Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.
Important factors that might cause such a difference include, but are not limited to:
• 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 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;
• 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, 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 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;
• trade disputes, barriers to trade or the emergence of trade restrictions and the resulting impacts on market volatility and global trade;
• growing fiscal deficits;
• potential recession or slowing of growth in the U.S., Europe and other regions;
• developments in the Middle East;
• 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;
• technological changes that may be more difficult or expensive than expected;
• changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;
• the ability of third-party providers to perform their obligations to us;
• competition among depository and other financial institutions, including with respect to deposit gathering, service charges and fees;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to manage our growth internally and our ability to successfully integrate acquired entities, businesses or branch offices;
• changes in consumer spending, borrowing and savings habits;
• our ability to continue to increase and manage our commercial, including commercial real estate, and personal loans;
• possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;
• changes in the value of our goodwill or other intangible assets;
• the impact of the economy on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;
• our ability to receive regulatory approvals for proposed transactions or new lines of business;
• the effects of any federal government shutdown or the inability of the federal government to manage debt limits:
• a prolonged government shutdown, which could adversely affect the U.S. and global economy;
• changes in the financial performance and/or condition of our borrowers;
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• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters;
• changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
• our ability to access cost-effective funding;
• the effect of global or national war, conflict, or terrorism;
• our ability to manage market risk, credit risk and operational risk;
• the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, and the significant impact that any such outbreaks may have on our growth, operations and earnings;
• the effects of natural disasters and extreme weather events;
• changes in our ability to continue to pay dividends, either at current rates or at all;
• our ability to retain key employees; and
• our compensation expense associated with equity allocated or awarded to our employees.
Overview of Critical Accounting Policies Involving Estimates
Please refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2025 Annual Report on Form 10-K and Note 1 “Basis of Presentation and Informational Disclosures” within this Item 1 of this Quarterly Report for more information.
Recently Issued Accounting Standards
The following Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board ("FASB") have not yet been adopted.
In October 2023, the FASB issued ASU No. 2023-06, "Disclosure Improvements." This ASU includes amendments on several subtopics in the FASB Accounting Standards Codification ("Codification") to incorporate certain disclosures and presentation requirements currently residing in SEC Regulations S-X and S-K. The adoption of this ASU may lead to certain disclosures being relocated into the financial statements. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. These amendments are to be applied prospectively. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. We do not believe this guidance will have a material impact on the Company's financial statements.
In 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. 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. The Company is currently evaluating the effect the updated guidance will have on the Company’s financial statement disclosures.
In September 2025, the FASB issued ASU 2025-06, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”. This ASU addresses the challenges of applying current internal-use software accounting requirements due to the evolution of software development since the original guidance was issued. The ASU removes all references to project stages. The amendments require an entity to start capitalizing software costs when management has authorized and committed to funding the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2027, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted as of the beginning of an annual reporting period. We do not believe this guidance will have a material impact on the Company's financial statements.
In November 2025, the FASB issued ASU 2025-08, "Financial Instruments - Credit Losses (Topic 326): Purchased Loans". This ASU amends the accounting for acquired loans (excluding credit cards) by expanding the scope of acquired financial assets subject to the gross-up approach under ASC 326, for assets that meet certain criteria at acquisition referred to as purchased seasoned loans. The ASU also provides for an irrevocable accounting policy election to measure the ACL on purchased seasoned loans using the amortized cost basis, rather than unpaid principal balance, if a method other than a discounted cash flow method is utilized to estimate expected credit
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losses. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within those annual reporting periods. Early adoption is permitted. This guidance will impact our Consolidated Financial Statements on a prospective basis only when loans are acquired.
In November 2025, the FASB issued ASU 2025-09. "Derivatives and Hedging (Topic 815): Hedge Accounting Improvements." This ASU more closely aligns hedge accounting with the economics of an entity’s risk management activities. The revised guidance allows for individually forecasted transactions with similar risk exposure to be hedged in a group, enables the hedging of the variable price components of forecasted purchases or sales of nonfinancial assets, introduces a model for hedging interest payments on debt instruments with multiple rate options and allows a borrower to select a documented interest rate index and/or tenor without automatically discontinuing hedge accounting. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within those annual reporting periods on a prospective basis. Early adoption is permitted. We do not believe this guidance will have a material impact on the Company's financial statements.
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 (the "Merger Agreement"). 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 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.
The Penns Woods results of operations are included in the Company’s consolidated results since the date of acquisition. Therefore, the Company’s second quarter 2026 results reflect increased levels of average balances, net interest income, and noninterest expense compared to the second quarter 2025 results. After purchase accounting fair value adjustments, the acquisition added $2.2 billion of total assets, including $1.8 billion of loans, $160 million of investments, of which $82 million were immediately sold, as well as $2.0 billion of total liabilities, primarily consisting of $1.6 billion in deposits. The Company recorded goodwill of $64 million and core deposit intangibles of $42 million related to the acquisition.
Comparison of Financial Condition
Total assets at June 30, 2026 were $17.2 billion, an increase of $441 million from December 31, 2025. A discussion of significant changes follows.
Cash and cash equivalents increased by $15 million, or 6%, to $248 million at June 30, 2026, from $234 million at December 31, 2025 due to growth in our deposits and borrowings exceeding the growth in loans and securities.
Total marketable securities increased to $2.5 billion at June 30, 2026, increasing by $190 million, or 8%, from December 31, 2025. Available-for-sale securities increased by $243 million, this was driven by the purchase of additional securities. Held-to-maturity securities declined $53 million, driven by maturities and recurring monthly cash flows.
Gross loans receivable was $13.2 billion at June 30, 2026, increasing $222 million from December 31, 2025. This increase is attributed to net growth of commercial and industrial (C&I) and vehicle loans. Our total personal banking loan portfolio increased by $170 million, to $7.3 billion at June 30, 2026, while our total commercial banking loans increased by $52 million, to $5.9 billion at June 30, 2026.
The following table provides the various loan sectors in our commercial real estate portfolio at June 30, 2026:
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Property type Percent of portfolio
Retail Building 13.1 %
5 or more unit dwelling 11.7
Commercial office building - non-owner occupied 8.3
Nursing Home 7.5
Manufacturing & industrial building 6.8
Single family dwelling 5.8
Residential acquisition & development - 1-4 family, townhouses and apartments 4.5
2-4 family 4.3
Warehouse/storage building 3.9
Commercial office building - owner occupied 3.6
Multi-use building - office and warehouse 3.0
Student housing 2.3
Other medical facility 2.3
Multi-use building - commercial, retail and residential 2.3
Hotel/motel 2.2
All other 18.4
Total 100.0 %
The following table describes the collateral of our commercial real estate portfolio by state at June 30, 2026:
State Percent of portfolio
Pennsylvania 47.8 %
New York 23.4
Ohio 13.8
Indiana 5.0
New Jersey 1.6
All other 8.4
Total 100.0 %
Total deposits increased by $219 million, to $14.2 billion at June 30, 2026, from $13.9 billion at December 31, 2025. This increase was driven primarily by an increase in the balance of money market and savings deposits of $226 million and $93 million, respectively, partly due to customers shifting funds to these products as their time deposits matured. This is partially offset by a decrease in interest-bearing checking and time deposits of $79 million and $89 million, respectively.
As of June 30, 2026, we had $236 million of brokered deposits, which made up 9% of our time deposits and 2% of our total deposit balance at quarter end. As of December 31, 2025, we had $193 million of brokered deposits, which made up 7% of our time deposits and 1% of our total deposit balance at year end. The brokered deposits had an average original term of 7 and 8.5 months, respectively.
In addition, we had $901 million and $941 million of deposits through our participation in the IntraFi Network Deposits and R&T Insured Deposit programs as of June 30, 2026 and December 31, 2025, respectively. 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 3.03% as of June 30, 2026 and 3.00% as of December 31, 2025.
At June 30, 2026 and December 31, 2025, we had total deposits in excess of $250,000 (the limit for FDIC insurance) of $2.1 billion and $1.9 billion, respectively. 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 June 30, 2026
Balance Percent of
total deposits Number of relationships
Uninsured deposits per the Call Report (1) $ 3,945,748 27.9 % 6,287
Less intercompany deposit accounts 1,427,595 10.1 % 12
Less collateralized deposit accounts 445,460 3.2 % 253
Uninsured deposits excluding intercompany and collateralized accounts $ 2,072,693 14.6 % 6,022
(1) Uninsured deposits presented may be different from actual amounts due to titling of accounts.
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Our largest uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $185 million, or 1.3% of total deposits, as of June 30, 2026. Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $404 million, or 2.9%, of total deposits, as of June 30, 2026. The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $344,187 as of June 30, 2026.
Total shareholders’ equity increased to $1.9 billion, or $13.17 per share, at June 30, 2026 compared to $12.94 per share at December 31, 2025, increasing by $37 million in the current year. The increase was the result of year-to-date earnings of $104 million, partially offset by $59 million of cash dividend payments and an increase in accumulated other comprehensive loss of $12 million, or 17%, due to an increase in unrealized loss in the available-for-sale investment portfolio.
Regulatory Capital
Financial institutions and their holding companies are subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct, material effect on a company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting guidelines. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.
Applicable rules limit an organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a “ capital conservation buffer ” consisting of 2.5% of Total, Tier 1 and Common Equity Tier 1 ( “ CET1 ” ) capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
Quantitative measures, established by regulation to ensure capital adequacy, require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of Total, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Capital requirements are presented in the tables below (dollars in thousands).
At June 30, 2026
Actual Minimum capital requirements (1) Well capitalized requirements (2)
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc. $ 1,934,993 15.17 % $ 1,339,188 10.50 % $ 1,275,417 10.00 %
Northwest Bank 1,789,556 14.04 % 1,337,925 10.50 % 1,274,214 10.00 %
Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,557,333 12.21 % 1,084,105 8.50 % 765,250 6.00 %
Northwest Bank 1,630,118 12.79 % 1,083,082 8.50 % 1,019,371 8.00 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,557,333 12.21 % 892,792 7.00 % N/A N/A
Northwest Bank 1,630,118 12.79 % 891,950 7.00 % 828,239 6.50 %
Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc. 1,557,333 9.37 % 664,478 4.00 % N/A N/A
Northwest Bank 1,630,118 9.83 % 663,100 4.00 % 828,874 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.
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At December 31, 2025
Actual Minimum capital requirements (1) Well capitalized requirements (2)
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc. $ 1,877,495 15.14 % $ 1,302,238 10.50 % $ 1,240,226 10.00 %
Northwest Bank 1,735,293 14.01 % 1,300,924 10.50 % 1,238,975 10.00 %
Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,504,320 12.13 % 1,054,192 8.50 % 744,136 6.00 %
Northwest Bank 1,580,217 12.75 % 1,053,129 8.50 % 991,180 8.00 %
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc. 1,504,320 12.13 % 868,158 7.00 % N/A N/A
Northwest Bank 1,580,217 12.75 % 867,283 7.00 % 805,334 6.50 %
Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc. 1,504,320 9.29 % 647,636 4.00 % N/A N/A
Northwest Bank 1,580,217 9.77 % 647,141 4.00 % 808,926 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.
Liquidity
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 June 30, 2026 was 23.56% compared to 18.44% as of December 31, 2025. 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 June 30, 2026, Northwest had $4.3 billion of additional borrowing capacity available with the FHLB, including $250 million on an overnight line of credit, which had a drawn balance of $227 million as of June 30, 2026, as well as $1.9 billion of borrowing capacity available with the Federal Reserve Bank and $419 million with five correspondent banks.
Dividends
We paid $29 million in cash dividends during the quarter ended June 30, 2026 compared to $26 million for the quarter ended June 30, 2025. The common stock dividend payout ratio (dividends declared per share divided by net income per diluted share) for the quarters ended June 30, 2026 and 2025 was 55.6% and 76.9%, respectively, on dividends of $0.20 per share. On July 22, 2026, the Board of Directors declared a cash dividend of $0.20 per share payable on August 18, 2026 to shareholders of record as of August 6, 2026. This represents the 127 th consecutive quarter we have paid a cash dividend.
Nonperforming Assets
The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan is 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well-secured loans that are in the process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.
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June 30, 2026 December 31, 2025
(in thousands)
Loans 90 days or more past due:
Residential mortgage loans $ 10,671 10,001
Home equity loans 4,343 2,492
Vehicle loans 3,433 4,098
Other consumer loans 605 795
Commercial real estate loans 28,535 31,723
Commercial real estate - owner occupied 1,305 1,022
Commercial and industrial loans 15,659 16,269
Total loans 90 days or more past due $ 64,551 66,400
Total real estate owned (REO) $ 63 76
Total loans 90 days or more past due and REO 64,614 66,476
Total loans 90 days or more past due to net loans receivable 0.49 % 0.52 %
Total loans 90 days or more past due and REO to total assets 0.38 % 0.40 %
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due 61,014 65,753
Nonaccrual loans - loans less than 90 days past due 30,337 41,530
Loans 90 days or more past due still accruing 573 646
Total nonperforming loans 91,924 107,929
Total nonperforming assets $ 91,987 $ 108,005
Total nonaccrual loans to total loans 0.69 % 0.82 %
Allowance for Credit Losses
On an ongoing basis, the Credit Administration department, as well as loan officers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. Personal and small business commercial loans are classified primarily by delinquency status. In addition, a meeting is held every quarter with each vertical to monitor the performance and status of commercial loans on an internal watch list. On an on-going basis, the loan officer, in conjunction with a portfolio manager, grades or classifies problem commercial loans or potential problem commercial loans based upon their knowledge of the lending relationship and other information previously accumulated. These rating are periodically reviewed by our Credit Risk Review department as part of a targeted risk-based review program. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”. Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess potential weaknesses, are designated as “special mention”. A “substandard” loan is any loan that has well defined weaknesses, is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” have all the weakness inherent in those classified as “doubtful” and are considered uncollectible.
Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment will be performed.
If it is determined that a loan needs to be individually assessed, the Credit Administration department determines the proper measure of fair value for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent, less costs of sale or disposal. If the measurement of the fair value of the loan is more or less than the amortized cost basis of the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.
If a substandard or doubtful loan is not individually assessed, it is grouped with other loans that possess common characteristics for credit losses and analysis. For the purpose of calculating reserves, we have grouped our loans into seven segments: residential mortgage loans, home equity loans, vehicle loans, consumer loans, commercial real estate loans, commercial real estate loans - owner occupied and commercial and industrial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a twenty four month forecasting period and revert to historical average loss rates thereafter.
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Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.
The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Losses Committee (“ACL Committee”) monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.
In addition to the reviews by management’s ACL Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC and/or the Pennsylvania Department of Banking and Securities perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.
We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.
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 June 30, 2026, 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 decreased by $1 million to $149 million, or 1.13% of total loans at June 30, 2026, which is a slight decrease from 1.15% at December 31, 2025. This decrease was primarily driven by our loan portfolio mix. The provision for credit losses for the quarter ended June 30, 2026 was $7 million, driven by growth in our commercial lending portfolio, including unfunded commitments, compared to $9 million for the quarter ended June 30, 2025.
Total classified loans increased by $71 million to $524 million at June 30, 2026 compared to $453 million at December 31, 2025. This increase was driven by net increases in our C&I and commercial real estate portfolios which increased $26 million and $44 million, respectively. The increase in classified loans was driven by acquired loans to borrowers whose updated financial statements indicated financial deterioration.
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 $91 million at June 30, 2026 decreased by $16 million, or 15%, from $107 million at December 31, 2025, or 0.69% of total loans receivable as of June 30, 2026 and 0.82% of total loans receivable as of December 31, 2025. As a percentage of average loans, annualized net charge-offs were 0.15% for the three months ended June 30, 2026 compared to 0.25% for the year ended December 31, 2025.
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Comparison of Operating Results for the Quarters Ended June 30, 2026 and 2025
The following chart provides a reconciliation of net income from the quarter ended June 30, 2025 to the quarter ended June 30, 2026 (dollars in thousands):
Net income for the quarter ended June 30, 2026 was $54 million, or $0.36 per diluted share, an increase of $20 million, or 59%, from net income of $34 million, or $0.26 per diluted share, for the quarter ended June 30, 2025. This increase in net income resulted primarily from an increase in net interest income of $27 million which was driven by the increase in interest income on loans receivable of $28 million. This was offset by an increase in noninterest expense of $7 million which was driven by an increase in compensation and employee benefits and processing expenses of $8 million and $4 million, respectively. Net income for the quarter ended June 30, 2026 represents annualized returns on average equity and average assets of 11.20% and 1.27%, respectively, compared to 8.26% and 0.93% 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). For example, $100 of tax-exempt income would be presented as $126, an amount that, if taxed at the statutory federal income tax rate of 21%, would yield $100. See the "GAAP to Non-GAAP Reconciliations" for information regarding tax-equivalent adjustments and GAAP results.
Net Interest Income
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Net interest income for the second quarter of 2026 was $147 million which increased $27 million, or 23%, from the second quarter of 2025. Net interest income (FTE) was $148 million for the quarter ended June 30, 2026 and net interest margin (FTE) was 3.75%. Compared to the same quarter of the prior year, net interest income (FTE) increased $27 million and net interest margin (FTE) increased by nineteen basis points. The increase in net interest income (FTE) and net interest margin (FTE) was primarily driven by a higher average balance of earnings assets and interest bearing liabilities acquired from the Penns Woods acquisition.
Average loans receivable increased $1.8 billion, or 16%, from the quarter ended June 30, 2025. This increase was driven by the acquisition of Penns Woods which resulted in an additional $1.8 billion in loans. Interest income on loans receivable increased by $28 million, or 18%, from the same quarter in the prior year, driven by the Penns Woods acquisition and a loan mix shift towards higher yielding commercial loans.
Average investments increased 23% from the second quarter of 2025 driven by the Penns Woods acquisition and a targeted increase in the overall securities portfolio. Interest income on investment securities increased by $7 million, or 50%, from the quarter ended June 30, 2025. The increase is due to the increase in the average balance of investments and the increase in average yield on investments (FTE) to 3.27% for the quarter ended June 30, 2026.
Average deposits grew 16% from the quarter ended June 30, 2025 driven by deposits acquired from the Penns Woods merger. Our average money market, interest-bearing checking, and time deposit accounts grew by $608 million, $364 million, $283 million respectively, from the quarter ended June 30, 2025 partly due to acquisition and higher use of brokered CDs. Interest expense on deposits increased by $4 million, or 8% from the quarter ended June 30, 2025, primarily attributable to an increase in average balance of deposits partially offset by lower cost of funds.
Compared to the quarter ended June 30, 2025, average borrowings saw an 82% increase. This increase was attributable to the acquisition of long-term borrowings from Penns Woods. The increase in the average balance of borrowings resulted in an increase in interest expense on borrowings of $3 million from the quarter ended June 30, 2025.
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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.
Quarter ended June 30,
2026 2025
Average
balance Interest Avg.
yield/
cost (h) Average
balance Interest Avg.
yield/
cost (h)
Assets
Interest-earning assets:
Residential mortgage loans $ 3,030,237 30,219 3.99 % $ 3,091,324 29,978 3.88 %
Home equity loans 1,494,049 21,798 5.85 % 1,145,655 16,265 5.69 %
Consumer loans 2,658,435 36,064 5.44 % 2,073,103 28,648 5.54 %
Commercial real estate loans 3,131,545 49,291 6.23 % 2,836,757 43,457 6.06 %
Commercial and industrial loans 2,779,969 45,753 6.51 % 2,102,115 37,287 7.02 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $656 and $721, respectively) 13,094,235 183,125 5.61 % 11,248,954 155,635 5.55 %
Mortgage-backed securities (c) 2,232,535 18,024 3.23 % 1,790,423 12,154 2.72 %
Investment securities (c) (d) (includes FTE adjustments of $179 and $157, respectively) 299,068 2,652 3.55 % 266,053 1,668 2.51 %
FHLB stock, at cost 34,416 738 8.60 % 17,838 318 7.15 %
Other interest-earning deposits 141,898 1,436 4.00 % 220,416 2,673 4.85 %
Total interest-earning assets (includes FTE adjustments of $835 and $878, respectively) 15,802,152 205,975 5.23 % 13,543,684 172,448 5.11 %
Noninterest-earning assets (e) 1,061,487 924,513
Total assets $ 16,863,639 $ 14,468,197
Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits $ 2,447,522 6,531 1.07 % $ 2,212,175 6,521 1.18 %
Interest-bearing demand deposits 2,973,878 8,422 1.14 % 2,609,887 7,192 1.11 %
Money market deposit accounts 2,728,590 12,723 1.87 % 2,121,088 9,658 1.83 %
Time deposits 2,882,261 22,708 3.16 % 2,599,254 23,455 3.62 %
Total interest-bearing deposits (g) 11,032,251 50,384 1.83 % 9,542,404 46,826 1.97 %
Borrowed funds (f) 379,262 3,740 3.96 % 208,342 2,046 3.94 %
Subordinated debentures 114,800 2,200 7.58 % 114,661 1,148 4.00 %
Junior subordinated debentures 130,181 1,878 5.70 % 129,921 2,106 6.41 %
Total interest-bearing liabilities 11,656,494 58,202 2.00 % 9,995,328 52,126 2.09 %
Noninterest-bearing demand deposits (g) 3,101,574 2,611,597
Noninterest-bearing liabilities 187,436 225,306
Total liabilities 14,945,504 12,832,231
Shareholders’ equity 1,918,135 1,635,966
Total liabilities and shareholders’ equity $ 16,863,639 $ 14,468,197
Net interest income (FTE)/Interest rate spread (FTE) (d) 147,773 3.23 % 120,322 3.02 %
Net interest-earning assets/Net interest margin (FTE) $ 4,145,658 3.75 % $ 3,548,356 3.56 %
Tax equivalent adjustment (d) 835 878
Net interest income, GAAP basis 146,938 119,444
Ratio of interest-earning assets to interest- bearing liabilities 1.36X 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 and fair value marks, which were not material.
(c) Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.
(d) Interest income on tax-free investment securities and tax-free loans are presented on a 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 1.43% and 1.55%, 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 quarter ended June 30, 2026 vs. 2025
Increase/(decrease) due to Total
increase/(decrease)
Rate Volume
Interest-earning assets:
Loans receivable $ 1,684 25,806 27,490
Mortgage-backed securities 2,301 3,569 5,870
Investment securities 692 292 984
FHLB stock, at cost 65 355 420
Other interest-earning deposits (443) (794) (1,237)
Total interest-earning assets 4,299 29,228 33,527
Interest-bearing liabilities:
Savings deposits (618) 628 10
Interest-bearing demand deposits 199 1,031 1,230
Money market deposit accounts 232 2,833 3,065
Time deposits (2,977) 2,230 (747)
Borrowed funds 9 1,685 1,694
Subordinated debt 1,049 3 1,052
Junior subordinated debentures (232) 4 (228)
Total interest-bearing liabilities (2,338) 8,414 6,076
Net change in net interest income (FTE) $ 6,637 20,814 27,451
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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,
2026 2025
Average
balance Interest Avg.
yield/
cost (h) Average
balance Interest Avg.
yield/
cost (h)
Assets
Interest-earning assets:
Residential mortgage loans $ 3,054,223 60,815 3.98 % $ 3,123,353 60,372 3.87 %
Home equity loans 1,497,606 43,310 5.83 % 1,142,708 32,429 5.72 %
Consumer loans 2,594,507 70,334 5.47 % 2,011,012 54,921 5.51 %
Commercial real estate loans 3,236,260 100,628 6.18 % 2,858,064 99,973 6.96 %
Commercial and industrial loans 2,706,468 89,250 6.56 % 2,077,799 73,299 7.02 %
Loans receivable (a) (b) (d) (includes FTE adjustments of $1,319 and $1,442, respectively) 13,089,064 364,337 5.61 % 11,212,936 320,994 5.77 %
Mortgage-backed securities (c) 2,190,996 35,023 3.20 % 1,781,959 23,884 2.68 %
Investment securities (c) (d) (includes FTE adjustments of $382 and $313, respectively) 308,480 5,218 3.38 % 264,945 3,269 2.47 %
FHLB stock, at cost 35,313 1,506 8.60 % 19,342 684 7.13 %
Other interest-earning deposits 140,934 2,307 3.26 % 231,914 5,089 4.36 %
Total interest-earning assets (includes FTE adjustments of $1,701 and $1,755, respectively) 15,764,787 408,391 5.22 % 13,511,096 353,920 5.28 %
Noninterest-earning assets (e) 1,083,506 924,426
Total assets $ 16,848,293 $ 14,435,522
Liabilities and shareholders’ equity
Interest-bearing liabilities:
Savings deposits $ 2,421,847 12,603 1.05 % $ 2,203,289 12,973 1.19 %
Interest-bearing demand deposits 2,986,607 17,163 1.16 % 2,601,604 14,255 1.10 %
Money market deposit accounts 2,669,291 24,851 1.88 % 2,102,124 18,964 1.82 %
Time deposits 2,924,445 46,850 3.23 % 2,614,238 47,959 3.70 %
Total interesting-bearing deposits (g) 11,002,190 101,467 1.86 % 9,521,255 94,151 1.99 %
Borrowed funds (f) 391,835 7,615 3.92 % 216,189 4,252 3.97 %
Subordinated debentures 114,800 4,405 7.63 % 114,618 2,296 4.01 %
Junior subordinated debentures 130,151 3,783 5.78 % 129,889 4,204 6.44 %
Total interest-bearing liabilities 11,638,976 117,270 2.03 % 9,981,951 104,903 2.12 %
Noninterest-bearing demand deposits (g) 3,088,330 2,600,113
Noninterest-bearing liabilities 217,964 227,116
Total liabilities 14,945,270 12,809,180
Shareholders’ equity 1,903,023 1,626,342
Total liabilities and shareholders’ equity $ 16,848,293 $ 14,435,522
Net interest income (FTE)/Interest rate spread (FTE) (d) 291,121 3.19 % 249,017 3.16 %
Net interest-earning assets/Net interest margin (FTE) $ 4,125,811 3.72 % $ 3,529,145 3.72 %
Tax equivalent adjustment (d) 1,701 1,755
Net interest income, GAAP basis 289,420 247,262
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 and fair value marks, which were not material.
(c) Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.
(d) Interest income on tax-free investment securities and tax-free loans are presented on a fully taxable equivalent (“FTE”) basis. 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 1.45% and 1.57%, 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, 2026 vs. 2025
Increase/(decrease) due to Total
increase/(decrease)
Rate Volume
Interest-earning assets:
Loans receivable $ (8,879) 52,222 43,343
Mortgage-backed securities 4,601 6,538 11,139
Investment securities 1,213 736 1,949
FHLB stock, at cost 135 687 822
Other interest-earning deposits (1,313) (1,469) (2,782)
Total interest-earning assets (4,243) 58,714 54,471
Interest-bearing liabilities:
Savings deposits (1,508) 1,138 (370)
Interest-bearing demand deposits 696 2,212 2,908
Money market deposit accounts 607 5,280 5,887
Time deposits (6,079) 4,970 (1,109)
Borrowed funds (51) 3,414 3,363
Subordinated debt 2,102 7 2,109
Junior subordinated debentures (428) 7 (421)
Total interest-bearing liabilities (4,661) 17,028 12,367
Net change in net interest income (FTE) $ 418 41,686 42,104
Provision for Credit Losses
2Q25 3Q25 4Q25 1Q26 2Q26
Provision for credit losses - loans (in thousands) $ 11,456 31,394 5,743 4,954 4,280
Provision/(benefit) for credit losses - unfunded commitments (in thousands) (2,712) (189) 1,981 (585) 2,357
Annualized net charge-offs to average loans 0.18 % 0.29 % 0.40 % 0.16 % 0.15 %
The provision for credit losses decreased by $2 million from the quarter ended June 30, 2025. This decrease included a $7 million decrease in the provision for credit losses - loans, as well as a $5 million increase in the provision for credit losses - unfunded commitments. The current year provision was driven by growth in our commercial lending portfolio. The prior year provision for credit losses - loans was driven by downgrades within our commercial real estate portfolio offset by changes in the economic forecasts. This increase in provision for unfunded was due to an increase in timing of undrawn commitments and increased uncertainty in the economic outlook.
Additionally, the Company saw an increase in classified loans to $524 million, or 3.96% of total loans, at June 30, 2026 from $518 million, or 4.57% of total loans, at June 30, 2025 and $498 million, or 3.81% of total loans, at March 31, 2026. The increase from the prior year was primarily due to classified loans acquired in the Penns Woods acquisition. The increase from the prior quarter was due to changes in our commercial real estate portfolio.
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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 June 30, 2026.
Noninterest Income
(a) Other noninterest income includes gain on sale of investments, gain on real estate owned, net, mortgage banking income, and other operating income. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.
Noninterest income for the quarter ended June 30, 2026 was $34 million, an increase of $3 million from the quarter ended June 30, 2025, and an increase of $8 million from the six months ended June 30, 2025 driven by an increase in service charges and fees driven by deposit related fees based on customer activity related to the Penns Woods acquisition and trust and other financial services income driven by an increase in our wealth management business.
Noninterest Expense
(a) Other noninterest expense includes office operations, collections expense, marketing expense, FDIC insurance expense, amortization of intangible assets, merger, 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 $7 million, or 7%, from the quarter ended June 30, 2025 and $19 million, or 10% from the six months ended June 30, 2025. The increase from the prior year quarter was primarily attributable an increase in compensation and employee benefits expense of $8 million, or 15%, to $63 million for the quarter ended June 30, 2026 driven by an increase in core compensation and benefits expense due to the addition of Penns Woods employees. Additional increases included an increase in processing expenses of $4 million for the quarter ended June 30, 2026, due to the addition of the Penns Woods branches to our
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footprint and an increase of $2 million in amortization of intangible expense related to the acquisition. This was partially offset by a decrease in acquisition expenses of $6 million and a decrease in FDIC insurance premiums of $3 million related to prior period assessment rate changes.
The increase from the six months ended June 30, 2025 was driven by an increase in compensation and employee benefits expense of $12 million, an increase in processing expense of $7 million and an increase in amortization in intangible expense of $3 million. These increases were offset by a decrease in acquisition expenses of $6 million and FDIC insurance premiums of $2 million. These fluctuations were driven by the same reasons noted above.
Income Taxes
The provision for income taxes increased by $6 million from the quarter ended June 30, 2025 and $9 million for the six months ended June 30, 2025. These increases were driven by higher income before taxes, primarily resulting from increased interest income associated with the acquisition, which expanded our loan portfolio.
The provision for income taxes is primarily driven by changes in our current period income before taxes. We anticipate our effective tax rate to be between 23.0% and 25.0% for the year ending December 31, 2026.
GAAP to Non-GAAP Reconciliations
The following non-GAAP financial measures used by the Company provide information useful to investors in understanding our operating performance and trends, and facilitate comparisons with the performance of our peers. The following table summarizes the non-GAAP financial measures derived from amounts reported in the Company’s Consolidated Statements of Income.
Quarter ended
June 30,
2026 March 31,
2026 December 31,
2025 September 30,
2025 June 30,
2025
Net interest income fully tax equivalent (FTE)
Net interest income (GAAP) $ 146,938 142,482 142,166 135,974 119,444
Plus: Taxable-equivalent adjustment 835 866 1,035 970 878
Net interest income FTE 147,773 143,348 143,201 136,944 120,322
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.