ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our principal business consists of collecting deposits and making loans primarily secured by various types of collateral, including real estate and other assets in the markets in which we are located. Attracting and maintaining deposits is affected by a number of factors, including interest rates paid on competing deposits and other investments offered by other financial and non-financial institutions, account maturities, fee structures, and levels of personal income and savings. Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of alternative lenders and regional economic conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from investment and mortgage-backed securities and income provided from operations.
Our earnings depend primarily on net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, fees related to investment management and trust services, net gains and losses on the sale of assets, including SBA loans, and mortgage banking income. Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including employee compensation and benefits, occupancy expense and processing costs, as well as by state and federal income tax expense.
Our net income was $126 million, or $0.92 per diluted share, for the year ended December 31, 2025 compared to $100 million, or $0.79 per diluted share, for the year ended December 31, 2024, and $135 million, or $1.06 per diluted share, for the year ended December 31, 2023. The provision for credit losses was $56 million for the year ended December 31, 2025 compared to $25 million for the year ended December 31, 2024, and $23 million for the year ended December 31, 2023.
Selected Financial and Other Data
The summary financial information presented below is derived in part from the Company’s Consolidated Financial Statements. The following is only a summary and should be read in conjunction with the Consolidated Financial Statements and notes included elsewhere in this document. The information at December 31, 2025 and 2024 and for the years ended December 31, 2025, 2024 and 2023 is derived in part from the audited Consolidated Financial Statements that appear in this document.
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At December 31,
(In thousands)
Selected Consolidated Financial Data:
Total assets
Cash and cash equivalents
Marketable securities held-to-maturity
Marketable securities available-for-sale
Mortgage-backed securities held-to-maturity
Mortgage-backed securities available-for-sale
Loans held-for-sale
Loans receivable, net of allowance for credit losses:
Residential mortgage loans
Home equity loans
Consumer loans
Commercial real estate loans
Commercial loans
Total loans receivable, net
Deposits
Borrowed funds
Subordinated debt
Shareholders’ equity
For the years ended December 31,
(In thousands except per share data)
Selected Consolidated Operating Data:
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
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At or for the year ended December 31,
Selected Financial Ratios and Other Data:
Return on average assets (1), (5), (6), (7)
Return on average equity (2), (5), (6), (7)
Average capital to average assets
Capital to total assets
Tangible common equity to tangible assets (8)
Net interest rate spread (3)
Net interest margin (4)
Net interest income to noninterest expense (5), (6), (7)
Noninterest expense to average assets (5), (6), (7)
Efficiency ratio (5), (6), (7)
Noninterest income to average assets
Dividend payout ratio
Nonperforming loans to net loans receivable
Nonperforming assets to total assets
Allowance for credit losses to nonperforming loans
Allowance for credit losses to loans receivable
Average interest-earning assets to average interest-bearing liabilities
Number of banking offices
(1) Represents net income divided by average assets.
(2) Represents net income divided by average equity.
(3) Represents average yield on interest-earning assets less average cost of interest-bearing liabilities (shown on a fully taxable equivalent (“FTE”) basis).
(4) Represents net interest income as a percentage of average interest-earning assets (shown on a FTE basis).
(5) 2023 includes $6.7 million in merger, asset disposition and restructuring expense.
(6) 2024 includes $5.8 million in merger, asset disposition and restructuring expense and a $39.4 loss on sale of investments.
(7) 2025 includes $42.8 million in merger, asset disposition and restructuring expense and $20.7 million of CECL day 1 provision expense.
(8) Excludes goodwill and other intangible assets (non-GAAP).
The following non-GAAP financial measures used by the Company provide information useful to investors in understanding our operating performance and trends, and facilitate comparisons with the performance of our peers. The following table summarizes the non-GAAP financial measures derived from amounts reported in the Company’s Consolidated Statements of Financial Condition.
As of December 31,
Tangible common equity to assets
Total shareholders’ equity
Less: goodwill and intangible assets
Tangible common equity
Total assets
Less: goodwill and intangible assets
Tangible assets
Tangible common equity to tangible assets
Critical Accounting Estimates
Our significant accounting policies are described in Note 1 of the notes to the Consolidated Financial Statements . Certain accounting policies are important to the understanding of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations. The following is the accounting estimate we believe is critical.
Allowance for Credit Losses. We recognize that losses will be experienced on assets and that the risk of loss varies with the type of asset, the creditworthiness of a borrower, general economic conditions and the quality of the collateral, if any. We maintain an allowance for expected lifetime losses in the loan portfolio. The allowance for credit losses represents management’s estimate of
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lifetime expected losses based on all available information. The allowance for credit losses is based on management’s evaluation of relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The loan portfolio is reviewed regularly by management in its determination of the allowance for credit losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review our allowance for credit losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for credit losses, a combination of statistical models are applied to various pools of outstanding loans. We use a 24 month forecasting period and revert to historical average loss rates thereafter. Credit relationships that have been classified as substandard or and are than or equal to $1.0 million are reviewed by the Credit Administration department to determine if they no longer continue to demonstrate similar risk characteristics to their loan pool. If a loan no longer demonstrates similar risk characteristics to their loan pool they are removed from the pool and an individual assessment is performed. The allowance calculation is also supplemented with qualitative reserves that take into consideration the current portfolio and specific risk characteristics, such as changes in underwriting standards, portfolio mix, level, or term, as well as changes in environmental conditions, among other factors, that have occurred but are not yet reflected in the quantitative model component.
Our allowance for credit losses is sensitive to a number of inputs, most notably the macroeconomic forecast assumptions as well as the reasonable and supportable forecasting periods that are incorporated in our estimate of credit losses. Therefore, as the macroeconomic environment and related forecasts change or decisions are made to shorten or lengthen the forecasting period, the allowance for credit losses may change materially. The following sensitivity analyses does not represent management ’ s expectations of the deterioration of our portfolios or the economic environment, but is provided as a hypothetical scenario to assess the sensitivity of the allowance for credit losses to changes in key inputs. We utilized a multi-scenario based macroeconomic forecast in determining the December 31, 2025 allowance for credit losses, which included a weighting of three scenarios: an upside scenario, a baseline scenario and a downside scenario. We placed the most weight on the baseline scenario, with the remaining weight split evenly between the upside and downside scenarios. If we placed 100% weighting on the downside scenario, the quantitative allowance for credit losses would have been approximately $89 million higher.
Although management believes that it uses the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously. Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. For further information related to our allowance for credit , see Note 1(f) of the notes to the Consolidated Financial Statements.
Recently Issued Accounting Standards
The following Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) have not yet been adopted.
In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements.” This ASU includes amendments on several subtopics in the FASB Accounting Standards Codification (“Codification”) to incorporate certain disclosures and presentation requirements currently residing in SEC Regulations S-X and S-K. The adoption of this ASU may lead to certain 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. The Company is currently evaluating the effect the updated guidance will have on the Company’s financial statement disclosures. 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
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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.
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 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 forecasts 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.
Other Developments
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. Con. Res. 14” and commonly referred to as the One Big Beautiful Bill Act(“the Act”). The enactment of the Act did not 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. In accordance with the Merger Agreement, the Company and Penns Woods completed the Merger. Immediately after 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 year to date 2025 results reflect increased levels of average balances, net interest income, and noninterest expense compared to the prior year 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 preliminary goodwill of $63 million and core deposit intangibles of $42 million related to the acquisition.
Balance Sheet Analysis
Assets. Total assets at December 31, 2025 were $16.8 billion, increasing by $2.4 billion from December 31, 2024. This increase in assets was driven by the addition of the Penns Woods assets. A discussion of significant changes follows.
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Cash and cash equivalents . Cash and cash equivalents decreased by $55 million, or 19%, to $234 million at December 31, 2025, from $288 million at December 31, 2024. This decrease was primarily due to these funds being invested in higher yielding loans and marketable securities.
Marketable securities . Marketable securities increased to $2.3 billion at December 31, 2025 from $1.9 billion at December 31, 2024. Available-for-sale marketable securities increased $477 million driven by the acquisition of Penns Woods which included $160 million in marketable securities, of which, $82 million were immediately sold. Additional increases were driven by the purchase of additional securities and the improvement of our unrealized loss position. Held-to-maturity securities decreased $67 million driven by maturities and regular monthly cash flows.
The following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated.
At December 31,
Amortized
cost
Fair
value
Amortized
cost
Fair
value
(In thousands)
Residential mortgage-backed securities available-for-sale:
Fixed rate pass-through
Variable rate pass-through
Fixed rate agency CMOs
Variable rate agency CMOs
Total residential mortgage-backed securities available-for-sale
Marketable securities available-for-sale:
U.S. Government, agency and GSEs
Municipal securities
Corporate debt issues
Total marketable securities available-for-sale
The following table sets forth certain information regarding the amortized cost and fair value of our held-to-maturity marketable securities portfolio and mortgage-backed securities portfolio at the dates indicated.
At December 31,
Amortized
cost
Fair
value
Amortized
cost
Fair
value
(In thousands)
Residential mortgage-backed securities held-to-maturity:
Fixed rate pass-through
Variable rate pass-through
Fixed rate agency CMOs
Variable rate agency CMOs
Total residential mortgage-backed securities held-to-maturity
Marketable securities held-to-maturity:
U.S. Government and agencies
Total marketable securities held-to-maturity
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The following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated.
At December 31,
(In thousands)
Residential mortgage-backed securities:
FNMA
GNMA
FHLMC
Other (including non-agency)
Total residential mortgage-backed securities
Marketable Securities Portfolio Maturities and Yields . The following table sets forth the scheduled maturities, carrying values, amortized cost, market values and weighted average yields for our marketable securities and mortgage-backed securities portfolios at December 31, 2025. The annualized weighted average yields are calculated by taking the interest of the marketable securities divided by the amortized cost. Adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust.
One year or less
More than one year
to five years
More than five years
to ten years
More than ten years
Total
Amortized
cost
Annualized
weighted
average
yield
Amortized
cost
Annualized
weighted
average
yield
Amortized
cost
Annualized
weighted
average
yield
Amortized
cost
Annualized
weighted
average
yield
Amortized
cost
Fair
value
Annualized
weighted
average
yield
(Dollars in thousands)
Marketable securities
available-for-sale:
Government sponsored entities
U.S. Government and
agency obligations
Municipal securities
Corporate debt issues
Total marketable securities available-for-sale
Residential mortgage-backed securities available-for-sale:
Pass-through certificates
CMOs
Total residential
mortgage-backed securities available-for-sale
Marketable securities
held-to-maturity:
U.S. Government and
agency obligations
Total investment securities held-to-maturity
Residential mortgage-backed securities held-to-maturity:
Pass-through certificates
CMOs
Total residential
mortgage-backed securities held-to-maturity
Total marketable securities and mortgage-backed securities
Further information and analysis of our investment portfolio, including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity marketable securities and tables showing the fair value and gross unrealized losses on marketable securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in Note 5 of the Notes to the Consolidated Financial Statements.
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Loans Receivable . Gross loans receivable increased by $1.8 billion, or 16%, to $13.0 billion at December 31, 2025, from $11.2 billion at December 31, 2024. Our personal banking loan portfolio increased by $849 million, or 13%, to $7.2 billion at December 31, 2025 from $6.3 billion at December 31, 2024. Commercial banking increased by $978 million, or 20%, to $5.8 billion at December 31, 2025 from $4.9 billion at December 31, 2024. These increases are primarily driven by the Penns Woods acquisition of $1.8 billion in loans.
Set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Personal Banking:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans (1)
Total Personal Banking
Commercial Banking:
Commercial real estate
Commercial real estate - owner occupied
Commercial loans
Total Commercial Banking
Total loans receivable, gross
Total allowance for credit losses
Total loans receivable, net
(1) Consists primarily of secured and unsecured personal loans.
The following table sets forth the maturity of our loan portfolio at December 31, 2025. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Adjustable and floating-rate loans are included in the period in which the contractual repayment is due or they contractually mature, if interest only, and fixed-rate loans are included in the period in which the contractual repayment is due.
At December 31, 2025 (In thousands)
Due in one year or less
Due after
one year
through
five years
Due after
five years
through
fifteen years
Due after fifteen years
Total
Personal Banking:
Residential mortgage loans
Home equity loans
Consumer loans
Total Personal Banking
Commercial Banking:
Commercial real estate loans
Commercial loans
Total Commercial Banking
Total Loans
Net unearned income and unamortized premiums and discounts
Total loans receivable
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The following table sets forth at December 31, 2025, the dollar amount of all fixed-rate loans due one year or more after December 31, 2025.
At December 31, 2025 (In thousands)
Due after
one year
through
five years
Due after
five years
through
fifteen years
Due after fifteen years
Total
Personal Banking:
Residential mortgage loans
Home equity loans
Consumer loans
Total Personal Banking
Commercial Banking:
Commercial real estate loans
Commercial loans
Total Commercial Banking
Total Loans
The following table sets forth at December 31, 2025, the dollar amount of all adjustable-rate loans due one year or more after December 31, 2025. Adjustable and floating-rate loans are included in the table based on the contractual due date of the loan.
At December 31, 2025 (In thousands)
Due after
one year
through
five years
Due after
five years
through
fifteen years
Due after fifteen years
Total
Personal Banking:
Residential mortgage loans
Home equity loans
Consumer loans
Total Personal Banking
Commercial Banking:
Commercial real estate loans
Commercial loans
Total Commercial Banking
Total Loans
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The following table provides the various loan sectors in our commercial real estate portfolio at December 31, 2025:
December 31, 2025
Property type
Percent of portfolio
Retail Building
5 or More Unit Dwelling
Commercial Office Building - non-owner occupied
Nursing Home
Manufacturing & Industrial Building
Commercial office building - owner occupied
Residential acquisition & development - 1-4 family, townhouses and apartments
Multi-use building - commercial, retail and residential
Warehouse/storage building
Multi-use building - office and warehouse
Other Medical Facility
All Other Types
Total
The following table describes our commercial real estate portfolio by state at December 31, 2025:
December 31, 2025
State
Percent of portfolio
New York
Pennsylvania
Ohio
Indiana
All other
Total
Deposits . Total deposits increased by $1.8 billion, or 15%, to $13.9 billion at December 31, 2025 from $12.1 billion at December 31, 2024. This increase was driven by the Penns Woods acquisition which resulted in an additional $1.6 billion in deposits.
As of December 31, 2025, we had $193 million of brokered deposits, which made up 7% of our time deposits and 1% o f our total deposit balance at year end. The balance carried an average all-in co st of 4.99% and an average original term of 7.45 months. These purchases were through a registered broker, as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources.
In addition, at year end we had $941 millio n of deposits through our participation in the Intrafi Network Deposits and R&T Insured Deposit programs. These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC insurance coverage above the insurance coverage available to our depositors at a single FDIC-insured institution, by placing multiple interest-bearing demand accounts at o ther member banks and Northwest receives an equal amount of deposits from other member banks. The balance carried an average cost of 3.00%.
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The following table sets forth the dollar amount of deposits in the various types of accounts we offered at the dates indicated.
At December 31,
Balance
Percent (1)
Rate (2)
Balance
Percent (1)
Rate (2)
(Dollars in thousands)
Savings deposits
Demand deposits
Money market deposit accounts
Time deposits:
Maturing within 1 year
Maturing 1 to 3 years
Maturing more than 3 years
Total certificates
Total deposits
(1) Represents percentage of total deposits.
(2) Represents weighted average nominal rate at year end.
The following table sets forth the dollar amount of deposits in each state by branch location as of December 31, 2025.
State
Balance
Percent
(Dollars in thousands)
Pennsylvania
New York
Ohio
Indiana
Total
The following table indicates the amount of our certificates of deposits of $250,000 or more by time remaining until maturity at December 31, 2025.
Maturity period
Certificates of deposit
(In thousands)
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
At December 31, 2025 and 2024, we had total deposits in excess of $250,000 per depositor per account ownership category (the limit for FDIC insurance) of $2.0 billion and $1.9 billion, respectively. At those dates, we had no deposits that were uninsured for any other reason. The following table provides details regarding the Company’s uninsured deposits portfolio:
As of December 31, 2025
Balance
Percent of
total deposits
Number of relationships
Uninsured deposits per the Call Report (1)
Less intercompany deposit accounts
Less collateralized deposit accounts
Uninsured deposits excluding intercompany and collateralized accounts
(1) Uninsured deposits presented may be different from actual amounts due to titling of accounts.
Our large st uninsured depositor, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $42.4 million, or 0.31% of total deposits, as of December 31, 2025. Our top ten largest uninsured depositors, excluding intercompany and collateralized deposit accounts, had an aggregate uninsured deposit balance of $236.3 million, or 1.69% of total deposits, as of December 31, 2025. The average uninsured deposit account balance, excluding intercompany and collateralized accounts, was $326,000 as of December 31, 2025.
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Borrowings. Borrowings increased by $246 million, or 78%, to $561 million at December 31, 2025 from $315 million at December 31, 2024. This increase was primarily attributable to the acquired long term borrowings and additional short term borrowings to fund loan and securities growth.
The following table sets forth information concerning our borrowings at the dates and for the periods indicated.
During the years ended December 31,
(Dollars in thousands)
FHLB borrowings:
Average balance outstanding
Maximum outstanding at end of any month during year
Balance outstanding at end of year
Weighted average interest rate during year
Weighted average interest rate at end of year
Collateralized borrowings:
Average balance outstanding
Maximum outstanding at end of any month during year
Balance outstanding at end of year
Weighted average interest rate during year
Weighted average interest rate at end of year
Collateral received:
Average balance outstanding
Maximum outstanding at end of any month during year
Balance outstanding at end of year
Weighted average interest rate during year
Weighted average interest rate at end of year
Subordinated borrowings:
Average balance outstanding
Maximum outstanding at end of any month during year
Balance outstanding at end of year
Weighted average interest rate during year
Weighted average interest rate at end of year
Total borrowings:
Average balance outstanding
Maximum outstanding at end of any month during year
Balance outstanding at end of year
Weighted average interest rate during year
Weighted average interest rate at end of year
Shareholders’ equity . Total shareholders’ equity at December 31, 2025 was $1.89 billion, or $12.94 per share, an increase of $294 million, or 18.4%, from $1.60 billion, or $12.52 per share, at December 31, 2024. This increase was the result stock issued as part of our Penns Woods merger of 230 million, net income of $126 million for the year ended December 31, 2025, as well as a decrease in accumulated other comprehensive loss of $40 million due primarily to a decrease in unrealized loss in the available-for-sale investment portfolio. These changes were partially offset by $110 million of cash dividend payments during the year ended December 31, 2025.
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Comparison of Results of Operations for the Years Ended December 31, 2025 and 2024
Net Income
Net income for the year ended December 31, 2025 was $126 million, or $0.92 per diluted share, an increase of $26 million, or 26%, from $100 million, or $0.79 per diluted share, for the year ended December 31, 2024. The increase in net income resulted, primarily from an increase in net interest income of 90 million, or 21%, resulting primarily from an increase in interest earning assets driven by the Penns Woods acquisition. Additionally, contributing to the increase in net income was an increase in noninterest income of $42 million, or 49%, resulting from a loss on investment sale as part of our securities portfolio restructure in the prior year. Offsetting these increases was an increase in noninterest expense of $68 million or 18%, an increase in the provision for credit losses of $31 million, or 127%, and an increase in income taxes of $8 million or 26%. Net income for the year ended December 31, 2025 represents a return on average equity and average assets of 7.27% and 0.82%, respectively, compared to 6.41% and 0.70% for the year ended December 31, 2024. A discussion of significant changes follows.
Net Interest Income
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 “Average Balance Sheet” for information regarding tax-equivalent adjustments and GAAP results.
Net interest income for 2025 was $525 million, which increased $90 million compared to 2024. Net interest income (FTE) was $529 million for 2025 and net interest margin (FTE) was 3.69%. Compared to the prior year, net interest income (FTE) increased $90 million and net interest margin (FTE) increased by forty-three basis points. The increase in net interest income (FTE) and net interest margin (FTE) was driven by an increase in interest income resulting from an increase in average earning assets from the Penns Woods acquisition coupled with higher earning asset yields which was offset by an increase in interest expense due to an increase in the average balance interest bearing liabilities from the Penns Woods acquisitions which was slightly offset by a lower costs of funding.
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Average loans receivable increased $715 million, or 6%, from the year ended December 31, 2024. 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 $66 million, or 11%, from 2024 driven by the Penns Woods acquisition and a loan mix shift towards higher yielding commercial loans, including the accretion of loan fair value marks from the acquisition, 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 4% from the year ended December 31, 2024 driven by the Penns Woods acquisition and a targeted increase in the overall securities portfolio during the year through the reinvestment of cash flows from regular principal payments and maturities. Interest income on investment securities increased by $13 million, or 28%, from the year ended December 31, 2024 due to the increase in the average balance of investments and the increase in yield on investments (FTE) to 2.78% for 2025.
Average deposits grew 7% from 2024 driven by an increase in average balances from the Penns Woods acquisition. The average money market and non-interest bearing checking deposit accounts grew by $315 million and $236 million, respectively, from the year ended December 31, 2024. Additionally, interest-bearing checking deposit accounts and savings deposit accounts grew by $158 million and $136 million, respectively. This increase was partially offset by a $35 million decrease in time deposits balances. Interest expense on deposits decreased by $7 million, or 3%, from 2024 primarily attributable to the decrease in the average yield paid on deposits which was partially offset by the increase in average balance of deposit accounts.
Compared to the year ended December 31, 2024, average borrowings saw a 8% decrease primarily attributable to the strategic pay-down of wholesale borrowings which was partially offset by the acquisition of long-term borrowings from Penns Woods. The decrease in the average balance of borrowings resulted in a decrease in interest expense on borrowings by $3 million from 2024.
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Average Balance Sheets
The following table sets forth average balance sheets, average yields, on a fully taxable equivalent basis, and average costs, and certain other information at and for the periods indicated. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances. The yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense. The effect of these fees is not considered material. The average yield for loans receivable and investment securities are calculated on a FTE basis. There were no out-of-period adjustments or other exclusions from the amounts presented in the table.
For the years ended December 31,
Average
balance
Interest
Average
yield/cost
Average
balance
Interest
Average
yield/cost
Average
balance
Interest
Average
yield/cost
(Dollars in thousands)
Interest-earning assets:
Loans receivable (includes FTE adjustments of $3,052, $2,928, and $2,477, respectively) (1), (2), (3)
Mortgage-backed securities (4)
Investment securities (includes FTE adjustments of $784, $576, and $704, respectively) (4), (5)
FHLB stock, at cost
Interest-earning deposits
Total interest-earning assets (includes FTE adjustments of $3,836, $3,504, and $3,181, respectively)
Noninterest-earning assets (6)
Total assets
Interest-bearing liabilities:
Savings deposits
Interest-bearing demand deposits
Money market deposit accounts
Time deposits
Total interest-bearing deposits
Borrowed funds (7)
Subordinated debt
Junior subordinated debentures
Total interest-bearing liabilities
Noninterest-bearing demand deposits (8)
Noninterest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income
Net interest rate spread (9)
Net interest-earning assets/net interest margin (10)
Tax equivalent adjustment
Net interest income, GAAP basis
Ratio of average interest-earning assets to average interest-bearing liabilities
(1) Average gross loans receivable includes loans held as available-for-sale and loans placed on nonaccrual status.
(2) Interest income includes accretion/amortization of deferred loan fees/expenses, which was not material.
(3) Interest income on tax-free loans is presented on a FTE basis including adjustments, as indicated.
(4) Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.
(5) Interest income on tax-free investment securities is presented on a FTE basis including adjustments, as indicated.
(6) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.
(7) Average balances include FHLB borrowings and collateralized borrowings.
(8) Average cost of deposits was 1.55%, 1.71% and 0.91%, respectively.
(9) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(10) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(11) Shown on a FTE basis and in consideration of applicable current federal, state and local tax rates.
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Rate/Volume Analysis
The following table presents, on a FTE basis, the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the year ended December 31, 2025 compared to 2024 and for the year ended December 31, 2024 compared to 2023. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the prior year rate; (2) changes in rate multiplied by the prior year volume; and (3) the total increase or decrease. Changes not solely attributable to rate or volume have been allocated proportionately to the change due to volume and the change due to rate. There were no out-of-period adjustments or other exclusions from the amounts presented in the table.
Years ended December 31, 2025 vs. 2024
Years ended December 31, 2024 vs. 2023
Increase/(decrease)
due to
Total
increase/(decrease)
Increase/(decrease)
due to
Total
increase/(decrease)
Rate
Volume
Rate
Volume
(In thousands)
Interest-earning assets:
Loans receivable
Mortgage-backed securities
Investment securities
FHLB stock, at cost
Interest-earning deposits
Total interest-earning assets
Interest-bearing liabilities:
Savings deposits
Interest-bearing demand deposits
Money market deposit accounts
Time deposits
Borrowed funds
Subordinated debt
Junior subordinated debentures
Total interest-bearing liabilities
Net change in net interest income
Provision for Credit Losses
Provision for credit losses - loans (in thousands)
Provision/(benefit) for credit losses - unfunded commitments (in thousands)
Annualized net charge-offs to average loans
The provision for credit losses increased by $31 million, or 127%, compared to the year ended December 31, 2024. This increase included a $29 million increase in the provision for credit losses - loans and a $2 million increase in the provision for credit losses - unfunded commitments. This increase is due to the initial Day 1 provision from the Penns Woods merger of $21 million. Excluding the Day 1 provision for credit losses from the acquisition, the provision for credit losses for the year ended December 31, 2025 was $36 million, which increased from the prior year end primarily due to growth within our commercial lending portfolio and an increase in net charge-offs.
The increase in our provision for unfunded commitments is due to the Penns Woods acquisition offset by a decline based on the timing of organic origination and funding of commercial construction loans and lines of credit.
In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels, bankruptcy filings, and changes in collateral values, and assessed the impact of these factors on the quality of our loan portfolio and historical loss experience. We analyze the allowance for credit losses as described in the section entitled “Allowance for Credit Losses”. The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the current expected lifetime losses in our loan portfolio relative to loan mix, a reasonable and supportable economic forecast period and historical loss experience at December 31, 2025.
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Noninterest Income
Breakdown of noninterest income for the year ended December 31,
Change from 2024
Change from 2023
Amount
Percent
Amount
Percent
Noninterest income:
Gain/(loss) on sale of investments
Gain on sale of mortgage servicing rights
Gain on sale of SBA loans
Service charges and fees
Trust and other financial services income
Income from bank-owned life insurance
Other operating income (1)
Total noninterest (loss)/income
(1) Other noninterest income includes the net gain on real estate owned, mortgage banking income, and other operating income. See the “Consolidated Statements of Income” in Item 1. Financial Statements of this report.
Noninterest income increased by $42 million, or 49% which was driven by a loss on sale of investments in 2024 of $39 million. Additionally, income from bank owned life insurance increased $6 million, resulting from a large claim recognized in 2025, service charges and fees increased $2 million, or 3%, driven by commercial loan fees and deposit related fees based on customer activity in the current year. Offsetting these increases was a decrease in other operating income of $7 million, or 31% driven by a gain on sale of Visa B shares and a gain on a low income housing tax credit investment in the prior year.
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Noninterest Expense
Breakdown of noninterest expense for the year ended December 31,
Change from 2024
Change from 2023
Amount
Percent
Amount
Percent
Noninterest expense:
Compensation and employee benefits
Premises and occupancy
Processing expense
Professional services
Merger, asset disposition and restructuring expense
Other operating expense (1)
Total noninterest (loss)/income
(1) Other noninterest expense includes collections expense, marketing expense, FDIC insurance expense, amortization of intangible assets, merger, asset disposition and restructuring expense, and other expenses. See th e “Consolidated Statements of Income” in Ite m 1. Financial Statements of this report.
Noninterest expense increased $68 million, or 18%, from the year ended December 31, 2024. This increase was primarily attributable to an increase in merger, asset disposition and restructuring expense of $37 million, and a $3 million increase in other operating expense that is attributable to an increase in intangible amortization expense from the Penns Woods merger. Compensation and employee benefits expense increased $23 million, or 11%, for the year ended December 31, 2025 driven primarily by an increase in core compensation and benefits expense due to the addition of Penns Woods employees coupled with an increase in performance based incentive compensation expense. Partially offsetting this increase was a decrease in professional services expense which decreased $2 million, or 12% from the year ended December 31, 2024.
Income Taxes
The provision for income taxes increased by $8 million, or 26%, from the year ended December 31, 2024 primarily due to higher income before taxes. Our effective tax rate for the year ended December 31, 2025 and December 31, 2024 was 22.6%.
Asset Quality
We actively manage asset quality through our underwriting practices and collection procedures. Our underwriting practices are focused on balancing risk and return while our collection operations focus on diligently working with delinquent borrowers in an effort to minimize losses.
Collection procedures . Our collection procedures for personal loans generally provide that at 15 days delinquent, a notice of late charges is sent and personal contact efforts are attempted by telephone to strengthen the collection process and obtain reasons for the delinquency. Also, plans to establish a payment program are developed. Personal contact efforts are continued throughout the collection process, as necessary. Generally, if a loan becomes 30 days past due, a collection letter is sent and the loan becomes subject to possible legal action if suitable arrangements for payment have not been made. In addition, the borrower is given information which provides access to consumer counseling services to the extent required by the regulations of the Department of Housing and Urban Development and other applicable authorities. When a loan continues in a delinquent status for 60 days or more, and a payment
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schedule has not been developed or kept by the borrower, we may send the borrower a notice of intent to foreclose, providing for cure periods of at least 30 days. If not cured, foreclosure proceedings are initiated.
Nonperforming assets . Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of all contractual principal and/or interest is doubtful. Loans are automatically placed on nonaccrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual status is reversed and charged against interest income.
Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time that it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal. If the value of the property is less than the principal balance, less any prior charge offs, the difference is charged against the allowance for credit losses. Any subsequent write-down of real estate owned or loss at the time of disposition is charged against income.
Nonaccrual, Past Due, Restructured Loans and Nonperforming Assets . The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan becomes 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual principal and/or interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell or the principal balance of the related loan.
At December 31,
(Dollars in thousands)
Loans 90 days or more past due:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans
Commercial real estate loans
Commercial real estate loans - owner occupied
Commercial loans
Total loans 90 days or more past due
Total real estate owned (REO)
Total loans 90 days or more past due and REO
Total loans 90 days or more past due to net loans receivable
Total loans 90 days or more past due and REO to total assets
Nonperforming assets:
Nonaccrual loans - loans 90 days or more past due
Nonaccrual loans - loans less than 90 days past due
Loans 90 days or more past due still accruing
Total nonperforming loans
Other nonperforming assets (1)
Total nonperforming assets
(1) Other nonperforming assets includes nonaccrual loans held for sale.
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Classification of Assets . Our policies, consistent with regulatory guidelines, provide for the classification of loans, or other assets including other real estate owned, considered to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly and improbable”. Assets classified as “” are those considered “” so that their continuance as assets without the establishment of a specific reserve is not warranted. Assets that do not the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some , are required to be designated as “special mention”. At December 31, 2025, we h ad 297 loans, with an aggregate principal balance of $193 million, designated as “special mention”.
We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. Our largest classified assets generally are also our largest nonperforming assets.
The following table sets forth the aggregate amount of our classified assets at the dates indicated.
At December 31,
(In thousands)
Substandard assets
Doubtful assets
Loss assets
Total classified assets
Allowance for Credit Losses . Our Board of Directors has adopted an “Allowance for Credit Losses” (“ACL”) policy designed to provide management with a systematic methodology for determining and documenting the allowance for credit losses each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the allowance for credit losses is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.
On an ongoing basis, the Credit Administration department, as well as loan officers 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. This rating is also reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem commercial loans is consistent with industry regulatory guidelines which classifies loans as “substandard”, “doubtful” or “loss”. Loans that do not us to risk sufficient to warrant classification in one of the previous categories, but which possess some , are designated as “special mention”. A “” loan is any loan that is 90 days or more contractually or is protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “” have all the inherent in those classified as “” with the added characteristic that the present make collection or in full, on the basis of currently existing facts, conditions or values, highly and improbable. Loans classified as “” have all the inherent in those classified as “” and are considered .
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
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occupied and commercial loans. The allowance for credit losses is measured using a combination of statistical models and qualitative assessments. We use a 24 month forecasting period and revert to historical average loss rates thereafter. Reversion to average loss rates takes place over twelve months. Historical average loss rates are calculated using historical data beginning in October 2009 through the current period.
The credit losses for individually assessed loans along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Allowance for Credit Losses Committee (“ACL Committee”) monthly. The ACL Committee reviews and approves the processes and ACL documentation presented. Based on this review and discussion, the appropriate amount of ACL is estimated and any adjustments to reconcile the actual ACL with this estimate are determined. The ACL Committee also considers if any changes to the methodology are needed. In addition to the ACL Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis and annually by internal audit.
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 Department of Banking perform an extensive review on at least an annual basis for the adequacy of the ACL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the ACL Committee and implemented accordingly.
We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change frequently, rapidly and substantially. The adequacy of the ACL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.
We utilize a structured methodology each period when analyzing the adequacy of the allowance for credit losses and the related provision for credit losses, which the ACL Committee assesses regularly for appropriateness. As part of the analysis as of December 31, 2025, we considered the most recent economic conditions and forecasts available. In addition, we considered the overall trends in asset quality, reserves on individually assessed loans, historical loss rates and collateral valuations. The ACL increased by $33 million, or 29%, to $150 million, or 1.15% of gross loans at December 31, 2025 from $117 million, or 1.04% of total loans, at December 31, 2024. This increase was the result of the increase in total loans of $1.8 billion, coupled with the increase in non-performing assets and substandard loans.
Quarterly, management’s Credit Committee reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas. The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ACL levels and ratios compared to our peer group as well as state and national statistics.
We also consider how the levels of non-accrual loans and historical charge-offs have influenced the required amount of ACL. Nonaccrual loans of $107 million, or 0.82% of total gross loans receivable at December 31, 2025, increased by $46 million, or 75%, from $61 million, or 0.55% of total gross loans receivable, at December 31, 2024. This increase was primarily related to the Penns Woods acquisition. As a percentage of average loans, net charge-offs decreased to 0.25% for the year ended December 31, 2025 compared to 0.32% due to certain commercial real estate loans that were written down to fair value prior to be transferred to held-for-sale as of December 31, 2024. Total charge-offs related to the loan sales and transfer to loans held-for-sale was a combined $15 million for December 31, 2024.
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Analysis of the Allowance for Credit Losses . The following table sets forth the analysis of the allowance for credit losses for the periods indicated.
Years ended December 31,
(Dollars in thousands)
Loans receivable
Average loans outstanding
Allowance for credit losses
Balance at beginning of period
Initial allowance on loans purchased with credit deterioration
Provision for credit losses
Charge-offs:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans
Commercial real estate loans
Commercial real estate loans - owner occupied
Commercial loans
Total charge-offs
Recoveries:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans
Commercial real estate loans
Commercial real estate loans - owner occupied
Commercial loans
Total recoveries
Balance at end of period
Allowance for credit losses as a percentage of loans receivable
Net charge-offs as a percentage of average loans outstanding:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans
Commercial real estate loans
Commercial real estate loans - owner occupied
Commercial loans
Total Average Loans Receivable
Allowance for credit losses as a percentage of nonperforming loans
Allowance for credit losses as a percentage of nonperforming assets
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Allocation of Allowance for Credit Losses . The following tables set forth the allocation of the allowance for credit losses by loan category at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category.
At December 31,
Amount
% of total
loans (1)
Amount
% of total
loans (1)
(Dollars in thousands)
Balance at end of year applicable to:
Residential mortgage loans
Home equity loans
Vehicle loans
Consumer loans
Commercial real estate loans
Commercial real estate loans - owner occupied
Commercial loans
Total
(1) Represents percentage of loans in each category to total loans.
Liquidity and Capital Resources
Northwest Bank is required to maintain a sufficient level of liquid assets, as determined by management and defined by the FDIC and reviewed for adequacy during the FDIC’s regular examinations. The FDIC, however, does not prescribe by regulation a minimum amount or percentage of liquid assets. The FDIC allows us to consider any unencumbered, available-for-sale marketable security, whose sale would not impair our capital adequacy, to be eligible for liquidity. Liquidity is monitored through the use of a standard liquidity ratio of liquid assets to borrowings plus deposits. Using this formula, Northwest Bank’s liquidity ratio was 18.44% as of December 31, 2025. We adjust our liquidity level in order to meet funding needs of deposit outflows, repayment of borrowings and loan commitments. We also adjust liquidity as appropriate to meet our asset and liability management objectives. Liquidity needs can also be met by temporarily drawing upon lines-of-credit established for such reasons.
Following the first quarter of 2023 bank failures, the Federal Reserve Board established the Bank Term Funding Program (“BTFP”) as an additional source of available liquidity to support depository institutions through pledging qualifying assets as collateral. In January 2024, the Federal Reserve Board announced it will stop extending loans under the BTFP after March 11, 2024. The Bank took steps to support readiness but did not participate in the BTFP. At December 31, 2025, Northwest Bank had $3.4 billion of additional borrowing capacity available with the FHLB of Pittsburgh, including a $250 million overnight line of credit, which had no balance at December 31, 2025, as well as $1.5 billion of borrowing capacity available with the Federal Reserve Bank and $369 million with four correspondent banks. We believe the Bank has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and for the foreseeable future.
In addition to deposits, our primary sources of funds are the amortization and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rate levels, economic conditions, and competition. We manage the pricing of our deposits to maintain a desired deposit balance. In addition, we invest excess funds in short-term interest earning and other assets, which provide liquidity to meet lending requirements. There were no short-term interest-earning deposits at December 31, 2025. For additional information about our cash flows from operating, financing, and investing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.
A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing, and financing activities. The primary sources of cash during the current year were net income, principal repayments on loans and mortgage-backed securities and net increase in deposits.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Pittsburgh and the Federal Reserve Bank of Cleveland, which provide an additional source of funds. At December 31, 2025, Northwest Bank had an outstanding balance of $438 million with the FHLB of Pittsburgh. We borrow from these sources to reduce interest rate risk and to provide liquidity when necessary.
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At December 31, 2025, our customers had $1.8 billion of unused lines of credit available and $358 million in loan commitments. This amount does not include the unfunded portion of loans in process. Time deposits scheduled to mature in less than one year at December 31, 2025, totaled $2.8 billion. We believe that a significant portion of such deposits will remain with us.
Deposits are our primary source of externally generated funds. The level of deposit inflows during any given period is heavily influenced by factors outside of our control, such as consumer savings tendencies, the general level of short-term and long-term market interest rates, as well as higher alternative yields that investors may obtain on competing investments such as money market mutual funds. Financial institutions, such as Northwest Bank, are also subject to deposit outflows. Our net deposits increased by $1.8 billion for the year ended December 31, 2025, increased by $165 million for the year ended December 31, 2024, and increased by $515 million for the year ended December 31, 2023.
Similarly, the amount of principal repayments on loans and the amount of new loan originations is heavily influenced by the general level of market interest rates, consumer confidence and consumer spending. Funds received from loan maturities and principal payments on loans for the years ended December 31, 2025, 2024 and 2023 were $4.4 billion, $3.2 billion, and $3.4 billion, respectively. Loan originations for the years ended December 31, 2025, 2024 and 2023 were $4.6 billion, $3.3 billion, and $4.2 billion, respectively. We also sell a portion of the loans we originate as part of our mortgage banking operations, and the cash flows from such sales for the years ended December 31, 2025, 2024 and 2023 were $193 million, $207 million, and $204 million, respectively.
We experience significant cash flows from our portfolio of marketable securities as principal payments are received on mortgage-backed securities and as investment securities mature or are called. Cash flows from the repayment of principal and the maturity or call of marketable securities for the years ended December 31, 2025, 2024 and 2023 were $213 million, $147 million, and $169 million, respectively.
When necessary, we utilize borrowings as a source of liquidity and as a source of funds for long-term investment when market conditions permit. The net cash flow from the receipt and repayment of borrowings was a net decrease of $148 million, $199 million, and $282 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Northwest Bancshares, Inc. is a separate legal entity from Northwest Bank and must provide for its own liquidity to pay dividends to shareholders, to repurchase its common stock and for other corporate purposes. Northwest Bancshares’ primary source of liquidity is the dividend payments it receives from Northwest Bank. During 2020, Northwest Bancshares, Inc. issued $125 million of subordinated debt. At December 31, 2025, Northwest Bancshares, Inc. (on an unconsolidated basis) had liquid assets of $158 mil lion.
Other activity with respect to cash flow was the payment of cash dividends on common stock in the amount of $110 million, $102 million, and $102 million for years the ended December 31, 2025, 2024 and 2023, respectively.
At December 31, 2025, stockholders’ equity totaled $1.9 billion. During 2025, our Board of Directors declared regular quarterly cash dividends totaling $0.80 per share of common stock.
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Regulatory Capital Requirements. Northwest Bancshares, Inc. and Northwest Bank are required to meet minimum capital requirements and subject to “well capitalized” standards established by the Federal Reserve Board and FDIC, respectively. See “Item 1. Business—Supervision and Regulation—Federal Bank Holding Company Regulation—Capital Requirements and Prompt Corrective Action” and “Item 1. Business—Supervision and Regulation—Federal Banking Regulation—Prompt Corrective Action. At December 31, 2025, Northwest Bancshares, Inc. and Northwest Bank exceeded all regulatory minimum capital requirements and were considered to be “well capitalized”. The following table summarizes Northwest Bancshares and Northwest Bank’s total shareholders’ equity, regulatory capital, total risk-based assets, and leverage and risk-based capital ratios at the dates indicated.
Northwest Bancshares, Inc.
Northwest Bank
At December 31,
At December 31,
(Dollars in thousands)
(Dollars in thousands)
Total shareholders’equity (GAAP capital)
Add: Accumulated other comprehensive loss
Add: Other deductions
Less: non-qualifying intangible assets
CET 1 capital
Additions to Tier 1 capital
Leverage or Tier 1 capital
Add: Tier 2 capital (1)
Total risk-based capital
Average assets for leverage ratio
Net risk-weighted assets including off-balance-sheet items
CET 1 capital ratio
Minimum requirement
Leverage capital ratio
Minimum requirement
Total risk-based capital ratio
Minimum requirement
(1) Tier 2 capital consists of the allowance for credit losses, which is limited to 1.25% of total risk-weighted assets as detailed under the regulations of the FDIC, and 45% of pre-tax net unrealized gains on securities available-for-sale.
Northwest Bank is also subject to capital guidelines of the Department of Banking. Although not adopted in regulation form, the Department of Banking requires 6% leverage capital and 10% total risk-based capital. See “Item 1. Business—Supervision and Regulation—Pennsylvania Savings Bank Law”.
Contractual Obligations. We are obligated to make future payments according to various contracts. The following table presents the expected future payments of the contractual obligations aggregated by obligation type at December 31, 2025.
Payments due
Less than
one year
One year to
less than
three years
Three years
to less than
five years
Five years
or greater
Total
(In thousands)
Supplemental Executive Retirement Plan (1)
Term notes payable to the FHLB of Pittsburgh (2)
Collateralized borrowings (2)
Subordinated debentures (2)
Junior subordinated debentures (2)
Operating leases (3)
Total
Commitments to extend credit
(1) See Note 16 to the Consolidated Financial Statements, Employee Benefit Plans, for additional information.
(2) See Note 12 to the Consolidated Financial Statements, Borrowed Funds, for additional information.
(3) See Note 4 to the Consolidated Financial Statements, Leases, for additional information.
Table of Contents
Impact of Inflation and Changing Prices. The Consolidated Financial Statements and notes thereto, presented elsewhere herein, have been prepared in accordance with United States generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.
Off-Balance-Sheet Arrangements. As a financial services provider, we are routinely a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we routinely enter into commitments to purchase and sell residential mortgage loans.
