What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-07 · 131 added, 203 removed, 303 unchanged (52% of the section changed)

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

• the possibility that any of the anticipated benefits of the proposed Merger (as defined below) will not be realized or will not be realized within the expected time period;

the risk that integration of the operations of Penns Woods (as defined below) operations with those of the Company will be materially delayed or will be more costly or difficult than expected;

the Company’s and Penns Woods’ inability to meet expectations regarding the timing, completion and accounting and tax treatments of the Merger;

the failure to satisfy conditions to completion of the Merger, the failure of the proposed Merger to close for any other reason;

the diversion of management’s attention from ongoing business operations and opportunities due to the Merger;

the challenges of integrating and retaining key employees;

the effect of the announcement of the Merger on the Company’s, Penns Woods’ or the combined company’s respective customer and employee relationships and operating results;

the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

the dilution caused by the Company’s issuance of additional shares of its common stock in connection with the Merger;

and other factors that may affect the results of operations and financial condition of the Company, Penns Woods and the combined company;

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

• 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 institutions, including changes in regulatory fees and capital requirements;

• changes in laws, government regulations or supervision, examination and enforcement priorities affecting financial institutions, including as part of the regulatory reform agenda of the Trump administration, as well as 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, including inflationary or recessionary pressures;

• general economic conditions, either nationally or in our market areas, that are different than expected, including inflationary or recessionary pressures or those related to changes in monetary, fiscal, regulatory and tariff policies of the U.S.

government, including policies of the U.S.

Department of Treasury and the Federal Reserve Board;

• adverse changes in the securities and credit markets;

• instability or breakdown in the financial services sector, including failures or rumors of failures of other depository institutions, along with actions taken by governmental agencies to address such turmoil;

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

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• changes in consumer spending, borrowing and savings habits;

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

• our ability to continue to increase and manage our commercial, including commercial real estate, and personal loans;

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

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Recently Issued Accounting Standards

The following Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board ("FASB") have

not yet been adopted.

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

In October 2023, the FASB issued ASU No.

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

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" to improve disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This update requires that an entity that has a single reportable segment, such as the Company, to provide all the disclosures required by this update.

The amendments in this update require annual and interim disclosures on significant segment expenses that are regularly provided to the chief operating decision maker to make operating decisions and to allocate resources.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

A public entity should apply the amendments in this update retrospectively to all prior periods presented in the consolidated financial statements with early adoption permitted.

The Company is evaluating the accounting and disclosure requirements of ASU 2023-07 and does not expect them to have a material effect on the consolidated financial statements or disclosures.

In December 2023, the FASB issued ASU No.

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

In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses”.

The guidance requires disaggregated disclosure of specified expense categories.

The guidance also requires disclosure of total selling expenses and how the Company defines selling expenses.

The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027.

Prospective application is required, with retrospective application permitted.

The Company is currently evaluating the effect the updated guidance will have on the Company’s financial statement disclosures.

Agreement to Acquire Penns Woods

On December 16, 2024, the Company and Penns Woods Bancorp, Inc., a Pennsylvania corporation (“Penns Woods”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).

The Merger Agreement provides for a business combination whereby Penns Woods will merge with and into the Company (the “Merger”), with the Company as the surviving corporation in the merger.

Immediately after the effective time of the Merger (the “Effective Time”), or at such later time as the Company determines, Penns Woods’ wholly-owned subsidiary banks, Luzerne Bank, a Pennsylvania-chartered state bank, and Jersey Shore State Bank, a Pennsylvania-chartered state bank, will merge with and into Northwest Bank, with Northwest Bank as the surviving bank in the subsidiary bank mergers.

Under the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each share of Penns Woods’ common stock, $5.55 par value, issued and outstanding immediately prior to the Effective Time (except for Treasury Shares (as provided for in the Merger Agreement)), will be converted, in accordance with the procedures set forth in the Merger Agreement, into a right to receive 2.385 shares of common stock, $0.01 par value, of the Company.

On April 23, 2025, the Company announced that it has received all regulatory and shareholder approvals required to complete the Merger.

The Merger is expected to close in the third quarter of 2025, subject to the satisfaction of customary closing conditions.

Comparison of Financial Condition

Total assets at September 30, 2024 were $14.4 billion, a decrease of $65 million from December 31, 2023.

This decrease in assets was primarily driven by decreases in personal banking loans receivable, partially offset by increases in cash and cash equivalents, marketable securities and commercial banking loans receivable.

Total assets at March 31, 2025 were $14.5 billion, an increase of $46 million from December 31, 2024.

This increase in assets was primarily driven by increases in cash and cash equivalents, marketable securities and loans receivable.

A discussion of significant changes follows.

Cash and cash equivalents increased by $105 million, or 86%, to $227 million at September 30, 2024, from $122 million at December 31, 2023 due to growth in our deposits coupled with a focus on profitability and credit discipline while investing these cash flows into commercial loans.

Total marketable securities increased to $1.9 billion at September 30, 2024, an increase of $20 million, or 1%, from December 31, 2023.

Available-for-sale securities increased by $69 million, driven by the securities portfolio restructure in the prior quarter, while held-to-maturity securities decreased $48 million, driven by maturities and regular monthly cash flows.

Gross loans receivable decreased by $110 million, or 1%, to $11.3 billion at September 30, 2024.

Our personal banking loan portfolio decreased by $359 million, or 5%, to $6.4 billion at September 30, 2024 from $6.8 billion at December 31, 2023.

Cash flows from our personal banking portfolio were partially redirected to fund commercial banking growth, which increased by $248 million, or 5%, to $4.9 billion at September 30, 2024, from $4.6 billion at December 31, 2023.

Cash and cash equivalents increased by $65 million, or 22%, to $353 million at March 31, 2025, from $288 million at December 31, 2024 due to growth in our deposits coupled with a focus on profitability and credit discipline while investing these cash flows into commercial loans.

Total marketable securities remained flat at $1.9 billion at March 31, 2025, increasing by $30 million, or 2%, from December 31, 2024.

Available-for-sale securities increased by $44 million, driven by a increase in net portfolio purchases during the quarter, while held-to-maturity securities decreased $15 million, driven by maturities and regular monthly cash flows.

Gross loans receivable remained stable $11.2 billion at March 31, 2025, increasing $36 million.

Our personal banking loan portfolio increased by $22 million, to $6.3 billion at March 31, 2025 while our commercial banking loans increased by $14 million, to $4.9 billion at March 31, 2025.

Cash flows from our loan portfolio were partially redirected to fund commercial banking growth.

This increase represents organic loan growth resulting from the new commercial lending verticals that we implemented during the prior year.

Specifically, our commercial and industrial (C&I) loan portfolio increased by $72 million, or 4% compared to December 31, 2024.

The following table provides the various loan sectors in our commercial real estate portfolio at September 30, 2024:

The following table provides the various loan sectors in our commercial real estate portfolio at March 31, 2025:

Property type Percent of portfolio

5 or more unit dwelling 16.6 %

Retail Building 13.7 %

Nursing Home 11.2

5 or more unit dwelling 13.2

Commercial office building - non-owner occupied 10.3

Nursing Home 10.0

Manufacturing & industrial building 6.1

Warehouse/storage building 4.4

Residential acquisition & development - 1-4 family, townhouses and apartments 4.3

Commercial office building - owner occupied 4.2

Residential acquisition & development - 1-4 family, townhouses and apartments 3.9

Multi-use building - commercial, retail and residential 3.9

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Other medical facility 2.9

Single family dwelling 2.6

Student housing 2.4

Single family dwelling 2.3

Hotel/motel 2.3

Agricultural real estate 2.2

Commercial acquisition and development 2.0

All other 12.6

Total 100.0 %

The following table describes the collateral of our commercial real estate portfolio by state at September 30, 2024:

The following table describes the collateral of our commercial real estate portfolio by state at March 31, 2025:

State Percent of portfolio

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Total 100.0 %

Total deposits increased by $91 million, or 1%, to $12.1 billion at September 30, 2024 from $12.0 billion at December 31, 2023.

This increase was driven by a $107 million, or 4%, increase in time deposits as we continued competitively positioning our deposit products, a $42 million, or 2%, increase in interest demand deposit accounts and a $41 million, or 2%, increase in savings deposits.

Partially offsetting these increases was a decrease in non-interest bearing deposit accounts by $87 million, or 3%, due to seasonality in customer deposit account balances .

As of September 30, 2024, we had $212 million of brokered deposits, which made up 8% of our time deposits and 2% of our total deposit balance at quarter end.

Total deposits increased by $30 million, to $12.2 billion at March 31, 2025 from $12.1 billion at December 31, 2024.

This increase was driven by a $117 million, or 6%, increase in money market accounts a $51 million, or 2%, increase in savings deposits.

Partially offsetting these increases was a decrease in time deposits of $81 million, or 3%, drively primarily in a decrease in brokered CDs, and a $76 million, or 3%, decrease in interest demand deposit accounts.

T he increase in both money market and saving account balances was partly due to customers shifting funds to these competitively priced products as their time deposits matured.

As of March 31, 2025, we had $141 million of brokered de posits, which made up 5% of our time deposits and 1% of our total deposit balance at quarter end.

The balance carried an average all-in cost of 4.23% and an average original term of 12 months.

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

In addition, at quarter end we had $697 million of deposits through our participation in the Intrafi Network Deposits and FIS Insured Deposit programs.

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

In addition, at quarter end we had $697 millio n of deposits through our participation in the Intrafi Network Deposits and FIS Insured Deposit programs.

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

The balance carried an average cost of 3.43%.

At September 30, 2024 and December 31, 2023, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $1.9 billion and $1.8 billion respectively.

At March 31, 2025 and December 31, 2024, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $1.9 billion.

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

The following table presents details regarding the Company's uninsured deposits portfolio:

As of September 30, 2024

As of March 31, 2025

Balance Percent of

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

Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $19.6 million, or 0.16% of total deposits, as of September 30, 2024.

Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $103 million, or 0.85% of total deposits, as of September 30, 2024.

The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $285,000 as of September 30, 2024.

Total shareholders’ equity remained stable at $1.6 billion, or $12.49 per share, at September 30, 2024 compared to $12.20 per share at December 31, 2023, increasing by $40 million in the current year.

This increase was the result of year-to-date earnings of $68 million as well as an improvement in accumulated other comprehensive loss of $43 million, or 29%, primarily due to an increase in realized losses on our available-for-sale investment portfolio as a result of the investment sales made during the period, partially offset by $76 million of cash dividend payments for the nine months ended September 30, 2024.

Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $29 million, or 0.24% of total deposits, as of March 31, 2025.

Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $186 million, or 1.53%, of total deposits, as of March 31, 2025.

The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $303,000 as of March 31, 2025.

Total shareholders’ equity remained stable at $1.6 billion, or $12.75 per share, at March 31, 2025 compared to $12.52 per share at December 31, 2024, increasing by $32 million in the current year.

This increase was the result of year-to-date earnings of $43 million as well as an improvement in accumulated other comprehensive loss of $12 million, or 11%, primarily due to a decrease in unrealized losses in the available-for-sale investment portfolio, partially offset by $26 million of cash dividend payments for the three months ended March 31, 2025.

Regulatory Capital

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

At September 30, 2024

At March 31, 2025

Actual Minimum capital requirements (1) Well capitalized requirements (2)

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Northwest Bancshares, Inc.

1,331,918 12.516 % 744,928 7.000 % 691,719 6.500 %

1,370,251 12.94 % 741,171 7.00 % N/A N/A

Northwest Bank 1,372,608 12.98 % 740,251 7.00 % 687,376 6.50 %

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Northwest Bancshares, Inc.

1,457,698 10.283 % 567,025 4.000 % 708,782 5.000 %

1,496,161 10.51 % 569,466 4.00 % N/A N/A

Northwest Bank 1,372,608 9.65 % 568,942 4.00 % 711,177 5.00 %

(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).

(2) Reflects the well-capitalized standard applicable to Northwest Bank and the well-capitalized standard applicable to the Company under the Federal Reserve Board’s Regulation Y.

At December 31, 2024 (1)

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Northwest Bank 1,466,832 13.81 % 1,114,929 10.50 % 1,061,837 10.00 %

Tier I capital (to risk weighted assets)

Tier 1 capital (to risk weighted assets)

Northwest Bancshares, Inc.

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Northwest Bancshares, Inc.

1,428,181 13.294 % 752,036 7.000 % 698,319 6.500 %

1,342,801 12.63 % 743,955 7.00 % N/A N/A

Northwest Bank 1,341,230 12.63 % 743,286 7.00 % 690,194 6.50 %

Tier I capital (leverage) (to average assets)

Tier 1 capital (leverage) (to average assets)

Northwest Bancshares, Inc.

1,553,766 10.841 % 573,290 4.000 % 716,612 5.000 %

1,468,646 10.39 % 565,426 4.00 % N/A N/A

Northwest Bank 1,341,230 9.50 % 564,937 4.00 % 706,171 5.00 %

(1) We elected to temporarily delay the estimated impact of current expected credit losses ("CECL") on regulatory capital in accordance with a rule of the Federal Reserve Board and other U.S.

banking agencies for a two-year deferral period, followed by a three-year transition period which began January 1, 2022.

As of December 31, 2024, 75% of the impact of the CECL deferral was phased, while the impact of the CECL deferral was fully phased in as of March 31, 2025.

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

(3) Reflects the well-capitalized standard applicable to Northwest Bank and the well-capitalized standard applicable to the Company under the Federal Reserve Board’s Regulation Y.

Regulatory Considerations

In September 2024, the FDIC adopted a final statement of policy regarding its review of Bank Merger Act (“BMA”) applications.

The final policy statement addresses, among other things, an expanded scope of transactions subject to FDIC approval, a more rigorous process for evaluating BMA applications, and heightened expectations with respect to the BMA's statutory factors.

As a result, BMA applications to the FDIC will now require additional information.

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.

It is uncertain how the rapid changes initiated by the Trump administration will impact our business going forward.

These include the impact of tariffs, immigration reform, and changes at the agencies that regulate us, including the modification, rescission, withdrawal or changes to the approach and enforcement of rules and guidance relating to us.

Northwest Bank is 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 September 30, 2024 was 11.25%.

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

At September 30, 2024, Northwest had $3.3 billion of additional borrowing capacity available with the FHLB, including $250 million on an overnight line of credit, which had no balance as of September 30, 2024, as well as $500 million of borrowing capacity available with the Federal Reserve Bank and $105 million with two correspondent banks.

We paid $25 million in cash dividends during the quarters ended September 30, 2024 and 2023.

The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for September 30, 2024 and 2023 was 76.9% and 64.5% on dividends of $0.20 per share.

On October 17, 2024, the Board of Directors declared a cash dividend of $0.20 per share payable on November 18, 2024 to shareholders of record as of November 8, 2024.

Northwest Bank’s liquidity ratio at March 31, 2025 was 12.42%.

Northwest Bank adjusts 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, 2025, Northwest had $3.2 billion of additional borrowing capacity available with the FHLB, including $250 million on an overnight line of credit, which had no balance as of March 31, 2025, as well as $546 million of borrowing capacity available with the Federal Reserve Bank and $105 million with two correspondent banks.

We paid $26 million in cash dividends during the quarter ended March 31, 2025 compared to $25 million for the quarter ended March 31, 2024.

The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for March 31, 2025 and 2024 was 58.8% and 87.0% on dividends of $0.20 per share.

On April 17, 2025, the Board of Directors declared a cash dividend of $0.20 per share payable on May 20, 2025 to shareholders of record as of May 8, 2025.

This represents the 122 th consecutive quarter we have paid a cash dividend.

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(in thousands)

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Total nonperforming loans 59,353 62,057

Other nonperforming assets (1) 16,102 $ 16,102

Total nonperforming assets $ 75,535 $ 78,194

Total nonaccrual loans to total loans 0.52 % 0.55 %

(1) Other nonperforming assets includes nonaccrual loans held for sale.

Allowance for Credit Losses

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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.

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.

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We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness.

As part of the analysis as of September 30, 2024, we considered the most recent economic conditions and forecasts available which incorporated the impact of material recent economic events.

As part of the analysis as of March 31, 2025, 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 $0.6 million to $126 million, or 1.11% of total loans at September 30, 2024, up slightly from 1.10% at December 31, 2023.

Total classified loans increased by $101 million to $320 million at September 30, 2024 compared to $218 million at December 31, 2023.

The primary driver of the increase over the current year is reflective of the Company’s exposure to the Long Term Healthcare segment and the challenges a few operators have experienced post Covid.

The ACL increased by $6 million to $123 million, or 1.09% of total loans at March 31, 2025, up slightly from 1.04% at December 31, 2024.

Total classified loans increased by $7 million to $279 million at March 31, 2025 compared to $272 million at December 31, 2024.

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 $77 million at September 30, 2024 decreased by $18 million, or 19%, from $94 million at December 31, 2023, or 0.68% of total loans receivable as of September 30, 2024 and 0.83% of total loans receivable as of December 31, 2023.

As a percentage of average loans, annualized net charge-offs remained low at 0.14% for the nine months ended September 30, 2024 compared to 0.11% for the year ended December 31, 2023.

Comparison of Operating Results for the Quarters Ended September 30, 2024 and 2023

The following chart provides a reconciliation of net income from the quarter ended September 30, 2023 to the the quarter ended September 30, 2024 (dollars in thousands):

Net income for the quarter ended September 30, 2024 was $34 million, or $0.26 per diluted share, a decrease of $6 million, or 14%, from net income of $39 million, or $0.31 per diluted share, for the quarter ended September 30, 2023.

This decrease in net income resulted primarily from a $4 million increase in the provision for credit losses, a $3 million, or 10%, decrease in noninterest income and an increase in noninterest expense of $3 million, or 4%, partially offset by an increase in net interest income of $3 million, or 3%, and a $2 million, or 14%, decrease in income tax expense.

Net income for the quarter ended September 30, 2024 represents annualized returns on average equity and average assets of 8.50% and 0.93%, respectively, compared to 10.27% and 1.08% for the same quarter last year.

Net income for the nine months ended September 30, 2024 was $68 million, or $0.53 per diluted share, a decrease of $51 million, or 37%, from net income of $138 million, or $0.83 per diluted share, for the nine months ended September 30, 2023.

This decrease in net income resulted primarily from a $39 million loss on sale of securities, a decrease in net interest income of $8 million, or 2%, and an increase in noninterest expense of $12 million, or 5%, partially offset by a decrease in the provision for credit losses of $7 million, or 47%, and a $13 million, or 14%, decrease in income tax expense.

Net income for the nine months ended September 30, 2024 represents annualized returns on average equity and average assets of 5.80% and 0.63%, respectively, compared to 9.37% and 0.99% for the nine months ended September 30, 2023.

A further discussion of notable changes follows.

Nonaccrual loans of $59 million at March 31, 2025 decreased by $2 million, or 4%, from $61 million at December 31, 2024, or 0.52% of total loans receivable as of March 31, 2025 and 0.55% of total loans receivable as of December 31, 2024.

As a percentage of average loans, annualized net charge-offs remained low at 0.08% for the three months ended March 31, 2025 compared to 0.32% for the year ended December 31, 2024 which included a $15 million write-down on certain loans to fair value before they were transferred to for sale.

Comparison of Operating Results for the Quarters Ended March 31, 2025 and 2024

The following chart provides a reconciliation of net income from the quarter ended March 31, 2024 to the the quarter ended March 31, 2025 (dollars in thousands):

Net income for the quarter ended March 31, 2025 was $43 million, or $0.34 per diluted share, an increase of $14 million, or 49%, from net income of $29 million, or $0.23 per diluted share, for the quarter ended March 31, 2024.

This increase in net income resulted primarily from a increase in net interest income of $25 million, or 24%, partially offset by a $4 million increase in the provision for credit losses, an increase in noninterest expense of $2 million, or 2% and a $4 million, or 52%, increase in income tax expense.

Net income for the quarter ended March 31, 2025 represents annualized returns on average equity and average assets of 10.90% and 1.22%, respectively, compared to 7.57% and 0.81% for the same quarter last year.

To make it easier to compare both the results across several periods and the yields on various types of earning assets (some taxable, some not), we present net interest income in the discussion below on a fully taxable equivalent “FTE basis” (i.e., as if all income were taxable and at the same rate).

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Net Interest Income

Net interest income for the third quarter of 2024 was $111 million which increased $3 million, or 3%, from the third quarter of 2023.

Net interest income (FTE) was $112 million for the quarter ended September 30, 2024 and net interest margin (FTE) was 3.33%.

Compared to the same quarter of the prior year, net interest income (FTE) increased $3 million and net interest margin (FTE) increased by ten basis points .

The increase in net interest income (FTE) and net interest margin (FTE) was driven by an increase in interest income resulting from higher earning asset yields.

Partly offsetting this increase was an increase in interest-bearing deposit costs and a shift in funding mix to higher cost deposits due to the higher interest rate environment.

For the nine months ended September 30, 2024, net interest income was $321 million which decreased $8 million, or 2%, from the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, net interest income (FTE) was $324 million, a decrease of $8 million, or 2% from the same period last year.

Net interest margin (FTE) decreased by 11 basis points.

Similar to the quarterly fluctuations noted above, the decrease in net interest income (FTE) included increases in both interest income and interest expense driven by higher interest-bearing deposit costs and balances, partially offset by higher interest-earning asset yields and balances.

Average loans receivable increased $33 million, or 0.3%, from the quarter ended September 30, 2023 and $263 million, or 2.4% for the nine months ended September 30, 2023.

This increase was driven by commercial loans, which grew by $372 million from the quarter ended September 30, 2023 and $456 million from the nine months ended September 30, 2023, as we have continued to build-out our commercial lending verticals, and commercial real estate loans, which grew by $84 million and $148 million from the same periods.

These increases were offset partially by a $423 million decrease in personal banking loans from the quarter ended September 30, 2023 and $341 million from the nine months ended September 30, 2023.

Interest income on loans receivable increased by $16 million, or 11%, from the same quarter in the prior year, and by $63 million, or 16%, from the same nine-month period in the prior year, the result of increases in both the average yield and the average balance on loans receivable.

The average yield on loans receivable increased due to the elevated market interest rates as well as a change in mix to higher yield loan products.

Average investments declined 6% from the third quarter of 2023 and 9% from the nine months ended September 30, 2023 driven by the sale of investment securities during the third quarter of 2024 coupled with regular principal payments and maturities.

Interest income on investment securities increased by $3 million, or 31%, from the quarter ended September 30, 2023, and increased by $3 million, 9.7%, for the nine months ended September 30, 2023.

The increase is due to the increase in the average yield on investments (FTE) to 2.48% for the quarter ended September 30, 2024 and 2.14% for the nine months ended September 30, 2024 which was partially offset by a decline in the average balance of investments for both periods.

Average deposits grew 3% from the quarter ended September 30, 2023 and 4% from the nine months ended September 30, 2023 driven by an increase in our average time deposits due to customer preferences for this fixed maturity product type which grew by $666 million from the quarter ended September 30, 2023 and by $1.1 billion from the nine months ended September 30, 2023.

This increase was partially offset by a $146 million decrease in money market balances from the quarter ended September 30, 2023 and $284 million from the nine months ended September 30, 2023 as customers shifted balances into higher yielding time deposit accounts.

Interest expense on deposits increased by $23 million, or 71%, from the quarter ended September 30, 2023, and by $90 million, or 139% from the nine months ended September 30, 2023, primarily attributable to increases in both the average yield and average balance of deposit accounts as we continued competitively positioning our deposit products.

Compared to the quarter ended September 30, 2023, average borrowings saw a 66% reduction, and compared to the nine months ended September 30, 2023 average borrowings decreased 54% primarily attributable to the strategic pay-down of wholesale borrowings.

This decrease was made possible by a substantial increase in cash reserves, resulting from the sale of investment securities during the prior quarter, as well as a notable rise in the average balance of deposits.

The decrease in the average balance of borrowings resulted in a decrease in interest expense on borrowings by $6 million from the quarter ended September 30, 2023, and by $14 million from the nine months ended September 30, 2023.

Net interest income for the first quarter of 2025 was $128 million which increased $25 million, or 24%, from the first quarter of 2024.

Net interest income (FTE) was $129 million for the quarter ended March 31, 2025 and net interest margin (FTE) was 3.87%.

Compared to the same quarter of the prior year, net interest income (FTE) increased $25 million and net interest margin (FTE) increased by seventy-seven basis points .

The increase in net interest income (FTE) and net interest margin (FTE) was driven by an increase in interest income resulting from higher earning asset yields, inclusive of an non-accrual interest recovery, coupled with a decrease in interest expense due to decline in the average balance of borrowings and higher cost brokered CD.

Partly offsetting this increase was a decrease in the average balance of earning assets.

Average loans receivable decreased $169 million, or 1.5%, from the quarter ended March 31, 2024.

This decrease was driven by personal banking loans and commercial real estate loans, which decreased by $388 million and $120 million, respectively.

These decreases were partially offset by an increase in commercial loans of $339 million from the quarter ended March 31, 2024 as we have continued to build-out our commercial lending verticals.

Interest income on loans receivable increased by $15 million, or 10%, from the same quarter in the prior year, driven by a loan mix shift towards higher yielding commercial loans and also includes an interest recovery of $13.1 million on a non-accrual commercial loan payoff during the quarter ended March 31, 2025.

Average investments declined 1% from the first quarter of 2024 driven by the sale of investment securities during the second quarter of 2024 coupled with regular principal payments and maturities.

Interest income on investment securities increased by $4 million, or 43%, from the quarter ended March 31, 2024.

The increase is due to the increase in the average yield on investments (FTE) to 2.62% for the quarter ended March 31, 2025 which was partially offset by a decline in the average balance of investments.

Average deposits grew 2% from the quarter ended March 31, 2024 driven by an increase in our average money market and saving deposit accounts which grew by $122 million and $72 million, respectively, from the quarter ended March 31, 2024 partly due to customers shifting funds to these competitively priced products as their time deposits matured .

These increases were partially offset by a decrease in time deposits of $69 million.

Interest expense on deposits remained flat at $47 million for both quarters ended March 31, 2024 and 2025, primarily attributable to decrease in average yield and an increase in average balance of deposit accounts as we continued competitively positioning our deposit products.

Compared to the quarter ended March 31, 2024, average borrowings saw a 52% reduction.

This decrease attributable to the strategic pay-down of wholesale borrowings with the proceeds from our investment portfolio restructuring in the second quarter of 2024 .

The decrease in the average balance of borrowings resulted in a decrease in interest expense on borrowings by $4 million from the quarter ended March 31, 2024.

Average Balance Sheet

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Average balances are calculated using daily averages.

Quarter ended September 30,

Quarter ended March 31,

balance Interest Avg.

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Interest-bearing liabilities:

Savings deposits (g) $ 2,151,933 6,680 1.23 % $ 2,116,759 2,695 0.51 %

Interest-bearing demand deposits (g) 2,567,682 7,452 1.15 % 2,569,229 4,086 0.63 %

Money market deposit accounts (g) 1,966,684 9,170 1.85 % 2,112,228 6,772 1.27 %

Time deposits (g) 2,830,737 30,896 4.34 % 2,164,559 18,136 3.32 %

Borrowed funds (f) 220,677 2,266 4.09 % 643,518 7,937 4.89 %

Subordinated debentures 114,396 1,148 4.01 % 114,045 1,148 4.03 %

Junior subordinated debentures 129,727 2,467 7.56 % 129,466 2,456 7.42 %

Total interest-bearing liabilities 9,981,836 60,079 2.39 % 9,849,804 43,230 1.74 %

Noninterest-bearing demand deposits (g) 2,579,775 2,757,091

Noninterest-bearing liabilities 217,161 257,141

Total liabilities 12,778,772 12,864,036

Shareholders’ equity 1,572,897 1,515,287

Total liabilities and shareholders’ equity $ 14,351,669 $ 14,379,323

Net interest income (FTE)/Interest rate spread (FTE) (d) 112,216 2.72 % 109,258 2.77 %

Net interest-earning assets/Net interest margin (FTE) $ 3,435,240 3.33 % $ 3,563,155 3.23 %

Tax equivalent adjustment (d) 914 890

Net interest income, GAAP basis 111,302 108,368

Ratio of interest-earning assets to interest- bearing liabilities 1.34X 1.36X

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

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

(d) Interest income on tax-free investment securities and tax-free loans are presented on a FTE basis.

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

(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 1.78% and 1.07%, respectively, average cost of interest-bearing deposits were 2.27% and 1.40%, respectively .

(h) Annualized.

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 (FTE) and interest expense during the periods indicated.

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

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

For the quarter ended September 30, 2024 vs.

Increase/(decrease) due to Total

increase/(decrease)

Interest-earning assets:

Loans receivable $ 15,318 457 15,775

Mortgage-backed securities 3,121 (285) 2,836

Investment securities 490 (417) 73

FHLB stock, at cost 45 (319) (274)

Other interest-earning deposits (21) 1,418 1,397

Total interest-earning assets 18,953 854 19,807

Interest-bearing liabilities:

Savings deposits $ 2,194,305 6,452 1.19 % $ 2,122,035 5,036 0.95 %

2 unchanged sentences

Time deposits 2,629,388 24,504 3.78 % 2,697,983 29,335 4.37 %

Borrowed funds (1,329) (4,342) (5,671)

Subordinated debt (4) 4 —

Junior subordinated debentures 5 6 11

Total interest-bearing liabilities 14,485 2,364 16,849

Net change in net interest income (FTE) $ 4,468 (1,510) 2,958

Average Balance Sheet

(in thousands)

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

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

Average balances are calculated using daily averages.

Nine months ended September 30,

balance Interest Avg.

cost (h) Average

balance Interest Avg.

Interest-earning assets:

Residential mortgage loans $ 3,340,332 96,392 3.85 % $ 3,485,130 97,090 3.71 %

Home equity loans 1,185,145 51,893 5.85 % 1,273,878 50,467 5.30 %

Consumer loans 2,012,461 77,401 5.14 % 2,119,717 66,977 4.22 %

Commercial real estate loans 3,005,966 136,556 6.07 % 2,857,555 117,074 5.40 %

Commercial loans 1,768,325 99,923 7.55 % 1,312,750 67,465 6.78 %

Loans receivable (a) (b) (d) (includes FTE adjustments of $2,227 and $1,937, respectively) 11,312,229 462,165 5.46 % 11,049,030 399,073 4.83 %

Mortgage-backed securities (c) 1,729,064 28,278 2.18 % 1,849,567 24,935 1.80 %

Investment securities (c) (d) (includes FTE adjustments of $427 and $579, respectively) 294,598 4,251 1.92 % 364,956 4,909 1.79 %

FHLB stock, at cost 26,195 1,499 7.64 % 40,945 2,202 7.19 %

Other interest-earning deposits 124,037 4,935 5.31 % 64,560 1,931 4.00 %

Total interest-earning assets (includes FTE adjustments of $2,654 and $2,516, respectively) 13,486,123 501,128 4.96 % 13,369,058 433,050 4.33 %

Noninterest-earning assets (e) 919,969 880,799

Total assets $ 14,406,092 $ 14,249,857

Liabilities and shareholders’ equity

Interest-bearing liabilities:

Savings deposits (g) $ 2,139,461 17,673 1.10 % $ 2,163,564 4,777 0.30 %

Interest-bearing demand deposits (g) 2,554,172 19,501 1.02 % 2,550,433 6,684 0.35 %

Money market deposit accounts (g) 1,962,019 25,684 1.75 % 2,246,422 17,289 1.03 %

Time deposits (g) 2,787,306 91,780 4.40 % 1,733,428 35,993 2.78 %

Total interest-bearing deposits (g) 9,499,869 47,325 2.02 % 9,320,173 47,686 2.07 %

Borrowed funds (f) 224,122 2,206 3.99 % 469,697 5,708 4.89 %

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

(d) Interest income on tax-free investment securities and tax-free loans are presented on a FTE basis.

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

1 unchanged sentence

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

(g) Average cost of deposits were 1.72% and 0.75%, respectively and average cost of Interest-bearing deposits were 2.19% and 1%, respectively.

(g) Average cost of deposits were 1.59% and 1.61%, respectively.

(h) Annualized.

4 unchanged sentences

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

For the nine months ended September 30, 2024 vs.

For the quarter ended March 31, 2025 vs.

Increase/(decrease) due to Total

22 unchanged sentences

Annualized net charge-offs to average loans 0.16 % 0.07 % 0.18 % 0.87 % 0.08 %

The provision for credit losses increased by $4 million from the quarter ended September 30, 2023.

The provision for credit losses increased by $4 million from the quarter ended March 31, 2024.

This increase included a $4 million increase in the provision for credit losses - loans, as well as a $0.5 million increase in the provision for credit losses - unfunded commitments.

Compared to the nine months ended September 30, 2023, the provision for credit losses decreased $7 million , or 47%.

This decrease included a $3 million decrease in the provision for credit losses - loans, as well as a $4 million decrease in the provision for credit losses - unfunded commitments.

The changes in the provision noted above is driven by growth within our commercial lending portfolio and changes in the economic forecasts coupled with a decline in our reserves for unfunded commitments in the current period.

This decline is based on the timing of origination and funding of commercial construction loans and lines of credit.

Additionally, the Company saw an increase in classified loans to $320 million, or 2.83% of total loans, at September 30, 2024 from $209 million, or 1.84% of total loans, at September 30, 2023 and $257 million, or 2.26% of total loans, at June 30, 2024.

The primary driver of the increase over the past year and quarter is reflective of the Company’s exposure to the Long Term Healthcare segment and the challenges a few operators have experienced post Covid.

Additionally, the Company saw an increase in classified loans to $279 million, or 2.49% of total loans, at March 31, 2025 from $229 million, or 1.99% of total loans, at March 31, 2024 and $272 million, or 2.44% of total loans, at December 31, 2024.

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

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

” The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at September 30, 2024.

” The provision that is recorded is appropriate, 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, 2025.

Noninterest Income

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Financial Statements of this report.

Noninterest income for the quarter ended September 30, 2024 was $28 million, a decrease of $3 million, or 10%, from the quarter ended September 30, 2023, which was driven by a $3 million decline in income from bank-owned life insurance as a result of death benefits received in the prior period.

Compared to the nine months ended September 30, 2023, excluding the loss on sale of securities of $39 million, noninterest income increased $2 million, or 2%, in the nine months ended September 30, 2024.

The increase from the nine months ended September 30, 2023 was driven by service charges and fees and the gain on sale of SBA loans.

Service charges and fees increased $4 million, or 9%, to $47 million for the nine months ended September 30, 2024 driven by commercial loan fees and deposit related fees based on customer activity in the nine months ended September 30, 2024 .

Additionally, the gain on the sale of SBA loans increased $2 million, or 112%, to $3 million for the nine months ended September 30, 2024 due to increased loan sale activity in the nine months ended September 30, 2024 .

Partially offsetting these increases was a decrease in income from bank owned life insurance of $3 million, or 40% , to $4 million due to death benefits received in the prior period.

Noninterest income for the quarter ended March 31, 2025 was $28 million, an increase of $0.4 million, or 1%, from the quarter ended March 31, 2024, which was driven by a $0.8 million increase in income from trust and other financial services from market sensitive income sources .

Additionally, the gain on the sale of SBA loans increased $0.4 million, or 42%, to $1 million for the three months ended March 31, 2025 due to increased loan sale activity.

Service charges and fees decreased $0.5 million, or 3%, to $15 million for the three months ended March 31, 2025 drive n by commercial loan fees and deposit related fees based on customer activity.

Noninterest Expense

(a) Other noninterest expense includes collections expense, marketing expense, FDIC insurance expense, amortization of intangible assets, real estate owned expense, merger, asset disposition and restructuring expense, and other expenses.

(a) Other noninterest expense includes collections expense, marketing expense, FDIC insurance expense, amortization of intangible assets, asset disposition and restructuring expense, and other expenses.

See the "Consolidated Statements of Income" in Item 1.

Financial Statements of this report.

Noninterest expense increased by $3 million, or 4%, from the quarter ended September 30, 2023.

This increase was primarily attributable to an increase in c ompensation and employee benefits expense of $5 million, or 10%, to $56 million for the quarter ended September 30, 2024, from $51 million for the quarter ended September 30, 2023 driven primarily by the build out of the commercial business and related credit, risk management, and internal audit support functions over the past year c oupled with an increase in contracted employees utilized during the quarter and an increase in employee benefits expense.

Noninterest expense increased $12 million, or 5%, to $273 million for the nine months ended September 30, 2024 from $261 million for the nine months ended September 30, 2023.

This increase was primarily attributable to an increase in c ompensation and employee benefits expense of $16 million, or 11%, for the nine months ended September 30, 2023 for the same reasons noted above.

Partially offsetting this increase was a decrease in non-personnel expense related to a decline in merger, asset disposition and restructuring expense and marketing expenses.

Marketing expenses decreased by $2 million, or 19%, for the nine months ended September 30, 2024, due primarily to the timing of deposit marketing campaigns.

Merger, asset disposition and restructuring expense decreased $1 million, or 34%, due to the severance and fixed asset charges related to the branch optimization and personnel reductions during the prior year.

The provision for income taxes decreased by $2 million from the quarter ended September 30, 2023 and $13 million from the nine months ended September 30, 2023 primarily due to lower income before income taxes.

Noninterest expense increased by $2 million, or 2%, from the quarter ended March 31, 2024.

This increase was primarily attributable to an increase in c ompensation and employee benefits expense of $3 million, or 6%, to $55 million for the quarter ended March 31, 2025 driven primarily by an increase in incentive compensation and an increase in medical expenses.

Partially offsetting this was a decrease in professional services expense of 1 million, or 32%.

The provision for income taxes increased by $4 million from the quarter ended March 31, 2024 primarily due to higher income before income taxes.

The provision for income taxes is primarily driven by changes in our current period income before taxes.

3 unchanged sentences

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

Quarter ended Nine months ended September 30,

Quarter ended

2025 December 31,

2024 September 30,

1 unchanged sentence

2024 March 31,

2024 December 31,

2023 September 30,

2023 2024 2023

Net interest income fully tax equivalent (FTE)

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis