Filed 2026-03-12 · Period ending 2025-12-31 · 108,306 words · SEC EDGAR
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# CITIZENS FINANCIAL SERVICES INC (CZFS) — 10-K **Filed:** 2026-03-12 **Period ending:** 2025-12-31 **Accession:** 0001140361-26-009103 **Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/739421/000114036126009103/) **Origin leaf:** a26f53b8237b2a35706dc9d84746929576e9ebf8fae6a03cebe3fbca867e107b **Words:** 108,306 --- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | For the fiscal year ended | December 31, 2025 | | or | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | For the transition period from | | to | | | | Commission file number | 000-13222 | | | CITIZENS FINANCIAL SERVICES, INC. | | | (Exact name of registrant as specified in its charter) | | | Pennsylvania | | 23-2265045 | | | (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | | | 15 South Main Street, Mansfield, Pennsylvania | | 16933 | | | (Address of principal executive offices) | | (Zip Code) | | | Registrants telephone number, including area code | (570) 662-2121 | | Securities registered pursuant to Section 12(b) of the Act: | Common Stock, Par value $1.00 per share | CZFS | The Nasdaq Stock Market, LLC | | | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.: | | Large accelerated filer | Accelerated filer | | | | Non-accelerated filer | Smaller reporting company | | | | | Emerging growth company | | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended reporting transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act. Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter; $264,808,000 as of June 30, 2025. As of March 3, 2026, there were 4,807,219 shares of the registrants common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III is incorporated by reference to the Registrants Definitive Proxy Statement for the 2026 Annual Meeting of Shareholders. Citizens Financial Services, Inc. Form 10-K INDEX | | Page | | | PART I | | | ITEM 1 BUSINESS | 1 8 | | | ITEM 1A RISK FACTORS | 9 17 | | | ITEM 1B UNRESOLVED STAFF COMMENTS | 17 | | | ITEM 1C CYBER SECURITY | 17-18 | | | ITEM 2 PROPERTIES | 18 | | | ITEM 3 LEGAL PROCEEDINGS | 18 | | | ITEM 4 MINE SAFETY DISCLOSURES | 18 | | | PART II | | | ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 18 20 | | | ITEM 6 RESERVED | 20 | | | ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21 51 | | | ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 51 | | | ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 52 112 | | | ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 113 | | | ITEM 9A CONTROLS AND PROCEDURES | 113-114 | | | ITEM 9B OTHER INFORMATION | 115 | | | ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 115 | | | PART III | | | ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 116 | | | ITEM 11 EXECUTIVE COMPENSATION | 116 | | | ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 116 | | | ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 117 | | | ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES | 117 | | | PART IV | | | ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 118 120 | | | ITEM 16 FORM 10-K SUMMARY | 120 | | | | | | | SIGNATURES | 121 | | [Index](#Index) PART I ITEM 1 BUSINESS. CITIZENS FINANCIAL SERVICES, INC. Citizens Financial Services, Inc. (the Company), a Pennsylvania corporation, was incorporated on April 30, 1984 to be the holding company for First Citizens Community Bank (the Bank), a Pennsylvania-chartered bank and trust company. During 2020, CZFS Acquisition Company, LLC (CZFS) was formed as a wholly owned subsidiary of the Company, and subsequently the Companys interest in the Bank was transferred to CZFS to facilitate the merger with MidCoast Community Bancorp, Inc. (MidCoast) and its wholly owned subsidiary, MidCoast Community Bank (MC Bank), which was completed on April 17, 2020. During 2024, the Company terminated the corporate existence of CZFS and the interest in the Bank was transferred back to the Company. On June 16, 2023, the Company acquired HV Bancorp, Inc. (HVBC) and its wholly owned subsidiary, Huntingdon Valley Bank (HVB). The Company is primarily engaged in the ownership and management of CZFS, its subsidiary, the Bank and the Banks wholly owned subsidiaries, First Citizens Insurance Agency, Inc. (First Citizens Insurance) and 1st Realty of PA LLC (Realty). During 2024, the Bank terminated the corporate existence of Realty. AVAILABLE INFORMATION A copy of the Companys annual report on Form 10-K, quarterly reports on Form 10-Q, current events reports on Form 8-K, and amendments to these reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge through the Companys web site at www.firstcitizensbank.com as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission. Copies of the reports the Company files electronically with the Securities and Exchange Commission are also available through the Securities and Exchange Commissions website at www.sec.gov. Information on our website shall not be considered as incorporated by reference into this Form 10-K. FIRST CITIZENS COMMUNITY BANK The Bank is a full-service bank engaged in a broad range of banking activities and services for individual, business, governmental and institutional customers. These activities and services principally include checking, savings, and time deposit accounts; residential, commercial and agricultural real estate, commercial and industrial, state and political subdivision and consumer loans; and a variety of other specialized financial services. The Trust and Investment division of the Bank offers a full range of client investment, estate, mineral management and retirement services. The Banks main office is located at 15 South Main Street, Mansfield (Tioga County), Pennsylvania. In addition to the main office in Mansfield, the Bank operates 38 full service offices, two limited branch offices and two mortgage centers in its market areas. The Banks north central, Pennsylvania market area consists of the Pennsylvania Counties of Bradford, Clinton, Potter, Lycoming and Tioga in north central Pennsylvania. It also includes Allegany, Steuben, Chemung and Tioga Counties in Southern New York. The south-central Pennsylvania market consists of Lebanon county and portions of Berks, Lancaster and Schuylkill Counties in Pennsylvania. The Central Pennsylvania market consists of our offices in Centre, Clinton, Lycoming and Union counties and the surrounding communities. Our Delaware market consists of Wilmington and Dover, Delaware and portions of Chester County, Pennsylvania and was due to the MidCoast acquisition, which added two offices in Wilmington, Delaware and one office in Dover, Delaware. In November of 2020, the Bank opened a full-service branch in Chester County, Pennsylvania and in 2024, the Bank opened a limited production office in Georgetown, Delaware. The south east Pennsylvania market consists of Montgomery, Bucks and Philadelphia counties in Pennsylvania, as well as Burlington County New Jersey and was the result of the HVBC acquisition. The economy of the Banks market areas are diversified and include manufacturing industries, wholesale and retail trade, service industries, agricultural and the production of natural resources of gas and timber. We are dependent geographically upon the economic conditions in north central, central and south-central Pennsylvania, the southern tier of New York and the cities and surrounding areas of Wilmington and Dover, Delaware. The economy of the Banks market areas are diversified and include manufacturing industries, wholesale and retail trade, service industries, agricultural and the production of natural resources of gas and timber. We are dependent geographically upon the economic conditions in north central, central south-east and south-central Pennsylvania, the southern tier of New York and the cities and surrounding areas of Wilmington and Dover, Delaware. 1 [Index](#Index) COMPETITION The banking industry in the Banks service areas is intensely competitive, with competitors including local community banks, larger regional banks, and financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, mortgage banking firms, financial companies, financial affiliates of industrial companies, FinTech and internet entities, and government sponsored agencies, such as Freddie Mac, Fannie Mae and Farm Credit. Competitive pressures continue to increase in our service areas as entities seek both loan and deposit growth, as well as geographic expansion. The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. Additional information related to our business and competition is included in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations. HUMAN CAPITAL RESOURCES At December 31, 2025, we had a total of 405 employees, including 32 part-time and 8 commissioned employees and of which approximately 71% are women. The full-time equivalent of our total employees at December 31, 2025 was 380. As a financial institution, approximately 42% of our employees are employed at our branch and loan production offices. The success of our business is highly dependent on our employees, who provide value to our customers and communities through their dedication to our mission. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good. We encourage and support the growth and development of our associates and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development are advanced through internally developed training programs and specialty education within banking and using universities that offer Banking Management programs. We believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. At December 31, 2025, 19% of our current staff had been with us for fifteen years or more. The safety, health and wellness of our employees is a top priority. All employees are asked not to come to work when they experience signs or symptoms of illness. On an ongoing basis, we further promote the health and wellness of our associates by strongly encouraging work-life balance and sponsoring various wellness programs, whereby associates are compensated for incorporating healthy habits into their daily routines. SUPERVISION AND REGULATION GENERAL The Bank is subject to extensive regulation, examination and supervision by the Pennsylvania Department of Banking and Securities (PDB) and, as a member of the Federal Reserve System, by the Board of Governors of the Federal Reserve System (the FRB). Federal and state banking laws and regulations govern, among other things, the scope of a banks business, the investments a bank may make, the reserves against deposits a bank must maintain, terms of deposit accounts, loans a bank makes, the interest rates a bank charges and collateral a bank takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. The Company is registered as a bank holding company and is subject to supervision and regulation by the FRB under the Bank Holding Company Act of 1956, as amended (the BHCA). 2 [Index](#Index) PENNSYLVANIA BANKING LAWS The Pennsylvania Banking Code (Banking Code) contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and administrative discretion to the PDB so that the supervision and regulation of state-chartered banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices. Pennsylvania law also provides Pennsylvania state-chartered institutions elective parity with the power of national banks, federal thrifts, and state-chartered institutions in other states as authorized by the FDIC, subject to a required notice to the PDB. The Federal Deposit Insurance Corporation Act (FDIA), however, prohibits state-chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments which are not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is restricted by the FDIA. In April 2008, banking regulators in the States of New Jersey, New York, and Pennsylvania entered into a Memorandum of Understanding (the Interstate MOU) to clarify their respective roles, as home and host state regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act of 1997. The Interstate MOU establishes the regulatory responsibilities of the respective state banking regulators regarding bank regulatory examinations and is intended to reduce the regulatory burden on state-chartered banks branching within the region by eliminating duplicative host state compliance exams. Under the Interstate MOU, the activities of branches we established in New York would be governed by Pennsylvania state law to the same extent that federal law governs the activities of the branch of an out-of-state national bank in such host states. Issues regarding whether a particular host state law is preempted are to be determined in the first instance by the PDB. In the event that the PDB and the applicable host state regulator disagree regarding whether a particular host state law is pre-empted, the PDB and the applicable host state regulator would use their reasonable best efforts to consider all points of view and to resolve the disagreement. COMMUNITY REINVESTMENT ACT The Community Reinvestment Act, (CRA), as implemented by FRB regulations, provides that the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institutions discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FRB, in connection with its examination of the Bank, to assess the institutions record of meeting the credit needs of its community and to take such record into account in its evaluation of certain corporate applications by such institution, such as mergers and branching. The Banks most recent rating was Satisfactory. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy. CAPITAL REQUIREMENTS Federal regulations require FDIC-insured depository institutions, including state-chartered, FRB-member banks, to meet several minimum capital standards. These capital standards were effective January 1, 2015, and result from a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6.0% and 8.0%, respectively, and a leverage ratio of at least 4% of Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (AOCI), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The Company has exercised the AOCI opt-out option and therefore AOCI is not incorporated into common equity Tier 1 capital. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. 3 [Index](#Index) In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a capital conservation buffer consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The FRB has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institutions capital level is or may become inadequate in light of the particular risks or circumstances. As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the CBLR) framework for determining its capital adequacy, as discussed above. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At December 31, 2025, the Banks leverage ratio was 9.54%, which is more than the ratio required to be considered well-capitalized under the CBLR framework. PROMPT CORRECTIVE ACTION RULES Federal law establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. The law requires that certain supervisory actions be taken against undercapitalized institutions, the severity of which depends on the degree of undercapitalization. The FRB has adopted regulations to implement the prompt corrective action legislation as to state member banks. The regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be well capitalized if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is adequately capitalized if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is undercapitalized if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be significantly undercapitalized if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be critically undercapitalized if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. Subject to a narrow exception, a receiver or conservator must be appointed for an institution that is critically undercapitalized within specified time frames. The regulations also provide that a capital restoration plan must be filed with the FRB within 45 days of the date an institution is deemed to have received notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. Compliance with the capital restoration plan must be guaranteed by any parent holding company up to the lesser of 5% of the depository institutions total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital requirements. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The FRB could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. 4 [Index](#Index) STANDARDS FOR SAFETY AND SOUNDNESS The federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness in various areas such as internal controls and information systems, internal audit, loan documentation and credit underwriting, interest rate exposure, asset growth and quality, earnings and compensation, fees and benefits. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the FRB determines that a state member bank fails to meet any standard prescribed by the guidelines, the FRB may require the institution to submit an acceptable plan to achieve compliance with the standard. ENFORCEMENT The PDB maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and remove directors, officers or employees. The PDB also has the power to appoint a conservator or receiver for a bank upon insolvency, imminent insolvency, unsafe or unsound condition or certain other situations. The FRB has primary federal enforcement responsibility over FRB-member state banks and has authority to bring actions against the institution and all institution-affiliated parties, including shareholders, who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on the bank. Formal enforcement action may range from the issuance of a capital directive or a cease and desist order, to removal of officers and/or directors. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The FDIC, as deposit insurer, has the authority to recommend to the FRB that enforcement action be taken with respect to a member bank. If the FRB does not take action, the FDIC has authority to take such action under certain circumstances. In general, regulatory enforcement actions occur with respect to situations involving unsafe or unsound practices or conditions, violations of law or regulation or breaches of fiduciary duty. Federal and Pennsylvania law also establish criminal penalties for certain violations. REGULATORY RESTRICTIONS ON BANK DIVIDENDS The Bank may not declare a dividend without approval of the FRB, unless the dividend to be declared by the Banks Board of Directors does not exceed the total of: (i) the Banks net profits for the current year to date, plus (ii) its retained net profits for the preceding two years, less any required transfers to surplus. Under Pennsylvania law, the Bank may only declare and pay dividends from its accumulated net earnings. In addition, the Bank may not declare and pay dividends from the surplus funds that Pennsylvania law requires that it maintain. Under these policies and subject to the restrictions applicable to the Bank, the Bank could have declared, during 2025, without prior regulatory approval, aggregate dividends of approximately $21.1 million, plus net profits earned to the date of such dividend declaration. BANK SECRECY ACT Under the Bank Secrecy Act (BSA), banks and other financial institutions are required to retain records to assure that the details of financial transactions can be traced if investigators need to do so. Banks are also required to report most cash transactions in amounts exceeding $10,000 made by or on behalf of their customers. Failure to meet BSA requirements may expose the Bank to statutory penalties, and a negative compliance record may affect the willingness of regulating authorities to approve certain actions by the Bank requiring regulatory approval, including acquisitions and opening new branches. INSURANCE OF DEPOSIT ACCOUNTS The Banks deposits are insured up to applicable limits by the Deposit Insurance Fund (DIF) of the FDIC. Under the FDICs risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institutions assessment rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations. 5 [Index](#Index) As required by the Dodd-Frank Act, the FDIC has issued final rules implementing changes to the assessment rules. The rules change the assessment base used for calculating deposit insurance assessments from deposits to total assets, less tangible (Tier 1) capital. Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of revenue collected from the industry. The range of adjusted assessment rates is now 2.5 to 45 basis points of the new assessment base. The rule is expected to benefit smaller financial institutions, which typically rely more on deposits for funding, and shift more of the burden for supporting the insurance fund to larger institutions, which are thought to have greater access to nondeposit funding. No institution may pay a dividend if it is in default of its assessments. As a result of the Dodd-Frank Act, deposit insurance per account owner is $250,000 for all types of accounts. The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% to 1.35% of estimated insured deposits. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC to establish a maximum fund ratio. The FDIC has exercised that discretion by establishing a long range fund ratio of 2%. The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. FEDERAL RESERVE SYSTEM Under FRB regulations, the Bank is required to maintain reserves against its transaction accounts (primarily NOW and regular checking accounts). These reserve requirements are subject to annual adjustment by the FRB. For 2025, the Bank would have been required to maintain average daily reserves equal to 3% on aggregate transaction accounts of up to and including $645.8 million, plus 10% on the remainder, and the first $37.8 million of otherwise reservable balances would have been exempt. In March 2020, the FRB reduced all reserve requirements to zero in response to the COVID-19 pandemic. PROHIBITIONS AGAINST TYING ARRANGEMENTS State-chartered banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. OTHER REGULATIONS Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Banks operations are also subject to federal and state laws applicable to credit transactions, such as the: | | | Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; | | | | | Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; | | | | | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; | | | | | Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; | | | | | Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; | | | | | Truth in Savings Act; and | | | | | Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws. | | 6 [Index](#Index) The Banks operations also are subject to the: | | | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; | | | | | Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of automated teller machines and other electronic banking services; | | | | | Check Clearing for the 21st Century Act (also known as Check 21), which gives substitute checks, such as digital check images and copies made from that image, the same legal standing as the original paper check; | | | | | The USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements also applicable to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and | | | | | The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institutions privacy policy and provide such customers the opportunity to opt out of the sharing of certain personal financial information with unaffiliated third parties. | | HOLDING COMPANY REGULATION The Company, as a bank holding company, is subject to examination, supervision, regulation, and periodic reporting under the BHCA, as administered by the FRB. The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval is also required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association. A bank holding company that meets specified conditions, including that its depository institutions subsidiaries are well capitalized and well managed, can opt to become a financial holding company. A financial holding company may engage in a broader array of financial activities than permitted to a typical bank holding company. Such activities can include insurance underwriting and investment banking. The Company does not anticipate opting for financial holding company status at this time. The Company is exempt from the FRBs consolidated capital adequacy guidelines for bank holding companies because the Companys consolidated assets are less than $3.0 billion as of June 30, 2025. The FRB consolidated capital adequacy guidelines are at least as stringent as those required for the subsidiary depository institutions. A bank holding company is generally required to give the FRB prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Companys consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to that approval requirement for well-capitalized bank holding companies that meet certain other conditions. 7 [Index](#Index) The FRB has issued a policy statement regarding the payment of dividends and other capital distributions by bank holding companies. In general, the FRBs policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organizations capital needs, asset quality and overall financial condition. The FRBs policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. The Federal Deposit Insurance Act makes depository institutions liable to the Federal Deposit Insurance Corporation for losses suffered or anticipated by the insurance fund in connection with the default of a commonly controlled depository institution or any assistance provided by the Federal Deposit Insurance Corporation to such an institution in danger of default. That law would have potential applicability if the Company ever held as a separate subsidiary a depository institution in addition to the Bank. The status of the Company as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. ACQUISITION OF THE HOLDING COMPANY Under the Change in Bank Control Act (the CIBCA), a federal statute, a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Companys shares of outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of the Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company and the Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain prior approval from the FRB before it may obtain control of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to control in any manner the election of a majority of the Companys directors. An existing bank holding company would be required to obtain the FRBs prior approval under the BHCA before acquiring more than 5% of the Companys voting stock. EFFECT OF GOVERNMENT MONETARY POLICIES The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market activities in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These operations are used in varying combinations to influence overall economic growth and indirectly, bank loans, securities, and deposits. These variables may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future. In view of the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, no prediction can be made as to possible changes in interest rates, deposit levels, loan demand or their effect on the business and earnings of the Company and the Bank. Additional information is included under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations appearing in this Annual Report on Form 10-K. 8 [Index](#Index) ITEM 1A RISK FACTORS. The following discussion sets forth the material risk factors that could affect the Companys consolidated financial condition and results of operations. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect the Company. Any risk factor discussed below could by itself, or combined with other factors, materially and adversely affect the Companys business, results of operations, financial condition, capital position, liquidity, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings. RISKS RELATED TO CHANGES IN MARKET INTEREST RATES Changing interest rates may decrease our earnings and asset values. Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits and borrowings. Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest ratesup or downcould adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the asset yields catch up. Changes in the slope of the yield curveor the spread between short-term and long-term interest ratescould also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets. Changes in interest rates also affect the value of the Banks interest-earning assets, and in particular the Banks securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders equity, net of tax, while unrealized gains and losses on equity securities directly impact earnings. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders equity or net income. Impact of Inflation The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the CPI coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur. In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. RISKS RELATED TO OUR LIQUIDITY Access to Liquidity Liquidity is the ability to meet cash flow obligations as they come due and cash flow needs on a timely basis and at a reasonable cost. The liquidity of the Bank is used to make loans and to repay deposit and borrowing liabilities as they become due, or are demanded by customers and creditors. Many factors affect the Banks ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and standing in the marketplace, and general economic conditions. 9 [Index](#Index) The Banks primary source of funding is customer deposits, gathered throughout its network of banking offices. Through its subsidiary (First Citizens Community Bank), the Company is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. The Company has a line of credit with the FHLB-Pittsburgh that is secured by a blanket lien on its loan portfolio. Access to this line of credit is critical if a funding need arises. However, there can be no assurance that the FHLB-Pittsburgh will be able to provide funding when needed, nor can there be assurance that the FHLB-Pittsburgh will provide funds specifically to the Company should its financial condition deteriorate and/or regulators prevent that access. The inability to access this source of funds could have a materially adverse effect on the Companys financial flexibility if alternate financing is not available at acceptable interest rates. The failure of the FHLB-Pittsburgh or the FHLB system in general, may materially impair the Corporations ability to meet short- and long-term liquidity needs or to meet growth plans. In addition, the Bank also maintains borrowing capacity with the Federal Reserve Bank of Philadelphia. The Banks securities and loan portfolios provide a source of contingent liquidity that could be accessed in a reasonable time period through sales. The Corporations management and Board of Directors, through the Asset-Liability Committee (the ALCO), monitor liquidity and the ALCO establishes and monitors acceptable liquidity ranges. The Bank actively manages its liquidity position through target ratios. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. Changes in economic conditions, including consumer savings habits and availability of or access to capital, could potentially have a significant impact on the Banks liquidity position, which in turn could materially impact the Corporations financial condition, results of operations and cash flows. RISKS RELATED TO OUR LENDING ACTIVITIES Activities related to the drilling for natural gas in the Marcellus and Utica Shale formations impacts certain customers of the Bank. Our north central Pennsylvania market area is predominately centered in the Marcellus and Utica Shale natural gas exploration and drilling area, and as a result, the economy in north central Pennsylvania is influenced by the natural gas industry. Loan demand, deposit levels and the market value of local real estate are impacted by this activity. While the Company does not lend to the various entities directly engaged in exploration, drilling or production activities, many of our customers provide transportation and other services and products that support natural gas exploration and production activities. Therefore, our customers are impacted by changes in the market price for natural gas, as a significant downturn in this industry could impact the ability of our borrowers to repay their loans in accordance with their terms. Additionally, exploration and drilling activities may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection. Regulatory and market pricing of natural gas could also impact and/or reduce demand for loans and deposit levels or loan collateral values. These factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Higher credit losses could require us to increase our allowance for credit losses through a charge to earnings. When we loan money, we incur the risk that our borrowers do not repay their loans. We reserve for credit losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio. The process for determining the amount of the allowance is critical to our financial results and condition. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might underestimate the credit losses inherent in our loan portfolio and have credit losses in excess of the amount reserved. We might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. A decline in the national economy and the local economies of the areas in which the loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional credit loss allowances in future periods. In addition, bank regulators may require us to make a provision for credit losses or otherwise recognize further loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures, and our credit loss allowance. Any increase in our allowance for credit losses or loan charge-offs as required by such regulatory authorities could have amaterial adverse effect on our financial condition and results of operations. 10 [Index](#Index) Our allowance for credit losses amounted to $22.8 million, or 0.97% of total loans outstanding and 85.7% of nonperforming loans, on December 31, 2025. Our allowance for credit losses at December 31, 2025 may not be sufficient to cover future credit losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease our earnings. During 2023, the Bank implemented ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changed the impairment model for most financial assets. The underlying premise of the update was that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect managements current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement was affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The implementation of this standard did result in a decrease of $2.2 million to the Companys allowance for credit losses effective January 1, 2023 compared to December 31, 2022. Our emphasis on commercial real estate, agricultural real estate, construction and other commercial loan lending may expose us to increased lending risks. At December 31, 2025, we had $1.22 billion in loans secured by commercial real estate, $347.4 million in agricultural real estate loans, $94.0 million in construction loans and $179.2 million in other commercial loans. Commercial real estate loans, agricultural real estate, construction and other commercial loans represented 51.8%, 14.8%, 4.0% and 7.6%, respectively, of our loan portfolio. At December 31, 2025, we had $18.3 million of reserves specifically allocated to these loan types. While commercial real estate, agricultural real estate, construction and other commercial loans are generally more interest rate sensitive and carry higher yields than do residential mortgage loans, these types of loans generally expose a lender to greater risk of non-payment and loss than single-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the estimate of the propertys value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. We monitor loan concentrations on an individual relationship and industry wide basis to monitor the amount of risk we have in our loan portfolio. Agricultural loans are dependent for repayment on the successful operation and management of the farm property, the health of the agricultural industry broadly, and on the location of the borrower in particular, and other factors outside of the borrowers control. At December31, 2025, our agricultural loans, consisting primarily of agricultural real estate loans and other agricultural loans, totaled $377.7 million, representing 16.1% of our total loan portfolio. The primary activities of our agricultural customers include dairy and beef farms, poultry and swine operations, crops and support businesses. Agricultural markets are highly sensitive to real and perceived changes in the supply and demand of agricultural products. Weaker prices could reduce the value of agricultural land in our local markets and thereby increase the risk of default by our borrowers or reduce the foreclosure value of agricultural land, animals and equipment that serves as collateral for certain of our loans. At December 31, 2025, the Company had loans to the dairy industry totaling $114.6 million, or 4.9% of total loans and 30.3% of total agricultural loans compared to 4.8% of total loans and 31.3% of total agricultural loans at December 31, 2024. As of December 31, 2025, we have loans to poultry producers for layers, broilers and turkeys totaling $110.2 million, or 4.7% of total loans and 29.2% of total agricultural loans. 11 [Index](#Index) Our agricultural loans are dependent on the profitable operation and management of the farm property securing the loan and its cash flows. The success of a farm property may be affected by many factors outside the control of the borrower, including: | | | adverse weather conditions (such as hail, drought and floods), restrictions on water supply or other conditions that prevent the planting or harvesting of a crop or limit crop yields; | | | | | loss of crops or livestock due to disease, like Avian influenza, or other factors; | | | | | declines in the market prices or demand for agricultural products (both domestically and internationally), for any reason; | | | | | increases in production costs (such as the costs of labor, rent, feed, fuel and fertilizer); | | | | | the impact of domestic and international government policies and regulations (including changes in price supports, subsidies, government-sponsored crop insurance, minimum ethanol content requirements for gasoline, tariffs, trade barriers, trade agreements and health and environmental regulations); | | | | | access to technology and the successful implementation of production technologies; | | | | | changes in the general economy that could affect the availability of off-farm sources of income and prices of real estate for borrowers; | | | | | and disruptions in the supply chain and the processing of product and delivery to the final retail channel | | Lower prices for agricultural products may cause farm revenues to decline and farm operators may be unable to reduce expenses as quickly as their revenues decline. In addition, many farms are dependent on a limited number of key individuals whose injury or death could significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrowers ability to repay the loan may be impaired. Consequently, agricultural loans may involve a greater degree of risk than residential mortgage lending, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment (some of which is highly specialized with a limited or no market for resale) or perishable assets such as livestock or crops. In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value. Loan participations comprise a portion of our loan portfolio and a decline in loan participation volume could hurt profits and slow loan growth. We have actively engaged in loan participations whereby we are invited to participate in loans, primarily commercial real estate and municipal loans, originated by another financial institution known as the lead lender. We have participated with other financial institutions in both our primary markets and out of market areas. We underwrite any loan we participate in as if we are originating the loan. The primary difference is that financial information is received from the participating financial institution and not the borrower. The loans we participate in as a purchaser totaled $121.0 million and $95.9 million at December 31, 2025 and 2024, respectively. As a percent of total loans, participation purchased loans were 5.1%, and 4.2% as of December 31, 2025 and 2024, respectively. Our profits and loan growth could be significantly and adversely affected if the volume of loan participations would materially decrease, whether because loan demand declines, loan payoffs, lead lenders may come to perceive us as a potential competitor in their respective market areas, or otherwise. Environmental liability associated with lending activities could result in losses. In the course of our business, we may foreclose on and take title to properties securing our loans. If hazardous substances were discovered on any of these properties, we could be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses and may materially limit use of properties we acquire through foreclosure, reduce their value or limit our ability to sell them in the event of a default on the loans they secure. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. 12 [Index](#Index) RISKS RELATED TO OUR INVESTMENT SECURITIES The Companys investment securities portfolio is subject to credit risk, market risk, and liquidity risk, and declines in value in its investment securities portfolio may require it to record impairment charges that could have a material adverse effect on its results of operations and financial condition. The Companys investment securities portfolio has risks beyond its control that can significantly influence the portfolios fair value. These factors include, but are not limited to, changes in interest rates, changes in prepayment speeds, changes in general economic conditions, rating agency downgrades of the securities, defaults of the issuers of the securities and market liquidity. Any change in current accounting principles or interpretations of these principles could impact the Companys assessment of fair value and thus its determination of other-than-temporary impairment of the securities in its investment securities portfolio. The Bank may be required to record other-than-temporary impairment charges on its investment securities if they suffer declines in value that are considered other-than-temporary. Numerous factors, including collateral deterioration underlying securities, lack of liquidity for resales of certain investment securities, absence of reliable pricing information for certain investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could negatively affect the Banks securities portfolio in future periods. An other-than-temporary impairment charge could have a material adverse effect on the Companys results of operations and financial condition. RISKS RELATED TO OUR SECONDARY MORTGAGE OPERATIONS Income from secondary mortgage market operations is volatile, and we may incur losses or charges with respect to our secondary mortgage market operations which would negatively affect our earnings. We generally sell in the secondary market the longer term fixed-rate residential mortgage loans that we originate, earning non-interest income in the form of gains on sale. When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans available for sale. In addition to interest rate levels, weak or deteriorating economic conditions also tend to reduce loan demand. Although we sell loans in the secondary market without recourse, we are required to give customary representations and warranties to the buyers. If we breach those representations and warranties, the buyers can require us to repurchase the loans and we may incur a loss on the repurchase. Because we generally retain the servicing rights on the loans we sell in the secondary market, we are required to record a mortgage servicing right asset, which we test annually for impairment. The value of mortgage servicing rights tends to increase with rising interest rates and to decrease with falling interest rates, with refinance activity increasing in falling rate environments. If we are required to take an impairment charge on our mortgage servicing rights our earnings would be adversely affected. As a result of acquisitions, the Bank acquired a portfolio of loans sold to the FHLB, which were sold under the Mortgage Partnership Finance Program (MPF). While the Bank was not an active participant in the MPF program in 2025, we continue to evaluate the program to see if it would be beneficial to our customers and our performance. The MPF portfolio balance was $7,774,000 at December 31, 2025. The FHLB maintains a first-loss position for the MPF portfolio that totals $171,000. Should the FHLB exhaust its first-loss position, recourse to the Banks credit enhancement would be up to the next $197,000 of losses. The Bank has not experienced any losses for the MPF portfolio. RISKS RELATED TO OUR MARKET AREA The Companys financial condition and results of operations are dependent on the economy in the Banks market area. The Banks primary market area consists of the Pennsylvania Counties of Bradford, Clinton, Lycoming, Potter, and Tioga in north central Pennsylvania, Lebanon, Schuylkill, Berks and Lancaster in south central, Pennsylvania, Centre and Clinton in central Pennsylvania, and Allegany, Steuben, Chemung and Tioga Counties in southern New York. In Delaware, we consider the cities and surrounding areas of Wilmington and Dover, Delaware, as well as Kennett Square, Pennsylvania in Chester County, as primary market areas. With the acquisition of HVBC, we have expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. The majority of the Banks loans and deposits come from households and businesses whose primary address is located in the Banks primary market areas. Because of the Banks concentration of business activities in its market area, the Companys financial condition and results of operations depend upon economic conditions in its market areas. Adverse economic conditions in our market areas could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations. Conditions such as inflation, recession, unemployment, high interest rates and short money supply and other factors beyond our control may adversely affect our profitability. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the States of Pennsylvania, New York, New Jersey and Delaware could adversely affect the value of our assets, revenues, results of operations and financial condition. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur. 13 [Index](#Index) RISKS RELATED TO LAWS AND REGULATIONS Regulation of the financial services industry is significant, and future legislation could increaseour cost of doing business or harm our competitive position. We are subject to extensive regulation, supervision and examination by the FRB and the PDB, our primary regulators, andby the FDIC, as insurer of our deposits. Such regulation and supervisiongovern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for credit losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our profitability and operations.Future legislative changes could require changes to business practices or force us to discontinue businesses and potentially expose us to additional costs, liabilities, enforcement action and reputational risk. Our ability to pay dividends is limited by law. Our ability to pay dividends to our shareholders largely depends on our receipt of dividends from the Bank. The amount of dividends that the Bank may pay to us is limited by federal and state laws and regulations. We also may decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for use in our business. Federal and state banking laws, our articles of incorporation and our by-laws may have an anti-takeover effect. Federal law imposes restrictions, including regulatory approval requirements, on persons seeking to acquire control over us. Pennsylvania law also has provisions that may have an anti-takeover effect. These provisions may serve to entrench management or discourage a takeover attempt that shareholders consider to be in their best interest or in which they would receive a substantial premium over the current market price. RISKS RELATED TO COMPETITION Strong competition within the Banks market areas could hurt profits and slow growth. The Bank faces intense competition both in making loans and attracting deposits. This competition has made it more difficult for the Bank to make new loans and at times has forced the Bank to offer higher deposit rates. Price competition for loans and deposits might result in the Bank earning less on loans and paying more on deposits, which would reduce net interest income. Competition also makes it more difficult to increase the volume of our loan and deposit portfolios. As of June 30, 2025, which is the most recent date for which information is made available by the FDIC, we held 34.1% of the FDIC insured deposits in Bradford, Potter and Tioga Counties, Pennsylvania, which was the second largest share of deposits out of eight financial institutions with offices in the area, and 6.1% of the FDIC insured deposits in Allegany County, New York, which was the third largest share of deposits out of three financial institutions with offices in this area. As of June 30, 2025, we held 9.1% of the FDIC insured deposits in Lebanon County, Pennsylvania, which was the fourth largest share out of the 12 financial institutions with offices in the County. As of June 30, 2025, we held 3.7% of the FDIC insured deposits in Clinton County, Pennsylvania, which was the eighth largest share out of the eight financial institutions with offices in the County. Our offices in Berks, Centre, Chester, Lancaster, Lycoming, Schuylkill, Montgomery, Bucks and Philadelphia Counties of Pennsylvania and our offices in Wilmington and Dover, Delaware and Burlington, New Jersey all have less than 3% of the FDIC insured deposits of the corresponding County as of June 30, 2025. This data does not include deposits held by credit unions. Competition also makes it more difficult to hire employees and more expensive to retain experienced employees. Some of the institutions with which the Bank competes have substantially greater resources and lending limits than the Bank has and may offer services that the Bank does not provide. Management expects competition to increase in the future as a result of legislative, regulatory and technological changes (fintech) and the continuing trend of consolidation in the financial services industry. The Banks profitability depends upon its continued ability to compete successfully in its market area. 14 [Index](#Index) Disintermediation of Banks Customers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Customers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. In addition, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial services. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of deposits would also decrease the amount of funds available to lend back to our communities. Further, many of our competitors have fewer regulatory constraints and may have lower cost structures than us. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. Our ability to compete successfully depends on a number of factors, including, among other things, (i) the ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; (ii) the ability to expand within our marketplace and with our market position; (iii) the scope, relevance and pricing of products and services offered to meet customer needs and demands; (iv) the rate at which we introduce new products and services relative to our competitors; (v) customer satisfaction with our level of service; and (vi) industry and general economic trends. Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. RISKS RELATED TO OUR OPERATIONS We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations. We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to depend on our ability to retain and recruit key commercial and agricultural loan officers. The unexpected loss of services of any key management personnel or commercial and agricultural loan officers could have an adverse effect on our business and financial condition because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. We are periodically subject to examination and regulation by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us. Federal and state banking agencies periodically conduct examinations of our business, including compliance with applicable laws and regulations. If, as a result of an examination, a banking agency was to determine that the financial condition, capital resources, asset quality, asset concentration, earnings prospects, management, liquidity, sensitivity tomarket risk or other aspects of any of our operations has become unsatisfactory, or that we or our management is in violation of any law or regulation, it could take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin unsafe or unsound practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the composition of our assets or liabilities, to assess civil monetary penalties against us and/or our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot becorrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such regulatory actions, our business, results of operations and reputation may be negatively impacted. 15 [Index](#Index) We are subject to certain risks in connection with our use of technology. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, our loans, and to deliver on-line and electronic banking services. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact. In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information or the confidential or other information of our customers, clients, or counterparties. If one or more of such events were to occur, the confidential and other information processed and stored in, and transmitted through, our computer systems and networks could potentially be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients, or counterparties. This could cause us significant reputational damage or result in our experiencing significant losses from fraud or otherwise. Furthermore, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Also, we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain. We routinely transmit and receive personal, confidential, and proprietary information by e-mail and other electronic means. We have discussed and worked with our customers, clients, and counterparties to develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information. Any interception, misuse, or mishandling of personal, confidential, or proprietary information being sent to or received from a customer, client, or counterparty could result in legal liability, regulatory action, and reputational harm, and could have a significant adverse effect on our competitive position, financial condition, and results of operations. Our risk management framework may not be effective in mitigating risks and/or losses to us. We have implemented a risk management framework to manage our risk exposure. This framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies which involve management assumptions and judgment. There is no assurance that our risk management framework will be effective under all circumstances or that it will adequately mitigate any risk or loss to us. Ifour framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatoryconsequences. RISKS RELATED TO OUR MERGER AND ACQUISITION ACTIVITY Impairment of goodwill could require charges to earnings, which could result in a negative impact on our results of operations. Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to the Company, adversely impacting the Companys liquidity and ability to pay dividends. The most significant assumptions affecting our goodwill impairment evaluation are variables including the market price of our Common Stock, projections of earnings, and the control premium above our current stock price that an acquirer would pay to obtain control of us. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our Common Stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Banks earnings and thereby restrict the Banks ability to make dividend payments to us without prior regulatory approval, because Federal Reserve policy states the bank holding company dividends should be paid from current earnings. At December 31, 2025, the book value of our goodwill was $85.8 million, all of which was recorded at the Bank. 16 [Index](#Index) We may fail to realize all of the anticipated benefits of entering new markets. As a result of completed and proposed acquisitions and the hiring of additional agricultural and commercial lending teams, the Company enters new banking market areas. The success of entering these new markets depends upon, in part, the Companys ability to realize the anticipated benefits and cost savings from combining the businesses of the Company and the acquisition, as well as organically growing loans and deposits. To realize these anticipated benefits and cost savings, the businesses and individuals must be successfully combined and operated. If the Company is not able to achieve these objectives, the anticipated benefits, including growth and cost savings related to the combined businesses, may not be realized at all or may take longer to realize than expected. If the Company fails to realize the anticipated benefits of the acquisitions and the new employee hirings, the Companys results of operations could be adversely affected. ITEM 1B UNRESOLVED STAFF COMMENTS. Not applicable. ITEM 1C CYBERSECURITY Risk Management and Strategy Cybersecurity is a critical component of our risk management program, given the increasing reliance on technology and potential of cyber threats. Our Information Security Officer is primarily responsible for the cybersecurity / information security program. The Information Security Officer reports directly to the Chief Operating Officer and periodically reports to the Audit and Examination Committee of our board of directors. Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around regulatory guidance and related industry standards. In addition, we leverage various cyber-related associations, threat intelligence feeds, and audits to facilitate and promote program effectiveness. The information security program is periodically reviewed by the Information Security Officer in collaboration with information technology management with the goal of addressing changing threats and conditions. We employ a layered defensive strategy when designing our cybersecurity controls. We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations, and tabletop exercises. We engage in regular monitoring and assessments of our technology infrastructure using internal staff and third-party specialists. We conduct ongoing social engineering testing and training across our entire employee base. We maintain a vendor management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and our supply chain. Our internal audit group, as well as our independent auditors periodically review our processes, systems, and controls, including with respect to our information security program, to assess their design and operating effectiveness and make recommendations to strengthen our risk management program. We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including engagement of appropriate third parties such as insurance providers and incident response professionals, and timely reporting to our CEO and Board of Directors as appropriate. The Incident Response Plan is coordinated by the Information Security Officer and key members of management are embedded into the Plan by its design. The Incident Response Plan facilitates coordination across multiple areas of our organization and is evaluated at least annually. Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is always present. Our internal systems, processes, and controls are designed to mitigate loss from cyber-attacks. While we have experienced cybersecurity incidents in the past, risks from cybersecurity threats have not materially affected our company to date. For further discussion of risks from cybersecurity threats, see the section captioned We are subject to certain risks in connection with our use of technology in Item 1A. Risk Factors. 17 [Index](#Index) Governance Our Information Security Officer is responsible for managing our information security program, inclusive of cybersecurity risk assessment, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, and business continuity. Some of these responsibilities are carried out in collaboration with other internal departments, such as the information technology department. In any case, the Information Security Officer provides guidance, oversight, and monitoring of the information security program, and acts in an independent role, reporting directly to the Chief Operating Officer and subsequently to the Audit and Examination Committee of the board of directors. Our Information Security Officer has extensive bank operations experience, has attained Certified Banking Security Manager certification with the banking industry, and attends relevant cybersecurity training sessions on a regular basis. Our information technology department consists of technology professionals with varying degrees of education and experience. Our information technology management team has significant technology and operational experience, including experience in mitigating and responding to cybersecurity threats. The Audit and Examination Committee of our board of directors is responsible for overseeing our information and cybersecurity risk management program, including managements actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks. Our Information Security Officer provides quarterly reports to the Audit and Examination Committee of our board of directors regarding the information security program, cybersecurity and/or privacy incidents, key cybersecurity initiatives, and other matters relating to cybersecurity processes. These reports may occur more frequently if a significant issue or incident is being addressed. ITEM 2 PROPERTIES. The headquarters of the Company and Bank are located at 15 South Main Street, Mansfield, Pennsylvania. The building contains the central offices of the Company and Bank. The Bank owns twenty-five banking facilities and leases twenty-two other facilities. The net book value of owned banking facilities and leasehold improvements totaled $16,857,000 as of December 31, 2025. The properties are adequate to meet the needs of the employees and customers. We have equipped all of our facilities with current technological improvements for data processing. ITEM 3 - LEGAL PROCEEDINGS. The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Companys consolidated financial condition or results of operations. ITEM 4 MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The Companys common stock is listed on the Nasdaq Stock Market under the symbol CZFS. The Company has paid dividends since April 30, 1984, the effective date of our formation as a bank holding company. The Companys Board of Directors expects that comparable cash dividends will continue to be paid by the Company in the future; however, future dividends necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors in existence at the time the Board of Directors considers a dividend distribution. Cash available for dividend distributions to stockholders of the Company comes primarily from dividends paid to the Company by the Bank. Therefore, restrictions on the ability of the Bank to make dividend payments are directly applicable to the Company. Under the Pennsylvania Business Corporation Law of 1988, the Company may pay dividends only if, after payment, the Company would be able to pay debts as they become due in the usual course of our business and total assets will be greater than the sum of total liabilities. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. Also see Supervision and Regulation Regulatory Restrictions on Bank Dividends, Supervision and Regulation Holding Company Regulation, and Note 16 Regulatory Matters to the consolidated financial statements. 18 [Index](#Index) As of March 3, 2026, the Company had 1,793 stockholders of record. The computation of stockholders of record excludes investors whose shares were held for them by a bank or broker at that date. The following table presents information regarding the Companys stock repurchases during the three months ended December 31, 2025: | Period | | Total Number of Shares (or units Purchased) | | | Average Price Paid per Share (or Unit) | | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs | | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) | | | | | | | | | | | | | | | | | | | 10/1/25 to 10/31/25 | | | - | | | $ | 0.00 | | | | - | | | | 143,203 | | | | 11/1/25 to 11/30/25 | | | 2,080 | | | $ | 56.06 | | | | 2,080 | | | | 141,123 | | | | 12/1/25 to 12/31/25 | | | 985 | | | $ | 55.82 | | | | 985 | | | | 140,138 | | | | Total | | | 3,065 | | | $ | 55.85 | | | | 3,065 | | | | 140,138 | | | | | (1) | On April 22, 2023, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares at an aggregate purchase price not to exceed $15.0 million over a period of 36 months. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors. No time limit was placed on the duration of the share repurchase program. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. | | Additionally, during the quarter ended December 31, 2025, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the Amended and Restated First Citizens Community Bank Annual Incentive Plan. Additionally, during the quarter ended December 31, 2025, certain employees resigned from the Company and forfeited unvested restricted shares awarded to them through the Amended and Restated First Citizens Community Bank Annual Incentive Plan. Performance Graph The performance graph below compares the cumulative total shareholder return on Citizens Financial Services, Inc. Common Stock with the cumulative total return on the equity securities of companies included in the Russell 3000 Index and the KBW NASDAQ Regional Banking index, measured at the last trading day of each year shown. The graph assumes an investment of $100 on December 31, 2020 and reinvestment of dividends on the date of payment without commissions. The performance graph represents past performance and should not be considered to be an indication of future performance. 19 [Index](#Index) Copyright 2026 Russell Investment Group. All rights reserved. | | | | 12/20 | | | | 12/21 | | | | 12/22 | | | | 12/23 | | | | 12/24 | | | | 12/25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Citizens Financial Services, Inc. | | | 100.00 | | | | 112.91 | | | | 148.10 | | | | 129.87 | | | | 133.40 | | | | 125.46 | | | | Russell 3000 | | | 100.00 | | | | 125.66 | | | | 101.53 | | | | 127.88 | | | | 158.32 | | | | 185.47 | | | | KBW NASDAQ Regional Banking | | | 100.00 | | | | 136.64 | | | | 127.17 | | | | 126.66 | | | | 143.38 | | | | 152.71 | | | ITEM 6 [RESERVED] 20 [Index](#Index) ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CAUTIONARY STATEMENT We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the Bank, First Citizens Insurance, Realty or the Company on a consolidated basis. When we use words such as believes, expects, anticipates, or similar expressions, we are making forward-looking statements. Forward-looking statements may prove inaccurate. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements: | | | Interest rates could change more rapidly or more significantly than we expect or remain inverted for a longer period than anticipated. | | | | | The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate. | | | | | The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities. | | | | | It could take us longer than we anticipate implementing strategic initiatives, including expansions, designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all. | | | | | Acquisitions and dispositions of assets and companies could affect us in ways that management has not anticipated. | | | | | We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results. | | | | | We may become subject to new and unanticipated accounting, tax, regulatory or compliance practices or requirements. Failure to comply with any one or more of these requirements could have an adverse effect on our operations. | | | | | We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition. | | | | | We could experience greater losses than expected due to the ever-increasing volume of information theft and fraudulent scams impacting our customers and the banking industry. | | | | | We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge. | | | | | The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products as a result of weather, government regulations, international trade agreements and consumer tastes, which could negatively impact certain of our customers. | | | | | Loan concentrations in certain industries could negatively impact our results, if financial results or economic conditions deteriorate. | | | | | A budget impasse in the Commonwealth of Pennsylvania and/or a Federal Government shutdown could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank, as well as individuals who receive state and federal benefits. | | | | | Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers. | | Additional factors are discussed in this Annual Report on Form 10-K under Item 1A. Risk Factors. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends. 21 [Index](#Index) INTRODUCTION The following is managements discussion and analysis of the significant changes in financial condition, the results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements for the Company. The Companys consolidated financial condition and results of operations consist almost entirely of the Banks financial condition and results of operations. Managements discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes. Except as noted, tabular information is presented in thousands of dollars. The Company engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Lycoming, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster and Chester counties in south central Pennsylvania and Allegany County in southern New York. In Delaware, the primary areas are the Cities of Wilmington and Dover and the surrounding area. We also have a limited branch office in Union county, Pennsylvania, which primarily serves agricultural and commercial customers in the central Pennsylvania market. With the HVBC acquisition, we have expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 47 banking facilities, 39 of which operate as bank branches. In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Ephrata, Fivepointville, State College, Kennett Square, Warrington, Williamsport, Plumsteadville, Philadelphia, two branches near the city of Lebanon and two branches in Huntington Valley. The Company has limited branch offices located in Winfield, Pennsylvania and Georgetown, Delaware. In New York, our office is in Wellsville. In Delaware, we have three branches in Wilmington and one in Dover. The mortgage centers acquired as part of the acquisition are located in Huntington Valley, PA and Mount Laurel, NJ. The business banking facility is located in Philadelphia, PA. In the fourth quarter of 2023, we opened a branch in Williamsport, Pennsylvania. During 2024, the Montgomeryville, PA mortgage office was closed and the Georgetown office was opened. Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company. The Company uses its asset/liability and funds management policies to control and manage interest rate risk. Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans with customers and the purchasing of securities. The Companys primary credit risk is in the loan portfolio. The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio. Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk. These guidelines include, among other things, contingent funding alternatives. Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information, which could include identify theft, or theft of customer information through third parties. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity. Regulatory risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company and its subsidiary. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations. 22 [Index](#Index) Readers should carefully review the risk factors described in other documents the Company files with the SEC, including the annual reports on Form 10-K, the quarterly reports on Form 10-Q and any current reports on Form 8-K filed by us. TRUST AND INVESTMENT SERVICES; OIL AND GAS SERVICES Our Investment and Trust Division is committed to helping our customers meet their financial goals. The Trust Division offers professional trust administration, investment management services, estate planning and administration, custody of securities and individual retirement accounts. In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management.Assets held by the Bank in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Bank. As of December 31, 2025, and 2024, assets owned and invested by customers of the Bank through the Banks investment representatives totaled $317,895,000 and $395,869,000 million, respectively. Additionally, as summarized in the table below, the Trust Department had assets under management as of December 31, 2025 and 2024 of $194,841,000 and $180,710,000, respectively. During the year ended December 31, 2025, $3,918,000 of new trust accounts were opened, $8,312,000 of additional contributions to trust accounts were made, $15,622,000 was distributed from trust accounts, and $2,081,000 of accounts were closed. As a result of market fluctuations, the fair value of the trust accounts increased approximately $19,604,000 during the year ended December 31, 2025. The following table reflects trust accounts by investment type and structure: | (market values - in thousands) | | 2025 | | | 2024 | | | | INVESTMENTS: | | | | | | | | | Bonds | | $ | 19,721 | | | $ | 18,432 | | | | Stock | | | 30,970 | | | | 32,804 | | | | Savings and Money Market Funds | | | 22,242 | | | | 21,496 | | | | Mutual Funds | | | 105,599 | | | | 91,846 | | | | Mineral interests | | | 3,760 | | | | 3,000 | | | | Mortgages | | | 718 | | | | 738 | | | | Real Estate | | | 9,807 | | | | 9,812 | | | | Miscellaneous | | | 2,024 | | | | 2,582 | | | | TOTAL | | $ | 194,841 | | | $ | 180,710 | | | | ACCOUNTS: | | | | | | | | | | | Trusts | | | 54,244 | | | | 51,232 | | | | Guardianships | | | 745 | | | | 330 | | | | Employee Benefits | | | 74,067 | | | | 67,275 | | | | Investment Management | | | 65,784 | | | | 61,871 | | | | Custodial | | | 1 | | | | 2 | | | | TOTAL | | $ | 194,841 | | | $ | 180,710 | | | Our financial consultants offer full service brokerage and financial planning services throughout the Banks market areas. Appointments can be made at any Bank branch. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc. RESULTS OF OPERATIONS Net income for the year ended December 31, 2025 was $36,572,000, which represents an increase of $8,754,000, or 31.5%, when compared to 2024 primarily due to an increase in net interest income after the provision for credit losses of $11,758,000. Net income for the year ended December 31, 2024 was $27,818,000, which represents an increase of $10,007,000, or 56.2%, when compared to 2023 due primarily to the absence of one-time costs associated with the HVBC acquisition that were recognized in 2023. Basic earnings per share were $7.62, $5.80 and $3.98 for 2025, 2024 and 2023, respectively, while diluted earnings per share were $7.62, $5.79 and $3.98 for 2025, 2024 and 2023, respectively. Net income is influenced by five key components: net interest income, provision for credit losses, non-interest income, non-interest expenses, and the provision for income taxes. 23 [Index](#Index) Net Interest Income The most significant source of revenue is net interest income; the amount by which interest earned on interest-earning assets exceeds interest paid on interest-bearing liabilities. Factors that influence net interest income are changes in volume of interest-earning assets and interest-bearing liabilities as well as changes in the associated interest rates. The following table sets forth the Companys average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders equity, the related rates, net interest income and rate spread created. Analysis of Average Balances and Interest Rates | | | 2025 | | | 2024 | | | 2023 | | | | | | | | | | | | Average Balance (1) | | | Interest | | | Average Rate | | | Average Balance (1) | | | Interest | | | Average Rate | | | Average Balance (1) | | | Interest | | | Average Rate | | | | (dollars in thousands) | | | $ | | | $ | | | | % | | | | $ | | | $ | | | | % | | | | $ | | | $ | | | | % | | | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing deposits at banks | | | 23,767 | | | | 384 | | | | 1.62 | | | | 28,264 | | | | 730 | | | | 2.58 | | | | 24,470 | | | | 572 | | | | 2.34 | | | | Total short-term investments | | | 23,767 | | | | 384 | | | | 1.62 | | | | 28,264 | | | | 730 | | | | 2.58 | | | | 24,470 | | | | 572 | | | | 2.34 | | | | Interest bearing time deposits at banks | | | 3,820 | | | | 118 | | | | 3.09 | | | | 3,878 | | | | 121 | | | | 3.09 | | | | 5,255 | | | | 164 | | | | 3.10 | | | | Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable (6) | | | 378,387 | | | | 11,610 | | | | 3.07 | | | | 359,724 | | | | 8,685 | | | | 2.41 | | | | 383,241 | | | | 8,043 | | | | 2.10 | | | | Tax-exempt (3) | | | 109,125 | | | | 3,324 | | | | 3.05 | | | | 105,141 | | | | 2,650 | | | | 2.52 | | | | 112,806 | | | | 2,866 | | | | 2.54 | | | | Total investment securities | | | 487,512 | | | | 14,934 | | | | 3.06 | | | | 464,865 | | | | 11,335 | | | | 2.44 | | | | 496,047 | | | | 10,909 | | | | 2.20 | | | | Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage loans | | | 346,313 | | | | 20,841 | | | | 6.02 | | | | 356,292 | | | | 20,758 | | | | 5.83 | | | | 290,971 | | | | 15,918 | | | | 5.47 | | | | Construction loans | | | 135,920 | | | | 9,744 | | | | 7.17 | | | | 182,714 | | | | 13,607 | | | | 7.45 | | | | 135,315 | | | | 9,485 | | | | 7.01 | | | | Commercial Loans | | | 1,320,836 | | | | 84,059 | | | | 6.36 | | | | 1,265,922 | | | | 80,849 | | | | 6.39 | | | | 1,101,452 | | | | 66,105 | | | | 6.00 | | | | Agricultural Loans | | | 362,880 | | | | 21,227 | | | | 5.85 | | | | 350,588 | | | | 18,978 | | | | 5.41 | | | | 342,980 | | | | 17,061 | | | | 4.97 | | | | Loans to state & political subdivisions | | | 52,730 | | | | 2,071 | | | | 3.93 | | | | 55,919 | | | | 2,213 | | | | 3.96 | | | | 59,308 | | | | 2,299 | | | | 3.88 | | | | Other loans | | | 96,097 | | | | 6,898 | | | | 7.18 | | | | 83,916 | | | | 6,717 | | | | 8.00 | | | | 74,555 | | | | 5,660 | | | | 7.59 | | | | Loans, net of discount (2)(3)(4) | | | 2,314,776 | | | | 144,840 | | | | 6.26 | | | | 2,295,351 | | | | 143,122 | | | | 6.24 | | | | 2,004,581 | | | | 116,528 | | | | 5.81 | | | | Total interest-earning assets | | | 2,829,875 | | | | 160,276 | | | | 5.66 | | | | 2,792,358 | | | | 155,308 | | | | 5.56 | | | | 2,530,353 | | | | 128,173 | | | | 5.07 | | | | Cash and due from banks | | | 9,727 | | | | | | | | | | | | 9,306 | | | | | | | | | | | | 9,341 | | | | | | | | | | | | Bank premises and equipment | | | 21,638 | | | | | | | | | | | | 21,124 | | | | | | | | | | | | 19,871 | | | | | | | | | | | | Other assets | | | 180,011 | | | | | | | | | | | | 183,674 | | | | | | | | | | | | 139,474 | | | | | | | | | | | | Total non-interest earning assets | | | 211,376 | | | | | | | | | | | | 214,104 | | | | | | | | | | | | 168,686 | | | | | | | | | | | | Total assets | | | 3,041,251 | | | | | | | | | | | | 3,006,462 | | | | | | | | | | | | 2,699,039 | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Business Interest Checking | | | 20,148 | | | | 179 | | | | 0.89 | | | | 8,756 | | | | 88 | | | | 1.01 | | | | - | | | | - | | | | - | | | | NOW accounts | | | 718,185 | | | | 15,361 | | | | 2.14 | | | | 756,689 | | | | 19,117 | | | | 2.53 | | | | 666,505 | | | | 13,396 | | | | 2.01 | | | | Savings accounts | | | 287,162 | | | | 1,336 | | | | 0.47 | | | | 296,275 | | | | 1,532 | | | | 0.52 | | | | 318,299 | | | | 1,314 | | | | 0.41 | | | | Money market accounts | | | 453,545 | | | | 12,919 | | | | 2.85 | | | | 397,942 | | | | 12,482 | | | | 3.14 | | | | 364,385 | | | | 8,713 | | | | 2.39 | | | | Certificates of deposit | | | 470,285 | | | | 17,255 | | | | 3.67 | | | | 481,862 | | | | 19,107 | | | | 3.97 | | | | 328,553 | | | | 8,276 | | | | 2.52 | | | | Total interest-bearing deposits | | | 1,949,325 | | | | 47,050 | | | | 2.41 | | | | 1,941,524 | | | | 52,326 | | | | 2.70 | | | | 1,677,742 | | | | 31,699 | | | | 1.89 | | | | Other borrowed funds | | | 326,026 | | | | 14,117 | | | | 4.33 | | | | 323,409 | | | | 15,536 | | | | 4.80 | | | | 326,577 | | | | 15,159 | | | | 4.64 | | | | Total interest-bearing liabilities | | | 2,275,351 | | | | 61,167 | | | | 2.69 | | | | 2,264,933 | | | | 67,862 | | | | 3.00 | | | | 2,004,319 | | | | 46,858 | | | | 2.34 | | | | Demand deposits | | | 387,914 | | | | | | | | | | | | 385,702 | | | | | | | | | | | | 382,979 | | | | | | | | | | | | Other liabilities | | | 40,650 | | | | | | | | | | | | 40,593 | | | | | | | | | | | | 38,419 | | | | | | | | | | | | Total non-interest-bearing liabilities | | | 428,564 | | | | | | | | | | | | 426,295 | | | | | | | | | | | | 421,398 | | | | | | | | | | | | Stockholders equity | | | 337,336 | | | | | | | | | | | | 315,234 | | | | | | | | | | | | 273,322 | | | | | | | | | | | | Total liabilities & stockholders equity | | | 3,041,251 | | | | | | | | | | | | 3,006,462 | | | | | | | | | | | | 2,699,039 | | | | | | | | | | | | Net interest income | | | | | | | 99,109 | | | | | | | | | | | | 87,446 | | | | | | | | | | | | 81,315 | | | | | | | | Net interest spread (5) | | | | | | | | | | | 2.97 | % | | | | | | | | | | | 2.56 | % | | | | | | | | | | | 2.73 | % | | | Net interest income as a percentage of average interest-earning assets | | | | | | | | | | | 3.50 | % | | | | | | | | | | | 3.13 | % | | | | | | | | | | | 3.21 | % | | | Ratio of interest-earning assets to interest-bearing liabilities | | | | | | | | | | | 124.00 | | | | | | | | | | | | 123.00 | | | | | | | | | | | | 126.00 | | | | (1) | Averages are based on daily averages. | | | (2) | Includes loan origination and commitment fees. | | | (3) | Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21% for 2025, 2024 and 2023. | | | (4) | Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets. | | | (5) | Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. | | | (6) | Included dividend income | | 24 [Index](#Index) For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Federal statutory rate for the corresponding year. Accordingly, tax equivalent adjustments for investments and loans have been made accordingly to the previous table for the years ended December 31, 2025, 2024 and 2023, respectively (in thousands): | | | 2025 | | | 2024 | | | 2023 | | | | Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (non-tax adjusted) (GAAP) | | $ | 14,738 | | | $ | 11,629 | | | $ | 11,043 | | | | Tax equivalent adjustment | | | 698 | | | | 557 | | | | 602 | | | | Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (tax equivalent basis) (Non-GAAP) | | $ | 15,436 | | | $ | 12,186 | | | $ | 11,645 | | | | | | 2025 | | | 2024 | | | 2023 | | | | Interest and fees on loans (non-tax adjusted) (GAAP) | | $ | 144,430 | | | $ | 142,688 | | | $ | 116,075 | | | | Tax equivalent adjustment | | | 410 | | | | 434 | | | | 453 | | | | Interest and fees on loans (tax equivalent basis) (Non-GAAP) | | $ | 144,840 | | | $ | 143,122 | | | $ | 116,528 | | | | | | 2025 | | | 2024 | | | 2023 | | | | Total interest income | | $ | 159,168 | | | $ | 154,317 | | | $ | 127,118 | | | | Total interest expense | | | 61,167 | | | | 67,862 | | | | 46,858 | | | | Net interest income (GAAP) | | | 98,001 | | | | 86,455 | | | | 80,260 | | | | Total tax equivalent adjustment | | | 1,108 | | | | 991 | | | | 1,055 | | | | Net interest income (tax equivalent basis) (Non-GAAP) | | $ | 99,109 | | | $ | 87,446 | | | $ | 81,315 | | | The following table shows the tax-equivalent effect of changes in volume and rates on interest income and expense (in thousands): Analysis of Changes in Net Interest Income on a Tax-Equivalent Basis | | | 2025 vs. 2024 (1) | | | 2024 vs. 2023 (1) | | | | | | Change in Volume | | | Change in Rate | | | Total Change | | | Change in Volume | | | Change in Rate | | | Total Change | | | | Interest Income: | | | | | | | | | | | | | | | | | | | | | Short-term investments: | | | | | | | | | | | | | | | | | | | | | Interest-bearing deposits at banks | | $ | (103 | ) | | $ | (243 | ) | | $ | (346 | ) | | $ | 95 | | | $ | 63 | | | $ | 158 | | | | Interest bearing time deposits at banks | | | (3 | ) | | | - | | | | (3 | ) | | | (43 | ) | | | - | | | | (43 | ) | | | Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 472 | | | | 2,453 | | | | 2,925 | | | | (438 | ) | | | 1,080 | | | | 642 | | | | Tax-exempt | | | 102 | | | | 572 | | | | 674 | | | | (194 | ) | | | (22 | ) | | | (216 | ) | | | Total investment securities | | | 574 | | | | 3,025 | | | | 3,599 | | | | (632 | ) | | | 1,058 | | | | 426 | | | | Total investment income | | | 468 | | | | 2,782 | | | | 3,250 | | | | (580 | ) | | | 1,121 | | | | 541 | | | | Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential mortgage loans | | | (475 | ) | | | 558 | | | | 83 | | | | 3,752 | | | | 1,088 | | | | 4,840 | | | | Construction loans | | | (3,372 | ) | | | (491 | ) | | | (3,863 | ) | | | 3,499 | | | | 623 | | | | 4,122 | | | | Commercial Loans | | | 3,494 | | | | (284 | ) | | | 3,210 | | | | 10,314 | | | | 4,430 | | | | 14,744 | | | | Agricultural Loans | | | 681 | | | | 1,568 | | | | 2,249 | | | | 370 | | | | 1,547 | | | | 1,917 | | | | Loans to state & political subdivisions | | | (125 | ) | | | (17 | ) | | | (142 | ) | | | (134 | ) | | | 48 | | | | (86 | ) | | | Other loans | | | 626 | | | | (445 | ) | | | 181 | | | | 737 | | | | 320 | | | | 1,057 | | | | Total loans, net of discount | | | 829 | | | | 889 | | | | 1,718 | | | | 18,538 | | | | 8,056 | | | | 26,594 | | | | Total Interest Income | | | 1,297 | | | | 3,671 | | | | 4,968 | | | | 17,958 | | | | 9,177 | | | | 27,135 | | | | Interest Expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | Business Interest Checking | | | 100 | | | | (9 | ) | | | 91 | | | | - | | | | 88 | | | | 88 | | | | NOW accounts | | | (936 | ) | | | (2,820 | ) | | | (3,756 | ) | | | 1,974 | | | | 3,747 | | | | 5,721 | | | | Savings accounts | | | (46 | ) | | | (150 | ) | | | (196 | ) | | | (90 | ) | | | 308 | | | | 218 | | | | Money Market accounts | | | 1,277 | | | | (840 | ) | | | 437 | | | | 854 | | | | 2,915 | | | | 3,769 | | | | Certificates of deposit | | | (452 | ) | | | (1,400 | ) | | | (1,852 | ) | | | 4,861 | | | | 5,970 | | | | 10,831 | | | | Total interest-bearing deposits | | | (57 | ) | | | (5,219 | ) | | | (5,276 | ) | | | 7,599 | | | | 13,028 | | | | 20,627 | | | | Other borrowed funds | | | 126 | | | | (1,545 | ) | | | (1,419 | ) | | | (151 | ) | | | 528 | | | | 377 | | | | Total interest expense | | | 69 | | | | (6,764 | ) | | | (6,695 | ) | | | 7,448 | | | | 13,556 | | | | 21,004 | | | | Net interest income | | $ | 1,228 | | | $ | 10,435 | | | $ | 11,663 | | | $ | 10,510 | | | $ | (4,379 | ) | | $ | 6,131 | | | | (1) | The portion of the total change attributable to both volume and rate changes during the year has been allocated to volume and rate components based upon the absolute dollar amount of the change in each component prior to allocation. | | 25 [Index](#Index) 2025 vs. 2024 Tax equivalent net interest income for 2025 was $99,109,000 compared to $87,446,000 for 2024, an increase of $11,663,000 or 13.3%. Total interest income increased $4,968,000, as loan interest income increased $1,718,000, and total investment income increased $3,250,000. Interest expense decreased $6,695,000 from 2024. Total tax equivalent interest income from investment securities increased $3,599,000 in 2025 from 2024. The average balance of investment securities increased $22,647,000, which had an effect of increasing interest income by $574,000 due to volume. During 2025, the Bank made purchases to replace maturing securities, as well as making purchases to increase the size of the investment portfolio for pledging purposes, as well as enhancing yield. The average tax-effected yield on our investment portfolio increased from 2.44% in 2024 to 3.06% in 2025. The increase in the tax-effected yield is attributable to purchases made during 2024 and 2025, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 62 basis points (bps) to 3.06%, interest income on investment securities increased $3,025,000, with the increase related to taxable securities. The investment strategy for 2025 used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available. As the rate cycle continues to progress, the bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise. During 2025, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries and municipal securities that provided convexity to the Banks investment portfolio. The Company believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, including a rising rate environment, while providing sufficient cashflows to meet liquidity needs. Loan interest income increased $1,718,000 in 2025 from 2024. The average balance of our loan portfolio increased by $19,425,000 in 2025 compared to 2024, which resulted in an increase in interest income of $829,000 due to volume. The increase in average loans for 2025 was due to an increase in the average balance of outstanding student loans and an increase in agricultural loans. The average tax-effected yield on our loan portfolio was 6.26% for 2025 compared to 6.24% for 2024 resulting in an increase in loan interest income of $889,000. | | | Interest income on residential mortgage loans increased $83,000. The average balance of residential mortgage loans decreased $9,979,000 due to loan payments and pay-offs from individuals refinancing loans on the secondary market. This resulted in a decrease of $475,000 due to volume. The change due to rate was an increase of $558,000 as the average yield on residential mortgages increased from 5.83% in 2024 to 6.02% in 2025 as loans originated and added to the portfolio are at higher rates than the average portfolio loan rate as of December 31, 2024. | | | | | The average balance of construction loans decreased $46,794,000 from 2024 to 2025 as a result of projects in our Delaware market and the southeast Pennsylvania market being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $3,372,000 on total interest income due to volume. The average yield on construction loans decreased from 7.45% to 7.17%, which correlated to a $491,000 decrease in interest income and is due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. | | | | | Interest income on commercial loans increased $3,210,000 from 2024 to 2025 due to an increase in the average balance of commercial loans of $54,914,000. The growth was primarily attributable to completed construction projects converting to permanent financing. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $3,494,000. Our lenders have been able to attract and retain loan relationships in their markets by providing excellent customer service and having attractive products. We believe our lenders are adept at customizing and structuring loans to customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the Small Business Administration (SBA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area. The average yield on commercial loans decreased 3 bps to 6.36% in 2025, resulting in a decrease in interest income due to rate of $284,000. The decrease in yield on commercial loans was due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. | | 26 [Index](#Index) | | | Interest income on agricultural loans increased $2,249,000 from 2024 to 2025. The increase in the average balance of agricultural loans of $12,292,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $681,000. The average yield on agricultural loans increased from 5.41% in 2024 to 5.85% in 2025 due to the increase in market rates as well as the pay-off of an agricultural relationship that was previously on non-accrual status that paid several loans off during 2025 that generated $781,000 of additional interest income. This resulted in an increase in interest income due to rate of $1,568,000. We believe our lenders are adept at customizing and understanding the needs of individual borrowers, and have the expertise to structure loans for customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the United States Department of Agricultures (USDA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area. | | | | | The average balance of other loans increased $12,181,000 as a result of an increase in outstanding student loans. This resulted in an increase of $626,000 on total interest income due to volume. The average tax equivalent yield on other loans decreased from 8.00% in 2024 to 7.18% in 2025, decreasing interest income by $445,000 in other loans. This decline is attributable to the decrease in market rates in 2025 due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. | | Total interest expense decreased $6,695,000 in 2025 compared to 2024. The majority of the decrease was due to a decrease in the average rate paid on interest bearing liabilities of 31 basis points to 2.69%, resulting in interest expense of $6,764,000. The decrease in rates was driven by the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. The average rate on money markets decreased from 3.14% to 2.85%, resulting in a decrease in interest expense of $840,000. The average rate paid on savings accounts decreased 5 bps and resulted in a decrease in interest expense of $46,000. The average rate paid on NOW accounts decreased from 2.53% to 2.14% resulting in a decrease in interest expense of $2,820,000. The average rate paid on certificates of deposits decreased from 3.97% to 3.67% resulting in a decrease in interest expense of $1,400,000. The average rate paid on other borrowed funds decreased from 4.80% to 4.33% resulting in a decrease in interest expense of $1,545,000. Average interest-bearing liabilities increased $10,418,000 million in 2025, with average interest-bearing deposits increasing $7,801,000 million and average other borrowings increasing $2,617,000. While there was an overall increase in average deposits, average NOW accounts and certificates of deposits decreased in total $50,081,000, decreasing interest expense $1,388,000, which offset the increase in interest expense of $1,277,000 from the average balance of money market accounts increasing $55,603,000. The increase in average deposits was due to organic growth across all regions of the Company and helped offset a decrease in average brokered deposits of $51,216,000. We continue to see customers exchange non-interest bearing deposits for interest bearing products that are both non-maturity and term. The average balance of other borrowed funds increased $2,617,000 which corresponds to an increase in interest expense of $126,000. Our tax equivalent net interest margin for 2025 was 3.50% compared to 3.13% for 2024, with the change attributable to the yield of interest-earning assets increasing and the cost from interest-bearing liabilities decreasing during 2025. The yield on interest-earning assets increased primarily due to investment securities purchased during 2025 replacing investment cashflows from purchases made prior to 2023 in a much lower rate environment. Due to the Federal Reserve decreasing the Fed Fund target rate in late 2024 and in 2025. We experienced a decrease in the cost of interest-bearing deposits and borrowings. Inflation levels remain above the Feds target but the committee believes sufficient progress has been made to bring overnight rates down to what they consider the upper band of neutral in response to some weakening in employment. The yield curve has a positive slope but flatter relative to long term averages. 2024 vs. 2023 Tax equivalent net interest income for 2024 was $87,446,000 compared to $81,315,000 for 2023, an increase of $6,131,000 or 7.5%. Total interest income increased $27,135,000, as loan interest income increased $26,594,000, and total investment income increased $541,000. Interest expense increased $21,004,000 from 2023. 27 [Index](#Index) Total tax equivalent interest income from investment securities increased $426,000 in 2024 from 2023. The average balance of investment securities decreased $31,182,000, which had an effect of decreasing interest income by $632,000 due to volume. During 2024, the Bank had limited investment activity in the first half of the year and used investment cashflows to fund loan activity, as well as to offset seasonal deposit fluctuations. The average tax-effected yield on our investment portfolio increased from 2.20% in 2023 to 2.44% in 2024. The increase in the tax-effected yield is attributable to purchases made during 2023 and 2024, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 24 basis points (bps) to 2.44%, interest income on investment securities increased $1,058,000, with the increase related to taxable securities. The investment strategy for 2024 was similar to 2023 in that cashflows from the investment portfolio were used to repay overnight borrowings as well as fund loan growth. The decrease in the average balance of the investment portfolio was due to investment repayments and maturities. During 2024, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries, which were primarily purchased at a discount. In total, loan interest income increased $26,594,000 in 2024 from 2023. The average balance of our loan portfolio increased by $290,770,000 in 2024 compared to 2023, which resulted in an increase in interest income of $18,538,000 due to volume, primarily due to the HVBC acquisition completed in June 2023 being included in the Companys results for the entirety of 2024 and an increase in the average balance of student loans. The average tax-effected yield on our loan portfolio was 6.24% for 2024 compared to 5.81% for 2023 resulting in an increase in loan interest income of $8,056,000. The tax-effected yield increased during 2024 due to a rise in market interest rates. | | | Interest income on residential mortgage loans increased $4,840,000. The average balance of residential mortgage loans increased $65,321,000 as a result of the HVBC acquisition, resulting in an increase of $3,752,000 due to volume. The change due to rate was an increase of $1,088,000 as the average yield on residential mortgages increased from 5.47% in 2023 to 5.83% in 2023 as a result of the higher rate environment in 2023 and 2024. | | | | | The average balance of construction loans increased $47,399,000 from 2023 to 2024 as a result of projects in our south eastern Pennsylvania market acquired as part of the HVBC acquisition, and the Delaware market, which resulted in an increase of $3,499,000 in interest income. The average yield on construction loans increased from 7.01% to 7.45%, which correlated to a $623,000 increase in interest income. | | | | | Interest income on commercial loans increased $14,744,000 from 2023 to 2024. The increase in the average balance of commercial loans of $164,470,000 is primarily attributable to the HVBC acquisition. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $10,314,000. The average yield on commercial loans increased 39 bps to 6.39% in 2024, resulting in an increase in interest income due to rate of $4,430,000. The increase in yield on commercial loans was a result of the higher rate environment in 2023 and 2024. | | | | | Interest income on agricultural loans increased $1,917,000 from 2023 to 2024. The increase in the average balance of agricultural loans of $7,608,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $370,000. The average yield on agricultural loans increased from 4.97% in 2023 to 5.41% in 2024 due to the increase in market rates, resulting in an increase in interest income due to rate of $1,547,000. | | | | | The average balance of other loans increased $9,361,000 million as a result of an increase in outstanding student loans. This resulted in an increase of $737,000 on total interest income due to volume. The average tax equivalent yield on other loans increased from 7.59% in 2023 to 8.00% in 2024, increasing interest income by $320,000 in other loans due to the increase in market rates in 2023 and 2024. | | Total interest expense increased $21,004,000 in 2024 compared to 2023. The majority of the increase was due to an increase in the average rate paid on interest bearing liabilities of 66 basis points to 3.00%. This increase resulted in an increase in interest expense of $13,356,000. The increase in rates was driven by the Federal Reserves response to inflation during 2022 and 2023 by increasing interest rates, which were not offset by the rate cuts made in the second half of 2024. The average rate on money markets increased from 2.39% to 3.14% resulting in an increase in interest expense of $2,915,000. The average rate paid on savings accounts increased 11 bps and resulted in an increase in interest expense of $308,000. The average rate paid on NOW accounts increased from 2.01% to 2.53% resulting in an increase in interest expense of $3,747,000. The average rate paid on certificates of deposits increased from 2.52% to 3.97% resulting in an increase in interest expense of $5,970,000. The average rate paid on other borrowed funds increased from 4.64% to 4.80% resulting in an increase in interest expense of $528,000. 28 [Index](#Index) Average interest-bearing liabilities increased $260,614,000 in 2024, with average interest-bearing deposits increasing $263,782,000 and average other borrowings decreasing $3,168,000. As a result of the increase in average deposits, interest expense increased $7,599,000 as a result of the change in volume. Increases in average deposits, which were primarily driven by the HVBC acquisition, included NOW accounts of $90,184,000 and money market accounts of $33,557,000. Certificates of deposits increased $153,309,000 due to the acquisition, an increase in brokered CDs and conversion of non-maturity deposits to term products. During 2024, a new business interest bearing checking account was created that had an average balance $8,756,000. The average balance of other borrowed funds decreased $3,168,000 due to the maturity of several borrowings, which corresponds to a decrease in interest expense of $151,000. Our tax equivalent net interest margin for 2024 was 3.13% compared to 3.21% for 2023, with the change attributable to the yield of interest-earning assets increasing less than the cost from interest-bearing liabilities during 2024. Interest rates continued to increase during the first half of 2024 due to the increases in market interest rates and competitive pressure for deposits. With inflation decreasing, the Federal Reserve did start decreasing rates, but rates still remained high in relation to previous years. During 2024, inflation remained above the Federal Reserves targets, but had decreased enough that allowed the Federal Reserve to lower rates, but not to the extent the market had forecast at the beginning of 2024. The yield curve remained inverted for the majority of 2024, but some positive slope did return to the curve during the 4th quarter of 2024 due to a decrease in short term rates as well as an increase in long term interest rates. PROVISION FOR CREDIT LOSSES For the year ended December 31, 2025, we recorded a provision for credit losses of $2,375,000, which represents a decrease of $212,000 from the $2,587,000 provision recorded in 2024. The provision for 2025 was driven by the current economic forecasts and specific reserves for non-accrual loans at December 31, 2025. The provision for 2024 was driven by other commercial loans that were originated by HVBC that subsequent to the acquisition deteriorated and were charged-off during 2024. The provision in 2024 was also impacted by an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also Financial Condition Allowance for Credit Losses - Loans and Credit Quality Risk). For the year ended December 31, 2024, we recorded a provision for credit losses of $2,587,000, which represents a decrease of $2,941,000 from the $5,528,000 provision recorded in 2023. The provision for 2023 includes $4,591,000 associated with the HVBC acquisition and $162,000 as a provision for off-balance sheet items, which is also primarily attributable to the HVBC acquisition. Excluding these items, the provision for 2024 is $1,650,000 more than 2023 and is due to other commercial loans that were originated by HVBC that subsequent to the acquisition have deteriorated and were charged-off during 2024. The provision in 2024 is also higher due to an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also Financial Condition Allowance for Credit Losses - Loans and Credit Quality Risk). NON-INTEREST INCOME The following table reflects non-interest income by major category for the years ended December 31 (dollars in thousands): | | | 2025 | | | 2024 | | | 2023 | | | | Service charges | | | 5,569 | | | | 5,749 | | | | 5,639 | | | | Trust | | | 792 | | | | 816 | | | | 764 | | | | Brokerage and insurance | | | 2,627 | | | | 2,381 | | | | 1,924 | | | | Equity security gains (losses), net | | | 67 | | | | 145 | | | | (144 | ) | | | Available for sale security losses, net | | | - | | | | - | | | | (51 | ) | | | Gains on loans sold | | | 2,290 | | | | 2,316 | | | | 1,452 | | | | Earnings on bank owned life insurance | | | 1,433 | | | | 1,684 | | | | 1,254 | | | | Gain on sale of Braavo division | | | - | | | | 1,102 | | | | - | | | | Other | | | 1,566 | | | | 1,208 | | | | 767 | | | | Total | | $ | 14,344 | | | $ | 15,401 | | | $ | 11,605 | | | 29 [Index](#Index) | | | 2025/2024 | | | 2024/2023 | | | | | | Change | | | Change | | | | | | Amount | | | % | | | Amount | | | % | | | | Service charges | | $ | (180 | ) | | | (3.1 | ) | | $ | 110 | | | | 2.0 | | | | Trust | | | (24 | ) | | | (2.9 | ) | | | 52 | | | | 6.8 | | | | Brokerage and insurance | | | 246 | | | | 10.3 | | | | 457 | | | | 23.8 | | | | Equity security gains (losses), net | | | (78 | ) | | | (53.8 | ) | | | 289 | | | | (200.7 | ) | | | Available for sale security losses, net | | | - | | | NA | | | | 51 | | | | (100.0 | ) | | | Gains on loans sold | | | (26 | ) | | | (1.1 | ) | | | 864 | | | | 59.5 | | | | Earnings on bank owned life insurance | | | (251 | ) | | | (14.9 | ) | | | 430 | | | | 34.3 | | | | Gain on sale of Braavo division | | | (1,102 | ) | | | (100.0 | ) | | | 1,102 | | | NA | | | | Other | | | 358 | | | | 29.6 | | | | 441 | | | | 57.5 | | | | Total | | $ | (1,057 | ) | | | (6.9 | ) | | $ | 3,796 | | | | 32.7 | | | 2025 vs. 2024 Non-interest income decreased $1,057,000 in 2025 from 2024, or (6.9%). There were no sales of available for sale securities during 2025 or 2024. During 2025, net equity security gains amounted to $67,000 as a result of market conditions experienced in 2025 compared to gains of $145,000 in 2024. Gains on loans sold decreased $26,000 compared to 2024. The decrease in gains on loans sold is attributable to a slight decrease in the amount of loans of $1,417,000, or (1.0%). The decrease in earnings on bank owned life insurance is due to death proceeds from the passing of former employees in 2024. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. The proceeds from the sale totaled approximately $7.2 million and generated a pre-tax gain of approximately $1.1 million. The increase in other income is due to derivative income earned by offering customers a product similar to a back to back swap. 2024 vs. 2023 Non-interest income increased $3,796,000 in 2024 from 2023, or 32.7%. There were no sales of available for securities during 2024. During 2023, we experienced a $51,000 net loss on available for sale securities. During 2023, we sold $10.0 million of municipal securities for a pre-tax loss of $51,000. Additionally, $76.5 million of securities obtained as part of the HVBC acquisition were sold for no gain or loss during the second quarter of 2023. During 2024, net equity security gains amounted to $145,000 as a result of market conditions experienced in 2024 compared to losses of $144,000 in 2023. Gains on loans sold increased $864,000 compared to 2023. The increase in gains on loans sold is attributable to the HVBC acquisition and its residential lending model, which focused on originating and selling residential mortgage loans, which includes the use of interest rate locks and other derivative activities, which is included in other income and accounts for the majority of the change in other income of $441,000. The increase in earnings on bank owned life insurance is due to the HVBC acquisition as well as death proceeds from the passing of former employees in 2024 exceeding those received in 2023. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. 30 [Index](#Index) Non-interest Expenses The following tables reflect the breakdown of non-interest expense by major category for the years ended December 31 (dollars in thousands): | | | 2025 | | | 2024 | | | 2023 | | | | Salaries and employee benefits | | | 39,402 | | | | 39,347 | | | | 34,990 | | | | Occupancy | | | 5,299 | | | | 5,013 | | | | 4,123 | | | | Furniture and equipment | | | 1,209 | | | | 1,038 | | | | 822 | | | | Professional fees | | | 2,341 | | | | 2,599 | | | | 1,962 | | | | FDIC insurance | | | 1,710 | | | | 1,996 | | | | 1,475 | | | | Pennsylvania shares tax | | | 739 | | | | 1,114 | | | | 583 | | | | Amortization of intangibles | | | 478 | | | | 564 | | | | 373 | | | | Merger and acquisition | | | - | | | | - | | | | 9,269 | | | | ORE expenses | | | 267 | | | | 212 | | | | 166 | | | | Software expenses | | | 1,844 | | | | 1,953 | | | | 1,784 | | | | Other | | | 11,443 | | | | 11,550 | | | | 9,215 | | | | Total | | $ | 64,732 | | | $ | 65,386 | | | $ | 64,762 | | | | | | 2025/2024 | | | 2024/2023 | | | | | | Change | | | Change | | | | | | Amount | | | % | | | Amount | | | % | | | | Salaries and employee benefits | | $ | 55 | | | | 0.1 | | | $ | 4,357 | | | | 12.5 | | | | Occupancy | | | 286 | | | | 5.7 | | | | 890 | | | | 21.6 | | | | Furniture and equipment | | | 171 | | | | 16.5 | | | | 216 | | | | 26.3 | | | | Professional fees | | | (258 | ) | | | (9.9 | ) | | | 637 | | | | 32.5 | | | | FDIC insurance | | | (286 | ) | | | (14.3 | ) | | | 521 | | | | 35.3 | | | | Pennsylvania shares tax | | | (375 | ) | | | (33.7 | ) | | | 531 | | | | 91.1 | | | | Amortization of intangibles | | | (86 | ) | | | (15.2 | ) | | | 191 | | | | 51.2 | | | | Merger and acquisition | | | - | | | NA | | | | (9,269 | ) | | | (100.0 | ) | | | ORE expenses | | | 55 | | | | 25.9 | | | | 46 | | | | 27.7 | | | | Software expenses | | | (109 | ) | | | (5.6 | ) | | | 169 | | | | 9.5 | | | | Other | | | (107 | ) | | | (0.9 | ) | | | 2,335 | | | | 25.3 | | | | Total | | $ | (654 | ) | | | (1.0 | ) | | $ | 624 | | | | 1.0 | | | 2025 vs. 2024 Non-interest expenses for 2025 totaled $64,732,000, which represents a decrease of $654,000 compared to 2024 expenses of $65,386,000. Salary and benefit costs increased $55,000, or 0.1%, due to due to additional healthcare expenses and post-employment benefits. There were 12 fewer full-time equivalent employees FTEs in 2025 compared to 2024. The decrease in professional fees and software costs is due to the sale of the Braavo division in 2024. The decrease in FDIC insurance expense is due to an increase in the Banks leverage ratio experienced during 2025. Pennsylvania shares tax decreased due to an increase in tax credits obtained through charitable contributions that are included in other expenses. Occupancy expenses increased due to an increase in depreciation associated with the Companys decision to relocate its branch in the City of Williamsport that is expected to occur in the first half of 2026 that shortened the useful life of the current location. The increase in furniture and fixture expense is due to depreciation associated with purchases made in 2025 and 2024. 2024 vs. 2023 Non-interest expenses for 2024 totaled $65,386,000, which represents an increase of 624,000, compared to 2023 expenses of $64,762,000. Salary and benefit costs increased $4,357,000, or 12.5%, due to an additional 34.3 full-time equivalent employees (FTE) as a result of the HVBC acquisition, merit increases for 2024, as well as an increase in health insurance costs due to additional headcount and claims. The increases in occupancy, furniture and fixtures, software expenses and amortization expenses was due to the HVBC acquisition and additional branches acquired as part of it. FDIC insurance expense increased $521,000 due to the Companys increased size and the Banks lower leverage capital ratio during the first half of 2024 compared to 2023. Professional fees increased due to increased legal expenses, of which $201,000 was related to the sale of certain Braavo assets. Pennsylvania shares tax increased due to the increased size of the Bank. Other expenses increased primarily due to the acquisition, with increases experienced in subscriptions, marketing and advertising, postage, printing, data communication expenses and FHLB letter of credit fees. Independent of the HVBC acquisition, other expenses increased due to insurance reimbursements received in 2023 to cover amounts previously charged-off through expense. Merger and acquisition costs for the HVBC acquisition totaled $9,269,000 in 2023 and included professional and consulting fees, printing, travel, contract termination payments and severance-related expenses. 31 [Index](#Index) Provision for Income Taxes The provision for income taxes was $8,666,000, $6,065,000 and $3,764,000 for 2025, 2024 and 2023, respectively. The effective tax rates for 2025, 2024 and 2023 were 19.2%, 17.9% and 17.5%, respectively. The increase in income tax expense of $2,601,000 in 2025 compared to 2024 was due to the increase of $11,405,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,395,000 at a 21% tax rate. The increase in income tax expense of $2,301,000 in 2024 compared to 2023 was due to the increase of $12,168,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,555,000 at a 21% tax rate. We are involved in seven limited partnership agreements that operate low-income housing projects in our market areas. During 2025 and 2024 we recognized credits on three of the seven projects, while in 2023 we recognized credits related to two projects. Tax credits associated with four of the partnerships were fully utilized by December 2022. We started recognizing credits on two of the partnerships during 2023 and on one partnership in 2024. We anticipate recognizing an aggregate of $6.9 million of tax credits over the next eleven years. FINANCIAL CONDITION The following table presents ending balances (dollars in millions), the dollar amount of change and the percentage change during the past year: | | | 2025 Balance | | | Increase | | | % Change | | | 2024 Balance | | | | Total assets | | $ | 3,064.6 | | | $ | 38.9 | | | | 1.3 | | | $ | 3,025.7 | | | | Total investments | | | 444.7 | | | | 18.8 | | | | 4.4 | | | | 425.9 | | | | Total loans, net | | | 2,327.8 | | | | 36.3 | | | | 1.6 | | | | 2,291.5 | | | | Total deposits | | | 2,377.0 | | | | (5.0 | ) | | | (0.2 | ) | | | 2,382.0 | | | | Total borrowings | | | 309.4 | | | | 11.7 | | | | 3.9 | | | | 297.7 | | | | Total stockholders equity | | | 338.1 | | | | 38.4 | | | | 12.8 | | | | 299.7 | | | Cash and Cash Equivalents Cash and cash equivalents totaled $34,291,000 at December 31, 2025 compared to $42,202,000 at December 31, 2024. The decrease is due to a decrease in the cash held at the Federal Reserve. Management actively measures and evaluates the Companys liquidity through our Asset Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year. Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due. 32 [Index](#Index) Investments The following table shows the year-end composition of the investment portfolio, at fair value, for the two years ended December 31 (dollars in thousands): | | | 2025 Amount | | | % of Total | | | 2024 Amount | | | % of Total | | | | Available-for-sale: | | | | | | | | | | | | | | | U. S. Agency securities | | $ | 49,755 | | | | 11.1 | | | $ | 53,487 | | | | 12.5 | | | | U.S. Treasuries | | | 82,654 | | | | 18.5 | | | | 120,502 | | | | 28.2 | | | | Obligations of state & political Subdivisions | | | 115,886 | | | | 26.0 | | | | 94,902 | | | | 22.2 | | | | Corporate obligations | | | 11,297 | | | | 2.5 | | | | 10,438 | | | | 2.4 | | | | Mortgage-backed securities | | | 185,149 | | | | 41.5 | | | | 146,583 | | | | 34.3 | | | | Equity securities | | | 1,815 | | | | 0.4 | | | | 1,747 | | | | 0.4 | | | | Total | | $ | 446,556 | | | | 100.0 | | | $ | 427,659 | | | | 100.0 | | | The Companys investment portfolio increased during 2025 by $18,897,000. This increase was fueled by $82,406,000 of purchases made during 2025, which offset the maturities and calls that took place in 2025. During 2025, $58,301,000, $23,105,000 and $1,000,000 of mortgage backed securities, obligations of political subdivisions and corporate securities were purchased, respectively. The purchases in 2025 were offset by $25,346,000 of principal repayments and $53,460,000 of calls and maturities. The fair value of our investment portfolio increased approximately $15,847,000 in 2025 due to decreases in market interest rates during 2025. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve, the effective yield on our investment portfolio for 2025 was 3.06% compared to 2.44% for 2024 on a tax equivalent basis. In related to activity by the Federal Reserve, there were similarities between 2024 and 2025 in that there was elevated volatility and, after a long pause, the Fed cut rates the last few months of each year. A new Presidential administration introduced tariffs as a negotiation strategy which caused big market swings in the first half of the year. As the year progressed the Fed became comfortable with the effect of tariffs and the two mandates of full employment and stable prices were sufficiently in balance to permit them to lower rates to the top end of what the FOMC considered a neutral rate. This also provided a measure of cushion in response to a weakening employment market. At the end of the year, officials became increasingly divided with each move, leading to another call for a pause after the December rate decision. The record-long government shutdown distorted and delayed many key economic reports officials use to assess the economys trajectory. After 175 bps of easing over the cycle, policy was back within a range of neutral estimates. Importantly, economic growth remained resilient, inflation remained above target, and a run of data fostered a quippy catch phrase of low-hiring, low-firing labor conditions. These rate cuts allowed the yield curve to steepen with the 2-year to 10-year US Treasury spread increasing from 30bps at the start of the year to 69bps at the end of the year. Even so, the very short end of the yield curve remained inverted. The Banks investment strategy used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available. As the rate cycle continues to progress, the Bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise. At December 31, 2025, the Company did not own any securities, other than government-sponsored and government-guaranteed mortgage-backed securities, that had an aggregate book value in excess of 10% of its consolidated stockholders equity at that date. The expected principal repayments at amortized cost and average weighted yields for the investment portfolio (excluding equity securities) as of December 31, 2025, are shown below (dollars in thousands). Expected principal repayments, which include prepayment speed assumptions for mortgage-backed securities, are significantly different than the contractual maturities detailed in Note 4 of the consolidated financial statements. Yields on tax-exempt securities are presented on a fully taxable equivalent basis, assuming a 21% tax rate, which was the rate in effect at December 31, 2025. | | | One Year or Less | | | After One Year to Five years | | | After Five Years to Ten Years | | | After Ten Years | | | Total | | | | | | Amortized Cost | | | Yield % | | | Amortized Cost | | | Yield % | | | Amortized Cost | | | Yield % | | | Amortized Cost | | | Yield % | | | Amortized Cost | | | Yield % | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. agency securities | | $ | 8,602 | | | | 3.3 | | | $ | 35,052 | | | | 1.9 | | | $ | 8,997 | | | | 2.0 | | | $ | - | | | | - | | | $ | 52,651 | | | | 2.2 | | | | U.S. treasuries | | | 28,953 | | | | 1.3 | | | | 55,598 | | | | 1.7 | | | | - | | | | - | | | | - | | | | - | | | | 84,551 | | | | 1.6 | | | | Obligations of state & political subdivisions | | | 16,470 | | | | 3.5 | | | | 38,025 | | | | 1.9 | | | | 36,295 | | | | 2.9 | | | | 29,818 | | | | 3.3 | | | | 120,608 | | | | 2.8 | | | | Corporate obligations | | | 9,512 | | | | 5.4 | | | | 1,792 | | | | 8.5 | | | | - | | | | - | | | | - | | | | - | | | | 11,304 | | | | 5.9 | | | | Mortgage-backed securities | | | 61,728 | | | | 4.5 | | | | 59,967 | | | | 3.7 | | | | 49,651 | | | | 3.0 | | | | 22,059 | | | | 3.5 | | | | 193,405 | | | | 3.7 | | | | Total available-for-sale | | $ | 125,265 | | | | 3.6 | | | $ | 190,434 | | | | 2.5 | | | $ | 94,943 | | | | 2.9 | | | $ | 51,877 | | | | 3.4 | | | $ | 462,519 | | | | 3.0 | | | 33 [Index](#Index) At December 31, 2025, approximately 68.3% of the amortized cost of debt securities is expected to mature, call or pre-pay within five years or less. The Company expects that earnings from operations, the levels of cash held at the Federal Reserve and other correspondent banks, the high liquidity level of the available-for-sale securities, growth of deposits and the availability of borrowings from the Federal Home Loan Bank and other third-party banks will be sufficient to meet future liquidity needs. Loans Held for Sale Loans held for sale decreased $214,000 to $9,393,000 as of December 31, 2025 from December 31, 2024. The rate environment for 2025 continued to place pressure on refinancing activity as well as new home purchases. Loans The Banks lending efforts have historically focused on the north central Pennsylvania counties of Tioga, Bradford and Potter, south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster and Allegheny, Steuben and Tioga counties of southern New York. We have a limited branch office in Union County that is staffed by a lending team to primarily support agricultural opportunities, and offices in State College, Mill Hall and Williamsport to support commercial opportunities in central Pennsylvania, especially Centre, Clinton and Lycoming Counties. The Williamsport branch was opened in 2023. The MidCoast acquisition expanded our markets into the State of Delaware with activity centered around the cities of Wilmington and Dover, Delaware, which was further supported by branch openings in Kennett Square, Pennsylvania and Greenville, Delaware. During 2024, the Bank opened a limited production office in Georgetown, Delaware, to primarily support agricultural customers in the Delaware market. In June 2023, we completed the HVBC acquisition, which expanded our markets into south east Pennsylvania, including the counties of Montgomery, Bucks and Philadelphia. It also includes a Mortgage production office in Mount Laurel, New Jersey. We originate loans primarily to our existing customer base, with new customers generated through the strong relationships that our lending teams have with their customers, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Banks website. The Bank offers a variety of loans, although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans. As of December 31, 2025, approximately 85.1% of our loan portfolio consisted of real estate loans. All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors. The Bank primarily offers fixed rate residential mortgage loans with terms of up to 25 years and adjustable rate mortgage loans (with amortization schedules up to 30 years) with interest rates and payments that adjust based on one, three, five and fifteen year fixed periods. Loan to value ratios are usually 80% or less with exceptions for individuals with excellent credit and low debt to income and/or high net worth. Adjustable rate mortgages are tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate. Home equity loans are written with terms of up to 15 years at fixed rates. Home equity lines of credit are variable rate loans tied to the Prime Rate generally with a ten year draw period followed by a ten year repayment period. Home equity loans are typically written with a maximum 80% loan to value. Commercial real estate loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value ratio of 80% or less. During 2025, 2024 and 2023, the Bank offered certain customers derivative contracts that allowed the customer to obtain a fixed interest rate for a period up to 10 years. Where feasible, the Bank participates in the United States Department of Agricultures (USDA) and Small Business Administration (SBA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area. Agriculture is an important industry throughout our market areas. Therefore, the Bank has not only developed an agriculture lending team with significant experience that has a thorough understanding of this industry, but also continually looks for additional employees with a thorough understanding of agriculture. We have an agricultural loan policy to assist in underwriting agricultural loans. Agricultural loans are made to a diversified customer base that include dairy, swine and poultry farmers and their support businesses. Agricultural loans focus on character, cash flow and collateral, while also considering the particular risks of the industry. Loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value of less than 80%. We evaluate the financial strength of the integrators we have exposure to with our poultry and swine agricultural customers. The Bank is a preferred lender under the USDAs Farm Service Agency (FSA) and participates in the FSA guaranteed loan program. The Bank believes that a secondary education can provide individuals with upward mobility. As such, the Bank has partnered with industry leaders to provide individuals with private student loans that can undergraduate, graduate and parent loans that can cover up to the cost of attendance of college or university. In addition, prior student loans can also be refinanced. Our partners assist in ensuring that the application, approval and servicing processes are best in class. Loans are offered with either fixed or variable rates and terms typically range from five to fifteen years, but depending on the program can be up to twenty years. Payments options include deferral until after graduation, interest only while enrolled in school, a flat payment and full principal and interest. 34 [Index](#Index) The Bank, as part of its commitment to the communities it serves, is an active lender for projects by our local municipalities and school districts. These loans range from short term bridge financing to 20 year term loans for specific projects. These loans are typically written at rates that adjust at least every five years. Due to the size of certain municipal loans, we have developed participation lending relationships with other community banks that allow us to meet regulatory compliance issues, while meeting the needs of the customer. At December 31, 2025, the aggregate balance of our participation loans, in which a portion was sold to other lenders totaled $334,913,000, of which $149,344,000 was sold. Activity associated with exploration for natural gas continued in 2024 in the Companys north central Pennsylvania market. Certain entities drilled new wells and created new pad sites and pipelines, while other companies only maintained their existing wells. While the Bank has loaned to companies that service the exploration activities, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company were to service industry customers which included trucking companies, stone quarries and other support businesses. We also originated loans to businesses and individuals for restaurants, hotels and apartment rentals that were developed and expanded to meet the housing and living needs of the gas workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities were originated in a prudent and cautious manner and were subject to specific policies and procedures for lending to these entities, which included lower loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity. The following table shows the year-end composition of the loan portfolio as of December 31, 2025 and 2024 (dollars in thousands): | | | 2025 | | | 2024 | | | | | | Amount | | | % | | | Amount | | | % | | | | Real estate: | | | | | | | | | | | | | | | Residential | | $ | 340,972 | | | | 14.5 | | | $ | 351,398 | | | | 15.2 | | | | Commercial | | | 1,218,514 | | | | 51.8 | | | | 1,121,435 | | | | 48.5 | | | | Agricultural | | | 347,448 | | | | 14.8 | | | | 327,722 | | | | 14.2 | | | | Construction | | | 93,965 | | | | 4.0 | | | | 164,326 | | | | 7.1 | | | | Consumer | | | 88,210 | | | | 3.8 | | | | 109,505 | | | | 4.7 | | | | Other commercial loans | | | 179,166 | | | | 7.6 | | | | 155,012 | | | | 6.7 | | | | Other agricultural loans | | | 30,247 | | | | 1.3 | | | | 29,662 | | | | 1.3 | | | | State & political subdivision loans | | | 52,100 | | | | 2.2 | | | | 54,182 | | | | 2.3 | | | | Total loans | | | 2,350,622 | | | | 100.0 | | | | 2,313,242 | | | | 100.0 | | | | Less allowance for credit losses | | | 22,806 | | | | | | | | 21,699 | | | | | | | | Net loans | | $ | 2,327,816 | | | | | | | $ | 2,291,543 | | | | | | | | | | 2025/2024 | | | | | | Change | | | | | | Amount | | | % | | | | Real estate: | | | | | | | | | | Residential | | $ | (10,426 | ) | | | (3.0 | ) | | | Commercial | | | 97,079 | | | | 8.7 | | | | Agricultural | | | 19,726 | | | | 6.0 | | | | Construction | | | (70,361 | ) | | | (42.8 | ) | | | Consumer | | | (21,295 | ) | | | (19.4 | ) | | | Other commercial loans | | | 24,154 | | | | 15.6 | | | | Other agricultural loans | | | 585 | | | | 2.0 | | | | State & political subdivision loans | | | (2,082 | ) | | | (3.8 | ) | | | Total loans | | $ | 37,380 | | | | 1.6 | | | Total loans grew $37,380,0000 in 2025 and total $2,350,622,000 at the end of 2025. The primary driver of growth during 2025 was increases in real estate lending and other commercial loans. 35 [Index](#Index) Residential real estate loans decreased $10,426,000 primarily due to the interest rate environment that lessened demand. During 2025, $153,519,000 of residential real estate loans were originated for sale on the secondary market, which compares to $155,379,000 for 2024. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income. During 2025, the Bank originated and added to its residential real estate portfolio $13,909,000 of loans. The following table presents the maturity distribution of our loan portfolio as of December 31, 2025 (in thousands). The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. | | | Due in One year or less | | | After one year but within five years | | | After five years through fifteen years | | | After fifteen years | | | Total | | | | Real estate: | | | | | | | | | | | | | | | | | | Residential | | $ | 1,667 | | | $ | 9,324 | | | $ | 61,161 | | | $ | 268,820 | | | $ | 340,972 | | | | Commercial | | | 175,823 | | | | 542,011 | | | | 376,851 | | | | 123,829 | | | | 1,218,514 | | | | Agricultural | | | 22,626 | | | | 24,608 | | | | 171,679 | | | | 128,535 | | | | 347,448 | | | | Construction | | | 27,345 | | | | 33,966 | | | | 12,645 | | | | 20,009 | | | | 93,965 | | | | Consumer | | | 80,506 | | | | 2,983 | | | | 4,554 | | | | 167 | | | | 88,210 | | | | Other commercial loans | | | 90,042 | | | | 39,583 | | | | 49,364 | | | | 177 | | | | 179,166 | | | | Other agricultural loans | | | 18,151 | | | | 8,250 | | | | 3,846 | | | | - | | | | 30,247 | | | | State & political subdivision loans | | | 1,415 | | | | 817 | | | | 39,745 | | | | 10,123 | | | | 52,100 | | | | | | $ | 417,575 | | | $ | 661,542 | | | $ | 719,845 | | | $ | 551,660 | | | $ | 2,350,622 | | | The following table presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of loans in accordance with changes in the interest rate index that mature after December 31, 2026 (in thousands). | Sensitivity of loans to changes in interest rates - loans due after December 31, 2026: | | Predetermined interest rate | | | Floating or adjustable interest rate | | | Total | | | | Real estate: | | | | | | | | | | | | Residential | | $ | 178,013 | | | $ | 161,292 | | | $ | 339,305 | | | | Commercial | | | 493,008 | | | | 549,683 | | | | 1,042,691 | | | | Agricultural | | | 16,594 | | | | 308,228 | | | | 324,822 | | | | Construction | | | 24,023 | | | | 42,597 | | | | 66,620 | | | | Consumer | | | 4,767 | | | | 2,937 | | | | 7,704 | | | | Other commercial loans | | | 24,393 | | | | 64,731 | | | | 89,124 | | | | Other agricultural loans | | | 6,606 | | | | 5,490 | | | | 12,096 | | | | State & political subdivision loans | | | 16,314 | | | | 34,371 | | | | 50,685 | | | | | | $ | 763,718 | | | $ | 1,169,329 | | | $ | 1,933,047 | | | The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1)total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institutions total risk-based capital; or (2)total commercial real estate loans representing 300% or more of the institutions total risk-based capital and the institutions commercial real estate loan portfolio has increased 50% or more during the prior 36months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recentyears. As of December 31, 2025, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 287.0% of consolidated risk based capital. Construction, land and land development loans represented 30.5% of consolidated risk based capital as of December 31, 2025. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital and may adversely affect shareholder returns. The Company has an extensive Capital Policy and Capital Plan, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. Due to the concentration in commercial real estate loans, the Company has implemented enhanced monitoring and risk assessment procedures with respect to this portfolio. As of December 31, 2025, management believes that it has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions. 36 [Index](#Index) Given the significance of commercial real estate (CRE) loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of December 31, 2025 (dollars in thousands): | 2025 | | Owner Occupied | | | Non-Owner Occupied | | | Total | | | | Commercial Real Estate: | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | | | | Residential Rental and Speculation | | $ | 7,636 | | | | 0.63 | % | | $ | 185,033 | | | | 15.19 | % | | $ | 192,669 | | | | 15.81 | % | | | Multifamily Rental | | | - | | | | 0.00 | % | | | 185,860 | | | | 15.25 | % | | | 185,860 | | | | 15.25 | % | | | Retail | | | 41,287 | | | | 3.39 | % | | | 123,523 | | | | 10.14 | % | | | 164,810 | | | | 13.53 | % | | | Mixed Use | | | 14,699 | | | | 1.21 | % | | | 87,757 | | | | 7.20 | % | | | 102,456 | | | | 8.41 | % | | | Hotel/Motel | | | - | | | | 0.00 | % | | | 98,063 | | | | 8.05 | % | | | 98,063 | | | | 8.05 | % | | | Office | | | 14,224 | | | | 1.17 | % | | | 67,660 | | | | 5.55 | % | | | 81,884 | | | | 6.72 | % | | | Industrial/Flex/Warehouse | | | 21,865 | | | | 1.79 | % | | | 57,323 | | | | 4.70 | % | | | 79,188 | | | | 6.50 | % | | | Specialty | | | 51,019 | | | | 4.19 | % | | | 24,785 | | | | 2.03 | % | | | 75,804 | | | | 6.22 | % | | | Land | | | 2,425 | | | | 0.20 | % | | | 55,709 | | | | 4.57 | % | | | 58,134 | | | | 4.77 | % | | | Student Housing | | | - | | | | 0.00 | % | | | 52,797 | | | | 4.33 | % | | | 52,797 | | | | 4.33 | % | | | Amusement/Entertainment | | | 30,632 | | | | 2.51 | % | | | 837 | | | | 0.07 | % | | | 31,469 | | | | 2.58 | % | | | Self Storage | | | 479 | | | | 0.04 | % | | | 24,166 | | | | 1.98 | % | | | 24,645 | | | | 2.02 | % | | | Schools/Higher Ed/Vocational | | | 6,918 | | | | 0.57 | % | | | 13,187 | | | | 1.08 | % | | | 20,105 | | | | 1.65 | % | | | Food and beverage | | | 14,999 | | | | 1.23 | % | | | 1,221 | | | | 0.10 | % | | | 16,220 | | | | 1.33 | % | | | Medical office | | | 8,636 | | | | 0.71 | % | | | 7,521 | | | | 0.62 | % | | | 16,157 | | | | 1.33 | % | | | Healthcare/Hospitals | | | 6,748 | | | | 0.55 | % | | | - | | | | 0.00 | % | | | 6,748 | | | | 0.55 | % | | | Senior Living | | | - | | | | 0.00 | % | | | 6,529 | | | | 0.54 | % | | | 6,529 | | | | 0.54 | % | | | Other | | | 2,351 | | | | 0.19 | % | | | 2,625 | | | | 0.22 | % | | | 4,976 | | | | 0.41 | % | | | Total | | $ | 223,918 | | | | 18.38 | % | | $ | 994,596 | | | | 81.62 | % | | $ | 1,218,514 | | | | 100.00 | % | | | 2024 | | Owner Occupied | | | Non-Owner Occupied | | | Total | | | | Commercial Real Estate: | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | | | | Residential Rental | | $ | 6,717 | | | | 0.60 | % | | $ | 177,003 | | | | 15.78 | % | | $ | 183,720 | | | | 16.38 | % | | | Multifamily Rental | | | 522 | | | | 0.05 | % | | | 175,314 | | | | 15.63 | % | | | 175,836 | | | | 15.68 | % | | | Retail | | | 57,365 | | | | 5.12 | % | | | 114,620 | | | | 10.22 | % | | | 171,985 | | | | 15.34 | % | | | Hotel/Motel | | | 43,178 | | | | 3.85 | % | | | 62,941 | | | | 5.61 | % | | | 106,119 | | | | 9.46 | % | | | Mixed Use | | | 21,051 | | | | 1.88 | % | | | 69,783 | | | | 6.22 | % | | | 90,834 | | | | 8.10 | % | | | Industrial/Flex/Warehouse | | | 24,387 | | | | 2.17 | % | | | 65,232 | | | | 5.82 | % | | | 89,619 | | | | 7.99 | % | | | Office | | | 11,280 | | | | 1.01 | % | | | 57,767 | | | | 5.15 | % | | | 69,047 | | | | 6.16 | % | | | Land | | | 2,800 | | | | 0.25 | % | | | 49,111 | | | | 4.38 | % | | | 51,911 | | | | 4.63 | % | | | Specialty | | | 26,545 | | | | 2.37 | % | | | 23,427 | | | | 2.09 | % | | | 49,972 | | | | 4.46 | % | | | Student Housing | | | - | | | | 0.00 | % | | | 47,346 | | | | 4.22 | % | | | 47,346 | | | | 4.22 | % | | | Amusement/Entertainment | | | 16,896 | | | | 1.51 | % | | | 5,067 | | | | 0.45 | % | | | 21,963 | | | | 1.96 | % | | | Medical office | | | 10,549 | | | | 0.94 | % | | | 7,664 | | | | 0.68 | % | | | 18,213 | | | | 1.62 | % | | | Self Storage | | | 1,921 | | | | 0.17 | % | | | 9,769 | | | | 0.87 | % | | | 11,690 | | | | 1.04 | % | | | Other | | | 1,865 | | | | 0.17 | % | | | 9,221 | | | | 0.82 | % | | | 11,086 | | | | 0.99 | % | | | Schools/Higher Ed/Vocational | | | 934 | | | | 0.08 | % | | | 8,020 | | | | 0.72 | % | | | 8,954 | | | | 0.80 | % | | | Healthcare/Hospitals | | | 7,162 | | | | 0.64 | % | | | - | | | | 0.00 | % | | | 7,162 | | | | 0.64 | % | | | Senior Living | | | - | | | | 0.00 | % | | | 5,978 | | | | 0.53 | % | | | 5,978 | | | | 0.53 | % | | | Total | | $ | 233,172 | | | | 20.79 | % | | $ | 888,263 | | | | 79.21 | % | | $ | 1,121,435 | | | | 100.00 | % | | 37 [Index](#Index) The following table provides a breakdown of our construction portfolio by collateral type as of December 31, 2025 (dollars in thousands): | | | December 31, 2025 | | | December 31, 2024 | | | | Construction: | | Amount | | | % | | | Amount | | | % | | | | Residential | | $ | 32,732 | | | | 34.83 | % | | $ | 59,334 | | | | 36.11 | % | | | Multifamily | | | 24,844 | | | | 26.44 | % | | | 49,838 | | | | 30.33 | % | | | Industrial/Flex/Warehouse | | | 19,586 | | | | 20.84 | % | | | 15,337 | | | | 9.33 | % | | | Agricultural and land | | | 10,432 | | | | 11.10 | % | | | 4,528 | | | | 2.76 | % | | | Office | | | 3,148 | | | | 3.35 | % | | | 8,456 | | | | 5.15 | % | | | Food and beverage | | | 1,519 | | | | 1.62 | % | | | - | | | | 0.00 | % | | | Mixed Use | | | 558 | | | | 0.59 | % | | | 7,580 | | | | 4.61 | % | | | Self Storage | | | 476 | | | | 0.51 | % | | | 11,986 | | | | 7.29 | % | | | Specialty | | | 398 | | | | 0.42 | % | | | - | | | | 0.00 | % | | | Retail | | | 150 | | | | 0.16 | % | | | 2,299 | | | | 1.40 | % | | | Other | | | 122 | | | | 0.13 | % | | | 881 | | | | 0.54 | % | | | Hotel/Motel | | | - | | | | 0.00 | % | | | 623 | | | | 0.38 | % | | | Schools/Higher Ed/Vocational | | | - | | | | 0.00 | % | | | 3,464 | | | | 2.11 | % | | | Total | | $ | 93,965 | | | | 100.00 | % | | $ | 164,326 | | | | 100.00 | % | | The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio (LTV). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at December 31, 2025 and 2024 (dollars in thousands): | | 2025 | | | 2024 | | | | LTV Range | Number of Loans | | | Amount | | | % | | | Number of Loans | | | Amount | | | % | | | | 0%-25% | | 832 | | | $ | 177,207 | | | | 14.54 | % | | | 820 | | | $ | 152,157 | | | | 12.49 | % | | | 25.01%-50% | | 550 | | | | 387,019 | | | | 31.76 | % | | | 546 | | | | 323,919 | | | | 26.58 | % | | | 50.01%-60% | | 289 | | | | 226,199 | | | | 18.56 | % | | | 303 | | | | 209,845 | | | | 17.22 | % | | | 60.01%-70% | | 340 | | | | 273,932 | | | | 22.48 | % | | | 333 | | | | 267,687 | | | | 21.97 | % | | | 70.01%-75% | | 132 | | | | 117,272 | | | | 9.62 | % | | | 181 | | | | 122,075 | | | | 10.02 | % | | | 75.01%-80% | | 44 | | | | 30,080 | | | | 2.47 | % | | | 51 | | | | 36,544 | | | | 3.00 | % | | | >80% | | 5 | | | | 6,805 | | | | 0.56 | % | | | 8 | | | | 9,208 | | | | 0.76 | % | | | Total | | 2,192 | | | $ | 1,218,514 | | | | 100.00 | % | | | 2,242 | | | $ | 1,121,435 | | | | 92.03 | % | | Allowance for Credit Losses Loans and Credit Quality Risk The allowance for credit losses loans is maintained at a level which, in managements judgment, is adequate to absorb probable future credit losses inherent in the loan portfolio. The provision for credit losses is charged against current income. Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance. The allowance for credit losses - loans was $22,806,000 or 0.97% of total loans as of December 31, 2025 as compared to $21,699,000 or 0.94% of loans as of December 31, 2024. The $1,107,000 increase is a result of a $1,888,000 provision for credit losses loans, less net charge-offs of $781,000. Net charge-offs for 2025 are driven by loans acquired as part of the HVBC acquisition due to collateral issues and the acquired medical student loan portfolio from HVBC. The adequacy of the allowance for credit losses loans is subject to a formal, quarterly analysis by management of the Company. In order to better analyze the risks associated with the loan portfolio, the entire portfolio is divided into several categories. As stated above, commercial loans on non-accrual status are specifically reviewed and given a specific reserve, if appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, Note 1, Summary of Significant Accounting Policies, and Note 5, Loans, in the consolidated financial statements provides additional disclosure on the allowance for credit losses. The Company adopted ASC 326 effective January 1, 2023. Note 1, Summary of Significant Accounting Policies, in the consolidated financial statements provides additional disclosure on the adoption of ASC 326. 38 [Index](#Index) The following table shows the distribution of the allowance for credit losses - loans and the percentage of loans compared to total loans by loan category (dollars in thousands) as of December 31: | | | 2025 | | | 2024 | | | | | | Amount | | | % | | | Amount | | | % | | | | Real estate loans: | | | | | | | | | | | | | | | Residential | | $ | 3,112 | | | | 14.5 | | | $ | 1,940 | | | | 15.2 | | | | Commercial | | | 10,017 | | | | 51.8 | | | | 9,174 | | | | 48.5 | | | | Agricultural | | | 4,841 | | | | 14.8 | | | | 3,529 | | | | 14.2 | | | | Construction | | | 916 | | | | 4.0 | | | | 1,402 | | | | 7.1 | | | | Consumer | | | 1,201 | | | | 3.8 | | | | 1,338 | | | | 4.7 | | | | Other commercial loans | | | 2,534 | | | | 7.6 | | | | 3,766 | | | | 6.7 | | | | Other agricultural loans | | | 115 | | | | 1.3 | | | | 133 | | | | 1.3 | | | | State & political subdivision loans | | | 55 | | | | 2.2 | | | | 61 | | | | 2.3 | | | | Unallocated | | | 15 | | | | N/A | | | | 356 | | | | N/A | | | | Total allowance for loan losses | | $ | 22,806 | | | | 100.0 | | | $ | 21,699 | | | | 100.0 | | | The following tables presents the activity in the allowance for credit losses loans, by portfolio segment, for 2025, 2024 and 2023 (in thousands). | | | Balance at December 31, 2024 | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2025 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | Residential | | $ | 1,940 | | | $ | - | | | $ | - | | | $ | 1,172 | | | $ | 3,112 | | | | Commercial | | | 9,174 | | | | (40 | ) | | | - | | | | 883 | | | | 10,017 | | | | Agricultural | | | 3,529 | | | | - | | | | - | | | | 1,312 | | | | 4,841 | | | | Construction | | | 1,402 | | | | - | | | | - | | | | (486 | ) | | | 916 | | | | Consumer | | | 1,338 | | | | (327 | ) | | | 41 | | | | 149 | | | | 1,201 | | | | Other commercial loans | | | 3,766 | | | | (491 | ) | | | 36 | | | | (777 | ) | | | 2,534 | | | | Other agricultural loans | | | 133 | | | | - | | | | - | | | | (18 | ) | | | 115 | | | | State and political subdivision loans | | | 61 | | | | - | | | | - | | | | (6 | ) | | | 55 | | | | Unallocated | | | 356 | | | | - | | | | - | | | | (341 | ) | | | 15 | | | | Total | | $ | 21,699 | | | $ | (858 | ) | | $ | 77 | | | $ | 1,888 | | | $ | 22,806 | | | | | | Balance at December 31, 2023 | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2024 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | Residential | | $ | 2,354 | | | $ | (5 | ) | | $ | - | | | $ | (409 | ) | | $ | 1,940 | | | | Commercial | | | 9,178 | | | | - | | | | - | | | | (4 | ) | | | 9,174 | | | | Agricultural | | | 3,264 | | | | - | | | | - | | | | 265 | | | | 3,529 | | | | Construction | | | 1,950 | | | | - | | | | - | | | | (548 | ) | | | 1,402 | | | | Consumer | | | 1,412 | | | | (107 | ) | | | 22 | | | | 11 | | | | 1,338 | | | | Other commercial loans | | | 2,313 | | | | (2,561 | ) | | | 21 | | | | 3,993 | | | | 3,766 | | | | Other agricultural loans | | | 270 | | | | - | | | | - | | | | (137 | ) | | | 133 | | | | State and political subdivision loans | | | 45 | | | | - | | | | - | | | | 16 | | | | 61 | | | | Unallocated | | | 367 | | | | - | | | | - | | | | (11 | ) | | | 356 | | | | Total | | $ | 21,153 | | | $ | (2,673 | ) | | $ | 43 | | | $ | 3,176 | | | $ | 21,699 | | | 39 [Index](#Index) | | | Balance at December 31, 2022 | | | Impact of adopting CECL | | | Allowance for credit loss on PCD acquired loans | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2023 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 1,056 | | | $ | 79 | | | $ | 108 | | | $ | (1 | ) | | $ | - | | | $ | 1,112 | | | $ | 2,354 | | | | Commercial | | | 10,120 | | | | (3,070 | ) | | | 39 | | | | - | | | | - | | | | 2,089 | | | | 9,178 | | | | Agricultural | | | 4,589 | | | | (1,145 | ) | | | - | | | | - | | | | - | | | | (180 | ) | | | 3,264 | | | | Construction | | | 801 | | | | (103 | ) | | | 37 | | | | - | | | | - | | | | 1,215 | | | | 1,950 | | | | Consumer | | | 135 | | | | 1,040 | | | | 677 | | | | (365 | ) | | | 40 | | | | (115 | ) | | | 1,412 | | | | Other commercial loans | | | 1,040 | | | | (328 | ) | | | 828 | | | | (963 | ) | | | 9 | | | | 1,727 | | | | 2,313 | | | | Other agricultural loans | | | 489 | | | | (219 | ) | | | - | | | | - | | | | - | | | | - | | | | 270 | | | | State and political | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | subdivision loans | | | 322 | | | | (280 | ) | | | - | | | | - | | | | - | | | | 3 | | | | 45 | | | | Unallocated | | | - | | | | 726 | | | | - | | | | - | | | | - | | | | (359 | ) | | | 367 | | | | Total | | $ | 18,552 | | | $ | (3,300 | ) | | $ | 1,689 | | | $ | (1,329 | ) | | $ | 49 | | | $ | 5,492 | | | $ | 21,153 | | | The following table provides information related to credit loss experience and net (charge-offs) recoveries for 2025, 2024 and 2023 (dollars in thousands). | 2025 | | Credit Loss Expense (Benefit) | | | Net (charge- offs) Recoveries | | | Average Loans | | | Ratio of net (charge-offs) recoveries to Average loans | | | Allowance to total loans | | | Non- accrual loans as a percent of loans | | | Allowance to total non- accrual loans | | | | Real estate: | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 1,172 | | | | - | | | $ | 346,313 | | | | 0.00 | % | | | 0.91 | % | | | 1.01 | % | | | 90.39 | % | | | Commercial | | | 883 | | | | (40 | ) | | | 1,153,166 | | | | 0.00 | % | | | 0.82 | % | | | 0.94 | % | | | 86.14 | % | | | Agricultural | | | 1,312 | | | | - | | | | 334,201 | | | | 0.00 | % | | | 1.39 | % | | | 0.62 | % | | | 225.69 | % | | | Construction | | | (486 | ) | | | - | | | | 135,920 | | | | 0.00 | % | | | 0.97 | % | | | 0.55 | % | | | 177.52 | % | | | Consumer | | | 149 | | | | (286 | ) | | | 96,097 | | | | -0.30 | % | | | 1.36 | % | | | 0.87 | % | | | 155.97 | % | | | Other commercial loans | | | (777 | ) | | | (455 | ) | | | 167,670 | | | | -0.27 | % | | | 1.41 | % | | | 4.37 | % | | | 33.81 | % | | | Other agricultural loans | | | (18 | ) | | | - | | | | 28,679 | | | | 0.00 | % | | | 0.38 | % | | | 1.33 | % | | | 28.54 | % | | | State & political subdivision loans | | | (6 | ) | | | - | | | | 52,730 | | | | 0.00 | % | | | 0.11 | % | | | 0.00 | % | | NA | | | | Unallocated | | | (341 | ) | | | - | | | | - | | | NA | | | NA | | | NA | | | NA | | | | Total | | $ | 1,888 | | | $ | (781 | ) | | $ | 2,314,776 | | | | -0.03 | % | | | 0.97 | % | | | 1.13 | % | | | 85.73 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2024 | | | Credit Loss Expense (Benefit) | | | | Net (charge- offs) Recoveries | | | | Average Loans | | | | Ratio of net (charge-offs) recoveries to Average loans | | | | Allowance to total loans | | | | Non- accrual loans as a percent of loans | | | | Allowance to total non- accrual loans | | | | Real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | (409 | ) | | $ | (5 | ) | | $ | 356,292 | | | | 0.00 | % | | | 0.55 | % | | | 0.82 | % | | | 67.57 | % | | | Commercial | | | (4 | ) | | | - | | | | 1,109,075 | | | | 0.00 | % | | | 0.82 | % | | | 1.28 | % | | | 63.87 | % | | | Agricultural | | | 265 | | | | - | | | | 324,500 | | | | 0.00 | % | | | 1.08 | % | | | 1.24 | % | | | 86.88 | % | | | Construction | | | (548 | ) | | | - | | | | 182,714 | | | | 0.00 | % | | | 0.85 | % | | | 0.17 | % | | | 495.41 | % | | | Consumer | | | 11 | | | | (85 | ) | | | 83,916 | | | | -0.10 | % | | | 1.22 | % | | | 0.92 | % | | | 133.53 | % | | | Other commercial loans | | | 3,993 | | | | (2,540 | ) | | | 156,847 | | | | -1.62 | % | | | 2.43 | % | | | 1.67 | % | | | 145.86 | % | | | Other agricultural loans | | | (137 | ) | | | - | | | | 26,088 | | | | 0.00 | % | | | 0.45 | % | | | 1.81 | % | | | 24.77 | % | | | State & political subdivision loans | | | 16 | | | | - | | | | 55,919 | | | | 0.00 | % | | | 0.11 | % | | | 0.00 | % | | NA | | | | Unallocated | | | (11 | ) | | | - | | | | - | | | NA | | | NA | | | NA | | | NA | | | | Total | | $ | 3,176 | | | $ | (2,630 | ) | | $ | 2,295,351 | | | | -0.11 | % | | | 0.94 | % | | | 1.11 | % | | | 84.43 | % | | 40 [Index](#Index) | 2023 | | | | | | | | | | | | | | | | | | | | | | | | Real estate: | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 1,112 | | | | (1 | ) | | $ | 290,971 | | | | 0.00 | % | | | 0.65 | % | | | 0.86 | % | | | 76.38 | % | | | Commercial | | | 2,089 | | | | - | | | | 986,188 | | | | 0.00 | % | | | 0.84 | % | | | 0.10 | % | | | 808.63 | % | | | Agricultural | | | (180 | ) | | | - | | | | 312,423 | | | | 0.00 | % | | | 1.04 | % | | | 0.85 | % | | | 122.25 | % | | | Construction | | | 1,215 | | | | - | | | | 135,315 | | | | 0.00 | % | | | 1.00 | % | | | 1.20 | % | | | 82.73 | % | | | Consumer | | | (115 | ) | | | (325 | ) | | | 74,555 | | | | -0.44 | % | | | 2.72 | % | | | 1.35 | % | | | 201.43 | % | | | Other commercial loans | | | 1,727 | | | | (954 | ) | | | 115,264 | | | | -0.83 | % | | | 1.59 | % | | | 1.20 | % | | | 132.17 | % | | | Other agricultural loans | | | - | | | | - | | | | 30,557 | | | | 0.00 | % | | | 0.88 | % | | | 1.60 | % | | | 54.88 | % | | | State & political subdivision loans | | | 3 | | | | - | | | | 59,308 | | | | 0.00 | % | | | 0.08 | % | | | 0.00 | % | | NA | | | | Unallocated | | | (359 | ) | | | - | | | | - | | | NA | | | NA | | | NA | | | NA | | | | Total | | $ | 5,492 | | | $ | (1,280 | ) | | $ | 2,004,581 | | | | -0.06 | % | | | 0.94 | % | | | 0.54 | % | | | 173.57 | % | | The Company believes it utilizes a disciplined and thorough loan review process based upon its internal loan policy approved by the Companys Board of Directors. The purpose of the review is to assess loan quality, analyze delinquencies, identify problem loans, evaluate potential charge-offs and recoveries, and assess general overall economic conditions in the markets served. An external independent loan review is performed on our commercial portfolio at least semi-annually for the Company. The external consultant is engaged to review 1) a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated. Management believes it uses the best information available to make such determinations and the allowance for credit losses loans is adequate as of December 31, 2025. However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination. A prolonged downturn in the economy, changes in the economies of various segments of our agricultural and commercial portfolios, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, credit loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Banks allowance for credit losses - loans. The banking agencies could require the recognition of additions to the allowance for credit losses based upon their judgment of information available to them at the time of their examination. On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports. Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list. The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include. Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan from the watchlist. In certain cases, loans may be placed on non-accrual status or charged-off based upon managements evaluation of the borrowers ability to pay. All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans, other commercial loans and other agricultural loans on non-accrual are evaluated quarterly for impairment. See also Note 5 Loans and Related Allowance for Credit Losses - Loans to the consolidated financial statements. As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Banks allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate loans total 66.6% of the loan portfolio at December 31 2025, 64.7% of the allowance is assigned to these portions of the loan portfolio. Residential real estate loans comprise 14.5% of the loan portfolio as of December 31, 2025 and 13.7% of the allowance is assigned to this segment. Other commercial loans comprise 7.6% of the loan portfolio as of December 31, 2025 and 11.6% of the allowance is assigned to this segment. 41 [Index](#Index) The following table is a summary of our non-performing assets for the years ended December 31, 2025 and 2024 (in thousands). | | | 2025 | | | 2024 | | | | Non-performing loans: | | | | | | | | | Non-accruing loans | | $ | 26,602 | | | $ | 25,701 | | | | Accrual loans - 90 days or more past due | | | 229 | | | | 276 | | | | Total non-performing loans | | | 26,831 | | | | 25,977 | | | | Foreclosed assets held for sale | | | 2,358 | | | | 2,635 | | | | Total non-performing assets | | $ | 29,189 | | | $ | 28,612 | | | The following table identifies amounts of loans contractually past due 30 to 90 days and non-performing loans by loan category, as well as the change from December 31, 2024 to December 31, 2025 in non-performing loans (in thousands). Non-performing loans include those accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans. Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon managements assessment of its ultimate ability to collect principal and interest. | | | December 31, 2025 | | | December 31, 2024 | | | | | | | | | Non-Performing Loans | | | | | | Non-Performing Loans | | | | | | 30 - 89 Days Past Due | | | 90 Days Past Due Accruing | | | Non- accrual | | | Total Non- Performing | | | 30 - 89 Days Past Due | | | 90 Days Past Due Accruing | | | Non- accrual | | | Total Non- Performing | | | | Real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 3,168 | | | $ | 151 | | | $ | 3,443 | | | $ | 3,594 | | | $ | 1,527 | | | $ | - | | | $ | 2,871 | | | $ | 2,871 | | | | Commercial | | | 4,394 | | | | - | | | | 11,497 | | | | 11,497 | | | | 3,915 | | | | - | | | | 14,364 | | | | 14,364 | | | | Agricultural | | | 1,178 | | | | 55 | | | | 2,145 | | | | 2,200 | | | | 383 | | | | 269 | | | | 4,062 | | | | 4,331 | | | | Construction | | | - | | | | - | | | | 516 | | | | 516 | | | | 1,119 | | | | - | | | | 283 | | | | 283 | | | | Consumer | | | 309 | | | | 15 | | | | 770 | | | | 785 | | | | 312 | | | | 7 | | | | 1,002 | | | | 1,009 | | | | Other commercial loans | | | 203 | | | | 8 | | | | 7,828 | | | | 7,836 | | | | 760 | | | | - | | | | 2,582 | | | | 2,582 | | | | Other agricultural loans | | | 17 | | | | - | | | | 403 | | | | 403 | | | | - | | | | - | | | | 537 | | | | 537 | | | | Total nonperforming loans | | $ | 9,269 | | | $ | 229 | | | $ | 26,602 | | | $ | 26,831 | | | $ | 8,016 | | | $ | 276 | | | $ | 25,701 | | | $ | 25,977 | | | | | | Change in Non-Performing Loans | | | | | | 2025 / 2024 | | | | | | Amount | | | % | | | | Real estate: | | | | | | | | | | Residential | | $ | 723 | | | | 25.2 | | | | Commercial | | | (2,867 | ) | | | (20.0 | ) | | | Agricultural | | | (2,131 | ) | | | (49.2 | ) | | | Construction | | | 233 | | | NA | | | | Consumer | | | (224 | ) | | | (22.2 | ) | | | Other commercial loans | | | 5,254 | | | | 203.5 | | | | Other agricultural loans | | | (134 | ) | | | (25.0 | ) | | | Total nonperforming loans | | $ | 854 | | | | 3.3 | | | Nonperforming loans increased $854,000 during 2025. During 2025, several large relationships were placed on non-accrual status, including one construction loan relationship, a commercial relationship that includes a commercial real estate loan and an other commercial loan and finally a commercial real estate relationship. Two commercial relationships and two agricultural relationships were returned to accrual status during 2025 and three loans that were on non-accrual status as of December 31, 2024 paid off during 2025. All non-performing commercial, agricultural and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter ends. In addition, non-performing residential loans with a balance in excess of $150,000 are individually evaluated. The specific reserves for these non-performing loans as of December 31, 2025 was $1,039,000 compared to specific reserves for non-performing loans as of December 31, 2024 of $888,529. In addition, the Banks policy is to reserve 100% of all non-performing student loans. The reserve for these loans was $770,000 and $1,002,000 as of December 31, 2025 and 2024, respectively. Management believes that the allowance for credit losses - loans December 31, 2025 was adequate at that date, which was based on the following factors: | | | Specific reserves for non-performing loans total $1,808,000. | | | | | The Company has a history of low charge-offs, which were 0.03% of average loans on an annualized basis for 2025 and 0.11% for 2024, which included the charge-offs related to the Braavo loans. | | 42 [Index](#Index) Bank Owned Life Insurance The Company holds bank owned life insurance policies to offset current and future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits. As of December 31, 2025, and 2024, the cash surrender value of the life insurance was $51,501,000 and $50,341,000, respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. The amounts recorded as non-interest income totaled $1,433,000, $1,684,000 and $1,254,000 in 2025, 2024 and 2023, respectively. The decrease in 2025 compared to 2024 is due to death proceeds received in 2024 upon the passing of a former employee. The increase in 2024 compared to 2023 is due to the HVBC acquisition being outstanding for the entire year versus a partial year in 2023. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers credit ratings. Effective January 1, 2015, the Company restructured its agreements so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under the restructured agreements, the employees beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds. The policies acquired as part of the acquisition of MidCoast are only for the benefit of the Bank. The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of an acquisition in 2015, provide a fixed dollar benefit for the beneficiarys estate, which is dependent on several factors including whether the covered individual was a Director of the acquired company or an employee of the acquired company and their salary level. As of December 31, 2025, and 2024, included in other liabilities on the Consolidated Balance sheet is a liability of $529,000 and $514,000, respectively, for the obligation under the split-dollar benefit agreements. Fair Value of Derivative Instruments - asset The Company holds derivative instruments to hedge interest rate risk, to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet, and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivative instrument assets was $6,927,000 and $10,370,000, respectively. The change in the fair value of financial instruments was due to the changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest rate hedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Deferred Tax Asset Deferred tax assets are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period. (See Note 12 for additional information) As of December 31, 2025 and 2024, the balance for deferred tax assets was $11,440,000 and $15,199,000, respectively. The change was due to the change in the market value of the Banks available-for-sale investment portfolio, the amortization of various credit and interest rate marks associated with acquisitions and the usage of net operating losses acquired from acquisitions. Other Assets Other assets decreased $1,486,000 in 2025 to $53,145,000 from $54,631,000 in 2024. The decrease was driven by a decrease in other receivables of $2,871,000 due to timing of payments associated with a participation loan and a participating bank and a decrease in tax receivable of $2,098,000. Regulatory stock increased $2,221,000 and there was a $634,000 increase in the right to use asset. 43 [Index](#Index) Deposits The following table shows the breakdown of deposits by deposit type (dollars in thousands) at December 31: | | | 2025 | | | 2024 | | | 2023 | | | | | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | | | | Non-interest-bearing deposits | | $ | 516,657 | | | | 21.7 | | | $ | 532,776 | | | | 22.4 | | | $ | 523,784 | | | | 22.6 | | | | Interest-bearing demand deposits | | | 25,576 | | | | 1.1 | | | | 18,004 | | | | 0.8 | | | $ | - | | | | - | | | | NOW accounts | | | 593,825 | | | | 25.0 | | | | 581,673 | | | | 24.4 | | | | 670,712 | | | | 28.9 | | | | Savings deposits | | | 286,554 | | | | 12.1 | | | | 292,918 | | | | 12.3 | | | | 307,357 | | | | 13.2 | | | | Money market deposit accounts | | | 480,509 | | | | 20.2 | | | | 434,856 | | | | 18.3 | | | | 400,154 | | | | 17.2 | | | | Certificates of deposit | | | 473,858 | | | | 19.9 | | | | 521,801 | | | | 21.8 | | | | 419,474 | | | | 18.1 | | | | Total | | $ | 2,376,979 | | | | 100.0 | | | $ | 2,382,028 | | | | 100.0 | | | $ | 2,321,481 | | | | 100.0 | | | | | | 2025/2024 | | | 2024/2023 | | | | | | Change | | | Change | | | | | | Amount | | | % | | | Amount | | | % | | | | Non-interest-bearing deposits | | $ | (16,119 | ) | | | (3.0 | ) | | $ | 8,992 | | | | 1.7 | | | | Interest-bearing demand deposits | | | 7,572 | | | 42.1 | | | | 18,004 | | | NA | | | | NOW accounts | | | 12,152 | | | | 2.1 | | | | (89,039 | ) | | | (13.3 | ) | | | Savings deposits | | | (6,364 | ) | | | (2.2 | ) | | | (14,439 | ) | | | (4.7 | ) | | | Money market deposit accounts | | | 45,653 | | | | 10.5 | | | | 34,702 | | | | 8.7 | | | | Certificates of deposit | | | (47,943 | ) | | | (9.2 | ) | | | 102,327 | | | | 24.4 | | | | Total | | $ | (5,049 | ) | | | (0.2 | ) | | $ | 60,547 | | | | 2.6 | | | 2025 Total deposits decreased $5,049,000 in 2025, or 0.2%. While less in 2025 than 2024, competitive pressure for deposits continues to be at the forefront. Additionally, we have numerous state and political organization depositors with seasonal funding timelines. During 2025, brokered certificates of deposit decreased $33,055,000 to $60,000,000. Additionally, a school district in our southeastern Pennsylvania market saw a decrease in their balance of $58,946,000 due to the lack of state budget for parts of 2025. We continue to work on enhancing our cash management services to improve our customer services. As a percentage of total deposits, non-interest-bearing deposits totaled 21.7% as of the end of 2025, which compares to 22.4% at the end of 2024. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition. 2024 Total deposits increased $60,547,000 in 2024, or 2.6%. With the rise in market interest rates, competitive pressure for deposits increased during 2024. During 2024, brokered certificates of deposit decreased $16.2 million to $93.1 million. As a percentage of total deposits, non-interest-bearing deposits totaled 22.4% as of the end of 2024, which compares to 22.6% at the end of 2023. Remaining maturities of certificates of deposit in excess of FDIC insurance limits are as follows for December 31, 2025 (dollars in thousands): | | | 2025 | | | | 3 months or less | | $ | 35,532 | | | | Over 3 months through 6 months | | | 30,842 | | | | Over 6 months through 12 months | | | 41,106 | | | | Over 12 months | | | 29,136 | | | | Total | | $ | 136,616 | | | | As a percent of total certificates of deposit | | | 28.83 | % | | Uninsured deposits as of December 31, 2025 and 2024 are estimated based on regulatory reporting requirements to be $1,124,675,000 and $1,160,581,000, respectively. Included in this balance as of December 31, 2025 and 2024 are balances held through Intrafi, which provides customers with FDIC insurance coverage by placing customer funds with insured banks within the Intrafi network, as well as deposits collateralized by securities (almost exclusively municipal deposits), which together total $646,677,000, or 27.2%, and $638,624,000, or 26.8% of the Banks total deposits, respectively. As a result, deposits in excess of $250,000 that are unsecured total $477,998,000, or 20.1% and $521,957,00, or 21.9% of deposits as of December 31, 2025 and 2024, respectively. 44 [Index](#Index) Deposits by type of depositor are as follows (dollars in thousands) at December 31: | | | 2025 | | | 2024 | | | 2023 | | | | | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | | | | Individuals | | $ | 1,072,845 | | | | 45.1 | | | $ | 1,134,144 | | | | 47.6 | | | $ | 1,129,655 | | | | 48.7 | | | | Businesses and other organizations | | | 767,673 | | | | 32.3 | | | | 741,566 | | | | 31.1 | | | | 748,257 | | | | 32.2 | | | | State & political subdivisions | | | 536,461 | | | | 22.6 | | | | 506,318 | | | | 21.3 | | | | 443,569 | | | | 19.1 | | | | Total | | $ | 2,376,979 | | | | 100.0 | | | $ | 2,382,028 | | | | 100.0 | | | $ | 2,321,481 | | | | 100.0 | | | Borrowed Funds Borrowed funds increased $11,727,000 during 2025. Short term borrowings from the FHLB increased $65,339,000 and totaled $263,483,000 as of December 31, 2025 compared to $198,144,000 as of December 31, 2024. Long term borrowings from the FHLB decreased $41,350,000 and were all paid-off as of December 31, 2025. The Company has a line of credit with an unaffiliated bank for $15.0 million, which is unused as of December, 31, 2025. Management continually monitors interest rates in order to minimize interest rate risk in future years and as part of this may extend some of the short-term borrowings via term notes. The Bank has four interest rate swap agreements outstanding to convert floating-rate debt to fixed rate debt on notional amounts of $10.0 million and three agreements with individual notional amounts of $6.0 million. The $10.0 million agreements were originated on April 1, 2020 and expire on April 1, 2025 and April 1, 2027, respectively. The three $6.0 million agreements originated on May 14, 2020 had a two year forward start date and expire on May 14, 2027, 2029 and 2032. During 2025, one swap agreement for $15.0 million matured. The Company has an interest rate swap agreement outstanding that was entered into on April 13, 2020 to convert floating-rate debt to fixed rate debt on a notional amount of $7.5 million. The interest rate swap agreement expires on June 17, 2027. The interest rate swap instruments involve an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amounts. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period in which they arise. The fair value of the interest rate swaps at December 31, 2025 was $2,487,000 and is included within fair value of derivative instruments asset on the consolidated balance sheets. Fair Value of Derivative Instruments liability The Company holds derivative instruments to hedge interest rate risk and to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivatives instrument liabilities was $4,100,000 and $5,817,000, respectively. The change in the fair value of financial instruments was due to changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest hate hedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Other Liabilities Other liabilities decreased $2,875,000 to $32,856,000 during 2025. The primary driver was a decrease of $4,459,000 due to payments made in 2025 to the low-income housing projects in which the Bank is a partner. Other liabilities increased $682,000 due to an increase in the liability associated with right of use assets due to leases entered into during 2025. Stockholders Equity We evaluate stockholders equity in relation to total assets and the risk associated with those assets. The greater our capital resources, the greater the likelihood of meeting our cash obligations and absorbing unforeseen losses. For these reasons, capital adequacy has been, and will continue to be, of paramount importance. Due to its importance, we develop a capital plan and stress test capital levels using various techniques and assumptions annually to ensure that in the event of unforeseen circumstances, we would remain in compliance with our capital plan approved by the Board of Directors and regulatory requirement levels. Our Board of Directors determines our cash dividend rate after considering our capital requirements, current and projected net income, and other factors. In 2025 and 2024, the Company paid out 26.11% and 33.44% of net income in cash dividends, respectively. The decrease in the payout percentage was due to the increase in net income in 2025 due to the expansion of the net interest margin. 45 [Index](#Index) As of December 31, 2025, the total number of common shares outstanding was 4,807,080. For comparative purposes, outstanding shares for prior periods were adjusted for the June 2025 stock dividend in computing earnings and cash dividends per share as detailed in Note 1 of the consolidated financial statements. As part of the Companys employee stock purchase plan, the Company issued 1,157 shares at a cost of $68,000. During 2025, we purchased 6,151 shares of treasury stock at a weighted average cost of $58.09 per share. The Company awarded 4,431 shares of restricted stock to employees at a weighted average cost per share of $57.28 under an equity incentive plan. The Board of Directors was awarded 3,674 shares at a cost of $58.71 per share. Stockholders equity increased 12.8% in 2025 to $338,051,000. Excluding accumulated other comprehensive loss, stockholders equity increased $27,173,000, or 8.4%. Net income for 2025 was $36,572,000, offset by net cash dividends of $9,548,000 and net treasury stock activity of ($36,000). All of the Companys debt investment securities are classified as available-for-sale, making this portion of the Companys balance sheet more sensitive to the changing market value of investments. Accumulated other comprehensive loss decreased $11,144,000 from December 31, 2024, primarily as a result of the increase in the fair market value of the investment portfolio. Total stockholders equity was approximately 11.0% of total assets as of December 31, 2025, compared to 9.9% of total assets as of December 31, 2024. LIQUIDITY Liquidity is a measure of the Companys ability to efficiently meet normal cash flow requirements of both borrowers and depositors. Liquidity is needed to meet depositors withdrawal demands, extend credit to meet borrowers needs, provide funds for normal operating expenses and cash dividends, and fund future capital expenditures. To maintain proper liquidity, we use funds management policies along with our investment and asset liability policies to assure we can meet our financial obligations to depositors, credit customers and stockholders. Management monitors liquidity by reviewing loan demand, investment opportunities, deposit pricing and the cost and availability of borrowing funds. Additionally, the bank has established various limits and ratios to monitor liquidity. On a quarterly basis, we stress test our liquidity position to ensure that the Bank has the capability of meeting its cash flow requirements in the event of unforeseen circumstances. The Companys historical activity in this area can be seen in the Consolidated Statement of Cash Flows from investing and financing activities. Cash generated by operating activities, investing activities and financing activities influences liquidity management. The most important source of funds is the deposits that are primarily core deposits (deposits from customers with other relationships). Short-term debt from the Federal Home Loan Bank supplements the Companys availability of funds as well as a line of credit arrangement with a corresponding bank. Other sources of short-term funds include brokered CDs and the sale of loans, if needed. The Companys use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is detailed. Other significant uses of funds are capital expenditures, purchase of loans and acquisition premiums. Surplus funds are then invested in investment securities. Capital expenditures, including software purchases in 2025 totaled $1,296,000, which included: | | | ATM upgrades totaling $463,000 | | | | | Computers, servers and copier purchases of $162,000 | | | | | Dover branch remodel totaling $321,000 | | Capital expenditures, including software purchases in 2024 totaled $1,314,000, which included: | | | ATM upgrades totaling $935,000 | | | | | Computers, servers and copier purchases of $245,000 | | We expect these expenditures will support our initiatives and will create operating efficiencies, while providing quality customer service. 46 [Index](#Index) In addition to the Banks cash balances, the Bank achieves additional liquidity primarily from its investment in the FHLB of Pittsburgh and the resulting borrowing capacity obtained through this investment, investments that mature in less than one year and expected principal repayments from mortgage backed securities. The Bank has a maximum borrowing capacity at the Federal Home Loan Bank of approximately $1,115,189,000, inclusive of any outstanding amounts, as a source of liquidity. The Bank also has two unsecured federal funds lines with third party providers in the total amount of $34.0 million as of December 31, 2025, which are unsecured and a borrower in custody agreement was established with the FRB in the amount of $11,798,000, which is collateralized by $21,827,000 of municipal loans, which is unused at December 31, 2025. The Company has a $15.0 million line of credit with a New York community bank, which is unused as of December 31, 2025. The Company is a separate legal entity from the Bank and must provide for its own liquidity.In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders.The Company also has repurchased shares of its common stock.The Companys primary source of income is dividends received from the Bank.The Bank may not declare a dividend without approval from the FRB, unless the dividend to be declared by the Banks Board of Directors does not exceed the total of:(i)the Banks net profits for the current year to date, plus (ii)its retained net profits for the preceding two current years, less any required transfers to surplus.In addition, the Bank can only pay dividends to the extent that its retained net profits (including the portion transferred to surplus) exceed its bad debts.The FRB, the OCC, the PDB and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions.The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend.At December 31, 2025, the Company (unconsolidated basis) had liquid assets of $4,586,000. CONTRACTUAL OBLIGATIONS The Company has various financial obligations, including contractual obligations which may require cash payments. The following table (in thousands) presents as of December 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the obligations can be found in Notes 9, 10, 13 and 19 to the Consolidated Financial Statements. | Contractual Obligations | | One year or Less | | | One to Three Years | | | Three to Five Years | | | Over Five Years | | | Total | | | | Deposits without a stated maturity | | $ | 1,877,545 | | | $ | - | | | $ | - | | | $ | - | | | $ | 1,877,545 | | | | Time deposits | | | 366,083 | | | | 82,962 | | | | 19,456 | | | | 5,357 | | | | 473,858 | | | | FHLB Advances | | | 160,483 | | | | - | | | | - | | | | - | | | | 160,483 | | | | Term borrowings - FHLB | | | 103,000 | | | | - | | | | - | | | | - | | | | 103,000 | | | | Stifel | | | 3,320 | | | | - | | | | - | | | | - | | | | 3,320 | | | | Note Payable | | | - | | | | - | | | | - | | | | 7,500 | | | | 7,500 | | | | Subordinated Debt | | | - | | | | - | | | | - | | | | 19,648 | | | | 19,648 | | | | Repurchase agreements | | | 15,497 | | | | - | | | | - | | | | - | | | | 15,497 | | | | Low income housing partnerships | | | 605 | | | | 787 | | | | 26 | | | | 121 | | | | 1,539 | | | | Operating leases | | | 1,921 | | | | 3,814 | | | | 3,035 | | | | 4,285 | | | | 13,055 | | | | Total | | $ | 2,528,454 | | | $ | 87,563 | | | $ | 22,517 | | | $ | 36,911 | | | $ | 2,675,445 | | | OFF-BALANCE SHEET ARRANGEMENTS In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For information about our loan commitments, unused lines of credit and letters of credit, see Note 17 of the notes to consolidated financial statements. For the year ended December 31, 2025, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our consolidated financial condition, results of operations or cash flows. 47 [Index](#Index) INTEREST RATE AND MARKET RISK MANAGEMENT The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities. Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, since the Company has no trading portfolio, it is not subject to trading risk. At December 31, 2025, the Company had equity securities that represent only 0.06% of our total assets, and therefore market risk related to equity securities is not significant. The primary factors that make assets interest-sensitive include adjustable-rate features on loans and investments, loan repayments, investment maturities and money market investments. The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit, repurchase agreements and short-term borrowings. Savings deposits, NOW accounts and money market investor accounts, with the exception of top interest tier money market and NOW accounts, are considered core deposits and are not short-term interest sensitive and therefore are included in the table below in the over five year column. Top interest tier money market and NOW accounts are included in the table below in the within three month column. Borrowings subject to swap arrangements are included in the table below based on the swap arrangement maturity. The following table shows the cumulative static gap (at amortized cost) for various time intervals (dollars in thousands): Maturity or Re-pricing of Company Assets and Liabilities as of December 31, 2025 | | | Within Three Months | | | Four to Twelve Months | | | One to Two Years | | | Two to Three Years | | | Three to Five Years | | | Over Five Years | | | Total | | | | Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing deposits at banks | | $ | 10,358 | | | $ | 844 | | | $ | 2,976 | | | $ | - | | | $ | - | | | $ | - | | | $ | 14,178 | | | | Investment securities | | | 76,879 | | | | 50,995 | | | | 69,993 | | | | 33,386 | | | | 58,511 | | | | 172,755 | | | | 462,519 | | | | Residential mortgage loans | | | 40,328 | | | | 71,112 | | | | 57,332 | | | | 47,691 | | | | 68,903 | | | | 55,606 | | | | 340,972 | | | | Construction loans | | | 46,430 | | | | 22,980 | | | | 24,555 | | | | - | | | | - | | | | - | | | | 93,965 | | | | Commercial and farm loans | | | 477,468 | | | | 325,290 | | | | 458,669 | | | | 203,257 | | | | 231,422 | | | | 79,269 | | | | 1,775,375 | | | | Loans to state & political subdivisions | | | 8,441 | | | | 11,418 | | | | 7,000 | | | | 1,781 | | | | 3,655 | | | | 19,805 | | | | 52,100 | | | | Other loans | | | 81,218 | | | | 1,590 | | | | 1,518 | | | | 861 | | | | 804 | | | | 2,219 | | | | 88,210 | | | | Total interest-earning assets | | $ | 741,122 | | | $ | 484,229 | | | $ | 622,043 | | | $ | 286,976 | | | $ | 363,295 | | | $ | 329,654 | | | $ | 2,827,319 | | | | Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest-bearing demand deposits | | $ | 21,074 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 4,502 | | | $ | 25,576 | | | | NOW accounts | | | 406,828 | | | | - | | | | - | | | | - | | | | - | | | | 186,997 | | | | 593,825 | | | | Savings accounts | | | - | | | | - | | | | - | | | | - | | | | - | | | | 286,554 | | | | 286,554 | | | | Money Market accounts | | | 440,874 | | | | - | | | | - | | | | - | | | | - | | | | 39,635 | | | | 480,509 | | | | Certificates of deposit | | | 126,086 | | | | 239,997 | | | | 56,357 | | | | 26,605 | | | | 19,456 | | | | 5,357 | | | | 473,858 | | | | Long-term borrowing | | | 254,300 | | | | 19,648 | | | | 23,500 | | | | - | | | | 6,000 | | | | 6,000 | | | | 309,448 | | | | Total interest-bearing liabilities | | $ | 1,249,162 | | | $ | 259,645 | | | $ | 79,857 | | | $ | 26,605 | | | $ | 25,456 | | | $ | 529,045 | | | $ | 2,169,770 | | | | Excess interest-earning assets (liabilities) | | $ | (508,040 | ) | | $ | 224,584 | | | $ | 542,186 | | | $ | 260,371 | | | $ | 337,839 | | | $ | (199,391 | ) | | | | | | | Cumulative interest-earning assets | | $ | 741,122 | | | $ | 1,225,351 | | | $ | 1,847,394 | | | $ | 2,134,370 | | | $ | 2,497,665 | | | $ | 2,827,319 | | | | | | | | Cumulative interest-bearing liabilities | | | 1,249,162 | | | | 1,508,807 | | | | 1,588,664 | | | | 1,615,269 | | | | 1,640,725 | | | | 2,169,770 | | | | | | | | Cumulative gap | | $ | (508,040 | ) | | $ | (283,456 | ) | | $ | 258,730 | | | $ | 519,101 | | | $ | 856,940 | | | $ | 657,549 | | | | | | | | Cumulative interest rate sensitivity ratio (1) | | | 0.59 | | | | 0.81 | | | | 1.16 | | | | 1.32 | | | | 1.52 | | | | 1.30 | | | | | | | | (1) | Cumulative interest-earning assets divided by interest-bearing liabilities. | | The previous table and the simulation models discussed below are presented assuming money market investment accounts and NOW accounts in the top interest rate tier are re-priced within the first three months. The loan amounts reflect the principal balances expected to be re-priced as a result of contractual amortization and anticipated early payoffs. Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on the Banks net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competition and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. We have not experienced the kind of earnings volatility that might be indicated from gap analysis. 48 [Index](#Index) The Bank currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Banks risk exposure. In this analysis, the Bank examines the results of movements in interest rates with additional assumptions made concerning the timing of interest rate changes, prepayment speeds on mortgage loans and mortgage securities and deposit pricing movements. Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of December 31, 2025 (dollars in thousands): | Changes in Rates | | Prospective One-Year Net Interest Income | | | Change In Prospective Net Interest Income | | | % Change In Prospective Net Interest Income | | | | -400 Shock | | $ | 114,544 | | | $ | 10,869 | | | | 10.48 | % | | | -300 Shock | | | 111,243 | | | | 7,568 | | | | 7.30 | % | | | -200 Shock | | | 107,847 | | | | 4,172 | | | | 4.02 | % | | | -100 Shock | | | 105,526 | | | | 1,851 | | | | 1.79 | % | | | Base | | | 103,675 | | | | - | | | | 0.00 | % | | | +100 Shock | | | 101,236 | | | | (2,439 | ) | | | -2.35 | % | | | +200 Shock | | | 98,513 | | | | (5,162 | ) | | | -4.98 | % | | | +300 Shock | | | 95,941 | | | | (7,734 | ) | | | -7.46 | % | | | +400 Shock | | | 93,325 | | | | (10,350 | ) | | | -9.98 | % | | The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure. Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. The projections above utilize a static balance sheet and do not include any changes that may result from the growth of the Bank. Management has developed policy limits for acceptable changes in net interest income for multiple scenarios, including shock scenarios. As of December 31, 2025, changes in net interest income projected for all scenarios, including the shock scenarios noted above, are in line with Bank policy limits for interest rate risk. CRITICAL ACCOUNTING POLICIES; CRITICAL ACCOUNTING ESTIMATES The Companys accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require managements judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments and critical accounting estimates. Allowance for Credit Losses The Companys allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macroeconomic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Company does business. Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions. 49 [Index](#Index) The evaluation is comprised of specific and pooled components. The specific component is the Companys evaluation of credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loans initial effective interest rate if not collateral dependent. The majority of the Companys loans subject to individual evaluation are considered collateral dependent. All other loans are evaluated collectively for credit loss by pooling loans based on similar risk characteristics. As a significant percentage of the Companys loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans. The pooled component of the evaluation is determined by applying reasonable and supportable economic forecasts and historical averages to the remaining loans segmented by similar risk characteristics. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loans contractual life. The cash flows are discounted back to the balance sheet date using each loans effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of allowance for credit loss required by the calculation. One of the most significant judgments used in projecting loss rates when estimating the allowance for credit losses is the macro-economic forecasts provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate, national gross domestic product and changes in home values. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate and gross domestic product. Changes in the macro-economic forecast, especially for the national unemployment rate and gross domestic product, could significantly impact the calculated estimated credit losses between reporting periods. Other key assumptions in the calculation of the allowance for credit losses include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at December 31, 2025 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Companys historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment. The quantitative estimated losses are supplemented by more qualitative factors that impact potential losses. Qualitative factors include changes in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The allowance for credit loss may be materially affected by these qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by managements current assessment of the risks related to the loan portfolio and/or external factors. The qualitative factors applied at December 31, 2025, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and managements assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment. While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Companys control, such as the performance of the Companys portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit losses. Additionally, the level of allowance for credit losses may fluctuate based on the balance and mix of the loan portfolio. If actual results differ significantly from managements assumptions, the Companys allowance for credit loss may not be sufficient to cover inherent losses in the Companys loan portfolio, resulting in additions to the Companys allowance for credit losses and an increase in the provision for credit losses. 50 [Index](#Index) Goodwill and Other Intangible Assets As discussed in Note 1 of the consolidated financial statements, the Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performed a quantitative assessment in 2025 to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Based on the fair value of the reporting unit, no impairment of goodwill was recognized in 2025, 2024 or 2023. Business Combinations Business combinations are accounted for by applying the acquisition method. As of the acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposits intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs. Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This information is included under Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations Interest Rate and Market Risk Management, appearing in this Annual Report on Form 10-K. 51 [Index](#Index) ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Citizens Financial Services, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Citizens Financial Services, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024; the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for each of the three years in the period ended December 31, 2025; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established inInternal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 12, 2026, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 52 [Index](#Index) Allowance for Credit Losses (ACL) Description of the Matter The Companys loan portfolio totaled $2.3 billion as of December 31, 2025, which includes the associated ACL on loans totaling $22.8 million. As discussed in Notes 1 and 5 to the financial statements, the ACL related to loan requires significant judgment about the expected future losses, which is based on a base loss projection determined through the calculation of discounted cash flows of each loan portfolio segment. The probably of default and other loss rate assumptions are based on a combination of peer loss data, Company-specific data, and economic forecasts. Management then applies qualitative adjustments to the base loss projection to reflect changes in the Companys internal and external environment that are different from the conditions that existed during the historical loss calculation period. The qualitative adjustments are based on observable data points evaluated over a historical period, which help management determine how the related risks are evolving over time. Management uses a Qualitative Scorecard (Scorecard) to provide the adjustments to the historical loss information. The Scorecard contains a five-category approach (improvement, no change, minor risk, moderate risk, and major risk) to measure risk in the loan pools that may not be captured in the quantitative methodology. We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments are highly subjective. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters. 53 [Index](#Index) How We Addressed the Matter in Our Audit The primary procedures we performed related to this critical audit matter (CAM) included the following: | | | Obtained an understanding of the Companys process for establishing the ACL, including how management evaluates the qualitative adjustments to the base loss projection | | | | | Tested the design, implementation, and operating effectiveness of internal controls specifically related to the determination and review of these qualitative adjustments | | | | | Evaluated and tested the reliability of the data used to evaluate the significant qualitative factor adjustments | | | | | Evaluated the directional consistency and reasonableness of managements conclusions regarding Scorecard category based on the trends identified in the underlying data | | | | | Reconciled the Scorecard category from managements calculation back to the ACL model for accuracy | | We have served as the Companys auditor since 1994. /s/S.R. Snodgrass, P.C. Cranberry Township, Pennsylvania March 12, 2026 54 [Index](#Index) Citizens Financial Services, Inc. Consolidated Balance Sheet | | | December 31, | | | | (in thousands, except share data) | | 2025 | | | 2024 | | | | ASSETS: | | | | | | | | | Cash and cash equivalents: | | | | | | | | | Noninterest-bearing | | $ | 23,933 | | | $ | 30,284 | | | | Interest-bearing | | | 10,358 | | | | 11,918 | | | | Total cash and cash equivalents | | | 34,291 | | | | 42,202 | | | | Interest bearing time deposits with other banks | | | 3,820 | | | | 3,820 | | | | Equity securities | | | 1,815 | | | | 1,747 | | | | Available-for-sale securities | | | 444,741 | | | | 425,912 | | | | Loans held for sale | | | 9,393 | | | | 9,607 | | | | Loans (net of allowance for credit losses: $ 2025, 22,806; 2024, $21,699) | | | 2,327,816 | | | | 2,291,543 | | | | Premises and equipment | | | 20,998 | | | | 21,395 | | | | Accrued interest receivable | | | 10,698 | | | | 10,307 | | | | Goodwill | | | 85,758 | | | | 85,758 | | | | Bank owned life insurance | | | 51,501 | | | | 50,341 | | | | Other intangibles | | | 2,221 | | | | 2,892 | | | | Fair value of derivative instruments - asset | | | 6,927 | | | | 10,370 | | | | Deferred tax asset | | | 11,440 | | | | 15,199 | | | | Other assets | | | 53,145 | | | | 54,631 | | | | TOTAL ASSETS | | $ | 3,064,564 | | | $ | 3,025,724 | | | | LIABILITIES: | | | | | | | | | | | Deposits: | | | | | | | | | | | Noninterest-bearing | | $ | 516,657 | | | $ | 532,776 | | | | Interest-bearing | | | 1,860,322 | | | | 1,849,252 | | | | Total deposits | | | 2,376,979 | | | | 2,382,028 | | | | Borrowed funds | | | 309,448 | | | | 297,721 | | | | Accrued interest payable | | | 3,130 | | | | 4,693 | | | | Fair value of derivative instruments - liability | | | 4,100 | | | | 5,817 | | | | Other liabilities | | | 32,856 | | | | 35,731 | | | | TOTAL LIABILITIES | | | 2,726,513 | | | | 2,725,990 | | | | STOCKHOLDERS EQUITY: | | | | | | | | | | | Preferred Stock $1.00 par value; authorized 3,000,000 shares 2025 and 2024; none issued in 2025 or 2024 | | | - | | | | - | | | | Common Stock $1.00 par value; authorized 25,000,000 shares 2025 and 2024; issued 5,255,807 and 5,207,577 share in 2025 and 2024, respectively | | | 5,256 | | | | 5,208 | | | | Additional paid-in capital | | | 147,965 | | | | 144,984 | | | | Retained earnings | | | 213,623 | | | | 189,443 | | | | Accumulated other comprehensive loss | | | (12,377 | ) | | | (23,521 | ) | | | Treasury stock, at cost: 448,727 and 447,965 shares for 2025 and 2024, respectively | | | (16,416 | ) | | | (16,380 | ) | | | TOTAL STOCKHOLDERS EQUITY | | | 338,051 | | | | 299,734 | | | | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | | $ | 3,064,564 | | | $ | 3,025,724 | | | See accompanying notes to consolidated financial statements. 55 [Index](#Index) Citizens Financial Services, Inc. Consolidated Statement of Income Year Ended December 31, | (in thousands, except per share data) | | 2025 | | | 2024 | | | 2023 | | | | INTEREST AND DIVIDEND INCOME: | | | | | | | | | | | | Interest and fees on loans | | $ | 144,430 | | | $ | 142,688 | | | $ | 116,075 | | | | Interest-bearing deposits with banks | | | 502 | | | | 851 | | | | 736 | | | | Investment securities: | | | | | | | | | | | | | | | Taxable | | | 9,910 | | | | 7,135 | | | | 6,636 | | | | Nontaxable | | | 2,626 | | | | 2,093 | | | | 2,264 | | | | Dividends | | | 1,700 | | | | 1,550 | | | | 1,407 | | | | TOTAL INTEREST AND DIVIDEND INCOME | | | 159,168 | | | | 154,317 | | | | 127,118 | | | | INTEREST EXPENSE: | | | | | | | | | | | | | | | Deposits | | | 47,050 | | | | 52,326 | | | | 31,699 | | | | Borrowed funds | | | 14,117 | | | | 15,536 | | | | 15,159 | | | | TOTAL INTEREST EXPENSE | | | 61,167 | | | | 67,862 | | | | 46,858 | | | | NET INTEREST INCOME | | | 98,001 | | | | 86,455 | | | | 80,260 | | | | Provision for credit losses | | | 2,375 | | | | 2,587 | | | | 937 | | | | Provision for credit losses - acquisition day 1 non-PCD | | | - | | | | - | | | | 4,591 | | | | NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | | | 95,626 | | | | 83,868 | | | | 74,732 | | | | NON-INTEREST INCOME: | | | | | | | | | | | | | | | Service charges | | | 5,569 | | | | 5,749 | | | | 5,639 | | | | Trust | | | 792 | | | | 816 | | | | 764 | | | | Brokerage and insurance | | | 2,627 | | | | 2,381 | | | | 1,924 | | | | Equity security gains (losses), net | | | 67 | | | | 145 | | | | (144 | ) | | | Available for sale security losses, net | | | - | | | | - | | | | (51 | ) | | | Gains on loans sold | | | 2,290 | | | | 2,316 | | | | 1,452 | | | | Earnings on bank owned life insurance | | | 1,433 | | | | 1,684 | | | | 1,254 | | | | Gain on sale of Braavo division | | | - | | | | 1,102 | | | | - | | | | Other | | | 1,566 | | | | 1,208 | | | | 767 | | | | TOTAL NON-INTEREST INCOME | | | 14,344 | | | | 15,401 | | | | 11,605 | | | | NON-INTEREST EXPENSES: | | | | | | | | | | | | | | | Salaries and employee benefits | | | 39,402 | | | | 39,347 | | | | 34,990 | | | | Occupancy | | | 5,299 | | | | 5,013 | | | | 4,123 | | | | Furniture and equipment | | | 1,209 | | | | 1,038 | | | | 822 | | | | Professional fees | | | 2,341 | | | | 2,599 | | | | 1,962 | | | | Federal depository insurance | | | 1,710 | | | | 1,996 | | | | 1,475 | | | | Pennsylvania shares tax | | | 739 | | | | 1,114 | | | | 583 | | | | Amortization of intangibles | | | 478 | | | | 564 | | | | 373 | | | | Merger and acquisition | | | - | | | | - | | | | 9,269 | | | | ORE expenses | | | 267 | | | | 212 | | | | 166 | | | | Software expenses | | | 1,844 | | | | 1,953 | | | | 1,784 | | | | Other | | | 11,443 | | | | 11,550 | | | | 9,215 | | | | TOTAL NON-INTEREST EXPENSES | | | 64,732 | | | | 65,386 | | | | 64,762 | | | | Income before provision for income taxes | | | 45,238 | | | | 33,883 | | | | 21,575 | | | | Provision for income taxes | | | 8,666 | | | | 6,065 | | | | 3,764 | | | | NET INCOME | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | | PER COMMON SHARE DATA: | | | | | | | | | | | | | | | EARNINGS PER SHARE - BASIC | | $ | 7.62 | | | $ | 5.80 | | | $ | 3.98 | | | | EARNINGS PER SHARE DILUTED | | $ | 7.62 | | | $ | 5.79 | | | $ | 3.98 | | | | Number of shares used in computation - basic | | | 4,797,520 | | | | 4,797,258 | | | | 4,476,235 | | | | Number of shares used in computation - diluted | | | 4,800,093 | | | | 4,802,139 | | | | 4,476,235 | | | See accompanying notes to consolidated financial statements. 56 [Index](#Index) Citizens Financial Services, Inc. Consolidated Statement of Changes in Comprehensive Income Year Ended December 31, | (in thousands) | | 2025 | | | 2024 | | | 2023 | | | | Net Income | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | | | | | | | | | | | | | | | | | Other Comprehensive income | | | | | | | | | | | | | | | Securities available for sale | | | | | | | | | | | | | | | Unrealized holding gain (loss) during the period | | | 15,847 | | | | 2,118 | | | | 11,692 | | | | Income tax effect | | | (3,328 | ) | | | (444 | ) | | | (2,455 | ) | | | Subtotal | | | 12,519 | | | | 1,674 | | | | 9,237 | | | | Reclassification adjustment for (gains) losses included in income | | | - | | | | - | | | | 51 | | | | Income tax effect | | | - | | | | - | | | | (12 | ) | | | Subtotal | | | - | | | | - | | | | 39 | | | | | | | | | | | | | | | | | | | Unrealized loss (gain) on interest rate swap | | | (1,750 | ) | | | (1,205 | ) | | | (1,431 | ) | | | Income tax effect | | | 368 | | | | 253 | | | | 301 | | | | Other comprehensive (loss) gain on interest rate swap | | | (1,382 | ) | | | (952 | ) | | | (1,130 | ) | | | | | | | | | | | | | | | | | | Change in unrecognized pension costs | | | 9 | | | | 846 | | | | 106 | | | | Income tax effect | | | (2 | ) | | | (178 | ) | | | (22 | ) | | | Other comprehensive gain (loss) gain on unrecognized pension costs | | | 7 | | | | 668 | | | | 84 | | | | | | | | | | | | | | | | | | | Net other comprehensive income | | | 11,144 | | | | 1,390 | | | | 8,230 | | | | Comprehensive income | | $ | 47,716 | | | $ | 29,208 | | | $ | 26,041 | | | See accompanying notes to consolidated financial statements. 57 [Index](#Index) Citizens Financial Services, Inc. Consolidated Statement of Changes in Stockholders Equity | (in thousands, except share data) | | | | | Additional Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total | | | | | | | Common Stock | | | Shares | | | Amount | | | Balance, December 31, 2022 | | | 4,427,687 | | | $ | 4,428 | | | $ | 80,911 | | | $ | 164,922 | | | $ | (33,141 | ) | | $ | (16,973 | ) | | $ | 200,147 | | | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 17,811 | | | | | | | | | | | | 17,811 | | | | Net other comprehensive income | | | | | | | | | | | | | | | | | | | 8,230 | | | | | | | | 8,230 | | | | Stock dividend (1%) | | | 39,209 | | | | 39 | | | | 2,982 | | | | (3,021 | ) | | | | | | | | | | | - | | | | Issuance of Common stock | | | 693,858 | | | | 694 | | | | 59,443 | | | | | | | | | | | | | | | | 60,137 | | | | Purchase of treasury stock (2,775 shares) | | | | | | | | | | | | | | | | | | | | | | | (265 | ) | | | (265 | ) | | | Restricted stock, executive and Board of Director awards | | | | | | | | | | | (319 | ) | | | | | | | | | | | 431 | | | | 112 | | | | Restricted stock vesting | | | | | | | | | | | 197 | | | | | | | | | | | | | | | | 197 | | | | Sale of treasury stock (410 shares) | | | | | | | | | | | 6 | | | | | | | | | | | | 28 | | | | 34 | | | | Forfeited restricted stock | | | | | | | | | | | 13 | | | | | | | | | | | | (13 | ) | | | - | | | | Change in Accounting policy for allowance for credit losses | | | | | | | | | | | | | | | 1,766 | | | | | | | | | | | | 1,766 | | | | Cash dividends, $1.899 per share | | | | | | | | | | | | | | | (8,503 | ) | | | | | | | | | | | (8,503 | ) | | | Balance, December 31, 2023 | | | 5,160,754 | | | $ | 5,161 | | | $ | 143,233 | | | $ | 172,975 | | | $ | (24,911 | ) | | $ | (16,792 | ) | | $ | 279,666 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 27,818 | | | | | | | | | | | | 27,818 | | | | Net other comprehensive income | | | | | | | | | | | | | | | | | | | 1,390 | | | | | | | | 1,390 | | | | Stock dividend (1%) | | | 46,589 | | | | 47 | | | | 2,001 | | | | (2,048 | ) | | | | | | | | | | | - | | | | Issuance of Common stock for ESPP | | | 234 | | | | - | | | | 16 | | | | | | | | | | | | | | | | 16 | | | | Purchase of treasury stock (3,881 shares) | | | | | | | | | | | | | | | | | | | | | | | (202 | ) | | | (202 | ) | | | Restricted stock, executive and Board of Director awards | | | | | | | | | | | (541 | ) | | | | | | | | | | | 647 | | | | 106 | | | | Restricted stock vesting | | | | | | | | | | | 242 | | | | | | | | | | | | | | | | 242 | | | | Forfeited restricted stock | | | | | | | | | | | 33 | | | | | | | | | | | | (33 | ) | | | - | | | | Cash dividends, $1.931 per share | | | | | | | | | | | | | | | (9,302 | ) | | | | | | | | | | | (9,302 | ) | | | Balance, December 31, 2024 | | | 5,207,577 | | | $ | 5,208 | | | $ | 144,984 | | | $ | 189,443 | | | $ | (23,521 | ) | | $ | (16,380 | ) | | $ | 299,734 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 36,572 | | | | | | | | | | | | 36,572 | | | | Net other comprehensive income | | | | | | | | | | | | | | | | | | | 11,144 | | | | | | | | 11,144 | | | | Stock dividend (1%) | | | 47,073 | | | | 47 | | | | 2,797 | | | | (2,844 | ) | | | | | | | | | | | - | | | | Issuance of Common stock for ESPP | | | 1,157 | | | | 1 | | | | 67 | | | | | | | | | | | | | | | | 68 | | | | Purchase of treasury stock (6,151 shares) | | | | | | | | | | | | | | | | | | | | | | | (358 | ) | | | (358 | ) | | | Restricted stock, executive and Board of Director awards | | | | | | | | | | | (261 | ) | | | | | | | | | | | 380 | | | | 119 | | | | Restricted stock vesting | | | | | | | | | | | 320 | | | | | | | | | | | | | | | | 320 | | | | Sale of treasury stock | | | | | | | | | | | - | | | | | | | | | | | | - | | | | - | | | | Forfeited restricted stock | | | | | | | | | | | 58 | | | | | | | | | | | | (58 | ) | | | - | | | | Cash dividends, $1.980 per share | | | | | | | | | | | | | | | (9,548 | ) | | | | | | | | | | | (9,548 | ) | | | Balance, December 31, 2025 | | | 5,255,807 | | | $ | 5,256 | | | $ | 147,965 | | | $ | 213,623 | | | $ | (12,377 | ) | | $ | (16,416 | ) | | $ | 338,051 | | | See accompanying notes to consolidated financial statements. 58 [Index](#Index) Citizens Financial Services, Inc. Consolidated Statement of Cash Flows | | | Year Ended December 31, | | | | (in thousands) | | 2025 | | | 2024 | | | 2023 | | | | Cash Flows from Operating Activities: | | | | | | | | | | | | Net income | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | Provision for credit losses | | | 2,375 | | | | 2,587 | | | | 5,528 | | | | Depreciation and amortization | | | 2,104 | | | | 1,806 | | | | 1,520 | | | | Amortization and accretion of loans and other assets | | | (3,810 | ) | | | (3,186 | ) | | | (3,119 | ) | | | Amortization and accretion on investment securities | | | 618 | | | | 1,372 | | | | 1,581 | | | | Deferred income taxes | | | 797 | | | | 1,771 | | | | 595 | | | | Equity security (gains) losses, net | | | (67 | ) | | | (145 | ) | | | 144 | | | | Available for sale security (gains) losses, net | | | - | | | | - | | | | 51 | | | | Earnings on bank owned life insurance | | | (1,433 | ) | | | (1,684 | ) | | | (1,254 | ) | | | Stock awards | | | 625 | | | | 412 | | | | 309 | | | | Originations of loans held for sale | | | (153,519 | ) | | | (155,379 | ) | | | (87,323 | ) | | | Proceeds from sales of loans held for sale | | | 155,948 | | | | 157,365 | | | | 90,782 | | | | Realized gains on loans sold | | | (2,290 | ) | | | (2,316 | ) | | | (1,452 | ) | | | Realized gains on sale of Braavo | | | - | | | | (1,102 | ) | | | - | | | | (Increase) decrease in accrued interest receivable | | | (391 | ) | | | 736 | | | | (1,485 | ) | | | Increase (decrease) in accrued interest payable | | | (1,563 | ) | | | 395 | | | | 2,181 | | | | Other, net | | | 568 | | | | 2,732 | | | | 668 | | | | Net cash provided by operating activities | | | 36,534 | | | | 33,182 | | | | 26,537 | | | | Cash Flows from Investing Activities: | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | Proceeds from sales of available-for-sale securities | | | - | | | | - | | | | 86,504 | | | | Proceeds from maturity and principal repayments of securities | | | 78,806 | | | | 62,858 | | | | 27,007 | | | | Purchase of securities | | | (82,406 | ) | | | (70,423 | ) | | | (10,246 | ) | | | Proceeds from sale of equity securities | | | - | | | | 335 | | | | 127 | | | | Proceeds from redemption of Regulatory Stock | | | 33,638 | | | | 28,072 | | | | 24,915 | | | | Purchase of Regulatory Stock | | | (35,859 | ) | | | (27,599 | ) | | | (29,127 | ) | | | Net increase in loans | | | (33,481 | ) | | | (70,245 | ) | | | (43,951 | ) | | | Purchase of interest bearing time deposits | | | - | | | | (100 | ) | | | (100 | ) | | | Proceeds from matured interest bearing time deposits with other banks | | | - | | | | 350 | | | | 2,085 | | | | Purchase of premises, equipment and software | | | (1,296 | ) | | | (1,314 | ) | | | (2,617 | ) | | | Proceeds from sale of premises and equipment | | | 12 | | | | - | | | | - | | | | Proceeds from bank owned life insurance | | | 272 | | | | 1,241 | | | | 1,098 | | | | Investments in low income housing partnerships | | | - | | | | - | | | | (1,470 | ) | | | Proceeds from sale of foreclosed assets held for sale | | | 238 | | | | 567 | | | | 335 | | | | Proceeds from sale of Braavo assets | | | - | | | | 7,185 | | | | - | | | | Acquisition, net of cash paid | | | - | | | | - | | | | 4,905 | | | | Net cash (used in) provided by investing activities | | | (40,076 | ) | | | (69,073 | ) | | | 59,465 | | | | Cash Flows from Financing Activities: | | | | | | | | | | | | | | | Net (decrease) increase in deposits | | | (5,049 | ) | | | 60,548 | | | | (56,092 | ) | | | Proceeds from long-term borrowings | | | - | | | | - | | | | 40,000 | | | | Repayments of long-term borrowings | | | (42,000 | ) | | | (35,000 | ) | | | - | | | | Net increase (decrease) in short-term borrowed funds | | | 52,705 | | | | 9,279 | | | | (34,569 | ) | | | Purchase of treasury stock | | | (358 | ) | | | (202 | ) | | | (265 | ) | | | Purchase of restricted stock | | | (187 | ) | | | (64 | ) | | | - | | | | Sale of treasury stock | | | - | | | | - | | | | 34 | | | | Issuance of common stock for employee stock purchase plan | | | 68 | | | | 16 | | | | - | | | | Dividends paid | | | (9,548 | ) | | | (9,302 | ) | | | (8,503 | ) | | | Net cash (used in) provided by financing activities | | | (4,369 | ) | | | 25,275 | | | | (59,395 | ) | | | Net (decrease) increase in cash and cash equivalents | | | (7,911 | ) | | | (10,616 | ) | | | 26,607 | | | | Cash and Cash Equivalents at Beginning of Year | | | 42,202 | | | | 52,818 | | | | 26,211 | | | | Cash and Cash Equivalents at End of Year | | $ | 34,291 | | | $ | 42,202 | | | $ | 52,818 | | | 59 [Index](#Index) | Supplemental Disclosures of Cash Flow Information: | | | | | | | | | | | | | | | Interest paid | | $ | 62,730 | | | $ | 67,466 | | | $ | 44,677 | | | | Income taxes paid | | $ | 6,590 | | | $ | 2,826 | | | $ | 5,130 | | | | Non-cash activities: | | | | | | | | | | | | | | | Stock dividend | | $ | 2,844 | | | $ | 2,048 | | | $ | 3,021 | | | | Real estate acquired in settlement of loans | | $ | 40 | | | $ | 2,635 | | | $ | 147 | | | | Investments matured and not settled included in other assets | | $ | - | | | $ | - | | | $ | 8,000 | | | | Investments in low income housing included in other assets and liabilities | | $ | - | | | $ | - | | | $ | 6,530 | | | | Right of use asset and liability | | $ | 2,065 | | | $ | 306 | | | $ | 28 | | | | CECL adjustment | | $ | - | | | $ | - | | | $ | 3,300 | | | | | | | | | | | | | | | | | | | Acquisition of | | | | | | | | | | HV Bancorp, Inc. | | | | Non-cash assets acquired | | | | | | | | | | | | | | | Available-for-sale securities | | $ | - | | | $ | - | | | $ | 79,248 | | | | Interest bearing time deposits with other banks | | | - | | | | - | | | | - | | | | Loans held fo sale | | | - | | | | - | | | | 10,750 | | | | Loans | | | - | | | | - | | | | 475,338 | | | | Premises and equipment | | | - | | | | - | | | | 2,310 | | | | Accrued interest receivable | | | - | | | | - | | | | 2,226 | | | | Bank owned life insurance | | | - | | | | - | | | | 10,387 | | | | Intangibles | | | - | | | | - | | | | 2,972 | | | | Deferred tas asset | | | - | | | | - | | | | 7,706 | | | | Other assets | | | - | | | | - | | | | 18,213 | | | | Goodwill | | | - | | | | - | | | | 54,382 | | | | | | | - | | | | - | | | | 663,532 | | | | | | | | | | | | | | | | | | | Liabilities assumed | | | | | | | | | | | | | | | Noninterest-bearing deposits | | | - | | | | - | | | | 197,549 | | | | Interest-bearing deposits | | | - | | | | - | | | | 335,815 | | | | Accrued interest payable | | | - | | | | - | | | | 885 | | | | Borrowed funds | | | - | | | | - | | | | 58,647 | | | | Other liabilities | | | - | | | | - | | | | 11,988 | | | | | | | - | | | | - | | | | 604,884 | | | | Net non-cash assets acquired | | | - | | | | - | | | | 58,648 | | | | Cash and cash equivalents acquired | | $ | - | | | $ | - | | | $ | 18,017 | | | See accompanying notes to consolidated financial statements. 60 [Index](#Index) CITIZENS FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and Organization Citizens Financial Services, Inc. (individually and, collectively with its subsidiaries, the Company) is headquartered in Mansfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, First Citizens Community Bank (the Bank), and its wholly owned subsidiary, First Citizens Insurance Agency, Inc. (First Citizens Insurance). During 2024, the Company terminated the corporate existence of CZFS Acquisition Company, LLC (CZFS), which included transferring ownership of the Bank to the Company. CZFS was formed in March 2020 as part of the merger with Midcoast Community Bancorp. Inc. (MidCoast). During 2024, the Bank terminated the corporate existence of 1st Realty of PA, LLC (Realty), which included transferring ownership of all assets to the Bank. Realty was formed in March of 2019 to manage and sell properties acquired by the Bank in the settlement of a bankruptcy filing with a commercial customer. On December 11, 2015, the Company completed its acquisition of The First National Bank of Fredericksburg (FNB). On December 8, 2017, the Bank completed its acquisition of the S&T Bank branch in State College (State College). On April 17, 2020, the Company completed its acquisition of MidCoast. On June 16, 2023, the Company completed the HVBC acquisition. In December 2023, the Bank opened a full-service branch in Williamsport, Pennsylvania. In October 2024, the Bank opened a limited production office in Georgetown, Delaware. As of December 31, 2025, the Bank operates thirty-nine full-service banking branches in Potter, Tioga, Bradford, Clinton, Lycoming, Lebanon, Lancaster, Berks, Schuylkill, Centre, Chester, Bucks, Montgomery and Philadelphia counties, Pennsylvania, Allegany County, New York, the cities of Wilmington and Dover, Delaware, Burlington County, New Jersey, a limited branch office in Union county, Pennsylvania, a limited production officer in Georgetown, Delaware and two mortgage centers in Bucks county, Pennsylvania and Burlington County, New Jersey. The Bank also provides trust services, including the administration of trusts and estates, retirement plans, and other employee benefit plans, along with a brokerage division that provides a comprehensive menu of investment services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. The Company and Bank are supervised by the Board of Governors of the Federal Reserve System, while the Bank is subject to additional regulation and supervision by the Pennsylvania Department of Banking. A summary of significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows: Basis of Presentation The consolidated financial statements include the accounts of the Company, and its subsidiary, First Citizens Community Bank, and its subsidiary, First Citizens Insurance Agency, Inc. for 2025 and 2024. For 2023, the consolidated financial statements include the accounts of the Company, and its subsidiary CZFS, and its subsidiary, First Citizens Community Bank, and its subsidiaries, First Citizens Insurance Agency, Inc. and 1st Realty of PA, LLC. These consolidated statements have been prepared in accordance with U.S. generally accepted accounting principles. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. Use of Estimates In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to determination of the allowance for credit losses, goodwill, derivatives, pension plans and deferred tax assets and liabilities. 61 [Index](#Index) Operating Segments An operating segment is defined as a component of an enterprise that engages in business activities that generates revenue and incurs expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of resource allocation and performance. While the Companys chief decision makers monitor the revenue streams of the various Companys products, services and regions, operations are managed and financial performance is evaluated on a Company-wide basis. Consistent with our internal reporting, the Companys business activities are reported as one segment, which is community banking. Cash and Cash Equivalents Cash equivalents include cash on hand, deposits in banks and interest-earning deposits. Interest-earning deposits with original maturities of 90 days or less are considered cash equivalents. Interest bearing time deposits with other banks are not included with cash and cash equivalents as the original maturities were greater than 90 days. Investment Securities Investment securities at the time of purchase are classified as one of the three following types: Held-to-Maturity Securities - Includes securities that the Company has the positive intent and ability to hold to maturity. These securities are reported at amortized cost. The Company had no held-to-maturity securities as of December 31, 2025 and 2024. Trading Securities - Includes debt securities bought and held principally for the purpose of selling them in the near term. Such securities are reported at fair value with unrealized holding gains and losses included in earnings. The Company had no trading securities as of December 31, 2025 and 2024. Available-for-Sale Securities Includes debt securities not classified as held-to-maturity or trading securities that will be held for indefinite periods of time. These securities may be sold in response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and yield of alternative investments. Such securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders equity, net of the estimated income tax effect. The amortized cost of investments in debt securities is adjusted for amortization of premiums and accretion of discounts, computed by a method that results in a level yield. Gains and losses on the sale of investment securities are computed on the basis of specific identification of the adjusted cost of each security. The fair value of investments, except certain state and municipal securities, is based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value is based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. Allowance for Credit Losses (Debt Securities Available-for Sale) For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securitys amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. 62 [Index](#Index) Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management confirms that an available-for-sale security is uncollectable or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2025 and 2024, the Company determined that the unrealized loss positions in available-for-sale debt securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 4, Investment Securities, and Note 20, Fair Value of Financial Instruments, for more information about available-for-sale debt securities. Accrued interest receivable on available-for-sale debt securities totaled $2,399,000 and $2,135,000 at December 31, 2025 and 2024, respectively, and is included within accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed. Equity Securities This category includes common stocks of public companies. Such securities are reported at fair value with unrealized holding gains and losses included in earnings. Dividends are recognized as income when earned. Restricted Stock - Common stock of the Federal Reserve Bank, Federal Home Loan Bank of Pittsburgh (FHLB) and correspondent banks represent ownership in institutions which are wholly owned by other financial institutions. These restricted equity securities are accounted for at cost and are classified as other assets. Loans Held for Sale Certain newly originated fixed-rate residential mortgage loans are classified as held for sale, because it is managements intent to sell these residential mortgage loans. The residential mortgage loans held for sale are carried at fair value. Loans Interest on all loans is recognized on the accrual basis based upon the principal amount outstanding. The accrual of interest income on loans is discontinued when, in the opinion of management, doubt exists as to the ability to collect such interest. Payments received on non-accrual loans are applied to the outstanding principal balance or recorded as interest income, depending upon our assessment of our ultimate ability to collect principal and interest. Loans are returned to the accrual status when factors indicating doubtful collectability cease to exist. The Company recognizes nonrefundable loan origination fees, SBA fees and certain direct loan origination costs over the life of the related loan as an adjustment of loan yield using the interest method. Purchased Credit Deteriorated (PCD) Loans The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loans purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. 63 [Index](#Index) Allowance for Credit Losses - Loans The allowance for credit losses on loans represents managements estimate of expected credit losses over the estimated life of our existing portfolio of loans. The allowance for credit losses is a valuation account that is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loans. The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses on loans at the amount of expected credit losses inherent within the loan portfolio. Loans are recorded as charge-offs against the allowance when management confirms a loan balance is uncollectable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, see Note 5, Loans, for additional detail. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has segregated its portfolio segments based on federal call report codes which classify loans based on the primary collateral supporting the loan. The following are the Companys segmented portfolios: Residential Real Estate: The Bank originates residential mortgage and home equity loans primarily in its various market areas in Pennsylvania, New York and Delaware. These loans are secured by first and junior liens on a primary residence or investment property. The primary risk characteristics associated with residential loans typically involve major changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce or death. Residential loans that have adjustable rates could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank. Commercial Real Estate: The Bank originates mortgage loans to operating companies primarily in its various market areas in Pennsylvania, New York and Delaware. The property may be owner-occupied or non-owner-occupied real estate properties and include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Owner-occupied loans are typically repaid first by the cash flows generated by the borrowers business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrowers ability to repay their loan include demand for the business products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions. Agricultural Real Estate: The Bank originates loans secured by farmland and improvements thereon, secured by mortgages primarily in its various market areas in Pennsylvania, New York and Delaware. Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland also includes grazing or pasture land, whether tillable or not and whether wooded or not. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources. Construction: The Bank originates construction loans to finance land development preparatory to erecting new structures or the on-site construction of residential, industrial, commercial, or multi-family buildings, primarily in its various market areas in Pennsylvania, New York and Delaware. Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions. Consumer: The Bank originates loans to individuals for household, family, and other personal expenditures, which may include automobile loans and loans for college. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. The primary risk characteristics associated with other consumer loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. 64 [Index](#Index) Other Commercial Loans: The Bank originates lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as other assets of the business, or guarantors. Other commercial loans are typically repaid first by the cash flows generated by the borrowers business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrowers ability to repay their loan include demand for the business products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. The ability of the Bank to foreclose and realize sufficient value from business assets securing these loans is often uncertain. To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral. The Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance. Other Agricultural Loans: The Bank originates loans secured or unsecured to farm owners and operators (including tenants) or to nonfarmers for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or marketing of livestock, and for purchases of farm machinery, equipment, and implements. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources. State and Political Subdivision Loans: The Bank originates various types of loans made directly to municipalities. These loans are repaid through general cash flows or through specific revenue streams, such as water and sewer fees. The primary risk characteristics associated with municipal loans are the municipalitys ability to manage cash flow, balance the fiscal budget, fixed asset and infrastructure requirements. Additional risks include changes in demographics, as well as social and political conditions. Methods utilized by management to estimate expected credit losses include a discounted cash flow (DCF) model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations and a weighted average remaining maturity (WARM) model which contemplates expected losses at a pool-level, utilizing historic loss information. Management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. After the end of the reasonable and supportable forecast period, the loss rates revert to the mean loss rate over a period of eight quarters. Historical credit loss experience, including examination of loss experience at representative peer institutions when the Companys loss history does not result in estimations that are meaningful to users of the Companys Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The DCF model uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicators utilized by the Company are federal unemployment rates, national gross domestic production and national housing price index. In building the CECL methodology utilized in the DCF model, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Federal unemployment rates and national gross domestic production and national housing price index. The WARM model uses combined historic loss rates for the Company and peer institutions, if necessary, gathered from call report filings. The selected period for which historic loss rates are used is dependent on managements evaluation of current conditions and expectations of future loss conditions. 65 [Index](#Index) Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation and typically represent collateral dependent loans but may also include other nonperforming loans. The Company uses the practical expedient to measure individually evaluated loans as collateral dependent and/or when repayment is expected to be provided substantially through the operation or sale of the collateral. Expected credit losses are based on the fair value at the reporting date, adjusted for selling costs as appropriate. For collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. Accrued interest receivable on loans held for investment totaled $7,943,000 and $7,868,000 at December 31, 2025 and 2024, respectively, and is included within Accrued interest receivable. This amount is excluded from the estimate of expected credit losses. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Management estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Bank and applying the loss factors used in the allowance for credit losses on loans methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan segment. The estimate of credit losses on off balance sheet credit exposures is $1,163,000 and $676,000 at December 31, 2025 and 2024, respectively, and was reported in other liabilities on the consolidated balance sheets. Loan Charge-off Policies Consumer loans are generally fully or partially charged down to the fair value of collateral securing the asset when the loan is 180 days past due for open-end loans or 120 days past due for closed-end loans unless the loan is well secured and in the process of collection. All other loans are generally charged down to the estimated net realizable value when the loan is 90 days past due. Collateral-Dependent Loans A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans and leases deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collaterals fair value less cost to sell. In most cases, the Company records a partial charge-off to reduce the loans carrying value to the collaterals fair value less cost to sell. Substantially all of the collateral consists of various types of real estate including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. Loans to Borrowers Experiencing Financial Difficulty A loan is classified as a modified loan to a borrower experiencing financial difficulty when a contractual loan modification in the form of principal forgiveness, an interest rate reduction, an other-than-significant payment delay or a term extension (or a combination thereof) has been granted to an existing borrower experiencing financial difficulties. The goal when modifying a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing modified loans to borrowers experiencing financial difficulty are primarily comprised of loans on which interest is being accrued under the modified terms, and the loans are current or less than 90 days past due. Foreclosed Assets Held For Sale Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell. Prior to foreclosure, as the value of the underlying loan is written down to fair market value of the real estate or other assets to be acquired by a charge to the allowance for credit losses, if necessary. Any subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of related income and losses on disposition, are included in other expenses and gains and losses are included in other non-interest income or other non-interest expense. 66 [Index](#Index) Premises and Equipment Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed on straight line and accelerated methods over the estimated useful lives of the assets, which range from 3 to 15 years for furniture, fixtures and equipment and 5 to 40 years for building premises. Repair and maintenance expenditures which extend the useful life of an asset are capitalized and other repair expenditures are expensed as incurred. When premises or equipment are retired or sold, the remaining cost and accumulated depreciation are removed from the accounts and any gain or loss is credited to income or charged to expense, respectively. Leases The Company has operating leases for several branch locations. Generally, the underlying lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company may also lease certain office equipment under operating leases. Many of our leases include both lease (e.g., minimum rent payments) and non-lease components (e.g., common-area or other maintenance costs). The Company accounts for each component separately based on the standalone price of each component. In addition, there are several operating leases with lease terms of less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our right of use (ROU) assets and lease liabilities. Most leases include one or more options to renew. The exercise of lease renewal options is typically at the sole discretion of management and is based on whether the extension options are reasonably certain to be exercised after considering all facts and circumstances of the lease. If management determines that the Company is reasonably certain to exercise the extension option(s), the additional term is included in the calculation of the lease liability. As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments. Intangible Assets Intangible assets, other than goodwill, include core deposit intangibles and mortgage servicing rights (MSRs). Core deposit intangibles are a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangibles are being amortized over 10 years using the sum-of-the-years digits method of amortization. The Company recognizes MSRs as assets when mortgage loans are sold and the rights to service those loans are retained. Mortgage servicing rights are initially recorded at fair value by using discounted cash flows to calculate the present value of estimated future net servicing income. The Company accounts for the MSRs under the amortization method. The mortgage servicing rights are initially recorded at fair value and amortized in proportion to the estimated expected future net servicing income generated from servicing the loan. The mortgage servicing rights are evaluated for impairment by estimating the fair value of the mortgage servicing rights and comparing that value to the carrying amount. The Company obtains a third-party valuation to assist with estimating the fair value of the MSRs. A valuation allowance would be established if the carrying amount of these mortgage servicing rights exceeds fair value. There was no impairment recognized in 2025, 2024 or 2023. Goodwill On an annual basis, the Company evaluated its goodwill for impairment. When management determines that a quantitative assessment of impairment is necessary, a calculation of the fair value of the reporting unit is completed and compared to its carrying amount. If the fair value exceeds the carrying amount, no impairment is present. If the carrying of the reporting unit exceeds its calculated fair value and impairment loss is recognized equal to the difference between fair value and carrying value.The Company may also perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. During 2025, managements approach to goodwill impairment was a quantitative assessment. During 2024 and 2023, the assessments were qualitative. Based on the fair value of the reporting unit, no impairment of goodwill was recognized in 2025, 2024 or 2023. 67 [Index](#Index) Bank Owned Life Insurance The Company has purchased life insurance policies on certain employees. Any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under these agreements, the Company receives the cash surrender value of the policy plus 50% of the benefit in excess of the cash surrender value and the remaining amount of the payout will be given to the beneficiary named by the insured person in the policy. The Company is the sole beneficiary of any death benefits received from non-active insured persons. Additionally, as a result of the MidCoast acquisition, the Company acquired life insurance policies on former MidCoast employees. The Company is owner and sole beneficiary of these policies. Additionally, as part of the HVBC acquisition, the Company acquired life insurance policies on former HVBC employees. Under these agreements, the Bank receives the cash surrender value of the policy plus the benefit in excess of the cash surrender value less $50,000 to $100,000 that be given to the beneficiary named by the insured person in the policy if the insured person passes while employed by the Company. The Company is the sole beneficiary of any death benefits received from non-active insured persons. The Company acquired life insurance policies on former FNB employees and directors, as part of the acquisition of FNB. The policies obtained as part of the acquisition provide a fixed dollar benefit to the former employee or director beneficiaries, whether or not the insured person is affiliated with the Company at the time of his or her death. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized. Increases in the cash surrender value are recognized as other non-interest income. The obligation of $529,000 and $514,000 under split-dollar benefit agreements to former employees and directors or their beneficiaries have been recognized as liabilities on the consolidated balance sheet at December 31, 2025 and 2024. The (benefit)/expenses associated with the split dollar benefit were $51,000, ($96,000) and ($50,000) for 2025, 2024 and 2023, respectively. Income Taxes The Company and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period. Derivatives Derivative financial instruments are recognized as assets or liabilities at fair value. The Company has interest rate swap agreements which are used as part of its asset liability management to help manage interest rate risk. The Company also has derivatives as a result of its residential lending platform. The Company does not use derivatives for trading purposes. At the inception of a derivative contract, the Company designates the derivative as one of three types based on the purpose of the contract and belief as to its effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or (3) an instrument with no hedging designation (stand-alone derivative). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged. 68 [Index](#Index) The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings. Employee Benefit Plans The Company has a noncontributory defined benefit pension plan covering employees hired before January 1, 2007. It is the Companys policy to fund pension costs on a current basis to the extent deductible under existing tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company has a defined contribution 401(k) plan covering eligible employees. The employee may also contribute to the plan on a voluntary basis, up to a maximum percentage allowable not to exceed the limits of Code Sections 401(k). Under the plan, the Company also makes contributions on behalf of eligible employees, which vest immediately. For employees hired after January 1, 2007, in lieu of the pension plan, an additional annual discretionary 401(k) plan contribution is made and is equal to a percentage of an employees base compensation. The Company also has a profit-sharing plan for employees which provide tax-deferred salary savings to plan participants. The Company has a deferred compensation plan for directors who have elected to defer all or portions of their fees until their retirement or termination from service. The Company has a restricted stock plan which covers eligible employees and non-employee corporate directors. Under the plan, awards are granted based upon performance related requirements and are subject to certain vesting criteria. Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period. The Company has an employee stock purchase plan that allows employees to withhold money from their paychecks, which is then utilized to purchase shares of the Companys stock. The Company maintains a non-qualified supplemental executive retirement plan (SERP) for certain executives to compensate those executive participants in the Companys noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. The SERP is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the SERP are payable from the general assets of the Company. Expenses under the SERP are recognized as earned over the expected years of service. The Company maintains a non-tax qualified executive deferred compensation plan (Deferred Compensation Plan) for eligible employees designated by the board of directors. Each of the named executive officers are eligible to participate in the Deferred Compensation Plan. The Deferred Compensation Plan is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the Deferred Compensation Plan are payable from the general assets of the Company. Expenses under the Deferred Compensation Plan are recognized as earned over the expected years of service. Advertising Costs Advertising and promotion costs are generally expensed as incurred and amounted to $1,114,000, $1,178,000 and $952,000 for the years ended December 31, 2025, 2024 and 2023, respectively. 69 [Index](#Index) Comprehensive Income (Loss) The Company is required to present comprehensive income in a full set of general purpose financial statements for all periods presented. Other comprehensive income (loss) is comprised of unrealized holding gains (losses) on the available-for-sale securities portfolio, unrealized gains (losses) on interest rate swaps and unrecognized pension costs. Recent Accounting Pronouncements Adopted in 2025 In December 2023, the FASB issued ASU 2023-09, Expanded Income Tax Disclosure Requirements (Topic 740, which requires public business entities to improve income tax disclosures primarily related to an entitys effective tax rate reconciliation and income taxes paid information. This guidance became effective for annual periods beginning after December 15, 2024. This Update did not have a significant impact on the Companys financial statements. See footnote 12 for the revised disclosures. 70 [Index](#Index) Recent Accounting Pronouncements Not Yet Effective In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures. This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements. In December 2024, the FASB issued ASU 2024-04, Debt Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This new guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The ASU requires entities to apply a preexisting contract approach. To qualify for induced conversion accounting under this approach, the inducement offer is required to preserve the form of consideration and result in an amount of consideration that is no less than that issuable pursuant to the preexisting conversion privileges. The guidance is effective for fiscal years beginning after December 15, 2025, with early adoption permitted, and it can be adopted either on a prospective or retrospective basis. This Update is not expected to have a significant impact on the Companys financial statements. In January 2025, the FASB issued ASU 2025-01, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) 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. Entities within the ASUs scope are permitted to early adopt the ASU. The Company is currently evaluating the impact of this new guidance on its financial statements. In January 2025, the FASB issued ASU 2025-02, Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122. This ASU was issued pursuant to SEC Staff Accounting Bulletin No. 122, which rescinds the interpretive guidance included in Section FF of Topic 5 in the Staff Accounting Bulletin series entitled Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users. This ASU has no impact on non-public business entities and is effective for fiscal years beginning after December 15, 2024. This Update is not expected to have a significant impact on the Companys financial statements. 71 [Index](#Index) In May 2025, the FASB issued ASU 2025-03, Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which revises the guidance in ASC 805 on identifying the accounting acquirer in a business combination in which the legal acquiree is a variable interest entity (VIE). The reporting entity can determine that a transaction in which the legal acquiree is a VIE represents a reverse acquisition in which the legal acquirer is identified as the acquiree for accounting purposes. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs after the initial adoption date. This Update is not expected to have a significant impact on the Companys financial statements. In May 2025, the FASB issued ASU 2025-04, Compensation Stock Compensation (Topic 718) and Revenue from Contracts With Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer, which clarifies the accounting for share-based consideration payable to a customer under ASC 718 and ASC 606. The amendments refine key aspects of the guidance, including the definition of performance condition as well as the measurement requirements and the treatment of forfeitures. The amendments will be effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods. Early adoption is permitted for financial statements that have not yet been issued. The Company is currently evaluating the impact of this new guidance on its financial statements. In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides the following relief when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, including those acquired in a business combination under Topic 805,Business Combinations: (1) Practical expedient (available to all entities): Allows an entity to assume that current conditions as of the balance sheet date remain unchanged over the remaining life of an asset in developing reasonable and supportable forecasts as part of estimating expected credit losses. This removes the requirement to incorporate macroeconomic forecasts for assets within the scope of the ASU; (2) Accounting policy election (available to entities other than public business entities): Provided that the practical expedient is elected, this policy election permits eligible entities to consider post-balance-sheet collection activity when estimating expected credit losses. The new guidance will be effective for interim and annual periods beginning after December 15, 2025, and is to be adopted on a prospective basis. The Company is currently evaluating the impact of this new guidance on its financial statements. In September 2025, the FASB issued ASU 2025-06, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software,which modernizes the accounting for internal-use software that is developed using an incremental and iterative method (e.g., agile method). The guidance removes all references to project stages in ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. The guidance specifies that the property, plant, and equipment disclosure requirements under ASC 360-10 apply to capitalized software costs accounted for under ASC 350-40, regardless of how those costs are presented in the financial statements. The guidance, which applies to all entities, is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Entities may apply the guidance using a prospective, retrospective, or modified transition approach. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its financial statements. In 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract,which (1) refines the scope of the guidance on derivatives in ASC 815(Issue 1) and (2) clarifies the guidance on share-based payments from a customer in ASC 606 (Issue 2). The ASU is intended to address concerns about the application of derivative accounting to contracts that have features based on the operations or activities of one of the parties to the contract and to reduce diversity in the accounting for share-based payments in revenue contracts. The ASU adds a new scope exception for certain contracts that are not traded on an exchange and have an underlying that is based on operations or activities specific to one of the parties to the contract. This ASU clarifies that when an entity has a right to receive a share-based payment from its customer in exchange for the transfer of goods or services, the share-based payment should be accounted for as noncash consideration within the scope of ASC 606. ASU 2025-07 is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its financial statements. 72 [Index](#Index) InNovember 2025, the FASB issued ASU 2025-08, Financial Instruments Credit Losses (Topic 326), which amends the guidance in Topic 326 to expand the population of acquired financial assets subject to the gross-up approach to include loans (excluding credit cards) that are acquired without credit deterioration and deemed seasoned.All non-purchased credit deteriorated loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-purchased credit deteriorated loans (excluding credit cards) are considered to be seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. ASU 2025-08 should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods.Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its financial statements. In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815), which amends certain aspects of the hedge accounting guidance in ASC 815 to more closely align hedge accounting with the economics of an entitys risk management activities.The amendments, among other things, provide more flexibility for cash flow hedges and hedging of raw materials and other nonfinancial assets, as well as simplify hedge accounting for flexible debt and foreign currency debt. ASU 2025-09 should be applied prospectively for public business entities for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. For all other entities, the ASU is to be applied prospectively and is effective for fiscal years beginning after December 15, 2027, including interim reporting periods within those annual reporting periods.Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its financial statements. In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities (Topic 832), which adds guidance on the recognition, measurement, and presentation of government grants. Among other things, the ASU defines whether a grant is related to an asset or to income. Under either scenario, an entity will not be able to recognize the grant until it is probable that both (a) the entity will comply with the conditions attached to the government grant, and (b) the government grant will be received. The new guidance is effective for public business entities in annual periods beginning after December 15, 2028, (including interim periods within) and one year later for all other entities, with early adoption permitted in any period for which financial statements have not yet been issued. The guidance can be applied on a modified prospective basis, a modified retrospective basis, or a full retrospective basis. This Update is not expected to have a significant impact on the Companys financial statements. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, to clarify interim disclosure requirements, the form and content of interim financial statements, and when ASC Topic 270 applies. The amendments in the ASU provide a list of specific interim disclosures that are required by generally accepted accounting principles (GAAP), which, together with the disclosure principle, represent the complete population of required disclosures in interim reporting periods. The intent of the disclosure principle is to help entities determine whether any disclosures not specified in Topic 270 should be provided in interim reporting periods. ASU 2025-11 may be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements for public business entities for interim periods in fiscal years beginning after December 15, 2027, and all other entities in interim periods in fiscal years beginning after December 15, 2028. The Company is currently evaluating the impact of this new guidance on its financial statements. In December 2025, the FASB issued ASU 2025-12, Codification Improvements, to address 33 issues that amend the Codification to (1) clarify, (2) correct errors, or (3) make minor improvements that affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments make the Codification easier to understand and apply. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. This Update is not expected to have a significant impact on the Companys financial statements. Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Companys consolidated financial position, results of operations or cash flows. 73 [Index](#Index) Treasury Stock The purchase of the Companys common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a last-in-first-out basis. Cash Flows The Company utilizes the net reporting of cash receipts and cash payments for deposit, short-term borrowing and lending activities. Trust, Brokerage and Insurance Assets and Income Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such assets are not assets of the Company. The majority of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under management. Trust fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management. None of the contracts with trust customers provide for incentive-based fees. In addition, trust revenue includes fees for provision of services, including employee benefit plan administration, tax return preparation and estate planning and settlement. Fees for such services are billed based on contractual arrangements or established fee schedules and are typically billed upon completion of providing such services. Brokerage and insurance commissions from the sales of investments and insurance products are recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Companys performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customers portfolio and is not dependent on certain return or performance level of the customers portfolio. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price. Earnings Per Share The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company. | | | 2025 | | | 2024 | | | 2023 | | | | Basic earnings per share computation: | | | | | | | | | | | | Net income applicable to common stock | | $ | 36,572,000 | | | $ | 27,818,000 | | | $ | 17,811,000 | | | | Weighted average common shares outstanding | | | 4,797,520 | | | | 4,797,258 | | | | 4,476,235 | | | | Earnings per share - basic | | $ | 7.62 | | | $ | 5.80 | | | $ | 3.98 | | | | Diluted earnings per share computation: | | | | | | | | | | | | | | | Net income applicable to common stock | | $ | 36,572,000 | | | $ | 27,818,000 | | | $ | 17,811,000 | | | | Weighted average common shares outstanding for basic earnings per share | | | 4,797,520 | | | | 4,797,258 | | | | 4,476,235 | | | | Add: Dilutive effects of restricted stock | | | 2,573 | | | | 4,881 | | | | - | | | | Weighted average common shares outstanding for dilutive earnings per share | | | 4,800,093 | | | | 4,802,139 | | | | 4,476,235 | | | | Earnings per share - dilutive | | $ | 7.62 | | | $ | 5.79 | | | $ | 3.98 | | | Nonvested shares of restricted stock totaling 1,883, 2,430 and 4,623 were outstanding during 2025, 2024 and 2023, respectively, but were not included in the computation of diluted earnings per common share because to do so would be anti-dilutive. These anti-dilutive shares had per share prices ranging from $49.43-$83.38, $61.98-$83.38 and $56.81-$83.38 for 2025, 2024 and 2023, respectively. Reclassification Certain of the prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no material effect on net income or stockholders equity. 2. REVENUE RECOGNITION Under ASC Topic 606, management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of this topic. The main types of noninterest income within the scope of the standard are as follows: | | | Service charges on deposit accounts The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction. | | 74 [Index](#Index) | | | Trust fees Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client assets in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customers assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction. | | | | | Gains (losses) on sale of other real estate owned Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset. | | | | | Brokerage and insurance Fees include commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Companys performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customers portfolio and is not dependent on certain return or performance level of the customers portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price. | | The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the years ended December 31, 2025, 2024 and 2023 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time. | Revenue stream | | | | | | | | | | | | Service charges on deposit accounts | | 2025 | | | 2024 | | | 2023 | | | | Overdraft fees | | $ | 1,505 | | | $ | 1,612 | | | $ | 1,501 | | | | Statement fees | | | 255 | | | | 181 | | | | 194 | | | | Interchange revenue | | | 3,307 | | | | 3,382 | | | | 3,246 | | | | ATM income | | | 120 | | | | 134 | | | | 138 | | | | Other service charges | | | 382 | | | | 440 | | | | 560 | | | | Total Service Charges | | | 5,569 | | | | 5,749 | | | | 5,639 | | | | Trust | | | 792 | | | | 816 | | | | 764 | | | | Brokerage and insurance | | | 2,627 | | | | 2,381 | | | | 1,924 | | | | Other | | | 893 | | | | 664 | | | | 645 | | | | Total | | $ | 9,881 | | | $ | 9,610 | | | $ | 8,972 | | | 3. RESTRICTIONS ON CASH AND DUE FROM BANKS Effective March 26, 2020, the Federal Reserve reduced reserve requirements to zero for all depository institutions. There were no required federal reserves included in Cash and due from banks at December 31, 2025 or December 31, 2024. The required reserves are used to facilitate the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of vault cash and a depository amount held with the Federal Reserve Bank. Federal law prohibits the Company from borrowing from the Bank unless the loans are secured by specific collateral. Non-retirement account deposits with one financial institution are insured up to $250,000. At times, the Company maintains cash and cash equivalents with other financial institutions in excess of the insured amount. 75 [Index](#Index) 4. INVESTMENT SECURITIES The amortized cost, gross unrealized gains and losses, and fair value of investment securities at December 31, 2025 and 2024 were as follows (in thousands): | December 31, 2025 | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Allowance for Credit Losses | | | Fair Value | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | U.S. Agency securities | | $ | 52,651 | | | $ | 12 | | | $ | (2,908 | ) | | $ | - | | | $ | 49,755 | | | | U.S. Treasuries | | | 84,551 | | | | 225 | | | | (2,122 | ) | | | - | | | | 82,654 | | | | Obligations of state and political subdivisions | | | 120,608 | | | | 1,070 | | | | (5,792 | ) | | | - | | | | 115,886 | | | | Corporate obligations | | | 11,304 | | | | 405 | | | | (412 | ) | | | - | | | | 11,297 | | | | Mortgage-backed securities in government sponsored entities | | | 193,405 | | | | 1,103 | | | | (9,359 | ) | | | - | | | | 185,149 | | | | Total available-for-sale securities | | $ | 462,519 | | | $ | 2,815 | | | $ | (20,593 | ) | | $ | - | | | $ | 444,741 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | U.S. Agency securities | | $ | 58,594 | | | $ | 6 | | | $ | (5,113 | ) | | $ | - | | | $ | 53,487 | | | | U.S. Treasuries | | | 126,220 | | | | 6 | | | | (5,724 | ) | | | - | | | | 120,502 | | | | Obligations of state and political subdivisions | | | 103,137 | | | | 4 | | | | (8,239 | ) | | | - | | | | 94,902 | | | | Corporate obligations | | | 11,206 | | | | 297 | | | | (1,065 | ) | | | - | | | | 10,438 | | | | Mortgage-backed securities in government sponsored entities | | | 160,380 | | | | 232 | | | | (14,029 | ) | | | - | | | | 146,583 | | | | Total available-for-sale securities | | $ | 459,537 | | | $ | 545 | | | $ | (34,170 | ) | | $ | - | | | $ | 425,912 | | | The following table shows the Companys gross unrealized losses and fair value for available for sale securities, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2025 and 2024 (in thousands). As of December 31, 2025, the Company owned 242 securities each of whose fair value was less than its cost basis for a period twelve months or greater and 21 securities each of whose fair value was less than its cost basis for a period less than twelve months. As of December 31, 2024, the Company owned 312 securities each of whose fair value was less than its cost basis for a period twelve months or greater and five securities each of whose fair value was less than its cost basis for a period less than twelve months. | | | Less than Twelve Months | | | Twelve Months or Greater | | | Total | | | | 2025 | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | | U.S. agency securities | | $ | - | | | $ | - | | | $ | 45,104 | | | $ | (2,908 | ) | | $ | 45,104 | | | $ | (2,908 | ) | | | U.S. Treasuries | | | - | | | | - | | | | 72,784 | | | | (2,122 | ) | | | 72,784 | | | | (2,122 | ) | | | Obligations of states and political subdivisions | | | 5,642 | | | | (98 | ) | | | 72,858 | | | | (5,694 | ) | | | 78,500 | | | | (5,792 | ) | | | Corporate obligations | | | - | | | | - | | | | 6,588 | | | | (412 | ) | | | 6,588 | | | | (412 | ) | | | Mortgage-backed securities in government sponsored entities | | | 36,858 | | | | (247 | ) | | | 79,922 | | | | (9,112 | ) | | | 116,780 | | | | (9,359 | ) | | | Total securities | | $ | 42,500 | | | $ | (345 | ) | | $ | 277,256 | | | $ | (20,248 | ) | | $ | 319,756 | | | $ | (20,593 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. agency securities | | $ | - | | | $ | - | | | $ | 51,470 | | | $ | (5,113 | ) | | $ | 51,470 | | | $ | (5,113 | ) | | | U.S. Treasuries | | | 5,553 | | | | (11 | ) | | | 110,992 | | | | (5,713 | ) | | | 116,545 | | | | (5,724 | ) | | | Obligations of states and political subdivisions | | | 4,186 | | | | (39 | ) | | | 86,773 | | | | (8,200 | ) | | | 90,959 | | | | (8,239 | ) | | | Corporate obligations | | | 345 | | | | (33 | ) | | | 6,970 | | | | (1,032 | ) | | | 7,315 | | | | (1,065 | ) | | | Mortgage-backed securities in government sponsored entities | | | 35,044 | | | | (817 | ) | | | 82,425 | | | | (13,212 | ) | | | 117,469 | | | | (14,029 | ) | | | Total securities | | $ | 45,128 | | | $ | (900 | ) | | $ | 338,630 | | | $ | (33,270 | ) | | $ | 383,758 | | | $ | (34,170 | ) | | 76 [Index](#Index) As of December 31, 2025 and 2024, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. There were no sales of available-for-sale securities during 2025 and 2024. Proceeds from sales of securities available-for-sale during 2023 were $86,504,000. Sales for 2023 were primarily the result of selling investments obtained as part of the HVBC acquisition for no gain or loss on the day of acquisition. The gross losses realized during 2023 consisted of $89,000 from the sales of seven municipal securities. The gross gains realized during 2023 consisted of $38,000 from the sales of two municipal securities. Gross gains and gross losses were realized as follows on available for sale securities (in thousands): | | | 2025 | | | 2024 | | | 2023 | | | | Gross gains | | $ | - | | | $ | - | | | $ | 38 | | | | Gross losses | | | - | | | | - | | | | (89 | ) | | | Net losses | | $ | - | | | $ | - | | | $ | (51 | ) | | 77 [Index](#Index) The following table presents the net gains (losses) on the Companys equity investments recognized in earnings during 2025, 2024 and 2023 and the portion of unrealized gains for the period that relates to equity investments held at December 31, 2025, 2024 and 2023 (in thousands): | Equity Securities | | 2025 | | | 2024 | | | 2023 | | | | Net gains (losses) recognized in equity securities during the period | | $ | 67 | | | $ | 145 | | | $ | (144 | ) | | | Less: Net gains (losses) realized on the sale of equity securities during the period | | | - | | | | (4 | ) | | | 14 | | | | Net unrealized gains (losses) | | $ | 67 | | | $ | 149 | | | $ | (158 | ) | | Investment securities with an approximate carrying value of $367,936,000 and $340,371,000 at December 31, 2025 and 2024, respectively, were pledged to secure public funds and certain other deposits as provided by law and certain borrowing arrangements of the Company. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at December 31, 2025, by contractual maturity are shown below (in thousands). Municipal securities that have been refunded and will therefore pay-off on the call date are reflected in the table below utilizing the call date as the date of repayment as payment is guaranteed on that date: | Available-for-sale securities: | | Amortized Cost | | | Fair Value | | | | Due in one year or less | | $ | 36,430 | | | $ | 36,054 | | | | Due after one year through five years | | | 114,102 | | | | 110,690 | | | | Due after five years through ten years | | | 96,763 | | | | 92,014 | | | | Due after ten years | | | 215,224 | | | | 205,983 | | | | Total | | $ | 462,519 | | | $ | 444,741 | | | 5. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES The Company grants commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout north central, central, south-central and south-eastern Pennsylvania, Burlington County, New Jersey, southern New York and Wilmington and Dover, Delaware. Although the Company had a diversified loan portfolio at December 31, 2025 and 2024, a substantial portion of its debtors ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio, as well as how those segments are analyzed within the allowance for credit losses as of December 31, 2025 and 2024 (in thousands): | | | December 31, | | | | | | 2025 | | | 2024 | | | | Real estate loans: | | | | | | | | | Residential | | $ | 340,972 | | | $ | 351,398 | | | | Commercial | | | 1,218,514 | | | | 1,121,435 | | | | Agricultural | | | 347,448 | | | | 327,722 | | | | Construction | | | 93,965 | | | | 164,326 | | | | Consumer | | | 88,210 | | | | 109,505 | | | | Other commercial loans | | | 179,166 | | | | 155,012 | | | | Other agricultural loans | | | 30,247 | | | | 29,662 | | | | State and political subdivision loans | | | 52,100 | | | | 54,182 | | | | Total | | | 2,350,622 | | | | 2,313,242 | | | | Allowance for credit losses loans | | | 22,806 | | | | 21,699 | | | | Net loans | | $ | 2,327,816 | | | $ | 2,291,543 | | | As of December 31, 2025, and 2024, net unamortized loan fees and costs of $1,981,000 and $2,587,000, respectively, were included in the carrying value of loans. Purchased loans acquired in connection with the FNB acquisition, the State College branch acquisition, the MidCoast acquisition and the HVBC acquisition were recorded at fair value on their acquisition date without a carryover of the related allowance for credit losses. Real estate loans serviced for Freddie Mac, Fannie Mae and the FHLB, which are not included in the Consolidated Balance Sheet, totaled $181,675,000 and $193,507,000 at December 31, 2025 and 2024, respectively. Loans sold to Freddie Mac and Fannie Mae were sold without recourse and total $173,901,000 and $184,578,000 at December 31, 2025 and 2024, respectively. Additionally, the Bank acquired a portfolio of loans sold to the FHLB during the acquisitions of FNB and HVBC, which were sold under the Mortgage Partnership Finance Program (MPF). The Bank was not an active participant in the MPF program in 2025 or 2024. The MPF portfolio balance was $7,774,000 and $8,929,000 at December 31, 2025 and 2024, respectively. The FHLB maintained a first-loss position for the MPF portfolio that totaled $171,000 and $168,000 as of December 31, 2025 and 2024, respectively. Should the FHLB exhaust its first-loss position, recourse to the Banks credit enhancement would be up to the next $197,000 and $229,000 of losses as of December 31, 2025 and 2024, respectively. The Bank did not experience any losses for the MPF portfolio during 2025, 2024 or 2023. 78 [Index](#Index) The segments of the Banks loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist of 15 to 30 year first mortgages on residential real estate, while residential real estate home equities are consumer purpose installment loans or lines of credit secured by a mortgage which is often a second lien on residential real estate with terms of 15 years or less. Commercial real estate are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate are loans secured by a mortgage on real estate used in agriculture production. Construction real estate are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by collateral other than real estate and overdraft lines of credit connected with customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivisions are loans for state and local municipalities for capital and operating expenses or tax-free loans used to finance commercial development. Allowance for Credit Losses The following table presents the components of the allowance for credit losses as of December 31, 2025 and 2024 (in thousands): | | | December 31, | | | | | | 2025 | | | 2024 | | | | Allowance for Credit Losses Loans | | $ | 22,806 | | | $ | 21,699 | | | | Allowance for Credit Losses Off-Balance Sheet credit Exposure | | | 1,163 | | | | 676 | | | | Total allowance for credit losses | | $ | 23,969 | | | $ | 22,375 | | | 79 [Index](#Index) The following table presents the activity in the allowance for credit losses for 2025, 2024 and 2023 (in thousands): | | | Allowance for Credit Losses Loans | | | Allowance for Credit Losses Off- Balance Sheet credit Exposure | | | Total | | | | Balance at December 31, 2022 | | $ | 18,552 | | | $ | 165 | | | $ | 18,717 | | | | Impact of adopting CECL | | | (3,300 | ) | | | 1,064 | | | | (2,236 | ) | | | Allowance for credit loss on PCD acquired loans | | | 1,689 | | | | - | | | | 1,689 | | | | Loans charge-off | | | (1,329 | ) | | | - | | | | (1,329 | ) | | | Recoveries of loans previously charged-off | | | 49 | | | | - | | | | 49 | | | | Net loans charged-off | | | (1,280 | ) | | | - | | | | (1,280 | ) | | | Provision for credit losses acquisition day 1 non-PCD | | | 4,591 | | | | - | | | | 4,591 | | | | Provision for credit losses | | | 901 | | | | 36 | | | | 937 | | | | Balance at December 31, 2023 | | $ | 21,153 | | | $ | 1,265 | | | $ | 22,418 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2023 | | $ | 21,153 | | | $ | 1,265 | | | $ | 22,418 | | | | Loans charge-off | | | (2,673 | ) | | | - | | | | (2,673 | ) | | | Recoveries of loans previously charged-off | | | 43 | | | | - | | | | 43 | | | | Net loans charged-off | | | (2,630 | ) | | | - | | | | (2,630 | ) | | | Provision for credit losses | | | 3,176 | | | | (589 | ) | | | 2,587 | | | | Balance at December 31, 2024 | | $ | 21,699 | | | $ | 676 | | | $ | 22,375 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2024 | | $ | 21,699 | | | $ | 676 | | | $ | 22,375 | | | | Loans charge-off | | | (858 | ) | | | - | | | | (858 | ) | | | Recoveries of loans previously charged-off | | | 77 | | | | - | | | | 77 | | | | Net loans charged-off | | | (781 | ) | | | - | | | | (781 | ) | | | Provision for credit losses | | | 1,888 | | | | 487 | | | | 2,375 | | | | Balance at December 31, 2025 | | $ | 22,806 | | | $ | 1,163 | | | $ | 23,969 | | | The following tables presents the activity in the allowance for credit losses loans, by portfolio segment, for 2025, 2024 and 2023 (in thousands). | | | Balance at December 31, 2024 | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2025 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | Residential | | $ | 1,940 | | | $ | - | | | $ | - | | | $ | 1,172 | | | $ | 3,112 | | | | Commercial | | | 9,174 | | | | (40 | ) | | | - | | | | 883 | | | | 10,017 | | | | Agricultural | | | 3,529 | | | | - | | | | - | | | | 1,312 | | | | 4,841 | | | | Construction | | | 1,402 | | | | - | | | | - | | | | (486 | ) | | | 916 | | | | Consumer | | | 1,338 | | | | (327 | ) | | | 41 | | | | 149 | | | | 1,201 | | | | Other commercial loans | | | 3,766 | | | | (491 | ) | | | 36 | | | | (777 | ) | | | 2,534 | | | | Other agricultural loans | | | 133 | | | | - | | | | - | | | | (18 | ) | | | 115 | | | | State and political subdivision loans | | | 61 | | | | - | | | | - | | | | (6 | ) | | | 55 | | | | Unallocated | | | 356 | | | | - | | | | - | | | | (341 | ) | | | 15 | | | | Total | | $ | 21,699 | | | $ | (858 | ) | | $ | 77 | | | $ | 1,888 | | | $ | 22,806 | | | | | | Balance at December 31, 2023 | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2024 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | Residential | | $ | 2,354 | | | $ | (5 | ) | | $ | - | | | $ | (409 | ) | | $ | 1,940 | | | | Commercial | | | 9,178 | | | | - | | | | - | | | | (4 | ) | | | 9,174 | | | | Agricultural | | | 3,264 | | | | - | | | | - | | | | 265 | | | | 3,529 | | | | Construction | | | 1,950 | | | | - | | | | - | | | | (548 | ) | | | 1,402 | | | | Consumer | | | 1,412 | | | | (107 | ) | | | 22 | | | | 11 | | | | 1,338 | | | | Other commercial loans | | | 2,313 | | | | (2,561 | ) | | | 21 | | | | 3,993 | | | | 3,766 | | | | Other agricultural loans | | | 270 | | | | - | | | | - | | | | (137 | ) | | | 133 | | | | State and political subdivision loans | | | 45 | | | | - | | | | - | | | | 16 | | | | 61 | | | | Unallocated | | | 367 | | | | - | | | | - | | | | (11 | ) | | | 356 | | | | Total | | $ | 21,153 | | | $ | (2,673 | ) | | $ | 43 | | | $ | 3,176 | | | $ | 21,699 | | | 80 [Index](#Index) | | | Balance at December 31, 2022 | | | Impact of adopting CECL | | | Allowance for credit loss on PCD acquired loans | | | Charge-offs | | | Recoveries | | | Provision | | | Balance at December 31, 2023 | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 1,056 | | | $ | 79 | | | $ | 108 | | | $ | (1 | ) | | $ | - | | | $ | 1,112 | | | $ | 2,354 | | | | Commercial | | | 10,120 | | | | (3,070 | ) | | | 39 | | | | - | | | | - | | | | 2,089 | | | | 9,178 | | | | Agricultural | | | 4,589 | | | | (1,145 | ) | | | - | | | | - | | | | - | | | | (180 | ) | | | 3,264 | | | | Construction | | | 801 | | | | (103 | ) | | | 37 | | | | - | | | | - | | | | 1,215 | | | | 1,950 | | | | Consumer | | | 135 | | | | 1,040 | | | | 677 | | | | (365 | ) | | | 40 | | | | (115 | ) | | | 1,412 | | | | Other commercial loans | | | 1,040 | | | | (328 | ) | | | 828 | | | | (963 | ) | | | 9 | | | | 1,727 | | | | 2,313 | | | | Other agricultural loans | | | 489 | | | | (219 | ) | | | - | | | | - | | | | - | | | | - | | | | 270 | | | | State and political | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | subdivision loans | | | 322 | | | | (280 | ) | | | - | | | | - | | | | - | | | | 3 | | | | 45 | | | | Unallocated | | | - | | | | 726 | | | | - | | | | - | | | | - | | | | (359 | ) | | | 367 | | | | Total | | $ | 18,552 | | | $ | (3,300 | ) | | $ | 1,689 | | | $ | (1,329 | ) | | $ | 49 | | | $ | 5,492 | | | $ | 21,153 | | | The following table presents loans and the allowance for credit losses by portfolio segment, under the CECL methodology as of December 31, 2025 and 2024 (in thousands): | | | Allowance for Credit Losses Loans | | | Loans | | | | 2025 | | Collectively evaluated for impairment | | | Individually evaluated for impairment | | | Total Allowance for Credit Losses Loans | | | Collectively evaluated for impairment | | | Individually evaluated for impairment | | | Total Loans | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 3,050 | | | $ | 62 | | | $ | 3,112 | | | $ | 338,600 | | | $ | 2,372 | | | $ | 340,972 | | | | Commercial | | | 9,757 | | | | 260 | | | | 10,017 | | | | 1,193,742 | | | | 24,772 | | | | 1,218,514 | | | | Agricultural | | | 4,841 | | | | - | | | | 4,841 | | | | 345,302 | | | | 2,146 | | | | 347,448 | | | | Construction | | | 830 | | | | 86 | | | | 916 | | | | 93,450 | | | | 515 | | | | 93,965 | | | | Consumer | | | 327 | | | | 874 | | | | 1,201 | | | | 87,301 | | | | 909 | | | | 88,210 | | | | Other commercial loans | | | 1,903 | | | | 631 | | | | 2,534 | | | | 171,343 | | | | 7,823 | | | | 179,166 | | | | Other agricultural loans | | | 115 | | | | - | | | | 115 | | | | 29,844 | | | | 403 | | | | 30,247 | | | | State and political subdivision loans | | | 55 | | | | - | | | | 55 | | | | 52,100 | | | | - | | | | 52,100 | | | | Unallocated | | | 15 | | | | - | | | | 15 | | | | - | | | | - | | | | - | | | | Total | | $ | 20,893 | | | $ | 1,913 | | | $ | 22,806 | | | $ | 2,311,682 | | | $ | 38,940 | | | $ | 2,350,622 | | | | | | | | | | | | | 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 1,902 | | | $ | 38 | | | $ | 1,940 | | | $ | 349,909 | | | $ | 1,489 | | | $ | 351,398 | | | | Commercial | | | 9,070 | | | | 104 | | | | 9,174 | | | | 1,105,847 | | | | 15,588 | | | | 1,121,435 | | | | Agricultural | | | 3,529 | | | | - | | | | 3,529 | | | | 323,660 | | | | 4,062 | | | | 327,722 | | | | Construction | | | 1,402 | | | | - | | | | 1,402 | | | | 164,043 | | | | 283 | | | | 164,326 | | | | Consumer | | | 324 | | | | 1,014 | | | | 1,338 | | | | 108,478 | | | | 1,027 | | | | 109,505 | | | | Other commercial loans | | | 3,019 | | | | 747 | | | | 3,766 | | | | 152,430 | | | | 2,582 | | | | 155,012 | | | | Other agricultural loans | | | 133 | | | | - | | | | 133 | | | | 29,125 | | | | 537 | | | | 29,662 | | | | State and political subdivision loans | | | 61 | | | | - | | | | 61 | | | | 54,182 | | | | - | | | | 54,182 | | | | Unallocated | | | 356 | | | | - | | | | 356 | | | | - | | | | - | | | | - | | | | Total | | $ | 19,796 | | | $ | 1,903 | | | $ | 21,699 | | | $ | 2,287,674 | | | $ | 25,568 | | | $ | 2,313,242 | | | Non-performing Loans Non-performing loans include nonaccrual loans, described in more detail below, and all loans past due 90 or more days. Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing. 81 [Index](#Index) The following table reflects the non-performing loan receivables, as well as those on non-accrual status as of December 31, 2025 and 2024, respectively. The balances are presented by class of loan receivable (in thousands): | | | December 31, 2025 | | | December 31, 2024 | | | | | | Nonaccrual With a related allowance | | | Nonaccrual Without a related allowance | | | 90 days or greater past due and accruing | | | Total non- performing loans | | | Nonaccrual With a related allowance | | | Nonaccrual Without a related allowance | | | 90 days or greater past due and accruing | | | Total non- performing loans | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgages | | $ | 153 | | | $ | 3,229 | | | $ | - | | | $ | 3,382 | | | $ | 165 | | | $ | 2,541 | | | $ | - | | | $ | 2,706 | | | | Home Equity | | | - | | | | 61 | | | | 151 | | | | 212 | | | | - | | | | 165 | | | | - | | | | 165 | | | | Commercial | | | 2,860 | | | | 8,637 | | | | - | | | | 11,497 | | | | 2,099 | | | | 12,265 | | | | - | | | | 14,364 | | | | Agricultural | | | - | | | | 2,145 | | | | 55 | | | | 2,200 | | | | - | | | | 4,062 | | | | 269 | | | | 4,331 | | | | Construction | | | 233 | | | | 283 | | | | - | | | | 516 | | | | - | | | | 283 | | | | - | | | | 283 | | | | Consumer | | | 770 | | | | - | | | | 15 | | | | 785 | | | | 1,002 | | | | - | | | | 7 | | | | 1,009 | | | | Other commercial loans | | | 6,282 | | | | 1,546 | | | | 8 | | | | 7,836 | | | | 2,382 | | | | 200 | | | | - | | | | 2,582 | | | | Other agricultural loans | | | - | | | | 403 | | | | - | | | | 403 | | | | - | | | | 537 | | | | - | | | | 537 | | | | | | $ | 10,298 | | | $ | 16,304 | | | $ | 229 | | | $ | 26,831 | | | $ | 5,648 | | | $ | 20,053 | | | $ | 276 | | | $ | 25,977 | | | As of December 31, 2025 and 2024, there were $16,304,000 and $20,053,000, respectively, of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to the realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary. The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of December 31, 2025 and 2024 (in thousands): | | | December 31, 2025 | | | December 31, 2024 | | | | | | Real Estate | | | Other | | | None | | | Total | | | Real Estate | | | Other | | | None | | | Total | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgages | | $ | 3,382 | | | $ | - | | | $ | - | | | $ | 3,382 | | | $ | 2,706 | | | $ | - | | | $ | - | | | $ | 2,706 | | | | Home Equity | | | 61 | | | | - | | | | - | | | | 61 | | | | 165 | | | | - | | | | - | | | | 165 | | | | Commercial | | | 11,497 | | | | - | | | | - | | | | 11,497 | | | | 14,364 | | | | - | | | | - | | | | 14,364 | | | | Agricultural | | | 2,145 | | | | - | | | | - | | | | 2,145 | | | | 4,062 | | | | - | | | | - | | | | 4,062 | | | | Construction | | | 516 | | | | - | | | | - | | | | 516 | | | | 283 | | | | - | | | | - | | | | 283 | | | | Consumer | | | - | | | | - | | | | 770 | | | | 770 | | | | - | | | | - | | | | 1,002 | | | | 1,002 | | | | Other commercial loans | | | - | | | | 7,828 | | | | - | | | | 7,828 | | | | - | | | | 2,582 | | | | - | | | | 2,582 | | | | Other agricultural loans | | | - | | | | 403 | | | | - | | | | 403 | | | | - | | | | 537 | | | | - | | | | 537 | | | | | | $ | 17,601 | | | $ | 8,231 | | | $ | 770 | | | $ | 26,602 | | | $ | 21,580 | | | $ | 3,119 | | | $ | 1,002 | | | $ | 25,701 | | | Credit Quality Information For commercial real estate, agricultural real estate, construction, other commercial, other agricultural, and state and political subdivision loans, management uses an internal risk rating system to monitor and assess credit quality. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below: | | | Pass (Grades 1-6) These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. | | | | | Special Mention (Grade 7) This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. | | 82 [Index](#Index) | | | Substandard (Grade 8) This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. | | | | | Doubtful (Grade 9) This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances. | | | | | Loss (Grade 10) This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted. | | To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Companys loan rating process includes several layers of internal and external oversight. The Companys loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated. The following tables represent credit exposures by internally assigned grades, by origination year, as of December 31, 2025 and 2024 (in thousands): 83 [Index](#Index) | | | | | | | | | | | | | | | | | | | | | Revolving | | | Revolving | | | | | | | | | | | | Loans | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortized | | | Converted | | | | | | | December 31, 2025 | | 2025 | | | 2024 | | | 2023 | | | 2022 | | | 2021 | | | Prior | | | Cost Basis | | | to Term | | | Total | | | | Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 127,490 | | | $ | 59,760 | | | $ | 128,989 | | | $ | 329,694 | | | $ | 172,617 | | | $ | 294,237 | | | $ | 34,709 | | | $ | 1,971 | | | $ | 1,149,467 | | | | Special Mention | | | - | | | | 5,042 | | | | 797 | | | | 5,784 | | | | 8,770 | | | | 7,208 | | | | 733 | | | | - | | | | 28,334 | | | | Substandard | | | - | | | | - | | | | 1,021 | | | | 24,582 | | | | 3,024 | | | | 9,772 | | | | 2,314 | | | | - | | | | 40,713 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 127,490 | | | $ | 64,802 | | | $ | 130,807 | | | $ | 360,060 | | | $ | 184,411 | | | $ | 311,217 | | | $ | 37,756 | | | $ | 1,971 | | | $ | 1,218,514 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 40 | | | $ | - | | | $ | - | | | $ | 40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agricultural real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 54,278 | | | $ | 30,648 | | | $ | 18,810 | | | $ | 47,254 | | | $ | 20,747 | | | $ | 139,424 | | | $ | 18,558 | | | $ | 131 | | | $ | 329,850 | | | | Special Mention | | | 55 | | | | 40 | | | | 3,276 | | | | 1,384 | | | | 1,731 | | | | 1,893 | | | | 1,723 | | | | - | | | | 10,102 | | | | Substandard | | | 1,297 | | | | 667 | | | | - | | | | 2,052 | | | | 657 | | | | 2,103 | | | | 645 | | | | 75 | | | | 7,496 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 55,630 | | | $ | 31,355 | | | $ | 22,086 | | | $ | 50,690 | | | $ | 23,135 | | | $ | 143,420 | | | $ | 20,926 | | | $ | 206 | | | $ | 347,448 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 30,394 | | | $ | 15,456 | | | $ | 8,490 | | | $ | 25,772 | | | $ | - | | | $ | - | | | $ | 5,215 | | | $ | - | | | $ | 85,327 | | | | Special Mention | | | - | | | | - | | | | - | | | | 206 | | | | 2,943 | | | | - | | | | - | | | | - | | | | 3,149 | | | | Substandard | | | - | | | | - | | | | 789 | | | | 4,417 | | | | 283 | | | | - | | | | - | | | | - | | | | 5,489 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 30,394 | | | $ | 15,456 | | | $ | 9,279 | | | $ | 30,395 | | | $ | 3,226 | | | $ | - | | | $ | 5,215 | | | $ | - | | | $ | 93,965 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other commercial loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 33,300 | | | $ | 27,244 | | | $ | 18,039 | | | $ | 4,938 | | | $ | 6,098 | | | $ | 3,819 | | | $ | 74,628 | | | $ | 232 | | | $ | 168,298 | | | | Special Mention | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,442 | | | | - | | | | 2,442 | | | | Substandard | | | - | | | | 117 | | | | - | | | | 1,784 | | | | 40 | | | | 714 | | | | 4,257 | | | | 1,443 | | | | 8,355 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 66 | | | | 5 | | | | 71 | | | | Total | | $ | 33,300 | | | $ | 27,361 | | | $ | 18,039 | | | $ | 6,722 | | | $ | 6,138 | | | $ | 4,533 | | | $ | 81,393 | | | $ | 1,680 | | | $ | 179,166 | | | | Current period gross charge-offs | | $ | - | | | $ | 49 | | | $ | - | | | $ | - | | | $ | - | | | $ | 63 | | | $ | 379 | | | $ | - | | | $ | 491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other agricultural loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 5,677 | | | $ | 3,520 | | | $ | 1,440 | | | $ | 408 | | | $ | 1,602 | | | $ | 288 | | | $ | 14,761 | | | $ | - | | | $ | 27,696 | | | | Special Mention | | | - | | | | 936 | | | | 15 | | | | - | | | | - | | | | - | | | | 639 | | | | - | | | | 1,590 | | | | Substandard | | | - | | | | - | | | | 294 | | | | 438 | | | | - | | | | - | | | | 229 | | | | - | | | | 961 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 5,677 | | | $ | 4,456 | | | $ | 1,749 | | | $ | 846 | | | $ | 1,602 | | | $ | 288 | | | $ | 15,629 | | | $ | - | | | $ | 30,247 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | State and political subdivision loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 1,504 | | | $ | 27 | | | $ | 1,291 | | | $ | 12,737 | | | $ | 9,932 | | | $ | 26,509 | | | $ | 100 | | | $ | - | | | $ | 52,100 | | | | Special Mention | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Substandard | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 1,504 | | | $ | 27 | | | $ | 1,291 | | | $ | 12,737 | | | $ | 9,932 | | | $ | 26,509 | | | $ | 100 | | | $ | - | | | $ | 52,100 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 252,643 | | | $ | 136,655 | | | $ | 177,059 | | | $ | 420,803 | | | $ | 210,996 | | | $ | 464,277 | | | $ | 147,971 | | | $ | 2,334 | | | $ | 1,812,738 | | | | Special Mention | | | 55 | | | | 6,018 | | | | 4,088 | | | | 7,374 | | | | 13,444 | | | | 9,101 | | | | 5,537 | | | | - | | | | 45,617 | | | | Substandard | | | 1,297 | | | | 784 | | | | 2,104 | | | | 33,273 | | | | 4,004 | | | | 12,589 | | | | 7,445 | | | | 1,518 | | | | 63,014 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 66 | | | | 5 | | | | 71 | | | | Total | | $ | 253,995 | | | $ | 143,457 | | | $ | 183,251 | | | $ | 461,450 | | | $ | 228,444 | | | $ | 485,967 | | | $ | 161,019 | | | $ | 3,857 | | | $ | 1,921,440 | | | 84 [Index](#Index) | | | | | | | | | | | | | | | | | | | | | Revolving | | | Revolving | | | | | | | | | | | | Loans | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortized | | | Converted | | | | | | | December 31, 2024 | | 2024 | | | 2023 | | | 2022 | | | 2021 | | | 2020 | | | Prior | | | Cost Basis | | | to Term | | | Total | | | | Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 52,122 | | | $ | 84,465 | | | $ | 360,989 | | | $ | 200,869 | | | $ | 114,839 | | | $ | 223,601 | | | $ | 28,178 | | | $ | 1,786 | | | $ | 1,066,849 | | | | Special Mention | | | - | | | | 810 | | | | 3,495 | | | | 1,874 | | | | 1,372 | | | | 8,501 | | | | 1,674 | | | | - | | | | 17,726 | | | | Substandard | | | 85 | | | | 1,057 | | | | 19,884 | | | | 2,843 | | | | 629 | | | | 11,785 | | | | 176 | | | | 401 | | | | 36,860 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 52,207 | | | $ | 86,332 | | | $ | 384,368 | | | $ | 205,586 | | | $ | 116,840 | | | $ | 243,887 | | | $ | 30,028 | | | $ | 2,187 | | | $ | 1,121,435 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agricultural real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 32,199 | | | $ | 22,372 | | | $ | 46,644 | | | $ | 26,132 | | | $ | 29,770 | | | $ | 126,876 | | | $ | 14,351 | | | $ | 115 | | | $ | 298,459 | | | | Special Mention | | | 2,930 | | | | 3,138 | | | | 7,109 | | | | - | | | | - | | | | 5,315 | | | | 2,248 | | | | - | | | | 20,740 | | | | Substandard | | | 708 | | | | 140 | | | | 2,179 | | | | 1,250 | | | | - | | | | 3,604 | | | | 529 | | | | 113 | | | | 8,523 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 35,837 | | | $ | 25,650 | | | $ | 55,932 | | | $ | 27,382 | | | $ | 29,770 | | | $ | 135,795 | | | $ | 17,128 | | | $ | 228 | | | $ | 327,722 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 48,026 | | | $ | 56,916 | | | $ | 34,995 | | | $ | - | | | $ | - | | | $ | - | | | $ | 1,355 | | | $ | - | | | $ | 141,292 | | | | Special Mention | | | - | | | | - | | | | 19,391 | | | | 2,950 | | | | - | | | | - | | | | - | | | | - | | | | 22,341 | | | | Substandard | | | - | | | | - | | | | 410 | | | | 283 | | | | - | | | | - | | | | - | | | | - | | | | 693 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 48,026 | | | $ | 56,916 | | | $ | 54,796 | | | $ | 3,233 | | | $ | - | | | $ | - | | | $ | 1,355 | | | $ | - | | | $ | 164,326 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other commercial loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 33,211 | | | $ | 22,808 | | | $ | 6,773 | | | $ | 7,542 | | | $ | 2,150 | | | $ | 3,464 | | | $ | 68,573 | | | $ | 75 | | | $ | 144,596 | | | | Special Mention | | | 20 | | | | - | | | | 1,798 | | | | 178 | | | | 62 | | | | 56 | | | | 4,888 | | | | 32 | | | | 7,034 | | | | Substandard | | | 213 | | | | - | | | | 195 | | | | - | | | | 234 | | | | 641 | | | | 422 | | | | 1,661 | | | | 3,366 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 16 | | | | 16 | | | | Total | | $ | 33,444 | | | $ | 22,808 | | | $ | 8,766 | | | $ | 7,720 | | | $ | 2,446 | | | $ | 4,161 | | | $ | 73,883 | | | $ | 1,784 | | | $ | 155,012 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | 59 | | | $ | - | | | $ | - | | | $ | - | | | $ | 2,502 | | | $ | - | | | $ | 2,561 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other agricultural loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 4,576 | | | $ | 2,008 | | | $ | 888 | | | $ | 3,870 | | | $ | 407 | | | $ | 220 | | | $ | 14,812 | | | $ | - | | | $ | 26,781 | | | | Special Mention | | | 1,341 | | | | - | | | | - | | | | - | | | | - | | | | 400 | | | | 67 | | | | - | | | | 1,808 | | | | Substandard | | | - | | | | 354 | | | | 455 | | | | 9 | | | | - | | | | 113 | | | | 131 | | | | 11 | | | | 1,073 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | 5,917 | | | $ | 2,362 | | | $ | 1,343 | | | $ | 3,879 | | | $ | 407 | | | $ | 733 | | | $ | 15,010 | | | $ | 11 | | | $ | 29,662 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | State and political subdivision loans | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | - | | | $ | 1,442 | | | $ | 13,460 | | | $ | 10,522 | | | $ | 5,319 | | | $ | 23,439 | | | $ | - | | | $ | - | | | $ | 54,182 | | | | Special Mention | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Substandard | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | Total | | $ | - | | | $ | 1,442 | | | $ | 13,460 | | | $ | 10,522 | | | $ | 5,319 | | | $ | 23,439 | | | $ | - | | | $ | - | | | $ | 54,182 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 170,134 | | | $ | 190,011 | | | $ | 463,749 | | | $ | 248,935 | | | $ | 152,485 | | | $ | 377,600 | | | $ | 127,269 | | | $ | 1,976 | | | $ | 1,732,159 | | | | Special Mention | | | 4,291 | | | | 3,948 | | | | 31,793 | | | | 5,002 | | | | 1,434 | | | | 14,272 | | | | 8,877 | | | | 32 | | | | 69,649 | | | | Substandard | | | 1,006 | | | | 1,551 | | | | 23,123 | | | | 4,385 | | | | 863 | | | | 16,143 | | | | 1,258 | | | | 2,186 | | | | 50,515 | | | | Doubtful | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 16 | | | | 16 | | | | Total | | $ | 175,431 | | | $ | 195,510 | | | $ | 518,665 | | | $ | 258,322 | | | $ | 154,782 | | | $ | 408,015 | | | $ | 137,404 | | | $ | 4,210 | | | $ | 1,852,339 | | | 85 [Index](#Index) For residential real estate mortgage loans, home equity loans, and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail above, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity, by origination year, as of December 31, 2025 and 2024 (in thousands): | | | | | | | | | | | | | | | | | | | | | Revolving | | | Revolving | | | | | | | | | | | | Loans | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortized | | | Converted | | | | | | | December 31, 2025 | | 2025 | | | 2024 | | | 2023 | | | 2022 | | | 2021 | | | Prior | | | Cost Basis | | | to Term | | | Total | | | | Residential real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 13,909 | | | $ | 13,209 | | | $ | 23,135 | | | $ | 81,239 | | | $ | 41,842 | | | $ | 111,948 | | | $ | - | | | $ | - | | | $ | 285,282 | | | | Nonperforming | | | - | | | | - | | | | - | | | | 1,057 | | | | 1,132 | | | | 1,193 | | | | - | | | | - | | | | 3,382 | | | | Total | | $ | 13,909 | | | $ | 13,209 | | | $ | 23,135 | | | $ | 82,296 | | | $ | 42,974 | | | $ | 113,141 | | | $ | - | | | $ | - | | | $ | 288,664 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | Home equity | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 2,854 | | | $ | 2,528 | | | $ | 2,533 | | | $ | 1,727 | | | $ | 1,150 | | | $ | 6,918 | | | $ | 34,100 | | | $ | 286 | | | $ | 52,096 | | | | Nonperforming | | | 63 | | | | - | | | | 18 | | | | - | | | | - | | | | 110 | | | | 21 | | | | - | | | | 212 | | | | Total | | $ | 2,917 | | | $ | 2,528 | | | $ | 2,551 | | | $ | 1,727 | | | $ | 1,150 | | | $ | 7,028 | | | $ | 34,121 | | | $ | 286 | | | $ | 52,308 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 1,934 | | | $ | 1,050 | | | $ | 373 | | | $ | 354 | | | $ | 412 | | | $ | 2,577 | | | $ | 80,725 | | | $ | - | | | $ | 87,425 | | | | Nonperforming | | | - | | | | 10 | | | | - | | | | - | | | | 11 | | | | 764 | | | | - | | | | - | | | | 785 | | | | Total | | $ | 1,934 | | | $ | 1,060 | | | $ | 373 | | | $ | 354 | | | $ | 423 | | | $ | 3,341 | | | $ | 80,725 | | | $ | - | | | $ | 88,210 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | 11 | | | $ | 1 | | | $ | - | | | $ | 285 | | | $ | 30 | | | $ | - | | | $ | 327 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 18,697 | | | $ | 16,787 | | | $ | 26,041 | | | $ | 83,320 | | | $ | 43,404 | | | $ | 121,443 | | | $ | 114,826 | | | $ | 286 | | | $ | 424,804 | | | | Nonperforming | | | 63 | | | | 10 | | | | 18 | | | | 1,057 | | | | 1,143 | | | | 2,067 | | | | 20 | | | | - | | | | 4,378 | | | | Total | | $ | 18,760 | | | $ | 16,797 | | | $ | 26,059 | | | $ | 84,377 | | | $ | 44,547 | | | $ | 123,510 | | | $ | 114,846 | | | $ | 286 | | | $ | 429,182 | | | | | | | | | | | | | | | | | | | | | | | | Revolving | | | Revolving | | | | | | | | | | | | Loans | | | Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortized | | | Converted | | | | | | | December 31, 2024 | | 2024 | | | 2023 | | | 2022 | | | 2021 | | | 2020 | | | Prior | | | Cost Basis | | | to Term | | | Total | | | | Residential real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 11,487 | | | $ | 23,870 | | | $ | 88,581 | | | $ | 45,731 | | | $ | 27,537 | | | $ | 101,823 | | | $ | - | | | $ | - | | | $ | 299,029 | | | | Nonperforming | | | - | | | | - | | | | 382 | | | | 751 | | | | 463 | | | | 1,110 | | | | - | | | | - | | | | 2,706 | | | | Total | | $ | 11,487 | | | $ | 23,870 | | | $ | 88,963 | | | $ | 46,482 | | | $ | 28,000 | | | $ | 102,933 | | | $ | - | | | $ | - | | | $ | 301,735 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 5 | | | $ | - | | | $ | - | | | $ | 5 | | | | Home equity | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 2,987 | | | $ | 3,456 | | | $ | 2,418 | | | $ | 1,454 | | | $ | 1,525 | | | $ | 7,937 | | | $ | 29,302 | | | $ | 419 | | | $ | 49,498 | | | | Nonperforming | | | - | | | | - | | | | - | | | | - | | | | 83 | | | | 82 | | | | - | | | | - | | | | 165 | | | | Total | | $ | 2,987 | | | $ | 3,456 | | | $ | 2,418 | | | $ | 1,454 | | | $ | 1,608 | | | $ | 8,019 | | | $ | 29,302 | | | $ | 419 | | | $ | 49,663 | | | | Current period gross charge-offs | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consumer | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 2,076 | | | $ | 880 | | | $ | 589 | | | $ | 543 | | | $ | 317 | | | $ | 2,520 | | | $ | 101,570 | | | $ | 1 | | | $ | 108,496 | | | | Nonperforming | | | - | | | | 7 | | | | - | | | | - | | | | 6 | | | | 996 | | | | - | | | | - | | | | 1,009 | | | | Total | | $ | 2,076 | | | $ | 887 | | | $ | 589 | | | $ | 543 | | | $ | 323 | | | $ | 3,516 | | | $ | 101,570 | | | $ | 1 | | | $ | 109,505 | | | | Current period gross charge-offs | | $ | - | | | $ | 13 | | | $ | 27 | | | $ | - | | | $ | - | | | $ | 38 | | | $ | 29 | | | $ | - | | | $ | 107 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | Payment Performance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 16,550 | | | $ | 28,206 | | | $ | 91,588 | | | $ | 47,728 | | | $ | 29,379 | | | $ | 112,280 | | | $ | 130,872 | | | $ | 420 | | | $ | 457,023 | | | | Nonperforming | | | - | | | | 7 | | | | 382 | | | | 751 | | | | 552 | | | | 2,188 | | | | - | | | | - | | | | 3,880 | | | | Total | | $ | 16,550 | | | $ | 28,213 | | | $ | 91,970 | | | $ | 48,479 | | | $ | 29,931 | | | $ | 114,468 | | | $ | 130,872 | | | $ | 420 | | | $ | 460,903 | | | 86 [Index](#Index) Aging Analysis of Past Due Loan Receivables Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of December 31, 2025 and 2024 (in thousands): | | | | | | | | | | | | | | | | | | Total | | | | | | 30-59 Days | | | 60-89 Days | | | 90 Days | | | Total Past | | | | | | Loans | | | | December 31, 2025 | | Past Due | | | Past Due | | | Or Greater | | | Due | | | Current | | | Receivables | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | Mortgages | | $ | 2,737 | | | $ | 1,073 | | | $ | 1,675 | | | $ | 5,485 | | | $ | 283,179 | | | $ | 288,664 | | | | Home Equity | | | 146 | | | | 17 | | | | 181 | | | | 344 | | | | 51,964 | | | | 52,308 | | | | Commercial | | | 1,733 | | | | 2,695 | | | | 9,871 | | | | 14,299 | | | | 1,204,215 | | | | 1,218,514 | | | | Agricultural | | | 1,020 | | | | 158 | | | | 1,982 | | | | 3,160 | | | | 344,288 | | | | 347,448 | | | | Construction | | | - | | | | 233 | | | | 283 | | | | 516 | | | | 93,449 | | | | 93,965 | | | | Consumer | | | 161 | | | | 148 | | | | 785 | | | | 1,094 | | | | 87,116 | | | | 88,210 | | | | Other commercial loans | | | 256 | | | | 49 | | | | 7,500 | | | | 7,805 | | | | 171,361 | | | | 179,166 | | | | Other agricultural loans | | | 17 | | | | - | | | | 403 | | | | 420 | | | | 29,827 | | | | 30,247 | | | | State and political subdivision loans | | | - | | | | - | | | | - | | | | - | | | | 52,100 | | | | 52,100 | | | | Total | | $ | 6,070 | | | $ | 4,373 | | | $ | 22,680 | | | $ | 33,123 | | | $ | 2,317,499 | | | $ | 2,350,622 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans considered non-accrual | | $ | 396 | | | $ | 778 | | | $ | 22,451 | | | $ | 23,625 | | | $ | 2,977 | | | $ | 26,602 | | | | Loans still accruing | | | 5,674 | | | | 3,595 | | | | 229 | | | | 9,498 | | | | 2,314,522 | | | | 2,324,020 | | | | Total | | $ | 6,070 | | | $ | 4,373 | | | $ | 22,680 | | | $ | 33,123 | | | $ | 2,317,499 | | | $ | 2,350,622 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgages | | $ | 1,464 | | | $ | 227 | | | $ | 1,605 | | | $ | 3,296 | | | $ | 298,439 | | | $ | 301,735 | | | | Home Equity | | | 138 | | | | 170 | | | | 148 | | | | 456 | | | | 49,207 | | | | 49,663 | | | | Commercial | | | 2,782 | | | | 1,360 | | | | 6,528 | | | | 10,670 | | | | 1,110,765 | | | | 1,121,435 | | | | Agricultural | | | 1,569 | | | | 140 | | | | 1,845 | | | | 3,554 | | | | 324,168 | | | | 327,722 | | | | Construction | | | 1,119 | | | | - | | | | 283 | | | | 1,402 | | | | 162,924 | | | | 164,326 | | | | Consumer | | | 292 | | | | 20 | | | | 1,009 | | | | 1,321 | | | | 108,184 | | | | 109,505 | | | | Other commercial loans | | | 478 | | | | 282 | | | | 2,336 | | | | 3,096 | | | | 151,916 | | | | 155,012 | | | | Other agricultural loans | | | 403 | | | | - | | | | - | | | | 403 | | | | 29,259 | | | | 29,662 | | | | State and political | | | | | | | | | | | | | | | | | | | | | | | | | | | subdivision loans | | | - | | | | - | | | | - | | | | - | | | | 54,182 | | | | 54,182 | | | | Total | | $ | 8,245 | | | $ | 2,199 | | | $ | 13,754 | | | $ | 24,198 | | | $ | 2,289,044 | | | $ | 2,313,242 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans considered non-accrual | | $ | 2,428 | | | $ | - | | | $ | 13,478 | | | $ | 15,906 | | | $ | 9,795 | | | $ | 25,701 | | | | Loans still accruing | | | 5,817 | | | | 2,199 | | | | 276 | | | | 8,292 | | | | 2,279,249 | | | | 2,287,541 | | | | Total | | $ | 8,245 | | | $ | 2,199 | | | $ | 13,754 | | | $ | 24,198 | | | $ | 2,289,044 | | | $ | 2,313,242 | | | Modifications to Borrowers Experiencing Financial Difficulty Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. 87 [Index](#Index) The following table shows the amortized cost basis, by class of loans receivable, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during 2025, 2024 and 2023 (dollars in thousands): | | | For the year ended December 31, 2025 | | | | | | Number of loans | | | Amortized Cost Basis | | | % of Total Class of Financing Receivable | | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Real estate loans: | | | | | | | | | | Mortgages | | | 1 | | | $ | 108 | | | | 0.04 | % | | | Commercial | | | 7 | | | | 13,275 | | | | 1.09 | % | | | Other commercial loans | | | 1 | | | | 178 | | | | 0.10 | % | | | Total | | | 9 | | | $ | 13,561 | | | | | | | | | | | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Real estate loans: | | | | | | | | | | | | Commercial | | | 4 | | | $ | 1,369 | | | | 0.11 | % | | | Agricultural | | | 1 | | | | 219 | | | | 0.06 | % | | | Total | | | 5 | | | $ | 1,588 | | | | | | | | | | For the year ended December 31, 2024 | | | | | | Number of loans | | | Amortized Cost Basis | | | % of Total Class of Financing Receivable | | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Real estate loans: | | | | | | | | | | Mortgages | | | 1 | | | $ | 12 | | | | 0.00 | % | | | Total | | | 1 | | | $ | 12 | | | | | | | | | | | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Other commercial loans | | | 1 | | | $ | 149 | | | | 0.11 | % | | | Total | | | 1 | | | $ | 149 | | | | | | | | | | For the year ended December 31, 2023 | | | | | | Number of loans | | | Amortized Cost Basis | | | % of Total Class of Financing Receivable | | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Real estate loans: | | | | | | | | | | Mortgages | | | 1 | | | $ | 126 | | | | 0.04 | % | | | Commercial | | | 4 | | | | 1,142 | | | | 0.10 | % | | | Agricultural | | | 3 | | | | 688 | | | | 0.22 | % | | | Other commercial loans | | | 1 | | | | 610 | | | | 0.45 | % | | | Total | | | 9 | | | $ | 2,566 | | | | | | | | | | | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | Real estate loans: | | | | | | | | | | | | Mortgages | | | 1 | | | $ | 315 | | | | 0.10 | % | | | Commercial | | | 3 | | | | 261 | | | | 0.02 | % | | | Other commercial loans | | | 5 | | | | 1,108 | | | | 0.81 | % | | | Total | | | 9 | | | $ | 1,684 | | | | | | | The following table shows, by class of loans receivable, information regarding the financial effect on accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during 2025, 2024 and 2023: | For the year ended December 31, 2025 | | | Term Extension | | | Loan Type | | Number of loans | | Financial Effect | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | Real estate loans: | | | | | | | Mortgages | | | 1 | | Extended the loan maturity 5 years with a 30 year amortization | | | Commercial | | | 7 | | Extended the loan maturity one year | | | Other commercial loans | | | 1 | | Extended the loan maturity 10 years as termed out or line of credit | | | Total | | | 9 | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | Real estate loans: | | | | | | | | Commercial | | | 4 | | Extended the loan maturity 5 years with 3 loans having a 30 year amortization and one loan having a 20 year amortization | | | Agricultural | | | 1 | | Extended the loan maturity 5 years with amortization of 12 years | | | Total | | | 5 | | | | | For the year ended December 31, 2024 | | | Term Extension | | | Loan Type | | Number of loans | | Financial Effect | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | | Real estate loans: | | | | | | | Mortgages | | | 1 | | Extended the loan maturity 4 months | | | Total | | | 1 | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | | Other commercial loans | | | 1 | | Extended the loan maturity 120 months | | | Total | | | 1 | | | | | For the year ended December 31, 2023 | | | Term Extension | | | Loan Type | | Number of loans | | Financial Effect | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | | Real estate loans: | | | | | | | Mortgages | | | 1 | | Extended the loan maturity 4 months | | | Commercial | | | 4 | | Extended the weighted average loan maturity 4 months | | | Agricultural | | | 3 | | Extended the weighted average loan maturity 5 months | | | Other commercial loans | | | 1 | | Extended the loan maturity 60 months | | | Total | | | 9 | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | | Real estate loans: | | | | | | | | Mortgages | | | 1 | | Extended the loan maturing 10 months | | | Commercial | | | 3 | | Extended the weighted average loan maturity 5 months | | | Other commercial loans | | | 5 | | Extended the weighted average loan maturity 13 months | | | Total | | | 9 | | | | There were no accruing or nonaccrual modified loans to borrowers experiencing financial difficulty that were modified during 2025 for which there were payment defaults after the modification date for 2025. The following presents, by class of loans, the amortized cost and payment status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty at December 31, 2025 (in thousands): | | | | | | 30-89 Days | | | 90 Days | | | | | | | Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | Current | | | Past Due | | | Or Greater | | | Total | | | | Real estate loans: | | | | | | | | | | | | | | | Mortgages | | $ | 108 | | | $ | - | | | $ | - | | | $ | 108 | | | | Commercial | | | 13,275 | | | | - | | | | - | | | | 13,275 | | | | Other commercial loans | | | 178 | | | | - | | | | - | | | | 178 | | | | Total | | $ | 13,561 | | | $ | - | | | $ | - | | | $ | 13,561 | | | | | | | | | | | | | | | | | | | | | | | Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty | | | | | | | | | | | | | | | | | | | Real estate loans: | | | | | | | | | | | | | | | | | | | Commercial | | $ | 1,369 | | | $ | - | | | $ | - | | | $ | 1,369 | | | | Agricultural | | | 219 | | | | - | | | | - | | | | 219 | | | | Total | | $ | 1,588 | | | $ | - | | | $ | - | | | $ | 1,588 | | | 88 [Index](#Index) Foreclosed Assets Held For Sale Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of December 31, 2025 and 2024, included with other assets are $2,358,000 and $2,635,000, respectively, of foreclosed assets. As of December 31, 2025, there are no consumer residential mortgages included within the foreclosed assets. As of December 31, 2025, the Company has initiated formal foreclosure proceedings on $617,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets. 6. PREMISES & EQUIPMENT Premises and equipment at December 31, 2025 and 2024 are summarized as follows (in thousands): | | | December 31, | | | | | | 2025 | | | 2024 | | | | Land | | $ | 5,839 | | | $ | 5,839 | | | | Buildings | | | 22,970 | | | | 23,012 | | | | Furniture, fixtures and equipment | | | 9,439 | | | | 9,047 | | | | Construction in process | | | 1,999 | | | | 2,172 | | | | | | | 40,247 | | | | 40,070 | | | | Less: accumulated depreciation | | | 19,249 | | | | 18,675 | | | | Premises and equipment, net | | $ | 20,998 | | | $ | 21,395 | | | Depreciation expense amounted to $1,625,000, $1,242,000 and $1,147,000 for 2025, 2024 and 2023, respectively. 7. GOODWILL AND OTHER INTANGIBLE ASSETS The following table provides the gross carrying value and accumulated amortization of intangible assets as of December 31, 2025 and 2024 (in thousands): | | | December 31, 2025 | | | December 31, 2024 | | | | | | Gross carrying value | | | Accumulated amortization | | | Net carrying value | | | Gross carrying value | | | Accumulated amortization | | | Net carrying value | | | | Amortized intangible assets (1): | | | | | | | | | | | | | | | | | | | | | MSRs | | $ | 2,362 | | | $ | (1,793 | ) | | $ | 569 | | | $ | 2,478 | | | $ | (1,717 | ) | | $ | 761 | | | | Core deposit intangibles | | | 3,072 | | | | (1,420 | ) | | | 1,652 | | | | 4,713 | | | | (2,582 | ) | | | 2,131 | | | | Total amortized intangible assets | | $ | 5,434 | | | $ | (3,213 | ) | | $ | 2,221 | | | $ | 7,191 | | | $ | (4,299 | ) | | $ | 2,892 | | | | Unamortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Goodwill | | $ | 85,758 | | | | | | | | | | | $ | 85,758 | | | | | | | | | | | (1) Excludes fully amortized intangible assets The following table provides the current year and estimated future amortization expense for the next five years of amortized intangible assets (in thousands). We based our projections of amortization expense shown below on existing asset balances at December 31, 2025. Future amortization expense may vary from these projections: | | | MSRs | | | Core deposit intangibles | | | Total | | | | Year ended December 31, 2025 | | $ | 266 | | | $ | 478 | | | $ | 744 | | | | Estimate for year ending December 31, | | | | | | | | | | | | | | | 2026 | | | 205 | | | | 395 | | | | 600 | | | | 2027 | | | 150 | | | | 339 | | | | 489 | | | | 2028 | | | 103 | | | | 284 | | | | 387 | | | | 2029 | | | 67 | | | | 230 | | | | 297 | | | | 2030 | | | 33 | | | | 177 | | | | 210 | | | | 2031 and thereafter | | | 11 | | | | 227 | | | | 238 | | | | Total | | | 569 | | | | 1,652 | | | | 2,221 | | | 89 [Index](#Index) 8. FEDERAL HOME LOAN BANK STOCK As a member of the FHLB of Pittsburgh, the Bank is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of December 31, 2025, and 2024, included in other assets, the Bank held $16,745,000 and $14,524,000, respectively, of FHLB stock. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated by management. The stocks value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) A significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. Management considered that the FHLBs regulatory capital ratios are strong, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend. 9. DEPOSITS The following table shows the breakdown of deposits as of December 31, 2025 and 2024, by deposit type (in thousands): | | | 2025 | | | 2024 | | | | Non-interest-bearing deposits | | $ | 516,657 | | | $ | 532,776 | | | | Interest bearing demand deposits | | | 25,576 | | | | 18,004 | | | | NOW accounts | | | 593,825 | | | | 581,673 | | | | Savings deposits | | | 286,554 | | | | 292,918 | | | | Money market deposit accounts | | | 480,509 | | | | 434,856 | | | | Certificates of deposit | | | 473,858 | | | | 521,801 | | | | Total | | $ | 2,376,979 | | | $ | 2,382,028 | | | Certificates of deposit of $250,000 or more amounted to $138,366,000 and $191,015,000 at December 31, 2025 and 2024, respectively. Brokered deposits totaled $60,000,000 and $93,055,000 as of December 31, 2025 and 2024, respectively. The following are maturities of certificates of deposit as of December 31, 2025 (in thousands): | 2026 | | $ | 366,083 | | | | 2027 | | | 56,357 | | | | 2028 | | | 26,605 | | | | 2029 | | | 11,369 | | | | 2030 | | | 8,087 | | | | Thereafter | | | 5,357 | | | | Total certificates of deposit | | $ | 473,858 | | | 10. BORROWED FUNDS AND REPURCHASE AGREEMENTS The following table shows the breakdown of borrowed funds as of December 31, 2025 and 2024 (dollars in thousands): | | | | | | | | | | | | Weighted average interest rate: | | | | 2025 | | Balance at December 31 | | | Highest balance at any month-end | | | Average balance | | | Paid during the year | | | As of year-end | | | | Securities Sold Under Agreements to Repurchases (a) | | $ | 15,497 | | | $ | 18,997 | | | $ | 16,891 | | | | 3.89 | % | | | 3.37 | % | | | FHLB Advances(b) | | | 160,483 | | | | 236,253 | | | | 193,712 | | | | 4.64 | % | | | 3.93 | % | | | Bank Federal Funds Lines I | | | - | | | | - | | | | 1 | | | | 4.63 | % | | | 0.00 | % | | | FRB BIC Line (d) | | | - | | | | - | | | | 91 | | | | 4.48 | % | | | 0.00 | % | | | Line of Credit I | | | - | | | | 7,072 | | | | 2,012 | | | | 8.56 | % | | | 0.00 | % | | | Other Secured Borrowings (g) | | | 3,320 | | | | 6,540 | | | | 4,705 | | | | 4.25 | % | | | 3.64 | % | | | Subordinated Debt (h) | | | 19,648 | | | | 19,648 | | | | 19,447 | | | | 6.29 | % | | | 6.22 | % | | | Notes Payable (i) | | | 7,500 | | | | 7,500 | | | | 7,500 | | | | 3.57 | % | | | 3.57 | % | | | Term Loans (j) | | | 103,000 | | | | 134,536 | | | | 81,667 | | | | 3.19 | % | | | 3.91 | % | | | Total Borrowed Funds | | $ | 309,448 | | | $ | 430,546 | | | $ | 326,026 | | | | 4.33 | % | | | 4.03 | % | | 90 [Index](#Index) | | | | | | | | | | | | Weighted average interest rate: | | | | 2024 | | Balance at December 31 | | | Highest balance at any month-end | | | Average balance | | | Paid during the year | | | As of year-end | | | | Securities Sold Under Agreements to Repurchases (a) | | $ | 17,338 | | | $ | 17,921 | | | $ | 16,768 | | | | 4.79 | % | | | 4.06 | % | | | FHLB Advances(b) | | | 135,144 | | | | 199,789 | | | | 147,727 | | | | 5.64 | % | | | 4.71 | % | | | Bank Federal Funds Lines I | | | - | | | | - | | | | 1 | | | | 5.66 | % | | | 0.00 | % | | | FRB BIC Line (d) | | | - | | | | - | | | | 99 | | | | 5.50 | % | | | 0.00 | % | | | Line of Credit I | | | 7,572 | | | | 12,572 | | | | 10,467 | | | | 8.71 | % | | | 7.76 | % | | | FRB Term Funding Program (f) | | | - | | | | 20,000 | | | | 15,137 | | | | 4.85 | % | | | 0.00 | % | | | Other Secured Borrowings (g) | | | 6,540 | | | | 12,060 | | | | 9,281 | | | | 5.24 | % | | | 4.33 | % | | | Subordinated Debt (h) | | | 19,277 | | | | 19,276 | | | | 19,090 | | | | 6.25 | % | | | 6.11 | % | | | Notes Payable (i) | | | 7,500 | | | | 7,500 | | | | 7,500 | | | | 3.65 | % | | | 3.65 | % | | | Term Loans (j) | | | 104,350 | | | | 109,170 | | | | 97,339 | | | | 2.88 | % | | | 4.45 | % | | | Total Borrowed Funds | | $ | 297,721 | | | $ | 398,288 | | | $ | 323,409 | | | | 4.80 | % | | | 4.73 | % | | (a) We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The collateral pledged on the repurchase agreements by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 is presented in the following tables (in thousands). | | | Remaining Contractual Maturity of the Agreements | | | | | | Overnight and | | | Up to | | | | | | Greater than | | | | | | | 2025 | | Continuous | | | 30 Days | | | 30 90 Days | | | 90 days | | | Total | | | | Repurchase Agreements: | | | | | | | | | | | | | | | | | | U.S. agency securities | | $ | 21,977 | | | $ | - | | | $ | - | | | $ | - | | | $ | 21,977 | | | | Total carrying value of collateral pledged | | $ | 21,977 | | | $ | - | | | $ | - | | | $ | - | | | $ | 21,977 | | | | Total liability recognized for repurchase agreements | | | | | | | | | | | | | | | | | | $ | 15,497 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2024 | | | | | | | | | | | | | | | | | | | | | | | Repurchase Agreements: | | | | | | | | | | | | | | | | | | | | | | | U.S. agency securities | | $ | 21,364 | | | $ | - | | | $ | - | | | $ | - | | | $ | 21,364 | | | | Total carrying value of collateral pledged | | $ | 21,364 | | | $ | - | | | $ | - | | | $ | - | | | $ | 21,364 | | | | Total liability recognized for repurchase agreements | | | | | | | | | | | | | | | | | | $ | 17,338 | | | (b) FHLB Advances consist of an Open RepoPlus agreement with the FHLB of Pittsburgh. FHLB Open RepoPlus advances are short-term borrowings that bear interest based on the FHLB discount rate or Federal Funds rate, whichever is higher. The Company has a borrowing limit of $1,115,189,000, inclusive of any outstanding advances and letters of credit. FHLB advances are secured by a blanket security agreement that includes the Companys FHLB stock, as well as certain investment and mortgage-backed securities held in safekeeping at the FHLB and certain residential and commercial mortgage loans. A portion of these advances, $28,000,000, are subject to interest rate swap arrangements as of December 31, 2025. See Note 18 for additional information. (c) The federal funds lines consist of unsecured lines from two third party banks at market rates. The Bank has a borrowing limit totaling $34,000,000, inclusive of any outstanding balances. No specific collateral is required to be pledged for these borrowings. (d) The Federal Reserve Bank Borrower in Custody (FRB BIC) Line consists of a borrower in custody agreement opened in January 2010 with the Federal Reserve Bank of Philadelphia secured by municipal loans maintained in the Companys possession. As of December 31, 2025, and 2024, the Company has a borrowing limit of $11,798,000 and $14,353,000, respectively, inclusive of any outstanding advances. The approximate carrying value of the municipal loan collateral was $21,827,000 and $25,750,000 as of December 31, 2025 and 2024, respectively. (e) The Company renewed a $15.0 million revolving line of credit in December 2025 with an unaffiliated bank with a maturity date of January 1, 2027, subject to certain covenants. The line is subject to an unused fee on the unborrowed portion of the Line of Credit on a quarterly basis, equal to 0.25% of the unused amount of the Line of Credit, calculated on a pro-rata basis, payable within thirty (30)-days after the end of each calendar quarter. Interest on outstanding borrowings is payable at 3 month term SOFR plus 300 bps. No specific collateral is required to be pledged for these borrowings. 91 [Index](#Index) (f) The Federal Reserves Bank Term Funding Program (BTFP) consisted of a loan agreement opened in the second quarter of 2023 with the Federal Reserve Bank of Philadelphia secured by US treasury and SBA securities. The BTFP offered loans of up to one year in length. The loan was repaid and closed in the fourth quarter of 2024. (g) The Company entered into an agreement with a counterparty that provides for the Company the right to obtain collateral from the counterparty depending on the value of the underlying derivative instrument. The value of the collateral obtained can fluctuate daily. A market interest rate is required to be paid on any collateral held. As of December 31, 2025, the Company is holding $3,320,000 of collateral, which is included in cash and cash equivalents on the Consolidated Balance sheet. (h) In April 2021, the Company issued $10.0 million of fixed to floating rate subordinated notes that mature on April 16, 2031, unless redeemed earlier. The notes bear interest at 4% per annum through April 16, 2026 and subsequently pay interest at the 90-day average secured overnight financing rate, determined on the determination date of the applicable interest period, plus 323 basis points. The Company may redeem the notes, in whole or in part, on or after April 16, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve System (the Federal Reserve). Issuance costs associated with the notes totaled $131,000 and were capitalized and will be amortized over the life of the note on a straight-line basis, which approximates the effective yield method. As of December 31, 2025, the net unamortized issuance costs totaled $69,000. As part of the HVBC acquisition, the Company acquired a subordinated note issued by HVBC with a par value of $10.0 million and a fair market value of $8,873,000 on the date of acquisition. This note has a maturity date of May 28, 2031, and has a coupon rate of 4.50% per annum through May 28, 2026. Thereafter, the note rate is adjustable and resets quarterly based on the then current 90-day average Secured Overnight Financing Rate (SOFR) plus 325 basis points for U.S. dollar denominated loans as published by the Federal Reserve Bank of New York. The Company may, at its option, at any time on an interest payment date, on or after May 28, 2026, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption. The carrying value of the note as of December 31, 2025 and 2024 was $9,717,000 and $9,358,000, respectively. (i) In December 2003, the Company formed a special purpose entity (Entity) to issue $7,500,000 of floating rate obligated mandatory redeemable trust preferred securities as part of a pooled offering. The rate was determined quarterly and floated based on the 3-month SOFR plus 2.80 percent. The Entity may redeem them, in whole or in part, at face value after December 17, 2008, and on a quarterly basis thereafter. The Company borrowed the proceeds of the issuance from the Entity in December 2003 in the form of a $7,500,000 note payable. Debt issue costs of $75,000 have been capitalized and fully amortized as of December 31, 2008. Under current accounting rules, the Companys minority interest in the Entity was recorded at the initial investment amount and is included in the other assets section of the balance sheet. The Entity is not consolidated as part of the Companys consolidated financial statements. The $7,500,000 note payable is subject to an interest rate swap arrangement. See Note 18 for additional information. (j) Term Loans consist of separate loans with the FHLB of Pittsburgh as follows (dollars in thousands): | | | | | December 31, | | | December 31, | | | | Interest Rate | | Maturity | | 2025 | | | 2024 | | | | Fixed: | | | | | | | | | | | | 4.14% | | January 2, 2026 | | | 10,000 | | | | - | | | | | 4.15% | | February 13, 2026 | | | 18,000 | | | | - | | | | | 3.82% | | January 30, 2026 | | | 75,000 | | | | - | | | | | 4.92% | | January 2, 2025 | | | - | | | | 25,000 | | | | | 4.76% | | February 14, 2025 | | | - | | | | 18,000 | | | | | 5.05% | | January 6, 2025 | | | - | | | | 20,000 | | | | | 4.47% | | May 12, 2025 | | | - | | | | 10,000 | | | | | 5.03% | | July 7, 2025 | | | - | | | | 26,350 | | | | | 4.32% | | November 12,2025 | | | - | | | | 5,000 | | | | Total term loans | | $ | 103,000 | | | $ | 104,350 | | | 92 [Index](#Index) The following are maturities of borrowed funds as of December 31, 2025 (in thousands): | 2026 | | $ | 282,300 | | | | 2027 | | | - | | | | 2028 | | | - | | | | 2029 | | | - | | | | 2030 | | | - | | | | Thereafter | | | 27,148 | | | | Total borrowed funds | | $ | 309,448 | | | 11. EMPLOYEE BENEFIT PLANS Noncontributory Defined Benefit Pension Plan The Bank sponsors a trusteed, noncontributory defined benefit pension plan covering substantially all employees and officers hired prior to January 1, 2007. The pension plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the pension plan. The Banks funding policy is to make annual contributions, if needed, based upon the funding formula developed by the pension plans actuary. The Bank did not make any contributions to the pension plans in 2025, 2024 or 2023. In lieu of the pension plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employees base compensation. The contribution amount is placed in a separate account within the 401(k) plan and is subject to a vesting requirement. Contributions by the Company totaled $618,000, $539,000 and $354,000 for 2025, 2024 and 2023, respectively. The following table sets forth the obligation and funded status of the pension plan as of December 31 (in thousands): | | | 2025 | | | 2024 | | | | Change in benefit obligation | | | | | | | | | Benefit obligation at beginning of year | | $ | 8,871 | | | $ | 9,556 | | | | Service cost | | | 274 | | | | 329 | | | | Interest cost | | | 452 | | | | 422 | | | | Actuarial (Gain) / Loss | | | 307 | | | | (395 | ) | | | Settlement gain | | | - | | | | (18 | ) | | | Benefits paid | | | (944 | ) | | | (1,023 | ) | | | Benefit obligation at end of year | | | 8,960 | | | | 8,871 | | | | Change in plan assets | | | | | | | | | | | Fair value of plan assets at beginning of year | | | 11,726 | | | | 11,662 | | | | Actual return (loss) on plan assets | | | 1,110 | | | | 1,087 | | | | Employer contribution | | | - | | | | - | | | | Plan expenses | | | - | | | | - | | | | Benefits paid | | | (944 | ) | | | (1,023 | ) | | | Fair value of plan assets at end of year | | | 11,892 | | | | 11,726 | | | | Funded status | | $ | 2,932 | | | $ | 2,855 | | | Amounts not yet recognized as a component of net periodic pension cost as of December 31 (in thousands): | Amounts recognized in accumulated other comprehensive loss consists of: | | 2025 | | | 2024 | | | | Net loss | | $ | 376 | | | $ | 385 | | | | Prior service cost | | | - | | | | - | | | | Total | | $ | 376 | | | $ | 385 | | | The accumulated benefit obligation for the defined benefit pension plan was $8,960,000 and $8,871,000 at December 31, 2025 and 2024 respectively. 93 [Index](#Index) The components of net periodic benefit costs for the years ended December 31 are as follows (in thousands): | | | 2025 | | | 2024 | | | 2023 | | | | Service cost | | $ | 274 | | | $ | 329 | | | $ | 306 | | | | Interest cost | | | 452 | | | | 422 | | | | 433 | | | | Return on plan assets | | | (794 | ) | | | (791 | ) | | | (769 | ) | | | Settlement loss | | | - | | | | 104 | | | | - | | | | Net amortization and deferral | | | - | | | | 33 | | | | 41 | | | | Net periodic benefit (income) cost | | $ | (68 | ) | | $ | 97 | | | $ | 11 | | | The Company does not expect to amortize any estimated net loss from accumulated other comprehensive loss into the net periodic benefit cost (income) in 2026. The weighted-average assumptions used to determine benefit obligations at December 31, 2025, 2024 and 2023 is summarized in the following table. The change in the discount rate is the primary driver of the actuarial loss that occurred in 2025 of $307,000. | | | 2025 | | | 2024 | | | 2023 | | | | Discount rate FCCB Plan | | | 5.00 | % | | | 5.25 | % | | | 4.50 | % | | | Rate of compensation increase | | | 3.00 | % | | | 3.00 | % | | | 3.00 | % | | The weighted-average assumptions used to determine net periodic benefit cost (income) for the year ended December 31, 2025, 2024 and 2023 is summarized in the following table. | | | 2025 | | | 2024 | | | 2023 | | | | Discount rate FCCB Plan | | | 5.25 | % | | | 4.50 | % | | | 4.75 | % | | | Expected long-term return on plan assets FCCB plan | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % | | | Rate of compensation increase | | | 3.00 | % | | | 3.00 | % | | | 3.00 | % | | The long-term rate of return on plan assets gives consideration to returns currently being earned on plan assets as well as future rates expected to be earned. The investment objective is to maximize total return consistent with the interests of the participants and beneficiaries, and prudent investment management. The allocation of the pension plan assets is determined on the basis of sound economic principles and is continually reviewed in light of changes in market conditions. Asset allocation favors equity securities, with a target allocation of 50-70%. The target allocation for debt securities is 30-50%. At December 31, 2025, the pension plan had a sufficient cash and money market position in order to re-allocate the equity portfolio for diversification purposes and reduce risk in the total portfolio. The following table sets forth by level, within the fair value hierarchy as defined in footnote 20, the Plans assets at fair value as of December 31, 2025 and 2024 (dollars in thousands): | 2025 | | Level I | | | Level II | | | Level III | | | Total | | | Allocation | | | | Cash and cash equivalents | | $ | 362 | | | $ | - | | | $ | - | | | $ | 362 | | | | 3.0 | % | | | Equity Securities | | | 671 | | | | - | | | | - | | | | 671 | | | | 5.6 | % | | | Mutual Funds and ETFs | | | 7,804 | | | | - | | | | - | | | | 7,804 | | | | 65.6 | % | | | Corporate Bonds | | | - | | | | 3,055 | | | | - | | | | 3,055 | | | | 25.8 | % | | | Total | | $ | 8,837 | | | $ | 3,055 | | | $ | - | | | $ | 11,892 | | | | 100.0 | % | | | 2024 | | Level I | | | Level II | | | Level III | | | Total | | | Allocation | | | | Cash and cash equivalents | | $ | 312 | | | $ | - | | | $ | - | | | $ | 312 | | | | 2.7 | % | | | Equity Securities | | | 5,902 | | | | - | | | | - | | | | 5,902 | | | | 50.3 | % | | | Mutual Funds and ETFs | | | 3,025 | | | | - | | | | - | | | | 3,025 | | | | 25.8 | % | | | Corporate Bonds | | | - | | | | 2,487 | | | | - | | | | 2,487 | | | | 21.2 | % | | | Total | | $ | 9,239 | | | $ | 2,487 | | | $ | - | | | $ | 11,726 | | | | 100.0 | % | | Equity securities include the Companys common stock in the amounts of $671,000 (5.6% of total plan assets) and $737,000 (6.3% of total plan assets) at December 31, 2025 and 2024, respectively. 94 [Index](#Index) The Bank does not expect to make a contribution to its pension plan in 2026. Expected future benefit payments that the Bank estimates from its pension plan are as follows (in thousands): | 2026 | | $ | 1,141 | | | | 2027 | | | 956 | | | | 2028 | | | 684 | | | | 2029 | | | 608 | | | | 2030 | | | 274 | | | | 2031- 2035 | | | 5,911 | | | Defined Contribution Plan The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k). Under the plan, the Company also makes required contributions on behalf of the eligible employees. The Companys contributions vest immediately. Contributions by the Company totaled $903,000, $898,000 and $769,000 for 2025, 2024 and 2023, respectively. Directors Deferred Compensation Plan The Companys directors may elect to defer all or portions of their fees until their retirement or termination from service. Amounts deferred under the deferred compensation plan earn interest based upon the highest current rate offered to certificate of deposit customers. Amounts deferred under the deferred compensation plan are not guaranteed and represent a general liability of the Company. As of December 31, 2025, and 2024, an obligation of $648,000 and $626,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $26,000, $30,000 and $27,000 for the years ended December 31, 2025 2024 and 2023, respectively. Restricted Stock Plan The Company maintains a Restricted Stock Plan (the Plan) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Companys common stock and may be subject to certain vesting requirements including in the case of employees, continuous employment or service with the Company. In April 2016, the Companys stockholders authorized a total of 150,000 shares of the Companys common stock to be made available under the Plan.As of December 31, 2025, 99,781 shares remain available to be issued under the Plan. The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation. The following table details the vesting, awarding and forfeiting of unearned restricted shares during 2025: | | | 2025 | | | | | | | | | Weighted | | | | | | | | | Average | | | | | | Shares | | | Market Price | | | | Outstanding, beginning of year | | | 10,927 | | | $ | 53.81 | | | | Granted | | | 4,431 | | | | 57.28 | | | | Forfeited | | | (1,162 | ) | | | 49.83 | | | | Vested | | | (5,682 | ) | | | 56.23 | | | | Outstanding, end of year | | | 8,514 | | | $ | 54.54 | | | Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period. Compensation expense related to restricted stock was $291,000, $264,000 and $239,000 for the years ended December 31, 2025, 2024 and 2023, respectively. The per share weighted-average grant-date fair value of restricted shares granted during 2025, 2024 and 2023 was $57.28, $45.59 and $77.77, respectively. At December 31, 2025, the total compensation cost related to nonvested awards that has not yet been recognized was $464,000, which is expected to be recognized over the next 3 years. 95 [Index](#Index) Supplemental Executive Retirement Plan The Company maintains a non-qualified supplemental executive retirement plan (SERP) for certain executives to compensate those executive participants in the Companys noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At December 31, 2025 and 2024, an obligation of $2,367,000 and $2,131,000, respectively, for the SERP was included in other liabilities in the Consolidated Balance Sheet. Expenses related to the SERP totaled $278,000, $124,000 and $233,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Benefit payments for 2025, 2024 and 2023 were $42,000, $889,000 and $42,000, respectively. Deferred Compensation Plan In 2018, the Company initiated a non-qualified executive deferred compensation plan for eligible employees designated by the Board of Directors. At December 31, 2025 and 2024, an obligation of $2,037,000 and $1,757,000, respectively, was included in other liabilities for the deferred compensation plan in the Consolidated Balance Sheet. Expenses related to the deferred compensation plan totaled $302,000, $254,000 and $268,000 for the years ended December 31, 2025, 2024 and 2023, respectively. There were no benefit payments in 2025, 2024 and 2023. Benefit payments related to the deferred compensation plan totaled $22,000 for the year ended December 31, 2025. There were no benefit payments made in 2024 or 2023. Employee Stock Purchase Plan The Company maintains an employee stock purchase plan (ESPP) in which most employees are eligible to participate. Employees in the United States who choose to participate are granted an opportunity to purchase common stock at 95 percent of market value on the last day of the quarterly purchase period. The ESPP authorizes the issuance, and the purchase by employees, of up to 100,000 shares of common stock through payroll deductions. No employee is allowed to buy more than $25,000 of common stock in any year, based on the market value of the common stock at the beginning of the purchase period. Employees purchased 1,157 shares at a weighted average price of $59.16 under the ESPP during 2025. During 2024, employees purchased 234 shares at a weighted average price of $70.61 under the ESPP. At December 31, 2025, 98,609 shares remained available to be issued through the ESPP. Salary Continuation Plan The Company maintains a salary continuation plan for certain employees acquired through the acquisition of FNB. At December 31, 2025 and 2024 an obligation of $471,000 and $525,000 respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to the salary continuation plan totaled $37,000, $41,000 and $44,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Benefit payments related to the salary continuation plan totaled $91,000, $91,000 and $87,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Continuation of Life Insurance Plan The Company has promised a continuation of life insurance coverage to certain persons post-retirement. GAAP requires the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the persons term of service. The estimated present value of future benefits to be paid totaled $529,000 and $514,000 at December 31, 2025 and 2024, respectively, which is included in other liabilities in the Consolidated Balance Sheet. (Benefits)/Expenses for the plan totaled $51,000, ($96,000) and ($50,000) for the years ended December 31, 2025, 2024 and 2023, respectively. 12. INCOME TAXES The provision for income taxes consists of the following (in thousands): | | | Year Ended December 31, | | | | | | 2025 | | | 2024 | | | 2023 | | | | Currently payable | | $ | 7,869 | | | $ | 4,294 | | | $ | 3,169 | | | | Deferred | | | 797 | | | | 1,771 | | | | 595 | | | | Provision for income taxes | | $ | 8,666 | | | $ | 6,065 | | | $ | 3,764 | | | 96 [Index](#Index) The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2025 and 2024, respectively (in thousands): | | | 2025 | | | 2024 | | | | Deferred tax assets: | | | | | | | | | Allowance for credit losses | | $ | 5,439 | | | $ | 5,449 | | | | Deferred compensation | | | 704 | | | | 648 | | | | Allowance for losses on available-for-sale securities | | | 112 | | | | 130 | | | | Interest on non-accrual loans | | | 1,886 | | | | 1,588 | | | | Incentive plan accruals | | | 684 | | | | 682 | | | | Other real estate owned | | | 16 | | | | 16 | | | | Unrealized losses on available-for-sale securities | | | 3,733 | | | | 7,061 | | | | Low income housing tax credits | | | - | | | | 15 | | | | NOL carry forward | | | 898 | | | | 1,458 | | | | Non-PCD loan interest rate | | | 3,575 | | | | 4,200 | | | | Right of use asset | | | 2,263 | | | | 2,120 | | | | Accrued vacation | | | 301 | | | | 308 | | | | Other | | | 429 | | | | 334 | | | | Total | | $ | 20,040 | | | $ | 24,009 | | | | Deferred tax liabilities: | | | | | | | | | | | Premises and equipment | | $ | (926 | ) | | $ | (745 | ) | | | Investment securities accretion | | | (652 | ) | | | (611 | ) | | | Loan fees and costs | | | (1,056 | ) | | | (933 | ) | | | Goodwill and core deposit intangibles | | | (2,736 | ) | | | (2,804 | ) | | | Pension and other retirement obligation | | | (119 | ) | | | (152 | ) | | | Low income housing tax credits | | | (17 | ) | | | - | | | | Mortgage servicing rights | | | (120 | ) | | | (160 | ) | | | Unrealized gains on equity securities | | | (21 | ) | | | (3 | ) | | | Unrealized gains on interest rate swap | | | (522 | ) | | | (890 | ) | | | Borrowings fair value adjustment | | | (59 | ) | | | (254 | ) | | | Right of use asset | | | (2,226 | ) | | | (2,093 | ) | | | Other | | | (146 | ) | | | (165 | ) | | | Total | | | (8,600 | ) | | | (8,810 | ) | | | Deferred tax (liability) asset, net | | $ | 11,440 | | | $ | 15,199 | | | No valuation allowance was established at December 31, 2025 and 2024, due to the certain tax strategies and anticipated future taxable income as evidenced by the Companys expected earnings potential. The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands): | | | Year Ended December 31, | | | | | | 2025 | | | 2024 | | | 2023 | | | | Provision at statutory rates on pre-tax income | | $ | 9,500 | | | | 21.0 | % | | $ | 7,115 | | | | 21.0 | % | | $ | 4,531 | | | | 21.0 | % | | | Effect of tax-exempt income | | | (934 | ) | | | -2.1 | % | | | (854 | ) | | | -2.5 | % | | | (895 | ) | | | -4.1 | % | | | State and local income taxes, net of federal income tax benefit (a) | | | 150 | | | | 0.3 | % | | | 172 | | | | 0.5 | % | | | 62 | | | | 0.3 | % | | | Low income housing tax credits | | | (820 | ) | | | -1.8 | % | | | (688 | ) | | | -2.1 | % | | | (585 | ) | | | -2.8 | % | | | Low income housing expense | | | 755 | | | | 1.7 | % | | | 339 | | | | 1.0 | % | | | 399 | | | | 1.8 | % | | | Bank owned life insurance | | | (301 | ) | | | -0.7 | % | | | (354 | ) | | | -1.0 | % | | | (263 | ) | | | -1.2 | % | | | Nondeductible interest | | | 290 | | | | 0.7 | % | | | 308 | | | | 0.9 | % | | | 251 | | | | 1.2 | % | | | Nondeductible merger and acquisition expenses | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 247 | | | | 1.1 | % | | | Other items | | | 26 | | | | 0.1 | % | | | 27 | | | | 0.1 | % | | | 17 | | | | 0.1 | % | | | Provision for income taxes | | $ | 8,666 | | | | 19.2 | % | | $ | 6,065 | | | | 17.9 | % | | $ | 3,764 | | | | 17.4 | % | | | | (a) | Taxes in New York and New Jersey make up the majority of the effect of the state and local tax category. | | Income taxes paid for 2025, 2024 and 2023 were $6,590,000, $2,826,000 and $5,130,000, respectively. The following table provides a breakdown of the payments by taxing entity as well as the 5% threshold used to determine whether further disaggregation of information is required (dollars in thousands): | Taxes Paid | | 2025 | | | 2024 | | | 2023 | | | | U.S. Federal Taxes | | $ | 6,500 | | | $ | 2,500 | | | $ | 5,100 | | | | State and Local Taxes | | | | | | | | | | | | | | | New Jersey | | | 35 | | | | 320 | | | | - | | | | New York | | | 55 | | | | 6 | | | | 30 | | | | Total income taxes paid | | $ | 6,590 | | | $ | 2,826 | | | $ | 5,130 | | | | Threshold % | | | 5 | % | | | 5 | % | | | 5 | % | | | Threshold amount | | $ | 330 | | | $ | 141 | | | $ | 257 | | | 97 [Index](#Index) The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Companys federal and state income tax returns for taxable years through 2021 have been closed for purposes of examination by the federal and state taxing authorities. 13. AFFORDABLE HOUSING PROJECTS TAX CREDIT PARTNERSHIPS The Company makes equity investments in various limited partnerships or limited liability companies that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of these entities include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity. The Company is a limited partner or non-managing member in each LIHTC limited partnership or limited liability company, respectively. Each of these entities is managed by an unrelated third-party general partner or managing member who exercises significant control over the affairs of the entity. The general partner or managing member has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership or managing member of a limited liability company. Duties entrusted to the general partner or managing member include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to the limited partner(s) or non-managing member(s) relating to the approval of certain transactions, the limited partner(s) and non-managing members may not participate in the operation, management, or control of the entitys business, transact any business in the entitys name or have any power to sign documents for or otherwise bind the entity. In addition, the general partner or managing member may only be removed by the limited partner(s) or managing member(s) in the event of a failure to comply with the terms of the agreement or negligence in performing its duties. The general partner or managing member of each entity has both the power to direct the activities which most significantly affect the performance of each entity and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC entity. The Company uses the effective yield method to account for its pre-2015 investments in these entities. Beginning January 1, 2015, any new investments that meet the requirements of the proportional amortization method are recognized using the proportional amortization method. The Companys net affordable housing tax credit investments were $7,139,000 and $7,915,000 as of December 31, 2025 and 2024, respectively, and are included in other assets in the consolidated balance sheet. The Companys net affordable housing tax credit unfunded commitments were $1,539,000 and $5,997,000 as of December 31, 2025 and 2024, respectively, and are included in other liabilities in the consolidated balance sheet. All partnerships entered into prior to 2015 were fully amortized as of December 31, 2022. Unfunded Commitments As of December 31, 2025, the expected payments for unfunded affordable housing commitments were as follows (in thousands): | 2026 | | $ | 605 | | | | 2027 | | | 491 | | | | 2028 | | | 296 | | | | 2029 | | | 12 | | | | 2030 | | | 14 | | | | Thereafter | | | 121 | | | | | | $ | 1,539 | | | 98 [Index](#Index) The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the years ended December 31, 2025, December 31, 2024, and December 31, 2023 (in thousands). | | | 2025 | | | 2024 | | | 2023 | | | | Proportional Amortization Method | | | | | | | | | | | | Tax credits and other tax benefits recognized | | $ | 971 | | | $ | 976 | | | $ | 948 | | | | Amortization Expense in Provision for Income Taxes | | | 776 | | | | 627 | | | | 762 | | | There were no impairment losses related to LIHTC investments for the years ended December 31, 2025, December 31, 2024, and December 31, 2023. 14. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss, net of tax, as of December 31, were as follows (in thousands): | | | 2025 | | | 2024 | | | | Net unrealized gain on securities available for sale | | $ | (17,778 | ) | | $ | (33,624 | ) | | | Tax effect | | | 3,733 | | | | 7,060 | | | | Net -of-tax amount | | | (14,045 | ) | | | (26,564 | ) | | | Unrealized loss on interest rate swap | | | 2,486 | | | | 4,236 | | | | Tax effect | | | 521 | | | | 889 | | | | Net -of-tax amount | | | 1,965 | | | | 3,347 | | | | Unrecognized pension costs | | | (376 | ) | | | (385 | ) | | | Tax effect | | | 79 | | | | 81 | | | | Net -of-tax amount | | | (297 | ) | | | (304 | ) | | | | | | | | | | | | | | Total accumulated other comprehensive income | | $ | (12,377 | ) | | $ | (23,521 | ) | | The following tables present the changes in accumulated other comprehensive loss by component net of tax for the years ended December 31, 2025, 2024 and 2023 (in thousands): | | | Unrealized gain (loss) on available for sale securities (a) | | | Unrealized gain (loss) on interest rate swap (a) | | | Defined Benefit Pension Items (a) | | | Total | | | | Balance as of December 31, 2022 | | $ | (37,514 | ) | | $ | 5,429 | | | $ | (1,056 | ) | | $ | (33,141 | ) | | | Other comprehensive income (loss) before reclassifications (net of tax) | | | 9,237 | | | | 610 | | | | 52 | | | | 9,899 | | | | Amounts reclassified from accumulated other comprehensive income (loss) (net of tax) | | | 39 | | | | (1,740 | ) | | | 32 | | | | (1,669 | ) | | | Net current period other comprehensive income (loss) | | | 9,276 | | | | (1,130 | ) | | | 84 | | | | 8,230 | | | | Balance as of December 31, 2023 | | $ | (28,238 | ) | | $ | 4,299 | | | $ | (972 | ) | | $ | (24,911 | ) | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2023 | | $ | (28,238 | ) | | $ | 4,299 | | | $ | (972 | ) | | $ | (24,911 | ) | | | Other comprehensive income (loss) before reclassifications (net of tax) | | | 1,674 | | | | 1,036 | | | | 642 | | | | 3,352 | | | | Amounts reclassified from accumulated other comprehensive income (loss) (net of tax) | | | - | | | | (1,988 | ) | | | 26 | | | | (1,962 | ) | | | Net current period other comprehensive income (loss) | | | 1,674 | | | | (952 | ) | | | 668 | | | | 1,390 | | | | Balance as of December 31, 2024 | | $ | (26,564 | ) | | $ | 3,347 | | | $ | (304 | ) | | $ | (23,521 | ) | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2024 | | $ | (26,564 | ) | | $ | 3,347 | | | $ | (304 | ) | | $ | (23,521 | ) | | | Other comprehensive income (loss) before reclassifications (net of tax) | | | 12,519 | | | | (13 | ) | | | 7 | | | | 12,513 | | | | Amounts reclassified from accumulated other comprehensive income (loss) (net of tax) | | | - | | | | (1,369 | ) | | | - | | | | (1,369 | ) | | | Net current period other comprehensive income (loss) | | | 12,519 | | | | (1,382 | ) | | | 7 | | | | 11,144 | | | | Balance as of December 31, 2025 | | $ | (14,045 | ) | | $ | 1,965 | | | $ | (297 | ) | | $ | (12,377 | ) | | (a) Amounts in parentheses indicate debits 99 [Index](#Index) The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the years ended December 31, 2025, 2024 and 2023 (in thousands): | Details about accumulated other comprehensive income (loss) | | Amount reclassified from accumulated comprehensive income (loss) (a) | | Affected line item in the Consolidated Statement of Income | | | | | December 31, | | | | | | | 2025 | | | 2024 | | | 2023 | | | | | Unrealized gains and losses on available for sale securities | | | | | | | | | | | | | | | $ | - | | | $ | - | | | $ | (51 | ) | Available for sale securities (losses) gains, net | | | | | | - | | | | - | | | | 12 | | Provision for income taxes | | | | | $ | - | | | $ | - | | | $ | (39 | ) | Net of tax | | | Unrealized gain (loss) on interest rate swap | | $ | 1,733 | | | $ | 2,516 | | | $ | 2,203 | | Interest expense | | | | | | (364 | ) | | | (528 | ) | | | (463 | ) | Provision for income taxes | | | | | $ | 1,369 | | | $ | 1,988 | | | $ | 1,740 | | Net of tax | | | | | | | | | | | | | | | | | | | Defined benefit pension items | | | | | | | | | | | | | | | | | | $ | - | | | $ | (33 | ) | | $ | (41 | ) | Other expenses | | | | | | - | | | | 7 | | | | 9 | | Provision for income taxes | | | | | $ | - | | | $ | (26 | ) | | $ | (32 | ) | Net of tax | | | Total reclassifications | | $ | 1,369 | | | $ | 1,962 | | | $ | 1,669 | | | | (a) Amounts in parentheses indicate debits 15. RELATED PARTY TRANSACTIONS Certain executive officers and directors of the Company, or companies in which they have 10 percent or more beneficial ownership, were indebted to the Bank. A summary of loan activity for the years ended December 31, 2025 and 2024 with officers, directors, stockholders and associates of such persons is listed below (in thousands): | | | Year Ended December 31, | | | | | | 2025 | | | 2024 | | | | Balance, beginning of year | | $ | 10,985 | | | $ | 12,915 | | | | New loans | | | 3,444 | | | | 3,388 | | | | Repayments | | | (4,267 | ) | | | (5,318 | ) | | | Balance, end of year | | $ | 10,162 | | | $ | 10,985 | | | | | | | | | | | | | | | letter of credits | | $ | - | | | $ | 10 | | | 16. REGULATORY MATTERS Dividend Restrictions: The approval of the Federal Reserve Board (FRB) is required for the Bank to pay dividends to the Company if the total of all dividends declared in any calendar year exceeds the Banks net income (as defined) for that year combined with its retained net income for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2026 without approval of the FRB or Pennsylvania Department of Banking of approximately $31,723,000, plus the Banks 2026 year-to-date net income at the time of the dividend declaration. Loans: The Bank is subject to regulatory restrictions which limit its ability to loan funds to the Company. At December 31, 2025, the Banks regulatory lending limit amounted to approximately $46,266,000. 100 [Index](#Index) Regulatory Capital Requirements: Federal regulations require the Bank to maintain minimum amounts of capital. Specifically, the Bank is required to maintain certain minimum dollar amounts and ratios of Total, Tier I and Common Equity Tier I capital to risk-weighted assets and of Tier I capital to average total assets. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) established five capital categories ranging from well capitalized to critically under-capitalized. Should any institution fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of increasingly restrictive regulatory actions. As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the CBLR) framework for determining its capital adequacy. Under the CBLR framework a qualifying community bank is considered well-capitalized if its leverage ratio (Tier 1 capital divided by average total consolidated assets) exceeds 9%. If a qualifying community banks leverage ratio falls below 9%, then it will have two calendar quarters to return to 9%,subject to the qualifying community bank utilizing the grace period must maintain a CBLR of at least 8%. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At December 31, 2025, the Bank was considered well-capitalized under the CBLR framework, with a leverage ratio of 9.54%. At December 31, 2024, the Bank leverage ratio under the CBLR framework was 8.99%, which is less than the 9.0% requirement to be considered well-capitalized under the CBLR. As such, as of December 31, 2024, the Bank reverted to the prompt corrective action framework. The following table provides the Banks computed riskbased capital ratios as of December 31, 2024, which reflects the Bank being well capitalized on that date (dollars in thousands): | | | Actual | | | For Capital Adequacy Purposes | | | To Be Well Capitalized Under Prompt Corrective Action Provisions | | | | 2024 | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | Total Capital (to Risk Weighted Assets): | | | | Company | | $ | 284,931 | | | | 11.88 | % | | $ | 191,824 | | | | 8.00 | % | | $ | 239,780 | | | | 10.00 | % | | | Bank | | $ | 287,020 | | | | 11.99 | % | | $ | 191,501 | | | | 8.00 | % | | $ | 239,376 | | | | 10.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Capital (to Risk Weighted Assets): | | | | Company | | $ | 243,761 | | | | 10.17 | % | | $ | 143,868 | | | | 6.00 | % | | $ | 191,824 | | | | 8.00 | % | | | Bank | | $ | 265,207 | | | | 11.08 | % | | $ | 143,625 | | | | 6.00 | % | | $ | 191,501 | | | | 8.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Equity Tier 1 Capital (to Risk Weighted Assets): | | | | Company | | $ | 236,261 | | | | 9.86 | % | | $ | 107,901 | | | | 4.50 | % | | $ | 155,857 | | | | 6.50 | % | | | Bank | | $ | 265,207 | | | | 11.08 | % | | $ | 107,719 | | | | 4.50 | % | | $ | 155,594 | | | | 6.50 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tier 1 Capital (to Average Assets): | | | | Company | | $ | 243,761 | | | | 8.26 | % | | $ | 118,096 | | | | 4.00 | % | | $ | 147,620 | | | | 5.00 | % | | | Bank | | $ | 265,207 | | | | 8.99 | % | | $ | 118,007 | | | | 4.00 | % | | $ | 147,508 | | | | 5.00 | % | | 17. COMMITMENTS, CONTINGENT LIABILITIES, RISKS AND UNCERTAINTIES The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate or liquidity risk in excess of the amount recognized in the consolidated balance sheet. Credit Extension Commitments The Companys exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Financial instruments, whose contract amounts represent credit risk at December 31, 2025 and 2024, are as follows (in thousands): 101 [Index](#Index) | | | 2025 | | | 2024 | | | | Commitments to extend credit | | $ | 503,969 | | | $ | 432,123 | | | | Standby letters of credit | | | 11,612 | | | | 9,799 | | | | | | $ | 515,581 | | | $ | 441,922 | | | Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company on extension of credit is based on managements credit assessment of the counter party. Standby letters of credit are conditional commitments issued by the Company to guarantee a financial agreement between a customer and a third party. Performance letters of credit represent conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized during the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets. The Company also offers limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing for business, personal or household use. The non-contractual amount of financial instruments with off-balance sheet risk at December 31, 2025 was $12,207,000. The Company reserves the right to discontinue this service without prior notice. Legal and Regulatory Proceedings In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. Litigation may relate to lending, deposit and other customer relationships, vendor and contractual issues, employee matters, intellectual property matters, personal injuries and torts, regulatory and legal compliance, and other matters. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously. The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of a probable loss is not reasonably estimable, the Company does not accrue legal reserves. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is reasonably possible if the chance of the future event or events occurring is more than remote but less than likely and an event is remote if the chance of the future event or events occurring is slight. While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Companys financial condition or results of operations. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Companys business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence. 102 [Index](#Index) 18. DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Cash Flow Hedges of Interest Rate Risk The Companys objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed interest payments. As of December 31, 2025, the Company had five interest rate swaps with a notional of $35,500,000 associated with the Companys cash outflows associated with various floating-rate amounts. As of December 31, 2024, the Company had six interest rate swaps with a notional of $50,500,000 associated with the Companys cash outflows with various floating-rate amounts. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the periods ended December 31, 2025 and 2024. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate liabilities. Customer Swaps The Company also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of customers desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. In order to economically hedge the interest rate risk associated with offering this product, the Company simultaneously enters into derivative contracts with third parties to offset the customer contracts, such that the Company minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts decrease over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to customers. The Company utilizes a loan hedging program to accommodate clients preferring a fixed rate loan. The loan documents include an addendum with a zero premium collar. The zero premium collar is a cap and floor at the same interest rate, resulting in a fixed rate to the borrower. To hedge this embedded option, the Company enters into a dealer facing trade exactly mirroring the terms of the loan addendum. At December 31, 2025, the Company had interest rate swaps related to this program with an aggregate notional amount of $54,089,000. Mortgage Banking Derivatives To Be Announced Securities To be announced securities (TBAs) are forward delivery securities considered derivative instruments under derivatives and hedging accounting guidance. The Company utilizes TBAs to protect against the price risk inherent in derivative loan commitments. TBAs are valued based on forward dealer marks from the Companys approved counterparties. The Company utilizes a third-party market pricing service, which compiles current prices for instruments from market sources and those prices represent the current executable price. TBAs are recorded at fair value on the consolidated statements of financial condition in mortgage banking derivatives or other liabilities with changes in fair value recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income. The fair value of the Companys derivative instruments, other than IRLCs, that are measured at fair value on a recurring basis is determined by utilizing quoted prices from dealers in such securities or third-party models utilizing observable market inputs. 103 [Index](#Index) Interest Rate Lock Commitments Interest rate loan commitments known as IRLCs that relate to the origination of mortgages that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance FASB ASC 815, Derivatives and Hedging. IRLCs are recognized at fair value on the consolidated statements of financial condition as mortgage banking derivatives or as other liabilities with changes in their fair values recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income. Forward Loan Sales Commitments Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancellation or expiration. IRLC, generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Forward loan sales commitments are recognized at fair value on the Consolidated Statements of Financial Condition as mortgage banking derivatives or as other liabilities with changes in their fair values recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income. Counterparty Credit Risk As a result of its derivative contracts, the Company is exposed to credit risk. Specifically, approved counterparties and exposure limits are defined. On at least an annual basis, the customer derivative contracts and related counterparties are evaluated for credit risk with an adjustment made to the contracts fair value. In accordance with the interest rate agreements with derivative dealers, the Company may be required to post margin to these counterparties. At December 31, 2025, the Company has required collateral with certain of its derivative counterparties in the amount of $5,560,000 and was holding $3,320,000 of collateral from derivative counterparties. The following table reflects the estimated fair value positions of derivative contracts as of December 31, 2025 and 2024: Derivatives designated as hedging instruments under ASC 815 (in thousands): | | | | | Notional Amount | | | | | | Fair Value December 31, | | | | Third party interest rate swaps | | Balance Sheet Location | | 2025 | | | 2024 | | Interest rate Paid | | Interest rate Received | | 2025 | | | 2024 | | | | Maturing in 2027 | | Fair value of derivative instruments - asset | | $ | 10,000 | | | $ | 10,000 | | Fixed - 0.65% | | Compounded Overnight SOFR + 26.161 | | $ | 366 | | | $ | 786 | | | | Maturing in 2027 | | Fair value of derivative instruments - asset | | | 7,500 | | | | 7,500 | | Fixed - 3.57% | | Compounded Overnight SOFR + 26.161+280 | | | 303 | | | | 620 | | | | Maturing in 2027 | | Fair value of derivative instruments - asset | | | 6,000 | | | | 6,000 | | Fixed - 0.61% | | Compounded Overnight SOFR + 26.161 | | | 241 | | | | 500 | | | | Maturing in 2029 | | Fair value of derivative instruments - asset | | | 6,000 | | | | 6,000 | | Fixed - 0.72% | | Compounded Overnight SOFR + 26.161 | | | 552 | | | | 854 | | | | Maturing in 2032 | | Fair value of derivative instruments - asset | | | 6,000 | | | | 6,000 | | Fixed - 0.82% | | Compounded Overnight SOFR + 26.161 | | | 1,025 | | | | 1,326 | | | | Maturing in 2025 | | Fair value of derivative instruments - asset | | | - | | | | 15,000 | | Fixed - 0.57% | | Compounded Overnight SOFR + 26.161 | | | - | | | | 150 | | | | | | | | $ | 35,500 | | | $ | 50,500 | | | | | | $ | 2,487 | | | $ | 4,236 | | | Derivatives not designated as hedging instruments under ASC 815 (in thousands): | | | | | December 31, 2025 | | | December 31, 2024 | | | | Interest Rate Products | | Balance Sheet Location | | Notional Amount | | | Fair Value | | | Notional Amount | | | Fair Value | | | | Zero Premium Collar | | (Fair value of derivative instruments - liability) | | $ | 38,348 | | | $ | (3,693 | ) | | $ | 49,678 | | | $ | (5,817 | ) | | | Zero Premium Collar | | Fair value of derivative instruments - asset | | | 15,741 | | | | 407 | | | | - | | | | - | | | | IRLCs | | Fair value of derivative instruments - asset | | | 11,596 | | | | 340 | | | | 10,728 | | | | 317 | | | | Dealer Offset to Zero Premium Collar | | Fair value of derivative instruments - asset | | | 38,348 | | | | 3,693 | | | | 49,678 | | | | 5,817 | | | | Dealer Offset to Zero Premium Collar | | (Fair value of derivative instruments - liability) | | | 15,741 | | | | (407 | ) | | | - | | | | - | | | 104 [Index](#Index) The following table presents the effect of the Companys cash flow hedge accounting on Accumulated Other Comprehensive Income for the years ended December 31, 2025, 2024 and 2023 (in thousands): The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income | | | Amount of (Loss) Gain Recognized in OCI on Derivatives | | Location of Gain Reclassified from Accumulated OCI into Income | | Amount of (loss) gain reclassified from Accumulated OCI into income | | | | | | Year Ended December 31, | | | Year Ended December 31, | | | | Derivatives in Hedging relationships | | 2025 | | | 2024 | | | 2023 | | | 2025 | | | 2024 | | | 2023 | | | | Interest rate Products | | $ | (1,749 | ) | | $ | (1,205 | ) | | $ | (1,431 | ) | Interest Expense | | $ | 1,733 | | | $ | 2,516 | | | $ | 2,203 | | | 19. LEASES A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 Leases (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Lessee Accounting Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches with terms extending through 2039. All of the Companys leases are classified as operating leases, and therefore, were previously not recognized on the Companys Consolidated Balance Sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as right-of-use (ROU) assets and corresponding lease liabilities. The following table represents the Consolidated Balance Sheet classification of the Companys ROU assets and lease liabilities (in thousands). The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), on the Consolidated Balance Sheet. | | | Balance at December 31, | | | | | Lease Type | | 2025 | | | 2024 | | Affected line item on the Consolidated Balance Sheet | | | Right of Use Assets | | | | | | | | | | Operating | | $ | 10,600 | | | $ | 9,966 | | Other Assets | | | | | | | | | | | | | | | Lease Liabilities: | | | | | | | | | | | | Operating | | $ | 10,777 | | | $ | 10,095 | | Other Liabilities | | The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Companys lease agreements often include one or more options to renew at the Companys discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For leases obtained as of the HVBC acquisition, the rate for the remaining lease term as of June 16, 2023 was used. The following table displays the weighted average remaining lease term and the weighted average discount rate for the Companys operating leases outstanding as of December 31, 2025: | | | Operating | | | | Weighted average term (years) | | | 7.78 | | | | Weighted average discount rate | | | 4.29 | % | | The following table represents lease costs and other lease information for the years ended December 31, 2025, 2024, and 2023, respectively (in thousands). As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. 105 [Index](#Index) | | | December 31, | | | | Lease Cost | | 2025 | | | 2024 | | | 2023 | | | | Operating lease cost | | $ | 1,895 | | | $ | 1,953 | | | $ | 1,400 | | | | Variable lease cost | | | 264 | | | | 250 | | | | 177 | | | | Total lease cost | | $ | 2,159 | | | $ | 2,203 | | | $ | 1,577 | | | Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2025 along with a reconciliation to the discounted amount recorded on the December 31, 2025 Consolidated Balance Sheet (in thousands): | Undiscounted cash flows due within | | Operating | | | | 2026 | | $ | 1,921 | | | | 2027 | | | 1,951 | | | | 2028 | | | 1,863 | | | | 2029 | | | 1,643 | | | | 2030 | | | 1,392 | | | | 2031 and thereafter | | | 4,285 | | | | Total undiscounted cash flows | | | 13,055 | | | | Impact of present value discount | | | 2,278 | | | | Amount reported on balance sheet | | $ | 10,777 | | | 20. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows: | Level I: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. | | | | | | | Level II: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. | | | | | | | Level III: | Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using managements best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. | | A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Companys creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Companys valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Companys monthly and/or quarterly valuation process. 106 [Index](#Index) Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things. The following tables present the assets reported on the consolidated balance sheet at their fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands) by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. | 2025 | | Level I | | | Level II | | | Level III | | | Total | | | | Fair value measurements on a recurring basis: | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | Equity securities | | $ | 1,815 | | | $ | - | | | $ | - | | | $ | 1,815 | | | | Available for sale securities: | | | | | | | | | | | | | | | | | | | U.S. Agency securities | | | - | | | | 49,755 | | | | - | | | | 49,755 | | | | U.S. Treasuries securities | | | - | | | | 82,654 | | | | - | | | | 82,654 | | | | Obligations of state and political subdivisions | | | - | | | | 115,886 | | | | - | | | | 115,886 | | | | Corporate obligations | | | - | | | | 11,297 | | | | - | | | | 11,297 | | | | Mortgage-backed securities in government sponsored entities | | | - | | | | 185,149 | | | | - | | | | 185,149 | | | | Other Assets | | | | | | | | | | | | | | | | | | | Derivative instruments | | | - | | | | 6,587 | | | | 340 | | | | 6,927 | | | | Liabilities | | | | | | | | | | | | | | | | | | | Derivative instruments | | | - | | | | (4,100 | ) | | | - | | | | (4,100 | ) | | | 2024 | | Level I | | | Level II | | | Level III | | | Total | | | | Fair value measurements on a recurring basis: | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | Equity securities | | $ | 1,747 | | | $ | - | | | $ | - | | | $ | 1,747 | | | | Available for sale securities: | | | | | | | | | | | | | | | | | | | U.S. Agency securities | | | - | | | | 53,487 | | | | - | | | | 53,487 | | | | U.S. Treasuries securities | | | - | | | | 120,502 | | | | - | | | | 120,502 | | | | Obligations of state and political subdivisions | | | - | | | | 94,902 | | | | - | | | | 94,902 | | | | Corporate obligations | | | - | | | | 10,438 | | | | - | | | | 10,438 | | | | Mortgage-backed securities in government sponsored entities | | | - | | | | 146,583 | | | | - | | | | 146,583 | | | | Other Assets | | | | | | | | | | | | | | | | | | | Derivative instruments | | | - | | | | 10,053 | | | | 317 | | | | 10,370 | | | | Liabilities | | | | | | | | | | | | | | | | | | | Derivative instruments | | | - | | | | (5,817 | ) | | | - | | | | (5,817 | ) | | The following tables represent assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2025 and 2024 (in thousands): | | | Level 3 | | | | | | IRLC - Asset | | | IRLC - Liability | | | | Beginning Balance: December 31, 2024 | | $ | 317 | | | $ | - | | | | Total gains (losses) (unrealized): Included in other comprehensive loss | | | - | | | | - | | | | Total (loss) gains included in earnings and held at reporting date | | | 23 | | | | - | | | | Purchases, sales and settlements | | | - | | | | - | | | | Transfers out of Level 3 | | | - | | | | - | | | | Ending Balance December 31, 2025 | | $ | 340 | | | $ | - | | | | Change in unrealized (losses) gains for the period included in earnings (or changes in net assets) for assets held as of December 31, 2025 | | $ | 23 | | | | - | | | | Change in unrealized losses for the period included other comprehensive loss for assets held as of December 31, 2025 | | $ | - | | | | - | | | 107 [Index](#Index) | | | Level 3 | | | | | | IRLC - Asset | | | IRLC - Liability | | | | Beginning Balance: December 31, 2023 | | $ | 324 | | | $ | - | | | | Total gains (losses) (unrealized): Included in other comprehensive loss | | | - | | | | - | | | | Total (loss) gains included in earnings and held at reporting date | | | (7 | ) | | | - | | | | Purchases, sales and settlements | | | - | | | | - | | | | Transfers out of Level 3 | | | - | | | | - | | | | Ending Balance December 31, 2024 | | $ | 317 | | | $ | - | | | | Change in unrealized (losses) gains for the period included in earnings (or changes in net assets) for assets held as of December 31, 2024 | | $ | (7 | ) | | | - | | | | Change in unrealized losses for the period included other comprehensive loss for assets held as of December 31, 2024 | | $ | - | | | | - | | | At December 31, 2025 and 2024, the Company has classified $340,000 and $317,000, respectively, of net derivative assets related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Companys best estimate of the probability that a committed loan will fund. Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at December 31, 2025 and 2024 (dollars in thousands): Quantitative Information about Level 3 Fair Value Measurements | 2025 | | Fair Value | | Valuation Technique(s) | Unobservable input | | Range | | | Weighted average | | | | Measured at Fair Value on a Recurring Basis: | | | | | | | | | | | | | | Net derivative asset and liability: | | | | | | | | | | | | | | IRLC | | | 340 | | Discounted cashflows | Pull-though rates | | | 75.39%-97.16 | % | | | 85.90 | % | | | 2024 | | | | | | | | | | | | | | Measured at Fair Value on a Recurring Basis: | | | | | | | | | | | | | | Net derivative asset and liability: | | | | | | | | | | | | | | IRLC | | | 317 | | Discounted cashflows | Pull-though rates | | | 76.35%-100.00 | % | | | 89.65 | % | | Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2025 and 2024 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. Assets measured at fair value on a nonrecurring basis as of December 31, 2025 and 2024 (in thousands) are included in the table below: | 2025 | | Level I | | | Level II | | | Level III | | | Total | | | | Collateral dependent loans | | $ | - | | | $ | - | | | $ | 8,628 | | | $ | 8,628 | | | | Other real estate owned | | | - | | | | - | | | | 2,358 | | | | 2,358 | | | 108 [Index](#Index) | 2024 | | Level I | | | Level II | | | Level III | | | Total | | | | Collateral dependent loans | | $ | - | | | $ | - | | | $ | 3,579 | | | $ | 3,579 | | | | Other real estate owned | | | - | | | | - | | | | 2,486 | | | | 2,486 | | | | | | Collateral-Dependent Loans (in accordance with ASC 326) - The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $259,000 at December 31, 2025. | | | | | Other Real Estate Owned OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO. | | The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques (dollars in thousands). Quantitative Information about Level 3 Fair Value Measurements | 2025 | | Fair Value | | Valuation Technique(s) | Unobservable input | | Range | | | Weighted average | | | | Collateral dependent loans | | | 8,628 | | Appraised Collateral Values | Discount for time since appraisal | | | 0-100% | | | | 32.18% | | | | | | | | | | Selling costs | | | 8%-10% | | | | 9.43% | | | | | | | | | | Holding period | | 1 - 12 months | | | 11.62 months | | | | | | | | | | | | | | | | | | | | | Other real estate owned | | | 2,358 | | Appraised Collateral Values | Discount for time since appraisal | | | 7.5% | | | | 7.50% | | | | 2024 | | Fair Value | | Valuation Technique(s) | Unobservable input | | Range | | | Weighted average | | | | Collateral dependent loans | | | 3,579 | | Appraised Collateral Values | Discount for time since appraisal | | | 0-100% | | | | 36.67% | | | | | | | | | | Selling costs | | | 4%-12% | | | | 7.05% | | | | | | | | | | Holding period | | 1 - 12 months | | | 11.04 months | | | | | | | | | | | | | | | | | | | | | Other real estate owned | | | 2,486 | | Appraised Collateral Values | Discount for time since appraisal | | | 20-32% | | | | 31.32% | | | 109 [Index](#Index) Financial Instruments Not Required to be Measured or Reported at Fair Value The carrying amount and fair value of the Companys financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands): | December 31, 2025 | | Carrying Amount | | | Fair Value | | | Level I | | | Level II | | | Level III | | | | Financial assets: | | | | | | | | | | | | | | | | | | Interest bearing time deposits with other banks | | $ | 3,820 | | | $ | 3,802 | | | $ | - | | | $ | - | | | $ | 3,802 | | | | Loans held for sale | | | 9,393 | | | | 9,393 | | | | - | | | | - | | | | 9,393 | | | | Net loans | | | 2,327,816 | | | | 2,295,926 | | | | - | | | | - | | | | 2,295,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | 2,376,979 | | | | 2,375,552 | | | | 1,877,545 | | | | - | | | | 498,007 | | | | Borrowed funds | | | 309,448 | | | | 304,486 | | | | - | | | | - | | | | 304,486 | | | | December 31, 2024 | | | | | | | | | | | | | | | | | | Financial assets: | | | | | | | | | | | | | | | | | | Interest bearing time deposits with other banks | | $ | 3,820 | | | $ | 3,820 | | | $ | - | | | $ | - | | | $ | 3,820 | | | | Loans held for sale | | | 9,607 | | | | 9,607 | | | | - | | | | - | | | | 9,607 | | | | Net loans | | | 2,291,543 | | | | 2,209,083 | | | | - | | | | - | | | | 2,209,083 | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | Deposits | | | 2,382,028 | | | | 2,377,438 | | | | 1,842,223 | | | | - | | | | 535,215 | | | | Borrowed funds | | | 297,721 | | | | 284,852 | | | | - | | | | - | | | | 284,952 | | | Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Companys regulatory reports, and an estimation methodology suitable for each category of financial instruments. The carrying amounts for cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements. 21. SEGMENT REPORTING The Companys reportable segment is determined by the Chief Executive Officer, who is the designated the chief operating decision maker, based upon information provided about the Companys products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business such as branches, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker will evaluate the financial performance of the Companys business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Companys segment and in the determination of allocating resources. The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision maker uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, provisions for credit losses, payroll, and occupancy expenses provide the significant expenses in the banking operation. All operations are domestic. 110 [Index](#Index) Accounting policies for the segment are the same as those described in Note 1. The measure of segment assets is reported on the balance sheet as total consolidated assets. Segment performance is evaluated using consolidated net income. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements (in thousands): | | | Community Banking | | | | | | 2025 | | | 2024 | | | 2023 | | | | Total Interest and Dividend Income | | $ | 159,168 | | | $ | 154,317 | | | $ | 127,118 | | | | Total non-interest income | | | 14,344 | | | | 15,401 | | | | 11,605 | | | | Total Consolidated Revenues | | | 173,512 | | | | 169,718 | | | | 138,723 | | | | Less: | | | | | | | | | | | | | | | Interest Expense | | | 61,167 | | | | 67,862 | | | | 46,858 | | | | Segment net interest income and non-interest income | | | 112,345 | | | | 101,856 | | | | 91,865 | | | | Less: | | | | | | | | | | | | | | | Provision for credit losses | | | 2,375 | | | | 2,587 | | | | 5,528 | | | | Salaries and employee benefits | | | 39,402 | | | | 39,347 | | | | 34,990 | | | | Occupancy | | | 5,299 | | | | 5,013 | | | | 4,123 | | | | Other segment expenses | | | 20,181 | | | | 21,226 | | | | 25,709 | | | | Income Taxes | | | 8,516 | | | | 5,865 | | | | 3,704 | | | | Segment net income/consolidated net income | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | 22. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY The following is condensed financial information for Citizens Financial Services, Inc.: CITIZENS FINANCIAL SERVICES, INC. CONDENSED BALANCE SHEET | | | December 31, | | | | (in thousands) | | 2025 | | | 2024 | | | | Assets: | | | | | | | | | Cash | | $ | 2,904 | | | $ | 1,743 | | | | Investments | | | 1,682 | | | | 1,599 | | | | Investment in subsidiary: | | | | | | | | | | | First Citizens Community Bank | | | 358,001 | | | | 328,190 | | | | Other assets | | | 3,342 | | | | 3,389 | | | | Total assets | | $ | 365,929 | | | $ | 334,921 | | | | Liabilities: | | | | | | | | | | | Other liabilities | | $ | 730 | | | $ | 840 | | | | Borrowed funds | | | 27,148 | | | | 34,348 | | | | Total liabilities | | | 27,878 | | | | 35,188 | | | | Stockholders equity | | | 338,051 | | | | 299,733 | | | | Total liabilities and stockholders equity | | $ | 365,929 | | | $ | 334,921 | | | CITIZENS FINANCIAL SERVICES, INC. CONDENSED STATEMENT OF INCOME | | | Year Ended December 31, | | | | (in thousands) | | 2025 | | | 2024 | | | 2023 | | | | Dividends from: | | | | | | | | | | | | Bank subsidiary | | $ | 21,053 | | | $ | 16,676 | | | $ | 13,213 | | | | Equity securities | | | 101 | | | | 98 | | | | 113 | | | | Interest income | | | 6 | | | | 12 | | | | 20 | | | | Total income | | | 21,160 | | | | 16,786 | | | | 13,346 | | | | Realized securities gains (losses) | | | 83 | | | | 153 | | | | (209 | ) | | | Expenses | | | 3,087 | | | | 2,427 | | | | 3,130 | | | | Income before equity in undistributed earnings of subsidiary | | | 18,156 | | | | 14,512 | | | | 10,007 | | | | Equity in undistributed earnings - First Citizens Community Bank | | | 18,416 | | | | 13,306 | | | | 7,804 | | | | Net income | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | | Comprehensive income | | $ | 47,716 | | | $ | 29,208 | | | $ | 26,041 | | | 111 [Index](#Index) CITIZENS FINANCIAL SERVICES, INC. STATEMENT OF CASH FLOWS | | | Year Ended December 31, | | | | (in thousands) | | 2025 | | | 2024 | | | 2023 | | | | Cash flows from operating activities: | | | | | | | | | | | | Net income | | $ | 36,572 | | | $ | 27,818 | | | $ | 17,811 | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | Equity in undistributed earnings of subsidiaries | | | (18,416 | ) | | | (13,306 | ) | | | (7,804 | ) | | | Investment securities losses (gains), net | | | (83 | ) | | | (153 | ) | | | 209 | | | | Other, net | | | 685 | | | | (84 | ) | | | (206 | ) | | | Net cash provided by operating activities | | | 18,758 | | | | 14,275 | | | | 10,010 | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | Proceeds from the sale of equity securities | | | - | | | | 335 | | | | 127 | | | | Investment in subsidiaries | | | - | | | | - | | | | (15,000 | ) | | | Acquisition of HVB | | | - | | | | - | | | | (10,780 | ) | | | Net cash provided by (used in) investing activities | | | - | | | | 335 | | | | (25,653 | ) | | | Cash flows from financing activities: | | | | | | | | | | | | | | | Cash dividends paid | | | (9,548 | ) | | | (9,302 | ) | | | (8,503 | ) | | | (Repayment) Issuance of short-term debt | | | (7,572 | ) | | | (5,000 | ) | | | 12,572 | | | | Purchase of treasury stock | | | (358 | ) | | | (202 | ) | | | (265 | ) | | | Sale of treasury stock | | | - | | | | - | | | | 34 | | | | Issuance of common stock for employee stock purchase plan | | | 68 | | | | 16 | | | | - | | | | Purchase of restricted stock | | | (187 | ) | | | (64 | ) | | | - | | | | Net cash (used in) provided by financing activities | | | (17,597 | ) | | | (14,552 | ) | | | 3,838 | | | | Net increase (decrease) in cash | | | 1,161 | | | | 58 | | | | (11,805 | ) | | | Cash at beginning of year | | | 1,743 | | | | 1,685 | | | | 13,490 | | | | Cash at end of year | | $ | 2,904 | | | $ | 1,743 | | | $ | 1,685 | | | 112 [Index](#Index) ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A CONTROLS AND PROCEDURES. As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 5), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course by management or employees in the normal course of performing their assigned functions. Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2025. Managements assessment did not identify any material weaknesses in the Companys internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Because there were no material weaknesses discovered, management believes that, as of December 31, 2025, the Companys internal control over financial reporting was effective. The Companys independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effective operation of the Companys internal control over financial reporting as of December 31, 2025, and this report is included in this Item under the heading Attestation Report of Independent Registered Public Accounting Firm. /s/ Randall E. Black By: Randall E. Black Chief Executive Officer and President (Principal Executive Officer) Date: March 12, 2026 /s/ Stephen J. Guillaume By: Stephen J. Guillaume Chief Financial Officer (Principal Financial & Accounting Officer) Date: March 12, 2026 113 [Index](#Index) Attestation Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Citizens Financial Services, Inc. Opinion on Internal Control over Financial Reporting We have audited Citizens Financial Services, Inc. and subsidiaries (the Company)s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024; and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for each of the three years in the period ended December 31, 2025, of the Company; and our report dated March 12, 2026, expressed an unqualified opinion. Basis for Opinion The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/S.R. Snodgrass, P.C. Cranberry Township, Pennsylvania March 12, 2026 114 [Index](#Index) ITEM 9B OTHER INFORMATION. During the three months ended December 31, 2025, none of the Companys directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Companys securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement (as such term is defined in Item 408 of SEC Regulation S-K). ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable 115 [Index](#Index) PART III ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors For information relating to the directors of the Company, the section captioned Proposal 1. Election of Directors in the Companys Proxy Statement for the 2026 Annual Meeting of Stockholders (the 2026 Proxy Statement) is incorporated by reference. Executive Officers For information relating to officers of the Company, the section captioned Proposal 1. Election of Directors in the 2026 Proxy Statement is incorporated by reference. Compliance with Section 16(a) of the Exchange Act For information regarding compliance with Section 16(a) of the Exchange Act, the section captioned Other Information Relating to Directors and Executive Officers - Section 16(a) Beneficial Ownership Reporting Compliance in the Companys 2026 Proxy Statement is incorporated by reference. Disclosure of Code of Ethics The Company has adopted a Code of Ethics that applies to directors, officers and employees of the Company and the Bank. A copy of the Code of Ethics is posted on the Companys website at www.firstcitizensbank.com. The Company intends to satisfy the disclosure requirement of Form 8-K regarding an amendment to, or a waiver from, a provision of its Code of Ethics by posting such information on its website. Corporate Governance For information regarding the audit committee and its composition and the audit committee financial expert, the section captioned Corporate Governance Committees of the Board of Directors in the Companys 2026 Proxy Statement is incorporated by reference. Insider Trading Policy The Company has adopted an Insider Trading Policy governing the purchase, sale and/or other dispositions of the Companys securities by its directors, officers and employees and by the Company itself. A copy of the Insider Trading Policy is filed as an exhibit to this Annual Report on Form 10-K. ITEM 11 EXECUTIVE COMPENSATION Executive Compensation For information regarding executive and director compensation, the sections captioned Director Compensation, Executive Compensation, Compensation Discussion and Analysis and Compensation Committee Report in the Companys 2026 Proxy Statement are incorporated by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS | | (a) | Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the section captioned Stock Ownership in the Companys 2026 Proxy Statement. | | | | (b) | Security Ownership of Management Information required by this item is incorporated herein by reference to the section captioned Stock Ownership in the Companys 2026 Proxy Statement. | | | | (c) | Changes in Control Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant. | | 116 [Index](#Index) | | (d) | Equity Compensation Plan Information The following table sets forth information as of December 31, 2025 about Company common stock that may be issued under the Companys 2016 Restricted Stock Plan. The plan was approved by the Companys stockholders. | | | Plan Category | | Number of securities to be issued upon the exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | | | | Equity compensation plans approved by security holders | | | n/a | | | | n/a | | | | 99,781 | | | | | | | | | | | | | | | | | | | Equity compensation plans not approved by security holders | | | n/a | | | | n/a | | | | n/a | | | | | | | | | | | | | | | | | | | Total | | | n/a | | | | n/a | | | | 99,781 | | | ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Certain Relationships and Related Transactions For information regarding certain relationships and related transactions, the section captioned Other Information Relating to Directors and Executive Officers - Transactions with Related Persons in the Companys 2026 Proxy Statement is incorporated by reference. Director Independence For information regarding director independence, the section captioned Corporate Governance Director Independence in the Companys 2026 Proxy Statement is incorporated by reference. ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES For information regarding the principal accountant fees and expenses the section captioned Audit Related Matters in the Companys 2026 Proxy Statement is incorporated by reference. 117 [Index](#Index) PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as a part of this report: 1. The following financial statements are incorporated by reference in Item 8: Report of Independent Registered Public Accounting Firm (PCAOB ID 74) Consolidated Balance Sheet as of December 31, 2025 and 2024 Consolidated Statement of Income for the Years Ended December 31, 2025, 2024 and 2023 Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023 Consolidated Statement of Changes in Stockholders Equity for the Years Ended December 31, 2025, 2024 and 2023 Consolidated Statement of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 Notes to Consolidated Financial Statements 2. All financial statement schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statement or in the notes thereto, which are incorporated by reference at subsection(a)(1) of this item. 3. The following Exhibits are filed herewith, or incorporated by reference as a part of this report | 3.1 | | Restated Articles of Incorporation of Citizens Financial Services, Inc.(1) | | | | | | | | 3.2 | | Articles of Amendment of Restated Articles of Incorporation of Citizens Financial Services, Inc. (2) | | | | | | | | 3.3 | | Bylaws of Citizens Financial Services, Inc.(3) | | | | | | | | 3.4 | | Amendment No. 1 to Amended and restated Bylaws of Citizens Financial Services, Inc. (4) | | | | | | | | 4.1 | | Form of Common Stock Certificate of Citizens Financial Services, Inc (5) | | | | | | | | 4.2 | | Form of Subordinated Note Citizens Financial Services, Inc. (6) | | | | | | | | 4.3 | | Form of Subordinated Note HV Bancorp, Inc. (7) | | | | | | | | 10.1 | | *Amended and Restated Executive Employment Agreement between Citizens Financial Services, Inc., First Citizens Community Bank and Randall E. Black(8) | | | | | | | | 10.2 | | *Citizens Financial Services, Inc. Directors Deferred Compensation Plan(9) | | | | | | | | 10.3 | | *Citizens Financial Services, Inc. Directors Life Insurance Program(10) | | | | | | | | 10.4 | | *Supplemental Executive Retirement Plan(11) | | | | | | | | 10.5 | | *Second Amendment to First Citizens Community Bank Supplemental Executive Retirement Plan(12) | | | | | | | | 10.6 | | *Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Jeffrey R, White | | | | | | | | 10.7 | | *First Citizens Community Bank Annual Incentive Plan (13) | | | | | | | | 10.8 | | *Amended and Restated First Citizens Community Bank Annual Incentive Plan(14) | | | | | | | | 10.9 | | *First Citizens Community Bank Endorsement Split-Dollar Life Insurance Plan (15) | | | | | | | | 10.10 | | Citizens Financial Services, Inc. 2016 Equity Incentive Plan (16) | | | | | | | | 10.11 | | *Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Jeffrey L. Wilson (17) | | | | | | | | 10.12 | | *Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and David Z. Richards, Jr. (18) | | | | | | | | 10.13 | | *First Citizens Community Bank Executive Deferred Compensation Plan (19) | | | | | | | | 10.14 | | *Amended and Restated First Citizens Community Bank Executive Deferred Compensation Plan (20) | | | | | | | | 10.15 | | *First Citizens Community Bank Long Term Incentive Plan (21) | | | | | | | | 10.16 | | *Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Stephen J. Guillaume(22) | | | | | | | | 10.17 | | 2023 Employee Stock Purchase Plan(23) | | | | | | | | 19 | | Insider Trading Policy | | 118 [Index](#Index) | 21 | | List of Subsidiaries | | | | | | | | 23 | | Consent of S.R. Snodgrass, P.C., Independent Registered Public Accountants | | | | | | | | 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | | | | | | | | 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | | | | | | | | 32.1 | | Section 1350 Certification of Chief Executive Officer | | | | | | | | 32.2 | | Section 1350 Certification of Chief Financial Officer | | | | | | | | 97 | | Citizens Financial Services, Inc. Clawback Policy | | | | | | | | 101 | | The following materials from the Companys Annual Report on Form 10-K for the year ended December 31, 2025, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders Equity, (v) the Consolidated Statement of Cash Flows and (vi) related notes. | | | | | | | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | *Management contract or compensatory plan, contract or arrangement (1)Incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018. (2) Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, as filed with the Commission on April 26, 2021. (3) Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, as filed with the Commission on December 17, 2020. (4) Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, as filed with the Commission on November 23, 2022 (5) Incorporated by reference to Exhibit 4 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Commission on March 9, 2023. (6) Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, as filed with the Commission on April 16, 2021. (7) Incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K of HV Bancorp, Inc. as filed with the Commission on June 01, 2021. (8) Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, as filed with the Commission on August 9, 2012. (9)Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as filed with the Commission on August 8, 2019. (10)Incorporated by reference to Exhibit 10.3 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Commission on March 15, 2005. (11)Incorporated by reference to Exhibit 10.6 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Commission on March 7, 2013. (12)Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed with the Commission on November 4, 2021. 119 [Index](#Index) (13) Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, as filed with the Commission on August 8, 2013. (14)Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, as filed with the Commission on November 7, 2024 (15)Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, as filed with the Commission on January 7, 2015. (16)Incorporated by reference to Exhibit A to the Companys definitive proxy statements for the 2016 Annual Meeting of Shareholders, as filed with the Commission on March 10, 2016. (17)Incorporated by reference to Exhibit 10.11 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the Commission on March 6, 2025. (18)Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K, as filed with the Commission on January 3, 2025. (19) Incorporated by reference to Exhibit 10.12 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Commission on March 7, 2019. (20)Incorporated by reference to Exhibit 10.15 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Commission on March 10, 2022 (21)Incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Commission on March 12, 2020. (22)Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K, as filed with the Commission on January 3, 2025. (23)Incorporated by reference to Exhibit 10.1 to the Companys Form S-8, as filed with the Commission on October 22, 2024. ITEM 16 FORM 10-K SUMMARY Not Applicable. 120 [Index](#Index) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Citizens Financial Services, Inc. (Registrant) /s/ Randall E. Black By: Randall E. Black Chief Executive Officer and President (Principal Executive Officer) Date: March 12, 2026 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | Signature and Capacity | Date | | | | | | | /s/ Randall E. Black | March 12, 2026 | | | Randall E. Black, Chief Executive Officer, President and Director | | | | (Principal Executive Officer) | | | | | | | | /s/ Stephen J. Guillaume | March 12, 2026 | | | Stephen J. Guillaume, Chief Financial Officer | | | | (Principal Financial & Accounting Officer) | | | | | | | | /s/ Robert W. Chappell | March 12, 2026 | | | Robert W. Chappell, Director | | | | | | | | /s/ R. Joseph Landy | March 12, 2026 | | | R. Joseph Landy, Director | | | | | | | | /s/ Roger C. Graham, Jr. | March 12, 2026 | | | Roger C. Graham, Director | | | | | | | | /s/ Rinaldo A. DePaola | March 12, 2026 | | | Rinaldo A. DePaola, Director | | | | | | | | /s/ Thomas E. Freeman | March 12, 2026 | | | Thomas E. Freeman, Director | | | | | | | | /s/ Christopher W. Kunes | March 12, 2026 | | | Christopher W. Kunes | | | | | | | | /s/ David Z, Richards, Jr. | March 12, 2026 | | | David Z. Richards, Jr., Director | | | | | | | | /s/ Mickey L. Jones. | March 12, 2026 | | | Mickey L. Jones, Director | | | | | | | | /s/ Janie M Hifiger | March 12, 2026 | | | Janie M Hilfiger, Director | | | | | | | | /s/ Terry B, Osborne | March 12, 2026 | | | Terry B. Osborne, Director | | | | | | | | /s/ John P, Painter II | March 12, 2026 | | | /s/ John P, Painter II, Director | | | | | | | | /s/ Joseph B. Bower Jr | March 12, 2026 | | | Joseph B. Bower Jr, Director | | | 121