What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-06 · 203 added, 94 removed, 340 unchanged (47% of the section changed)

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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.

In ad dition 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.

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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 possibility that any of the anticipated benefits of the 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 operations with those of the Company will be materially delayed or will be more costly or difficult than expected;

the diversion of management’s attention from ongoing business operations and opportunities due to the integration of Penns Woods' operations with those of the Company;

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;

the effect of the Merger on the combined company’s customer and employee relationships and operating results;

and other factors that may affect the results of operations and financial condition of 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;

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• 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;

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• our ability to access cost-effective funding;

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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.

In January 2025, the FASB issued ASU 2025-01, “Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40).” The guidance amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

On July 4, 2025, President Trump signed into law the legislation formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H.

14” and commonly referred to as the One Big Beautiful Bill Act(“the Act”).

The Company is currently evaluating income tax implications of the Act.

The Company does not expect the Act to have a material impact on the Company’s financial statem ents.

Acquisition of Penns Woods

On July 25, 2025, the Company completed its acquisition of Penns Woods, pursuant to the Merger Agreement, which was entered into by the Company and Penns Woods on December 16, 2024.

In accordance with the Merger Agreement, the Company and Penns Woods completed a business combination whereby Penns Woods merged 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”), Penns Woods’ wholly-owned subsidiary banks, Luzerne Bank, a Pennsylvania-chartered state bank, and Jersey Shore State Bank, a Pennsylvania-chartered state bank, merged 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

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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), 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.

Comparison of Financial Condition

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.

Total assets at June 30, 2025 were $14.5 billion, an increase of $77 million from December 31, 2024.

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

A discussion of significant changes follows.

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.

Cash and cash equivalents decreased by $21 million, or 7%, to $267 million at June 30, 2025, from $288 million at December 31, 2024 due to these funds being invested into higher yielding loans and marketable securities.

Total marketable securities remained flat at $1.9 billion at June 30, 2025, increasing by $55 million, or 3%, from December 31, 2024.

Available-for-sale securities increased by $86 million, driven by a increase in net portfolio purchases during the quarter, while held-to-maturity securities decreased $31 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 March 31, 2025:

Gross loans receivable was $11.3 billion at June 30, 2025, increasing $162 million from December 31, 2024.

Our personal banking loan portfolio increased by $98 million, to $6.4 billion at June 30, 2025 while our commercial banking loans increased by $64 million, to $4.9 billion at June 30, 2025.

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

Specifically, our vehicle loans increased by $214 million, or 11%, while our commercial and industrial (C&I) loan portfolio increased by $131 million, or 7% compared to December 31, 2024.

The following table provides the various loan sectors in our commercial real estate portfolio at June 30, 2025:

Property type Percent of portfolio

Retail Building 13.7 %

5 or more unit dwelling 13.8 %

Commercial office building - non-owner occupied 10.3

Retail Building 13.2

Nursing Home 11.3

Commercial office building - non-owner occupied 9.9

Manufacturing & industrial building 6.6

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Commercial office building - owner occupied 4.1

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

Multi-use building - commercial, retail and residential 3.6

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Other medical facility 3.5

Student housing 2.4

Single family dwelling 2.3

Residential acquisition & development - 1-4 family, townhouses and apartments 3.3

Hotel/motel 2.3

Single family dwelling 2.2

Student housing 2.1

Agricultural real estate 2.1

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Total 100.0 %

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

The following table describes the collateral of our commercial real estate portfolio by state at June 30, 2025:

State Percent of portfolio

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Total 100.0 %

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.

Total deposits increased by $56 million, to $12.2 billion at June 30, 2025 from $12.1 billion at December 31, 2024.

This increase was driven by a $145 million, or 7%, increase in money market accounts and $40 million, or 2%, increase in savings deposits.

Partially offsetting these increases was a decrease in time deposits of $107 million, or 4%, driven primarily by a decrease in brokered CDs, and

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a $44 million, or 2%, 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.

As of June 30, 2025, we had $106 million of brokered deposits, which made up 4% of our time deposits and 1% of our total deposit balance at quarter end.

The balance carried an average all-in cost of 4.18% 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 millio n of deposits through our participation in the Intrafi Network Deposits and FIS Insured Deposit programs.

In addition, at quarter end we had $731 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 Bank receives an equal amount of deposits from other member banks.

The balance carried an average cost of 3.37%.

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 June 30, 2025 and December 31, 2024, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $2.0 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 March 31, 2025

As of June 30, 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 $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.

Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $40 million, or 0.24% of total deposits, as of June 30, 2025.

Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $194 million, or 1.59%, of total deposits, as of June 30, 2025.

The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $300,249 as of June 30, 2025.

Total shareholders’ equity remained stable at $1.6 billion, or $12.84 per share, at June 30, 2025 compared to $12.52 per share at December 31, 2024, increasing by $45 million in the current year.

This increase was the result of year-to-date earnings of $77 million as well as an improvement in accumulated other comprehensive loss of $15 million, or 14%, primarily due to a decrease in unrealized losses in the available-for-sale investment portfolio, partially offset by $51 million of cash dividend payments for the six months ended June 30, 2025.

Regulatory Capital

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

At March 31, 2025

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At June 30, 2025

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

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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.

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 June 30, 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.

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Regulatory Considerations

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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.

In May 2025, President Trump signed a Congressional Review Act resolution that overturned the Consumer Financial Protection Bureau's December 2024 final rule that would have taken effect October 1, 2025 and imposed certain requirements on overdraft fees, similar to those that apply to credit cards, unless the financial institution limited the overdraft fee to an amount that covered the institution's costs and losses to provide the service or $5.

In July 2025, the FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency issued a notice of proposed rulemaking which, if finalized, would rescind the Community Reinvestment Act ("CRA") final rule issued in October 2023 and reinstate the CRA framework that existed prior to the issuance of that rule.

Implementation of the October 2023 final rule, which was subject to an injunction and has not taken effect, would have changed how the agencies evaluate CRA performance.

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 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.

Northwest Bank’s liquidity ratio at June 30, 2025 was 12.51%.

No rthwest 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 June 30, 2025, Northwest had $3.8 billion of additional borrowing capacity available with the FHLB, including $250 million on an overnight line of credit, which had no balance as of June 30, 2025, as well as $590 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 June 30, 2025 compared to $25 million for the quarter ended June 30, 2024.

The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for June 30, 2025 and 2024 was 76.9% and 500.0% on dividends of $0.20 per share.

On July 17, 2025, the Board of Directors declared a cash dividend of $0.20 per share payable on August 19, 2025 to shareholders of record as of August 8, 2025.

This represents the 123 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.

March 31, 2025 December 31, 2024

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June 30, 2025 December 31, 2024

(in thousands)

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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.

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

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

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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, 2025, 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 June 30, 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 $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.

The ACL increased by $12 million to $129 million, or 1.14% of total loans at June 30, 2025, up from 1.04% at December 31, 2024.

This increase was driven by downgrades and individual assessments within our commercial real estate portfolio offset by changes in the economic forecasts.

Total classified loans increased by $246 million to $518 million at June 30, 2025 compared to $272 million at December 31, 2024.

This increase was driven by changes in our commercial real estate portfolio which increased $198 million.

The increase in classified loans was primarily driven by the remaining long-term healthcare portfolio being returned to held for investment, construction projects with lease up rates lower than projected and a few larger C&I borrowers whose performance deteriorateded during the 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 $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.

Nonaccrual loans of $102 million at June 30, 2025 increased by $41 million, or 67%, from $61 million at December 31, 2024, or 0.90% of total loans receivable as of June 30, 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 0.18% for the three months ended June 30, 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 held for sale.

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Comparison of Operating Results for the Quarters Ended June 30, 2025 and 2024

The following chart provides a reconciliation of net income from the quarter ended June 30, 2024 to the the quarter ended June 30, 2025 (dollars in thousands):

Net income for the quarter ended June 30, 2025 was $34 million, or $0.26 per diluted share, an increase of $29 million, or 609%, from net income of $5 million, or $0.04 per diluted share, for the quarter ended June 30, 2024.

This increase in net income resulted primarily from a increase in net interest income of $13 million, or 12% and noninterest income of $40 million or partially offset by a $9 million increase in the provision for credit losses, an increase in noninterest expense of $5 million, or 6% and a $9 million, increase in income tax expense.

Net income for the quarter ended June 30, 2025 represents annualized returns on average equity and average assets of 8.26% and 0.93%, respectively, compared to 1.24% and 0.13% 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 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 .

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Net interest income for the second quarter of 2025 was $119 million which increased $13 million, or 12%, from the second quarter of 2024.

Net interest income (FTE) was $120 million for the quarter ended June 30, 2025 and net interest margin (FTE) was 3.56%.

Compared to the same quarter of the prior year, net interest income (FTE) increased $13 million and net interest margin (FTE) increased by thirty-six 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.

For the six months ended June 30, 2025 , net interest income (FTE) was $249 million , an increase of $37 million , or 18% from the same period last year.

Net interest margin increased by fifty-seven basis points.

Similar to the quarterly fluctuations noted above, the increase in net interest income (FTE) included increases in interest income driven by higher interest-earning asset yields, including the non-accrual interest recovery, and balances, partially offset by lower interest-bearing liability costs and balances.

Average loans receivable decreased $120 million, or 1%, from the quarter ended June 30, 2024.

This decrease was driven by personal banking loans and commercial real estate loans, which decreased by $265 million and $187 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 decreases were partially offset by an increase in commercial loans of $332 million from the quarter ended June 30, 2024 as we have continued to build-out our commercial lending verticals.

Interest income on loans receivable increased by $1 million, or 1%, from the same quarter in the prior year, and by $16 million, or 5%, from the same six-month period in the prior year, driven by a loan mix shift towards higher yielding commercial loan s and an interest recovery of $13.1 million on a non-accrual commercial real estate loan payoff during the first quarter of 2025.

Average investments increased 2% from the second quarter of 2024 driven by the reinvestment of cash flows from regular principal payments and maturities.

Interest income on investment securities increased by $3 million, or 29%, from the quarter ended June 30, 2024 and increased $7 million, or 35%, for the six months ended June 30, 2024.

The increase is due to the increase in the average

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yield on investments (FTE) to 2.69% for the quarter ended June 30, 2025 and 2.65% for the six months ended June 30, 2025 coupled with growth in the average balance of investments.

Average deposits grew 1% from the quarter ended June 30, 2024 driven by an increase in our average money market and saving deposit accounts which grew by $163 million and $68 million, respectively, from the quarter ended June 30, 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 $233 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.

Interest expense on deposits decreased by $6 million, or 11% from the quarter ended June 30, 2024, and by $6 million, or 6% from the six months ended June 30, 2024, 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 June 30, 2024, average borrowings saw a 36% reduction.

This decrease was 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 $2 million from the quarter ended June 30, 2024 and $6 million from the six months ended June 30, 2024.

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Average Balance Sheet

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Average balances are calculated using daily averages.

Quarter ended March 31,

Quarter ended June 30,

balance Interest Avg.

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(h) Annualized.

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Rate/Volume Analysis

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

For the quarter ended March 31, 2025 vs.

For the quarter ended June 30, 2025 vs.

Increase/(decrease) due to Total

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Net change in net interest income (FTE) $ 10,980 1,618 12,598

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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

Six months ended June 30,

balance Interest Avg.

cost (h) Average

balance Interest Avg.

Interest-earning assets:

Residential mortgage loans $ 3,123,353 60,372 3.87 % $ 3,367,636 64,855 3.85 %

Home equity loans 1,142,708 32,429 5.72 % 1,194,385 34,596 5.83 %

Consumer loans 2,011,012 54,921 5.51 % 2,041,008 51,367 5.06 %

Commercial real estate loans 2,858,064 99,973 6.96 % 3,011,493 89,066 5.85 %

Commercial loans 2,077,799 73,299 7.02 % 1,742,506 65,083 7.39 %

Loans receivable (a) (b) (d) (includes FTE adjustments of $1,442 and $1,442, respectively) 11,212,936 320,994 5.77 % 11,357,028 304,967 5.40 %

Mortgage-backed securities (c) 1,781,959 23,884 2.68 % 1,725,696 17,370 2.01 %

Investment securities (c) (d) (includes FTE adjustments of $313 and $272, respectively) 264,945 3,269 2.47 % 310,507 2,742 1.77 %

FHLB stock, at cost 19,342 684 7.13 % 28,897 1,105 7.69 %

Other interest-earning deposits 231,914 5,089 4.36 % 99,252 2,623 5.23 %

Total interest-earning assets (includes FTE adjustments of $1,755 and $1,714, respectively) 13,511,096 353,920 5.28 % 13,521,380 328,807 4.89 %

Noninterest-earning assets (e) 924,426 912,222

Total assets $ 14,435,522 $ 14,433,602

Liabilities and shareholders’ equity

Interest-bearing liabilities:

Savings deposits $ 2,203,289 12,973 1.19 % $ 2,133,157 10,993 1.04 %

Interest-bearing demand deposits 2,601,604 14,255 1.10 % 2,547,343 12,048 0.95 %

Money market deposit accounts 2,102,124 18,964 1.82 % 1,959,661 16,514 1.69 %

Time deposits 2,614,238 47,959 3.70 % 2,765,351 60,885 4.43 %

Total interesting-bearing deposits (g) 9,521,255 94,151 1.99 % 9,405,512 100,440 2.15 %

Borrowed funds (f) 216,189 4,252 3.97 % 396,444 9,370 4.75 %

Subordinated debentures 114,618 2,296 4.01 % 114,267 2,296 4.02 %

Junior subordinated debentures 129,889 4,204 6.44 % 129,630 4,908 7.49 %

Total interest-bearing liabilities 9,981,951 104,903 2.12 % 10,045,853 117,014 2.34 %

Noninterest-bearing demand deposits (g) 2,600,113 2,581,646

Noninterest-bearing liabilities 227,116 260,452

Total liabilities 12,809,180 12,887,951

Shareholders’ equity 1,626,342 1,545,651

Total liabilities and shareholders’ equity $ 14,435,522 $ 14,433,602

Net interest income (FTE)/Interest rate spread (FTE) (d) 249,017 3.16 % 211,793 2.55 %

Net interest-earning assets/Net interest margin (FTE) $ 3,529,145 3.72 % $ 3,475,527 3.15 %

Tax equivalent adjustment (d) 1,755 1,714

Net interest income, GAAP basis 247,262 210,079

Ratio of interest-earning assets to interest-bearing liabilities 1.35X 1.35X

(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 fully taxable equivalent (“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 1.57% and 1.69%, respectively.

(h) Annualized.

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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 (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 six months ended June 30, 2025 vs.

Increase/(decrease) due to Total

increase/(decrease)

Interest-earning assets:

Loans receivable $ 20,152 (4,125) 16,027

Mortgage-backed securities 5,760 754 6,514

Investment securities 1,090 (563) 527

FHLB stock, at cost (81) (340) (421)

Other interest-earning deposits (391) 2,857 2,466

Total interest-earning assets 26,530 (1,417) 25,113

Interest-bearing liabilities:

Savings deposits 1,567 413 1,980

Interest-bearing demand deposits 1,910 297 2,207

Money market deposit accounts 1,165 1,285 2,450

Time deposits (10,154) (2,772) (12,926)

Borrowed funds (1,573) (3,545) (5,118)

Subordinated debt (7) 7 —

Junior subordinated debentures (713) 9 (704)

Total interest-bearing liabilities (7,805) (4,306) (12,111)

Net change in net interest income (FTE) $ 34,335 2,889 37,224

Provision for Credit Losses

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

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.

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.

The provision for credit losses increased by $9 million from the quarter ended June 30, 2024.

This increase included a $9 million increase in the provision for credit losses - loans, as well as a $0.2 million decrease in the provision for credit losses - unfunded commitments.

The changes in the provision noted above is primarily driven by downgrades within our commercial real estate portfolio offset by 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 $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.

Additionally, the Company saw an increase in classified loans to $518 million, or 4.57% of total loans, at June 30, 2025 from $257 million, or 2.26% of total loans, at June 30, 2024 and $279 million, or 2.49% of total loans, at March 31, 2025.

This increase was driven by changes in our commercial real estate portfolio which increased $195 million.

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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 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 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 income for the quarter ended June 30, 2025 was $31 million, an increase of $40 million from the quarter ended June 30, 2024, and an increase of $40 million from the six months ended June 30, 2024 which was driven by the loss on sale in investments that occurred in the second quarter of 2024 .

Excluding the loss on sale of securities, noninterest income was flat from the quarter ended June 30, 2025 and increased $1 million, or 1%, from the six months ended June 30, 2024, driven by growth within our trust and other financial services operations.

Noninterest Expense

2 unchanged sentences

Financial Statements of this report.

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.

Noninterest expense increased by $5 million, or 6%, from the quarter ended June 30, 2024 and $7 million, or 4% from the six months ended June 30, 2024.

The increase from the prior year quarter was primarily attributable to the increase in acquisition expense of $4 million, or 226.1%, to $6 million for the quarter ended June 30, 2025, which is driven by the Penns Woods acquisition and an increase in c ompensation and employee benefits expense of $2 million, or 3%, to $55 million for the quarter ended June 30, 2025

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driven primarily by an increase in core and incentive compensation.

Partially offsetting this was a decrease in processing expense of $2 millions , or 12% based on lower software spend.

The increase from the six months ended June 30, 2024 was driven by an increase in acquisition expense of $4 million, or 157%, driven by the Penns Woods acquisition and an increase in compensation and employee benefits expense of $5 million or 4% driven primarily by an increase in core and incentive compensation and benefit costs.

These increases were offset by a decrease in processing expense of $2 million, or 8%, for the same reasons discussed above.

The provision for income taxes increased by $9 million from the quarter ended June 30, 2024 and by $14 million from the six months ended June 30, 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.

4 unchanged sentences

Quarter ended

2025 March 31,

2025 December 31,

1 unchanged sentence

2024 June 30,

2024 March 31,

Net interest income fully tax equivalent (FTE)

2 unchanged sentences

Net interest income FTE 120,322 128,685 115,048 112,216 107,724

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis