07)		$	(0.11)		$	(0.04)		$	(0.16)		$	(0.29)		Projected increase/(decrease) in earnings per share	$	(0.03)		$	(0.06)		$	(0.09)		$	(0.05)		$	(0.19)		$	(0.34)
Projected percentage increase/(decrease) in market value of equity	Projected percentage increase/(decrease) in market value of equity	(8.3		%)	(16.6		%)	(26.8		%)	(6.7		%)	(11.0		%)	(11.9		%)	Projected percentage increase/(decrease) in market value of equity	(9.4		%)	(18.8		%)	(30.2		%)	7.4		%	13.5		%	18.0		%

The figures included in the table above represent projections that were computed based upon certain assumptions including prepayment rates and decay rates. These assumptions are inherently uncertain and, as a result, 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, and actions that may be taken by management in response to interest rate changes.

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Item 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective.

There were no changes in the internal controls over financial reporting during the period covered by this report or in other factors that have materially affected, or are reasonably likely to materially affect the internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are subject to a number of asserted and unasserted claims encountered in the normal course of business. We believe that any additional liability, other than that which has already been accrued, that may result from such potential litigation will not have a material adverse effect on the financial statements. However, we cannot presently determine whether or not any claims against us will have a material adverse effect on our results of operations in any future reporting period. Refer to Note 11.

Item 1A. RISK FACTORS

~~In addition to the other information contained~~Except as reported in ~~this~~ Quarterly ~~Report~~Reports on Form 10-Q we have filed during the ~~following risk factors represent~~year ended December 31, 2023, there have been no material updates ~~and~~or additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation. On March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth. A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on us.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. Accordingly, as a part of our liquidity management, we must use a number of funding sources in addition to deposits and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

~~Table of Contents~~

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Further, if we are required to rely more heavily on more expensive funding sources to support liquidity and future growth, our revenues may not increase proportionately to cover our increased costs. In this case, our operating margins and profitability would be adversely affected. Alternatively, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets. As of March 31, 2023, we had a net unrealized loss of $197.3 million on our available-for-sale investment securities portfolio as a result of the rising interest rate environment. Our investment securities totaled $2.072 billion, or 15% of total assets, at March 31, 2023.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

The failure to address the federal debt ceiling in a timely manner, downgrades of the U.S. credit rating and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may affect the valuation or liquidity of our investment securities portfolio and increase future borrowing costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future deterioration in the U.S. credit and financial markets is a possibility, losses or significant deterioration in the fair value of our U.S. government issued or guaranteed investments may occur. At March 31, 2023, we had approximately $61.0 million and $1.883 billion invested in U.S. government agency securities and residential mortgage-backed securities issued or guaranteed by government-sponsored enterprises, respectively. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future borrowing costs.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

a) Not applicable.

b) Not applicable.

c) On December 13, 2012, the Board of Directors approved a program that authorizes the repurchase of approximately 5,000,000 shares of common stock. This program does not have an expiration date. During the quarter ended ~~March 31,~~June 30, 2023, there were no shares of common stock repurchased and there are a maximum of 2,261,130 remaining shares that can be purchased under the current repurchase program.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

~~Not applicable.~~During the three months ended June 30, 2023, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any “Rule 10b5-1 trading arrangement.”

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Item 6. EXHIBITS


31.1			Certification of the Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document.
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			XBRL Taxonomy Extension Label Linkbase.
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.
104			The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.


NORTHWEST BANCSHARES, INC.
(Registrant)


Date:	~~May 5,~~August 4, 2023	By:	/s/ Louis J. Torchio
			Louis J. Torchio
			President and Chief Executive Officer
			(Duly Authorized Officer)


Date:	~~May 5,~~August 4, 2023	By:	/s/ Jeffrey J. Maddigan
			Jeffrey J. Maddigan
			Executive Vice President, Finance, Accounting and Corporate Treasurer
			(Principal Accounting Officer)

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	For the quarter ended March 31, 2023
	Unrealized losses on securities available-for-sale		Change in defined benefit pension plans	Total
Balance as of December 31, 2022	$	(164,206)	(6,952)	(171,158)



Other comprehensive income before reclassification adjustments (1)	13,017		—	13,017
Amounts reclassified from accumulated other comprehensive income (2)	—		(382)	(382)

Net other comprehensive income	13,017		(382)	12,635

Balance as of March 31, 2023	$	(151,189)	(7,334)	(158,523)