FRANKLIN FINANCIAL SERVICES CORP /PA/
For the period ended Sep 30, 2025. Filed Nov 10, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2025 · Filed Nov 10, 2025
FRAF$69.08-0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-06-30; filed 2025-08-14.
0000723646-25-000062
Item 2. Management’s Discussion and Analysis ofResults of Operations and Financial ConditionCurrent report: 10-Q
Period ended 2025-09-30; filed 2025-11-10.
0000723646-25-000080
Item 2. Management’s Discussion and Analysis ofResults of Operations and Financial ConditionThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 134 previous paragraphs and 139 current paragraphs.
83 unchanged; 42 reworded; 14 added; 9 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 17 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
For the Three and Nine Months Ended September 30, 2025 and 2024
Current report
Wealth Management: Fees were $2.3 million, an increase of 8.0% from $2.1 million in the third quarter of 2024. Assets under management were $1.4 billion on September 30, 2025.
Current report
Loan Growth: Total net loans of $1.544 billion on September 30, 2025, an increase of 11.8% from December 31, 2024.
Current report
Deposit Growth: Total deposits of $1.903 billion on September 30, 2025, an increase of 4.8% from December 31, 2024.
Current report
The key performance metrics for the third quarter of 2025 were negatively affected by fee amortization of $113 thousand (recorded in interest expense) from the redemption of a portion of the Corporation’s subordinated notes, and the addition of an $894 thousand specific reserve on one commercial real estate credit through the provision for credit loss.
Current report
For the third quarter of 2025, the provision for credit losses on loans was $1.3 million compared to $474 thousand for the third quarter of 2024. The increase is due primarily to an $894 thousand specific reserve established during the quarter for a collateral dependent loan. The increase from the specific reserve was partially offset by a decrease in provision expense due to a change in the historical loss rate component of the allowance for credit loss (ACL) calculation due to an adjustment to the Bank’s peer group, as certain peers were acquired by larger banks. The ACL ratio for loans was 1.30% on September 30, 2025, up from 1.26% on December 31, 2024.
Current report
For the first nine months of 2025, the provision for credit losses on loans was $2.7 million compared to $1.5 million for the first nine months of 2024. The increase is primarily the result of an $894 thousand specific reserve established during the third quarter of 2025 for a collateral dependent loan, secured by a mixed-use commercial real estate construction project. The ACL ratio for loans was 1.30% on September 30, 2025 up from 1.26% on December 31, 2024.
Current report
The following table presents a comparison of noninterest expense for the nine months ended September 30, 2025 and 2024:
Current report
July 2025. Settlement of the auction sale is currently expected in the fourth quarter of 2025 and the net proceeds to the Bank are expected to fully satisfy the loan.
Current report
As of September 30, 2025, the Bank had outstanding loans to a related party of a Bank Director who is considered an “insider” under Regulation O. The loans were originated in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with non-affiliated persons.
Current report
The loans are currently classified as OAEM (rated 6) on the Bank’s internal credit risk rating system, indicating potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans. As of September 30, 2025, the outstanding balance of the loans was $4.7 million, and were not past due or on nonaccrual status.
Current report
The loans were approved in accordance with the Bank’s policies and procedures for related party transactions and insider lending, including board-level review and compliance with Regulation O. Management continues to monitor the credit quality of the loans and does not believe they pose a material risk to the Corporation’s financial condition.
Current report
No preferential terms were granted, and the Bank believes the transaction does not impair the independence or objectivity of the Director involved.
Current report
On September 30, 2025, the Corporation redeemed $9.0 million of its $15.0 million fixed to floating subordinate notes due September 1, 2030 utilizing excess cash on hand. After the redemption, the Corporation had $11.0 million of unsecured subordinated debt notes remaining outstanding of which $6.0 million mature on September 1, 2030 and $5.0 million mature on September 1, 2035. The notes are recorded on the consolidated balance sheet net of remaining debt issuance costs totaling $159 thousand which is being amortized on a pro-rata basis, based on the maturity date of the notes, on an effective interest method. The subordinated notes totaling $6.0 million have a variable interest rate of 90-day Average Secured Overnight Financing Rate (SOFR) plus 4.93% and will reset quarterly. The subordinated notes totaling $5.0 million have a fixed interest rate of 5.25% through June 29, 2030, then convert to a variable rate of 90-day SOFR plus 4.92% for the applicable interest periods through maturity. The Corporation may, at its option, redeem the notes at par, in whole or in part, at any time 5-years prior to the maturity. The notes are structured to qualify as Tier 2 Capital for the Corporation and there are no debt covenants on the notes.
Removed paragraphs (9)
Previous report
For the Three and Six Months Ended June 30, 2025 and 2024
Previous report
Wealth Management fees were $4.6 million for the first six months of 2025 compared to $4.3 million for the first six months of 2024. Assets under management totaled $1.4 billion as of June 30, 2025.
Previous report
For the second quarter of 2025, the provision for credit losses was $635 thousand compared to $546 thousand for the second quarter of 2024. Year-to-date the provision for credit losses was $1.4 million for the first six months of 2025 compared to $998 thousand for the same period in 2024. The increase in the provision expense was due primarily to loan growth.
Previous report
Total net loans increased $119.6 million (8.7%) to $1.500 billion on June 30, 2025 from December 31, 2024.
Previous report
Total deposits increased $77.8 million (4.3%) to $1.893 billion on June 30, 2025 from December 31, 2024 at a cost of 1.95% for the first six months of 2025.
Previous report
For the second quarter of 2025, the provision for credit losses on loans was $704 thousand and the provision for unfunded commitments was a reversal of $69 thousand, resulting in a total provision for credit loss expense of $635 thousand. The loan provision expense increase was due primarily to growth in the loan portfolio.
Previous report
For the first six months of 2025, the provision for credit losses on loans was $1.5 million and the provision for unfunded commitments was a reversal of $40 thousand, resulting in a total provision for credit loss expense of $1.4 million. The loan provision expense increase was due primarily to growth in the loan portfolio.
Previous report
The following table presents a comparison of noninterest expense for the six months ended June 30, 2025 and 2024:
Previous report
On August 4, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $15.0 million of subordinated debt notes with a maturity date of September 1, 2030. These notes are noncallable for 5 years and carry a fixed interest rate of 5.00% per year for 5 years and on June 30, 2025, converted to floating rate of SOFR plus 4.93% per year and will reset quarterly. The notes can be redeemed at par beginning 5 years prior to maturity. The Corporation also sold $5.0 million of subordinated debt notes with a maturity date of September 1, 2035. These notes are noncallable for 10 years and carry a fixed interest rate of 5.25% per year for 10 years and then convert to a floating rate of SOFR plus 4.92% per year for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to maturity date of each issue on a pro-rata basis. The proceeds are intended to be used for general corporate purposes.
Reworded paragraphs (42)
Previous wording
A summary of operating results for Franklin Financial Services Corporation for the three and six months ended June 30, 2025 are as follows:
Current wording
A summary of operating results for Franklin Financial Services Corporation for the three and nine months ended September 30, 2025 are as follows:
Previous wording
Net income for the second quarter of 2025 was $5.9 million ($1.32 per diluted share) compared to $3.0 million ($0.66 per diluted share) forthe second quarter of 2024 (an increase of 94.8%).
Current wording
Net Income: $5.4 million ($1.19 per diluted share) an increase of 26.9%compared to $4.2 million ($0.95 per diluted share) for the third quarter of 2024, and a decrease of 9.4% from $5.9 million ($1.32 per diluted share) for the second quarter of 2025.
Previous wording
Net income year-to-date for 2025 was $9.8 million ($2.20 per diluted share) compared to $6.4 million ($1.43 per diluted share) for the same period in 2024 (an increase of 53.7%)
Current wording
Net Income: $15.2 million ($3.39 per diluted share)compared to $10.6 million ($2.41 per diluted share) for the nine months ended September 30, 2024, an increase of 43.1%.
Previous wording
Total assets were $2.287 billion as of June 30, 2025 compared to $2.198 billion at year-end 2024, an increase of 4.1%.
Current wording
Asset Growth: $2.297 billion in assets on September 30, 2025 compared to $2.198 billion at year-end 2024, an increase of 4.5%.
Previous wording
Return on Average Assets (ROA) was 0.89%, Return on Average Equity (ROE) was 13.27% and the Net Interest Margin (NIM) was 3.13% on an annualized basis for the first six months of 2025, compared to an ROA of 0.63%, ROE of 9.71%, and NIM of 2.94%for the same period in 2024.
Current wording
Performance Metrics: Return on Average Assets (ROA) 0.93%, Return on Average Equity (ROE) 13.39%, and Net Interest Margin (NIM) of 3.32% on an annualized basis for the third quarter of 2025, compared to a ROA of 0.80%, ROE of 11.86%, and NIM of 2.97% for the third quarter of 2024.
Previous wording
On July 17, 2025, the Board of Directors declared a $0.33 per share regular quarterly cash dividend for the third quarter of 2025 to be paid on August 28, 2025, toshareholdersof record at the close of business on August 1, 2025. This represents a 3.1% increase over the dividend for the third quarter of 2024.
Current wording
On October 16, 2025, the Board of Directors declared a $0.33 per share regular quarterly cash dividend for the fourth quarter of 2025 to be paid on November 26, toshareholdersof record at the close of business on November 7, 2025. This dividend represents a 3.1% increase over the 2024 fourth quarter dividend.
Previous wording
GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets. By eliminating intangible assets (Goodwill), the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of such a disclosure or release, the Securities and Exchange Commission’s Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table shows the calculation of the non-GAAP measurements as of, or for the six months ended June 30, 2025 and 2024 and the year ended December 31, 2024.
Current wording
GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets. By eliminating intangible assets (Goodwill), the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of such a disclosure or release, the Securities and Exchange Commission’s Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table shows the calculation of the non-GAAP measurements as of, or for the nine months ended September 30, 2025 and 2024 and the year ended December 31, 2024.
Previous wording
Tax equivalent net interest income increased $3.0 million to $17.5 million in the second quarter of 2025 compared to $14.5 million for the same period in 2024. Tax equivalent net interest income increased $1.6 million from balance sheet volume changes and $1.4 million from interest rate changes.
Current wording
Tax equivalent net interest income increased $3.5 million to $18.4 million in the third quarter of 2025 compared to $14.9 million for the same period in 2024. Tax equivalent net interest income increased $1.6 million from balance sheet volume changes and $1.9 million from interest rate changes.
Previous wording
The Allowance for Credit Losses (ACL) ratio for loans was 1.26% at June 30, 2025 unchanged from December 31, 2024. The ACL for unfunded commitments was $2.0 million at June 30, 2025 and December 31, 2024. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Current wording
The provision for unfunded commitments was a reversal of $53 thousand compared to a provision expense of $11 thousand for the same period in 2024. The ACL for unfunded commitments was $1.9 million and $2.0 million on September 30, 2025, and December 31, 2024, respectfully. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Previous wording
For the second quarter of 2025, noninterest income increased $753 thousand from the same period in 2024. Wealth Management fees increased, primarily because of growth in assets under management. Loan service charges increased due to commercial loan prepayment penalties. Other income increased from swap referral fees and a state sales tax refund.
Current wording
For the third quarter of 2025, noninterest income, before securities transactions, increased $261 thousand compared to the same period in 2024. Wealth Management fees increased, primarily because of growth in assets under management and other income increased from swap referral fees and a state sales tax refund. These increases were partially offset by decreases in loan service charges and gains on the sale of loans.
Previous wording
Noninterest expense for the second quarter of 2025 increased $53 thousand compared to the same period in 2024. Salaries and benefits increased $459 thousand primarily in health insurance ($215 thousand), salaries ($161 thousand) and an increase in pay for performance ($117 thousand). Advertising decreased due to the timing of several campaigns and other expense decreased due to the amortization of solar tax credits in 2024.
Current wording
Noninterest expense for the third quarter of 2025 increased $1.2 million compared to the same period in 2024. Salaries and benefits increased $1.1 million primarily in health insurance ($420 thousand), and salaries and commissions ($546 thousand). Legal and professional fees increased, primarily in audit related fees for enhanced reviews as the Corporation expects to move to an Accelerated Filer status with the SEC as of December 31, 2025. Advertising decreased due to the timing of several campaigns and other expense decreased due to the amortization of solar tax credits in 2024.
Previous wording
For the second quarter of 2025, the Corporation recorded a Federal income tax expense of $1.4 million and state tax expense of $59 thousand compared to $646 thousand for federal income tax and $100 thousand for state income tax in the same quarter in 2024. The effective tax rate for the second quarter of 2025 was 19.3% compared to 17.6% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.
Current wording
For the third quarter of 2025, total income tax was $1.3 million, comprised of $1.2 million in Federal income tax and $55 thousand in state income taxes. Income tax for the third quarter increased by $419 thousand compared to the third quarter of 2024, due to higher pre-tax income in 2025. The effective tax rate for the third quarter of 2025 was 19.6% compared to 17.3% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.
Previous wording
Tax equivalent net interest income increased $5.0 million to $33.3 million in the first six months of 2025 compared to $28.3 million for the same period in 2024. Tax equivalent net interest income increased $2.0 million from balance sheet volume changes and $3.0 million from interest rate changes.
Current wording
Tax equivalent net interest income increased $8.6 million to $51.7 million in the first nine months of 2025 compared to $43.2 million for the same period in 2024. Tax equivalent net interest income increased $3.6 million from balance sheet volume changes and $5.0 million from interest rate changes.
Previous wording
The Allowance for Credit Losses (ACL) ratio for loans was 1.26% at June 30, 2025 unchanged from December 31, 2024. The ACL for unfunded commitments was $2.0 million at June 30, 2025 and December 31, 2024. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Current wording
The provision for unfunded commitments was a reversal of $93 thousand compared to a reversal of $41 thousand for the same period in 2024. The ACL for unfunded commitments was $1.9 million and $2.0 million on September 30, 2025, and December 31, 2024, respectfully. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Previous wording
For the first six months of 2025, noninterest income increased $1.1 million from the same period in 2024. Wealth Management fees increased, primarily because of growth in assets under management. Loan service charges increased due to commercial loan prepayment penalties. Other income increased from swap referral fees and a state sales tax refund.
Current wording
For the first nine months of 2025, noninterest income (before securities transactions) increased $1.3 million over the same period in 2024. Wealth Management fees increased $531 thousand, primarily because of growth in assets under management. Loan service charges increased due to commercial loan prepayment penalties. Other income increased from swap referral fees ($339 thousand over 2024) and a state sales tax refund ($326 thousand).
Previous wording
The following table presents a comparison of noninterest income for the six months ended June 30, 2025 and 2024:
Current wording
The following table presents a comparison of noninterest income for the nine months ended September 30, 2025 and 2024:
Previous wording
Noninterest expense for the first six months of 2025 increased $1.3 million compared to the same period in 2024. Salaries and benefits increased $1.2 million primarily in health insurance ($507 thousand), salaries ($407 thousand) and an increase in pay for performance ($187 thousand). Advertising decreased due to the timing of several campaigns and FDIC insurance increased due to growth in the balance sheet. Other expense decreased due to the amortization of solar tax credits in 2024.
Current wording
Noninterest expense for the first nine months of 2025 increased $2.6 million compared to the same period in 2024. Salaries and benefits increased $2.3 million primarily in salaries and commissions ($991 thousand), health insurance ($926 thousand), and an increase in incentive compensation ($212 thousand). Legal and professional fees increased, primarily in audit related fees for enhanced reviews as the Corporation expects to move to an Accelerated Filer status with the SEC as of December 31, 2025, and professional consulting services. Advertising decreased due to the timing of several campaigns and FDIC insurance increased due to growth in the balance sheet. Other expense decreased $362 thousand due to the amortization of solar tax credits in 2024.
Previous wording
For the first six months quarter of 2025, the Corporation recorded a Federal income tax expense of $2.3 million and state tax expense of $32 thousand compared to $1.3 million for federal income tax and $100 thousand for state income tax in the same quarter in 2024. The effective tax rate for the first six months of 2025 was 19.0% compared to 16.6% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.
Current wording
For the nine months of 2025, total income tax was $3.6 million, comprised of $3.5 million in Federal income tax and $86 thousand in state income taxes. Income tax for the 2025 year-to-date period increased by $1.4 million over the same period of 2024 due to higher pre-tax income in 2025. The effective tax rate for the first nine months of 2025 was 19.2% compared to 16.9% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.
Previous wording
Cash and cash equivalents totaled $207.8 million at June 30, 2025, an increase of $4.2 million from the prior year-end balance of $203.6 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($168.6 million). At June 30, 2025, the Corporation had posted cash collateral of $5.6 million to a counterparty in a derivative transaction.
Current wording
Cash and cash equivalents totaled $188.1 million on September 30, 2025, a decrease of $15.5 million from the prior year-end balance of $203.6 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($155.7 million). As of September 30, 2025, the Corporation had posted cash collateral of $6.5 million to a counterparty in a derivative transaction.
Previous wording
Available for Sale (AFS) Securities: At June 30, 2025, the AFS securities portfolio had an amortized cost of $518.2 million, a decrease of $35.8 million from the prior year-end, and a fair value of $481.3 million, a decrease of $27.3 million from the prior year-end. During the first six months of 2025, the portfolio returned $35.7 million of principal and there were no new purchases. The Bank did not sell any investments in the first six months of 2025. The AFS portfolio had a net unrealized loss of $37.0 million at June 30, 2025 compared to a net unrealized loss of $45.4 million at the prior year-end. The AFS portfolio averaged $496.7 million with a tax equivalized yield of 4.07% for the six months ended June 30, 2025. This compares to an average of $461.9 million and a tax-equivalized yield of 3.69% for the same period in 2024.
Current wording
Available for Sale (AFS) Securities: At September 30, 2025, the AFS securities portfolio had an amortized cost of $499.7 million, a decrease of $54.3 million from the prior year-end, and a fair value of $469.3 million, a decrease of $39.3 million from the prior year-end. During the first nine months of 2025, the portfolio returned $54.2 million of principal and there were no new purchases. The Bank did not sell any investments in the first nine months of 2025. The AFS portfolio had a net unrealized loss of $30.4 million at September 30, 2025 compared to a net unrealized loss of $45.4 million at the prior year-end. The AFS portfolio averaged $488.9 million with a tax equivalized yield of 4.01% for the nine months ended September 30, 2025. This compares to an average of $461.9 million and a tax-equivalized yield of 3.70% for the same period in 2024.
Previous wording
The AFS portfolio holdings are classified by type of security issuer. U.S. Agency mortgage-backed and collateralized mortgage obligations are issued by a U.S. Government Agency or a government sponsored entity and securitized by pools of residential and commercial mortgages. Municipal securities are issued by state and local government entities and consist of taxable and tax-exempt securities. Many municipal securities have credit enhancements in the form of private bond insurance or other credit support. Corporate securities are mostly subordinated notes issued by community banks with the remainder consisting of five trust preferred securities. Non-Agency mortgage-backed and collateralized mortgage obligation securities are issued by private entities and securitized by residential and commercial mortgages. Many of these securities benefit from credit enhancements in the form of subordinated tranches and overcollateralization. Asset-backed securities are issued by or insured by a U.S. Government Agency and securitized by loan pools other than mortgages.
Current wording
The AFS portfolio holdings are classified by type of security issuer. U.S. Agency mortgage-backed and collateralized mortgage obligations are issued by a U.S. Government Agency or a government sponsored entity and securitized by pools of residential and commercial mortgages. Municipal securities are issued by state and local government entities and consist of taxable and tax-exempt securities. Many municipal securities have credit enhancements in the form of private bond insurance or other credit support. Corporate securities are mostly subordinated notes issued by community banks with the remainder consisting of four trust preferred securities. Non-Agency mortgage-backed and collateralized mortgage obligation securities are issued by private entities and securitized by residential and commercial mortgages. Many of these securities benefit from credit enhancements in the form of subordinated tranches and overcollateralization. Asset-backed securities are issued by or insured by a U.S. Government Agency and securitized by loan pools other than mortgages.
Previous wording
Restricted Stock at Cost: The Bank held $8.9 million of restricted stock at June 30, 2025 and $8.8 million at December 31, 2024. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh (the FHLB). The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.
Current wording
Restricted Stock at Cost: The Bank held $8.9 million of restricted stock at September 30, 2025 and $8.8 million at December 31, 2024. Except for $30 thousand, this investment represents stock in Federal Home Loan Bank of Pittsburgh (the FHLB). The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is no public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.
Previous wording
Total residential real estate loans increased by $28.9 million over year-end 2024, primarily in consumer first lien loans. For the first six months of 2025, the Bank originated $54.8 million in mortgages compared to $51.6 million for the same period in 2024, including $15.9 million for sale through the secondary market. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area.
Current wording
Total residential real estate loans increased by $44.8 million over year-end 2024, primarily in consumer first lien loans. For the first nine months of 2025, the Bank originated $95.3 million in mortgages, including $28.6 million for sale through the secondary market compared to $90.1 million of total originations for the same period in 2024. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area.
Previous wording
Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category ($25.6 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $22.1 million at June 30, 2025. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, including residential real estate and land development loans, occasionally provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.
Current wording
Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category ($27.3 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $24.4 million at September 30, 2025. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, including residential real estate and land development loans, occasionally provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.
Previous wording
Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans and land development loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans increased to $872.2 million from $803.4 million at the end of 2024. Included in commercial real estate are approximately $709 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio is 349.6% at June 30, 2025 compared to 332.9% at December 31, 2024.
Current wording
Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans and land development loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans increased to $904.6 million at September 30, 2025 from $803.4 million at the end of 2024. Included in commercial real estate are approximately $532 million of nonowner occupied loans, non-construction loans located primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio is 357.6% of risk-based capital at September 30, 2025 compared to 332.9% at December 31, 2024.
Previous wording
Also included in CRE are real estate construction loans totaling $195.3 million. At June 30, 2025, the Bank had $87.2 million in real estate construction loans funded with an interest reserve and capitalized $1.8 million of interest in the first six months of 2025 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent first-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and AIA documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.
Current wording
Also included in CRE are real estate construction loans totaling $207.1 million. At September 30, 2025, the Bank had $103.3 million in real estate construction loans funded with an interest reserve and capitalized $2.7 million of interest in the first nine months of 2025 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent first-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and AIA documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.
Previous wording
Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $8.5 million to $239.1 million at June 30, 2025, compared to $230.6 million at the end of 2024. At June 30, 2025, the Bank had $104.0 million in tax-free loans compared to $105.0 million at December 31, 2024.
Current wording
Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans decreased $312 thousand to $230.3 million at September 30, 2025, compared to $230.6 million at the end of 2024. On September 30, 2025, the Bank had $100.6 million in tax-free loans compared to $105.0 million at December 31, 2024.
Previous wording
Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At June 30, 2025, the outstanding commercial participations were $114.0 million, or 9.5%, of commercial purpose loans and 7.5% of total gross loans compared to $107.2 million at December 31, 2024, or 9.6%, of commercial purpose loans and 7.7% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $133.0 million, compared to $133.1 million at December 31, 2024. The commercial loan participations are comprised of $30.0 million of commercial loans and $84.0 million of CRE loans, reported in the respective loan class.
Current wording
Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. On September 30, 2025, the outstanding commercial participations were $109.7 million, or 9.0%, of commercial purpose loans and 7.0% of total gross loans compared to $107.2 million at December 31, 2024, or 9.6%, of commercial purpose loans and 7.7% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $140.8 million, compared to $133.1 million at December 31, 2024. The commercial loan participations are comprised of $26.8 million of commercial loans and $82.9 million of CRE loans, reported in the respective loan class.
Previous wording
Consumer loans: This category had a balance of $8.3 million at June 30, 2025, compared to $8.9 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.
Current wording
Consumer loans: This category had a balance of $9.5 million at September 30, 2025, compared to $8.9 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.
Previous wording
Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $45.2 million at June 30, 2025 compared to $21.5 million at December 31, 2024. The increase was primarily due to credit downgrades on a mixed-use construction project and two hotel loans during the first six months of 2025. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $10.8 million of nonaccrual loans as of June 30, 2025 and $266 thousand as of December 31, 2024. The credit composition of the watch list (loans rated 6, 7, or 8), by primary collateral is shown in Note 6 of the accompanying financial statements.
Current wording
Watch list loans (loans rated 6, 7, or 8) exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $53.5 million on September 30, 2025 compared to $21.5 million at December 31, 2024. The increase from year-end 2024 was primarily in commercial real estate loans rated 6 or 7, including an increase of 10.4 million in nonaccrual loans. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $10.7 million of nonaccrual loans as of September 30, 2025 and $266 thousand as of December 31, 2024. The credit composition of the watch list, by primary collateral is shown in Note 6 of the accompanying financial statements.
Previous wording
The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing up to 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At June 30, 2025, the Bank had loans of $12.7 million (0.8% of gross loans) that exceeded the supervisory limit, compared to 1.0% at year-end 2024.
Current wording
The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing up to 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. On September 30, 2025, the Bank had loans of $12.1 million (5.7% of risk-based capital) that exceeded the supervisory limit, compared to 7.1% at year-end 2024.
Previous wording
Loan quality, as measured by nonaccrual loans, totaled $10.8 million at June 30, 2025 compared to $266 thousand at December 31, 2024 and the nonperforming loan to gross loans ratio was 0.71% at June 30, 2025 compared to 0.02% at December 31, 2024. Loans past due 90-days or more, but still accruing, totaled $0 at June 30, 2025. The nonaccrual loans are comprised primarily of two loans: 1) a $7.4 million construction loan on a mixed-use project, and 2) a $2.9 million hotel loan. The construction loan is current on payments as of June 30, 2025. The Bank is in discussion with the developer to determine the additional sources of funding needed, including additional equity contributions, to bring the project to completion. In addition, the Bank has ordered a new appraisal and has engaged a construction expert to review the status of the project. The hotel was sold at auction in July 2025 and, pending a successful closing on the sale, the net proceeds are expected to fully satisfy the loan.
Current wording
Loan quality, as measured by nonaccrual loans, totaled $10.7 million on September 30, 2025 compared to $266 thousand on December 31, 2024 and the nonperforming loan to gross loans ratio was 0.68% at September 30, 2025 compared to 0.02% on December 31, 2024. Loans past due 90-days or more, but still accruing, totaled $12 thousand on September 30, 2025. The nonaccrual loans are comprised primarily of two loans to unrelated borrowers: 1) a $7.3 million commercial real estate construction loan on a mixed-use project, and 2) a $2.9 million hotel loan. The construction loan is current on payments as of September 30, 2025, the developer invested additional capital in the project during the third quarter of 2025, other investors are expected to provide additional capital during the fourth quarter of 2025, and the bank has no commitment to lend additional money. Nevertheless, the Bank established a specific reserve of $894 thousand for this loan as of September 30, 2025, and with this reserve believes is sufficiently collateralized for this loan. The hotel was auctioned in
Previous wording
The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At June 30, 2025, the pooled loan reserve was $19.1 million and approximately 69% of the pooled reserve was from the qualitative component, unchanged from year-end 2024. The was no specific reserve as of June 30, 2025 or December 31, 2024.
Current wording
The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At September 30, 2025, the pooled loan reserve was $19.5 million and approximately 70% of the pooled reserve was from the qualitative component. On September 30, 2025 the Bank had a specific reserve of $894 thousand on one commercial real estate construction loan compared to no specific reserve as of December 31, 2024.
Previous wording
The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses. At June 30, 2025 and December 31, 2024, the ACL for unfunded commitments totaled $2.0 million.
Current wording
The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses. The ACL for unfunded commitments was $1.9 million and $2.0 million on September 30, 2025 and December 31, 2024, respectively.
Previous wording
Total deposits increased $77.8 million during the first six months of 2025 to $1.893 billion. Noninterest checking increased $3.7 million, primarily in municipal and small business accounts. Interest-bearing checking decreased by $9.2 million, primarily in municipal deposits, while the Bank’s Money Management product increased $80.5 million. Time deposits increased $3.9 million.
Current wording
Total deposits increased $87.2 million during the first nine months of 2025 to $1.903 billion. Noninterest checking increased $21.6 million to $311.9 million (16.4% of total deposits), primarily in municipal and small business accounts. Interest-bearing checking increased by $7.0 million, primarily in municipal deposits, while the Bank’s Money Management product increased $90.3 million across all sectors. Time deposits decreased $29.8 million, reflecting the maturity of a one-year time deposit account for $29.4 million in September 2025. At maturity, this deposit moved to a money management account and was withdrawn from the Bank early in the fourth quarter of 2025.
Previous wording
As of June 30, 2025, the Bank had deposits of $328.0 million placed in the IntraFi Network reciprocal deposit program ($110.1 million in interest-bearing checking and $186.4 million in money management) and $31.5 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At June 30, 2025, the Bank’s reciprocal deposits were 15.5% of the Bank’s total liabilities compared to 16.2% at year-end 2024.
Current wording
As of September 30, 2025, the Bank had deposits of $311.5 million placed in the IntraFi Network reciprocal deposit program ($126.6 million in interest-bearing checking and $184.9 million in money management) and $22.2 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At September 30, 2025, the Bank’s reciprocal deposits were 15.7% of the Bank’s total liabilities compared to 16.2% at year-end 2024.
Previous wording
The Bank estimates that approximately 89% of its deposits are FDIC insured or collateralized as of June 30, 2025, compared to 85% at December 31, 2024.
Current wording
The Bank estimates that approximately 88% of its deposits are FDIC insured or collateralized as of September 30, 2025, compared to 85% at December 31, 2024.
Previous wording
Total shareholders’ equity increased $12.6 million to $157.4 million as of June 30, 2025 from December 31, 2024. Retained earnings increased $6.9 million in 2025, with net income of $9.8 million partially offset by cash dividends of $2.9 million. Accumulated other comprehensive income/(loss) (AOCI) improved $4.7 million since year-end 2024. The Corporation’s Dividend Reinvestment Plan (DRIP) added $203 thousand in new capital from optional cash contributions and $511 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 29.39% for the first six months of 2025 compared to 43.88% for the same period in 2024.
Current wording
Total shareholders’ equity increased $21.6 million to $166.3 million as of September 30, 2025 from December 31, 2024. Retained earnings increased $10.8 million in 2025, with net income of $15.2 million partially offset by cash dividends of $4.4 million. Accumulated other comprehensive income/(loss) (AOCI) improved $9.7 million since year-end 2024. The Corporation’s Dividend Reinvestment Plan (DRIP) added $213 thousand in new capital from optional cash contributions and $768 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 28.76% for the first nine months of 2025 compared to 39.74% for the same period in 2024.
Previous wording
As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the second quarter of 2025, the Corporation paid a $0.33 per share dividend, compared to $0.32 paid in the first quarter of 2025. On July 17, 2025, the Board of Directors declared a $0.33 per share regular quarterly dividend for the third quarter of 2025, which will be paid on August 27, 2024. This represents a 3.1% increase over the third quarter 2024 dividend.
Current wording
As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the third quarter of 2025, the Corporation paid a $0.33 per share dividend, compared to $0.33 paid in the second quarter of 2025. On October 16, 2025, the Board of Directors declared a $0.33 per share regular quarterly dividend for the fourth quarter of 2025, which will be paid on November 26, 2024. This represents a 3.1% increase over the fourth quarter 2024 dividend.
Previous wording
In January 2025, the Board of Directors authorized a repurchase plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions over a one-year period. During the first six months of 2025, 6,700 shares were purchased to fund the dividend reinvestment plan.
Current wording
In January 2025, the Board of Directors authorized a repurchase plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions over a one-year period. During the first nine months of 2025, 12,800 shares were purchased to fund the quarterly dividend reinvestment plan.
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