FRANKLIN FINANCIAL SERVICES CORP /PA/

Previous wording

Franklin Financial Services Corporation reported consolidated earnings of $11.1 million ($2.51 per diluted share) for 2024 compared with $13.6 million ($3.10 per diluted share) for the same period in 2023.

Current wording

Franklin Financial Services Corporation reported consolidated earnings of $21.2 million ($4.74 per diluted share) for 2025 compared with $11.1 million ($2.51 per diluted share) for the same period in 2024.

Previous wording

Total assets at December 31, 2024 were $2.198 billion compared to $1.836 billion at December 31, 2023, an increase of 19.7%. Significant balance sheet changes since December 31, 2023, include:

Current wording

Total assets at December 31, 2025 were $2.239 billion compared to $2.198 billion at December 31, 2024, an increase of 1.9%. Significant balance sheet changes since December 31, 2024, include:

Previous wording

The net loan portfolio increased $139.5 million (11.2%) over the year-end 2023 balance, primarily from increases in commercial real estate loans of $99.6 million and first lien 1-4 family residential real estate loans of $35.3 million.

Current wording

Net loans increased $160.2 million (11.6%) at year-end 2025 over the year-end 2024 balance, primarily from increases in commercial real estate loans of $100.2 million, and 1- 4 family residential real estate of $45.6 million. On December 31, 2025, commercial real estate loans totaled $903.6 million (57.9% of total gross loans), with the largest collateral segments being: apartment buildings ($181.7 million), hotels and motels ($102.2 million), land development ($97.0 million), office buildings ($92.8 million) and shopping centers ($87.9 million) which are located primarily in south-central Pennsylvania.

Previous wording

Total borrowings were $200.0 million from the Federal Home Loan Bank of Pittsburgh (FHLB).

Current wording

On December 31, 2025, the Bank had borrowings of $200.0 million from the Federal Home Loan Bank of Pittsburgh (FHLB). The Bank has additional funding capacity with the Federal Reserve, FHLB and correspondent banks.

Previous wording

Shareholders’ equity increased $12.6 million from December 31, 2023. Retained earnings increased $5.5 million net of dividends of $5.6 million paid to shareholders during 2024. The accumulated other comprehensive loss (AOCI) decreased from $40.9 million at year-end 2023 to $35.5 million from a decrease in the unrealized loss of the investment portfolio due in part to the realization of losses on the previously mentioned security sales. At December 31, 2024, the book value of the Corporation’s common stock was $32.69 per share and tangible book value was $30.65 per share. In January 2025, an open market repurchase plan was approved to repurchase 150,000 shares through December 31, 2025. The Bank is considered to be well-capitalized under regulatory guidance as of December 31, 2024.

Current wording

Shareholders’ equity increased $30.5 million (21.1%) from December 31, 2024. Retained earnings increased $15.4 million, net of dividends of $5.8 million paid to shareholders during 2025. The accumulated other comprehensive loss (AOCI) decreased from $35.5 million at year-end 2024 to $21.6 million from a decrease in the unrealized loss in the investment portfolio. On December 31, 2025, the book value of the Corporation’s common stock was $39.11 per share and tangible book value(1) was $37.10 per share. In January 2025, an open market repurchase plan was approved to repurchase 150,000 shares of common stock over a one-year period and 19,300 shares of common stock were repurchased in 2025 under the approved plan to fund the quarterly dividend reinvestment plan and Employee Stock Purchase Plan. In December 2025, a new repurchase plan to repurchase 150,000 shares through December 31, 2026, was approved. The Bank is considered to be “well-capitalized” under regulatory guidelines as of December 31, 2025.

Previous wording

Table 1 shows the change in tax-equivalent net interest income year over year. Changes in interest income and expense are driven by changes in balance (volume) and changes in the average rate on interest-earning assets and interest-bearing liabilities. The changes attributable to rate or volume are shown in Table 2. The yield on earning assets (Table 3) increased to 5.16% for 2024 from 4.70% for 2023. The benefit provided by tax-exempt income was $938 thousand in 2024.

Current wording

Table 1 shows the change in tax-equivalent net interest income year over year. Changes in interest income and expense are driven by changes in balance (volume) and changes in the average rate on interest-earning assets and interest-bearing liabilities. The changes attributable to rate or volume are shown in Table 2. The yield on earning assets (Table 3) increased to 5.31% for 2025 from 5.16% for 2024. The benefit provided by tax-exempt income was $904 thousand in 2025.

Previous wording

In 2024, the Bank recorded gross loan charge-offs of $560 thousand, which were partially offset by $186 thousand of recoveries, resulting in net loan charge-offs of $374 thousand. For 2024, the Corporation recorded $2.0 million as a provision for credit loss on loans. These changes resulted in an increase in the allowance for credit losses (ACL) on loans to $17.7 million at year-end 2024 (1.26% of total loans), compared to $16.1 million at year-end 2023 (1.28% of total loans). The provision for credit losses for unfunded commitments was $8 thousand for 2024 with reserve balance of $2.0 million at year-end 2024, unchanged from year-end 2023. Management closely monitors the credit quality of the portfolio in order to ensure that an appropriate ACL is maintained. As part of this process, Management performs a comprehensive analysis of the loan portfolio considering delinquencies trends and events, current economic forecasts and conditions, and other relevant factors to determine the adequacy of the allowance for credit losses and the provision for credit losses. For more information, refer to the Loan Quality discussion and Table 10.

Current wording

In 2025, the Bank recorded gross loan charge-offs of $167 thousand, which were partially offset by $139 thousand of recoveries, resulting in net loan charge-offs of $28 thousand. For 2025, the Corporation recorded $3.0 million as a provision for credit loss on loans. These changes resulted in an increase in the allowance for credit losses (ACL) on loans to $20.7 million at year-end 2025 (1.32% of total loans), compared to $17.7 million at year-end 2024 (1.26% of total loans). The provision for credit losses for unfunded commitments was a reversal of $131 thousand for 2025 with a reserve balance of $1.9 million at year-end 2025, a decrease from $2.0 million at year-end 2024. Management closely monitors the credit quality of the portfolio in order to ensure that an appropriate ACL is maintained. As part of this process, Management performs a comprehensive analysis of the loan portfolio considering delinquencies trends and events, current economic forecasts and conditions, and other relevant factors to determine the adequacy of the allowance for credit losses and the provision for credit losses. For more information, refer to the Loan Quality discussion and Table 10.

Previous wording

Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products. Asset management fees are recurring in nature and are affected by the fair value of assets under management at the time the fees are recognized. Asset management fees totaled $7.8 million for 2024 and $6.9 million for 2023. The fair value of trust assets under management was $1.169 billion at year-end, compared to $1.095 billion at the end of 2023. Estate fees were $508 thousand in 2024 compared to $295 thousand in 2023. By the nature of an estate settlement, these fees are considered nonrecurring. Commissions from the sale of insurance and investment products decreased by $58 thousand compared to 2023.

Current wording

Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products. Asset management fees are recurring in nature and are affected by the fair value of assets under management at the time the fees are recognized. Asset management fees totaled $8.4 million for 2025 and $7.8 million for 2024. The fair value of assets under management was $1.421 billion at year-end, compared to $1.169 billion at the end of 2024. Estate fees were $458 thousand in 2025 compared to $508 thousand in 2024. By the nature of an estate settlement, these fees are considered nonrecurring. Commissions from the sale of insurance and investment products increased by $21 thousand compared to the prior year.

Previous wording

Gain on sale of loans: This category is comprised of fees from the sale of residential mortgages with servicing released in the secondary market. Due to higher origination volume, the Bank sold more loans in 2024 compared to 2023.

Current wording

Gain on sale of loans: This category is comprised of fees from the sale of residential mortgages with servicing released in the secondary market. Due to higher origination volume, the Bank sold more loans in 2025 compared to the prior year.

Previous wording

Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. The decrease of $44 thousand in this category was due to a lower volume of overdraft fees.

Current wording

Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. The increase of $87 thousand in this category was due to an increase of account analysis fees partially offset by a decrease in overdraft protection program fees.

Previous wording

Other service charges and fees: The most significant items in this category include fees from the Bank’s merchant card program and ATM fees. ATM fees increased $184 thousand.

Current wording

Other service charges and fees: The most significant items in this category include fees from the Bank’s merchant card program and ATM fees. Merchants card program fees increased $39 thousand while ATM fees decreased $86 thousand compared to the prior year.

Previous wording

Debit card income: Debit card fees are comprised of both a retail and business card program. Retail fees increased by $93 thousand, while business card fees increased $29 thousand. The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expense.

Current wording

Debit card income: Debit card fees are comprised of both a retail and business card program. Retail fees increased by $54 thousand, while business card fees increased $37 thousand compared to the prior year. The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expenses.

Previous wording

Net (losses) gains on sales of debt securities: The Bank took losses of $4.3 million on the sale of investment securities as part of a portfolio restructuring during the fourth quarter of 2024. The event is more thoroughly described on a Form 8-K previously filed by the Corporation on October 18, 2024.

Current wording

Net (losses) gains on sales of debt securities: For 2025, there were no sales of debt securities. The Bank took losses of $4.3 million on the sale of investment securities as part of a portfolio restructuring during the fourth quarter of 2024.

Previous wording

Salaries and benefits: This category is the largest noninterest expense category and includes expenses for salaries, health benefits, insurance, pension service, employment taxes and other employee benefit programs. This category increased by $3.9 million compared to the prior year from: salary and commission increases of $2.1 million due to merit and annual increases, and new positions, health insurance increases of $703 thousand, incentive compensation plan increase of $532 thousand, stock compensation expense of $151 thousand and 401K match increase of $125 thousand. See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans.

Current wording

Employee benefits: This category includes expenses for health benefits, insurance, pension service, employment taxes and other employee benefit programs. This category increased by $1.3 million compared to the prior year from health insurance increased $1.0 million, 401K match increased $149 thousand and stock compensation increased $147 thousand. See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans.

Previous wording

Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes. The increase in 2024 was partially due to a new community office in Linglestown, Dauphin County, which opened in the fall of 2024.

Current wording

Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes. The increase in 2025 was due primarily to overall higher operating expenses.

Previous wording

Legal and professional fees: This category consists of fees paid to outside legal counsel, consultants, and audit fees.

Current wording

Legal and professional fees: This category consists of fees paid to outside legal counsel, consultants, and audit fees, which increased due to the Corporation moving to accelerated filer status with the SEC at the end of 2025.

Previous wording

Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.2 million of the total data processing costs in 2024 and $2.0 million in 2023. The increase in 2024 was due primarily to increases in software expenses.

Current wording

Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.4 million of the total data processing costs in 2025 and $2.2 million in 2024. The increase in total data processing expenses for 2025 was due primarily to increases in the core processing system.

Previous wording

Nonservice pension: The change in the nonservice pension expense was due to higher asset returns and amortization.

Current wording

Nonservice pension: The change in the nonservice pension expense was due to a lower expected return on plan assets and higher interest costs. See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans.

Previous wording

In 2024, the Corporation recorded a Federal income tax expense of $2.0 million compared to $2.2 million in 2023. The effective tax rate was 16.6% for 2024 and 13.7% for 2023, which reflects the benefit of $367 thousand in tax credits recorded during 2023. Without the tax credits, the Bank’s effective tax rate would have been 16.0% in 2023. The Corporation’s 2024 and 2023 effective tax rate was lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance. For a more comprehensive analysis of Federal income tax expense refer to Note 14 of the accompanying consolidated financial statements.

Current wording

In 2025, the Corporation recorded income tax expense of $5.0 million compared to $2.2 million in 2024. The effective tax rate was 19.2% for 2025 and 16.6% for 2024. The Corporation’s 2025 and 2024 effective tax rates were lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance. For a more comprehensive analysis of income tax expense, refer to Note 14 of the accompanying consolidated financial statements.

Previous wording

One method of evaluating the Corporation’s condition is in terms of its sources and uses of funds. Assets represent uses of funds while liabilities represent sources of funds. At December 31, 2024, total assets increased 19.7% over the prior year to $2.198 billion from $1.836 billion at the end of 2023.

Current wording

One method of evaluating the Corporation’s condition is in terms of its sources and uses of funds. Assets represent uses of funds while liabilities represent sources of funds. At December 31, 2025, total assets increased 1.9% over the prior year to $2.239 billion from $2.198 billion at the end of 2024.

Previous wording

Short-term interest-earning deposits, held primarily at the Federal Reserve, increased to $183.8 million at December 31, 2024 from $3.6 million at December 31, 2023, due to a new FHLB term borrowing of $200.0 million in 2024 which was not fully deployed during 2024. Long-term interest-earning deposits decreased from $6.2 million at December 31, 2023 to $1.5 million at December 31, 2024. The average balance of interest-earning deposits increased to $176.0 million in 2024 compared to $50.5 million in 2023.

Current wording

Short-term interest-earning deposits, held primarily at the Federal Reserve, decreased to $105.3 million at December 31, 2025 from $183.8 million at December 31, 2024, as these funds were used to support loan growth which exceeded deposit growth and cash flow from debt securities. Long-term interest-earning deposits decreased from $1.5 million at December 31, 2024 to $999 thousand at December 31, 2025. The average balance of interest-earning deposits increased to $176.1 million in 2025 compared to $176.0 million in 2024.

Previous wording

The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The mix of securities and investing decisions are made as a component of balance sheet management. Debt securities include U.S. Government Agencies, U.S. Government Agency mortgage-backed securities, non-agency mortgage-backed securities, state and municipal government bonds, and corporate debt primarily in the form of bank-issued subordinated debt. The weighted average life of the portfolio is 5.6 years, the effective duration (which measures the change in fair value for a 1% change in interest rates) is 4.8%, and $177.9 million (fair value) is pledged as collateral for deposits. The Bank has no investments in a single issuer that exceeds 10% of shareholders equity, except for U.S. Treasuries. All securities are classified as available for sale and all investment balances refer to fair value, unless noted otherwise. The following table presents the amortized cost and estimated fair value of investment securities by type at December 31 for the past two years:

Current wording

The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The mix of securities and investing decisions are made as a component of balance sheet management. The AFS portfolio holdings are classified by type of security issuer. Agency mortgage-backed and collateralized mortgage obligation securities are issued by a U.S. Government Agency or a government sponsored entity and securitized by pools are 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 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. The weighted average life of the portfolio is 5.4 years, the effective duration (which measures the change in fair value for a 1% change in interest rates) is 4.8%, and $353.5 million (fair value) is pledged as collateral for public deposits, trust deposits, FHLB borrowing commitments and Federal Reserve Bank discount window availability. The Bank has no investments in a single issuer that exceeds 10% of shareholders equity, except for U.S. Treasuries. All securities are classified as available for sale and all investment balances refer to fair value, unless noted otherwise. The following table presents the amortized cost and estimated fair value of investment securities by type at December 31 for the past two years:

Previous wording

Table 3, previously presented, shows the two-year trend of average balances and yields on the investment portfolio. The tax-equivalent yield on the portfolio increased from 3.55% in 2023 to 3.82% in 2024. U.S. Agency mortgage-backed securities and non-agency mortgage-backed securities comprise the largest sectors by fair value of the portfolio, approximately 33% and 29% respectively. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors. The portfolio returned $97.3 million of principal cash flow in 2024 while $136.3 million was invested into the portfolio during the year.

Current wording

Table 3, previously presented, shows the two-year trend of average balances and yields on the investment portfolio. The tax-equivalent yield on the portfolio increased from 3.75% in 2024 to 3.93% in 2025. Municipal bonds and Agency mortgage-backed securities comprise the largest sectors by fair value of the portfolio, approximately 30% and 29% respectively. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors. The portfolio returned $72.5 million of principal cash flow in 2025 while no funds were invested into the portfolio during the year.

Previous wording

Municipal Bonds: This sector holds $133.6 million or 26% of the total portfolio and the amortized cost decreased by $4.8 million year over year. The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (35% of the portfolio) and taxable (65% of the portfolio) municipal bonds. Sixty-eight percent of the portfolio are general obligation bonds and thirty-two percent are revenue bonds. The portfolio holds bonds from 151 issuers within 34 states. The largest dollar exposures are in the states of Texas (16%), California (13%) and Pennsylvania (13%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.

Current wording

Municipal Bonds: This sector holds $137.8 million or 30% of the total portfolio and the amortized cost decreased by $2.2 million year over year. The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (37% of the portfolio) and taxable (63% of the portfolio) municipal bonds. Seventy percent (70%) of the portfolio are general obligation bonds and thirty percent (30%) are revenue bonds. The portfolio holds bonds from 150 issuers within 32 states. The largest dollar exposures are in the states of Texas (15%), Pennsylvania (13%) and California (12%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.

Previous wording

Corporate Bonds: This sector is comprised primarily of $20.1 million of subordinate debt from 44 different community bank issuers.

Current wording

Corporate Bonds: This sector is comprised primarily of $11.2 million of subordinate debt purchased from 31 different community bank issuers. The purchased subordinate notes, except two having 15-year maturities, were issued on 10-year maturities with initial 5-year fixed interest rates, after which the notes were callable by the issuers and converted to variable interest rates. At December 31, 2025, $5.2 million of the outstanding subordinate notes were callable and accruing interest at variable interest rates, while the remaining $6.0 million of outstanding subordinate notes were within their initial 5-year fixed interest rate periods and were not callable.

Previous wording

Allowance for Credit Losses: For securities with an unrealized loss, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The Bank does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The debt securities in a loss position and subject to evaluation at December 31, 2024 and 2023, were determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments. During 2024, $42.4 million of securities were sold as part of a portfolio restructuring to take advantage of higher market interest rates. The realized pre-tax loss on these sales was $4.3 million.

Current wording

Allowance for Credit Losses: For securities with an unrealized loss, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The Bank does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The debt securities in a loss position and subject to evaluation at December 31, 2025 and 2024, were determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments.

Previous wording

The Bank held $8.8 million of restricted stock at the end of 2024 of which all but $30 thousand is stock in the FHLB, carried at a cost of $100 per share. 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. If FHLB stock were deemed to be impaired, the write-down for the Bank could be significant. 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

The Bank held $8.9 million of restricted stock at the end of 2025 of which all but $30 thousand is stock in the FHLB, carried at a cost of $100 per share. 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. If FHLB stock were deemed to be impaired, the write-down for the Bank could be significant. 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

The loan portfolio increased by 11.2% ($141.1 million) in 2024, due primarily to an increase of $99.6 million in commercial real estate loans and $35.3 million in residential real estate 1-4 family loans. Average gross loans for 2024 increased by $179.2 million to $1.323 billion. Commercial real estate, mortgage and consumer loans showed an increase in average balances during the year, which was partially offset by a decline in commercial loans during the year. The yield on the portfolio increased in 2024 to 5.65% from 5.16% in 2023. Table 3, previously presented, shows the average balances and yields earned on loans for the past two years.

Current wording

The loan portfolio increased by 11.7% ($163.2 million) in 2025, due primarily to an increase of $100.2 million in commercial real estate loans and $45.6 million in residential real estate 1-4 family loans. Average gross loans for 2025 increased by $181.6 million to $1.505 billion. Commercial real estate, mortgage and consumer loans showed an increase in average balances during the year, which was partially offset by a decline in commercial loans during the year. The yield on the portfolio increased in 2025 to 5.84% from 5.65% in 2024. Table 3, previously presented, shows the average balances and yields earned on loans for the past two years.

Previous wording

Residential real estate: This category is comprised of first lien loans and, to a lesser extent, junior liens and lines of credit secured by residential real estate, as well as loans made to individuals secured by unimproved noncommercial real estate. Total residential real estate loans increased $45.0 million in 2024, primarily in consumer first lien loans. In 2024, the Bank originated $123.1 million in mortgages compared to $92.4 million in 2023, including approximately $43.1 million for sale in 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

Residential real estate: This category is comprised of first lien loans and, to a lesser extent, junior liens and lines of credit secured by residential real estate, as well as loans made to individuals secured by unimproved non-commercial real estate. Total residential real estate loans increased $45.6 million in 2025, primarily in consumer first lien loans. In 2025, the Bank originated $136.1 million in mortgages compared to $123.1 million in 2024, including approximately $44.7 million for sale in 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.

Previous wording

Residential real estate construction: The largest component of this category, $20.7 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $11.7 million at December 31, 2024. 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.

Current wording

Residential real estate construction: The largest component of this category, $29.6 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $24.5 million at December 31, 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.

Previous wording

Commercial real estate (CRE): This category includes commercial, industrial, and farm loans, where real estate serves as the primary collateral for the loan. This loan category increased by $99.6 million over the prior year. The three largest growth sectors by collateral in 2024 were apartment buildings, hotels & motels, and office buildings which totaled $49.1 million. Included in commercial real estate are approximately $615.0 million of nonowner occupied loans located in the Bank’s market area of south-central Pennsylvania.

Current wording

Commercial real estate (CRE): This category includes commercial, industrial, and farm loans, where real estate serves as the primary collateral for the loan. This loan category increased by $100.2 million over the prior year. The three largest sectors by collateral in 2025 were apartment buildings ($181.7 million), hotels & motels ($102.2 million), and development land ($97.0 million). Included in commercial real estate are approximately $714.1 million of nonowner occupied loans mostly located in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio was 349.9% of risk-based capital at December 31, 2025 compared to 332.9% at December 31, 2024.

Previous wording

Also included in CRE are real estate construction loans totaling $207.1 million. At December 31, 2024, the Bank had $71.9 million in real estate construction loans funded with an interest reserve and capitalized $3.2 million of interest in 2024 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent third-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 or 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. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.

Current wording

Also included in CRE are real estate construction loans totaling $220.9 million. At December 31, 2025, the Bank had $109.4 million in real estate construction loans funded with an interest reserve and capitalized $4.1 million of interest in 2025 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent third-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 or 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. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.

Previous wording

Commercial: This category includes commercial, industrial, farm, agricultural, and tax-free loans. Collateral for these loans may include business assets or equipment, personal guarantees, or other non-real estate collateral. Commercial loans decreased $12.1 million over the 2023 ending balance. At December 31, 2024, the Bank had approximately $105 million of tax-free loans in its portfolio. This category also includes $7 thousand of PPP loans that are 100% guaranteed by the SBA, compared to $57 thousand at December 31, 2023.

Current wording

Commercial: This category includes commercial, industrial, farm, agricultural, and tax-free loans. Collateral for these loans may include business assets or equipment, personal guarantees, or other non-real estate collateral. Commercial loans decreased $5.1 million over the 2024 ending balance. At December 31, 2025, the Bank had approximately $102 million of tax-free loans in its portfolio.

Previous wording

Participations: At December 31, 2024, the outstanding commercial participations were $107.2 million (9.6% of commercial purpose loans and 7.7% of total gross loans), compared to $97.8 million (9.5% of commercial purpose loans and 7.8% of total gross loans) at the prior year-end. The Bank’s total exposure (including unfunded commitments) to purchased participations was $133.1 million at December 31, 2024 and $135.4 million at December 31, 2023. The loan participations are comprised of $28.4 million of commercial loans and $78.8 million of CRE loans, reported in the respective loan segment.

Current wording

Participations: At December 31, 2025, the outstanding commercial participations were $100.8 million (8.2% of commercial purpose loans and 6.5% of total gross loans), compared to $107.2 million (9.6% of commercial purpose loans and 7.7% of total gross loans) at the prior year-end. The Bank’s total exposure (including unfunded commitments) to purchased participations was $129.3 million at December 31, 2025 and $133.1 million at December 31, 2024. The loan participations are comprised of $26.6 million of commercial loans and $74.2 million of CRE loans, reported in the respective loan segment.

Previous wording

Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $2.0 thousand in 2024 over 2023 ending balances.

Current wording

Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $804 thousand in 2025 over 2024 ending balances.

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 includes both performing and nonperforming loans. Watch list loans totaled $21.5 million at year-end compared to $17.2 million one year earlier. Included in the watch list are $266 thousand of nonaccrual loans at year-end 2024, compared to $147 thousand at year-end 2023. The 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 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 includes both performing and nonperforming loans. Watch list loans totaled $58.8 million at year-end compared to $21.5 million one year earlier. At December 31, 2025, commercial real estate loans rated 7-Substandard increased by $15.7 million and commercial loans rated 6-OAEM increased by $21.6 million from the prior year end. Included in the watch list are $8.5 million of nonaccrual loans at year-end 2025, compared to $266 thousand at year-end 2024. The composition of the watch list (loans rated 6, 7 or 8), by primary collateral, is shown in Note 6 of the accompanying financial statements.

Previous wording

Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank. See Note 6 in the accompanying financial statements for information on the aging of payments in the loan portfolio.

Current wording

Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an ageing report. The ageing report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank. See Note 6 in the accompanying financial statements for information on the age of payments in the loan portfolio.

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 December 31, 2024, the Bank had loans of $14.1 million (1.0% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.1% at the prior year end.

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. At December 31, 2025, the Bank had loans of $16.0 million (1.0% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.0% at the prior year end.

Previous wording

Loan quality, as measured by nonaccrual loans, totaled $266 thousand at December 31, 2024 compared to $147 thousand at December 31, 2023 and the nonperforming loan to total loans ratio was 0.02% at December 31, 2024 compared to 0.01% at December 31, 2023. Loans past due 90-days or more, but still accruing, totaled $2 thousand at December 31, 2024 compared to $5 thousand at the prior year end.

Current wording

Loan quality, as measured by nonaccrual loans, totaled $8.5 million at December 31, 2025 compared to $266 thousand at December 31, 2024 and the nonperforming loan to total loans ratio was 0.55% at December 31, 2025 compared to 0.02% at December 31, 2024. Loans past due 90-days or more, but still accruing, totaled $5 thousand at December 31, 2025 compared to $2 thousand at the prior year end. The increase in nonaccrual loans in 2025 was largely due to one commercial real estate loan for $7.1 million. This loan is a construction loan on a mixed-use commercial project. This construction loan is current on payments as of December 31, 2025, however, a specific reserve of $892 thousand has been established for this loan.

Previous wording

The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions. Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2024. The 2024 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment. These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired in 2024 and did not make a further assessment.

Current wording

The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions. Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2025. The 2025 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment. These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired and did not make a further assessment.