FRANKLIN FINANCIAL SERVICES CORP /PA/
For the period ended Jun 30, 2026. Filed Aug 10, 2026.
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.
Jun 30, 2026 · Filed Aug 10, 2026
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 2026-03-31; filed 2026-05-11.
0000723646-26-000055
Item 2. Management’s Discussion and Analysis ofResults of Operations and Financial ConditionCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-08-10.
0000723646-26-000074
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 124 previous paragraphs and 133 current paragraphs.
72 unchanged; 40 reworded; 17 added; 12 removed; 0 previous and 4 current paragraphs rearranged.
Tables are not compared: 14 previous and 18 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 (17)
Current report
Net income: $6.6 million (basic and diluted earnings per share $1.47) for the second quarter of 2026 compared to $5.9 million (basic and diluted earnings per share $1.32) for the second quarter of 2025, an increase of 11.9%. Net income for the first six months of 2026 was $13.2 million (basic earnings per share $2.95 and diluted earnings per share $2.94) compared to $9.8 million (basic earnings per share $2.21 and diluted earnings per share $2.20) for the same period in 2025, an increase of 34.8%
Current report
For the second quarter of 2026, the provision for credit losses on loans was $1.6 million compared to $704 thousand for the second quarter of 2025. The increase is due primarily to an additional $934 thousand of specific reserves on two collateral dependent loans to unrelated borrowers. See the Loan Quality discussion for additional information on these loans. The ACL ratio for loans was 1.36% on June 30, 2026 and 1.32% on December 31, 2025.
Current report
For the second quarter of 2026, noninterest income increased $46 thousand compared to the same period in 2025. Wealth Management fees increased, primarily because of growth in assets under management. Nearly all categories of noninterest income increased compared to the prior year period, but increases were partially offset by a decrease in other income from a state tax refund received in 2025.
Current report
Noninterest expense for the second quarter of 2026 increased $220 thousand compared to the same period in 2025. Salary expense increased $243 thousand. Employee benefits decreased, primarily in health insurance ($300 thousand). Other expense increased primarily from armored car expense and in loan collection expense.
Current report
Noninterest Income
Current report
The following table presents a comparison of noninterest income for the six months ended June 30, 2026 and 2025:
Current report
Noninterest Expense
Current report
Noninterest expense for the first half of 2026 increased $995 thousand compared to the same period in 2025. Salaries increased $304 thousand. Legal and professional fees increased primarily in audit and consulting fees, and PA shares tax expense increased in 2026 compared to the same period in 2025. FDIC insurance decreased due to an improvement in performance metrics.
Current report
The following table presents a comparison of noninterest expense for the six months ended June 30, 2026 and 2025:
Current report
Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either a performing or nonperforming rating based on the performance status of the loans. Nonperforming loans are loans that are 90 days or more past due and still accruing. Loans rated 1 – 4 are considered pass credits. Loans that are rated 5-Pass Watch are credits that have been identified as credits that are likely to warrant additional attention and monitoring. Loans rated 6-Other Asset Especially Mentioned (OAEM) or worse begin to receive enhanced monitoring and reporting by the Bank. Loans rated 7-Substandard or 8-Doubtful exhibit the greatest financial weakness and present the greatest possible risk of loss to the Bank. Nonaccrual loans are rated no better than 7-Substandard. The following represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral. Risk ratings, for pass credits, are generally reviewed annually for term debt and at renewal for revolving or renewing debt. The Bank monitors overall loan quality of the portfolio by reviewing three primary measurements: (1) loans rated 6-OAEM or worse (collectively “watch list”), (2) delinquent loans, and (3) net-charge-offs.
Current report
The composition of the Watch list by risk rating is shown below:
Current report
Loan quality, as measured by nonaccrual loans, totaled $17.7 million at June 30, 2026 compared to $8.5 million at December 31, 2025 and the nonperforming loan to total loans ratio was 1.10% at June 30, 2026 compared to 0.55% at December 31, 2025. Loans past due 90-days or more, but still accruing, totaled $5 thousand at June 30, 2026 and December 31, 2025. The increase in nonaccrual loans in 2026 was largely due to one commercial real estate loan for $8.8 million that was put on nonaccrual in the second quarter of 2026. This loan is current on payments as of June 30, 2026 and a specific reserve of $734 thousand has been established for this loan based on its risk rating and collateral values.
Current report
The nonaccrual loans are comprised primarily of two (2) CRE loans to unrelated borrowers totaling $17.4 million. Of these two CRE loans, one is for a matured $7.0 million construction loan on a mixed-use commercial project. During the second quarter, the Bank committed to provide additional funding of up to $2.5 million (with $1.6 million advanced as of June 30, 2026) to fully enclose the property and protect the collateral, and to pay all past due construction costs. In total, $8.6 million is in nonaccrual for this borrower as of June 30, 2026. As part of this funding commitment, a forbearance agreement was signed by the developer that ceased all construction until funding from new sources was acquired, established specific performance criteria for the developer, and established specific remedies for the Bank in the event of non-compliance with the forbearance agreement. Based on a discounted “as-is” appraisal received in the first quarter of 2026 and the additional funding committed, the Bank increased its specific reserve from $1.0 million on March 31, 2026, to $1.2 million on June 30, 2026. The second CRE loan totals $8.8 million and is secured by six (6) commercial office buildings. This loan is a purchased participation loan where the Bank is not the lead lender. The loan was placed on nonaccrual status during the second quarter of 2026, and as of June 30, 2026, the Bank has a specific reserve of $734 thousand based on a recent appraisal.
Current report
The Bank may modify loans to borrowers experiencing financial difficulty (BEFD) by providing modifications such as principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit loss. The Bank may also provide multiple types of concessions on one loan.
Current report
During the second quarter of 2026, the Bank provided modifications to two unrelated BEFD. One $7.0 million CRE loan was modified with a term extension that had a more-than-significant payment delay. As of June 30, 2026, this loan had matured and repayment has been delayed under the terms of a forbearance agreement. As part of the forbearance agreement, the Bank has committed to lend $2.5 million to the borrower and had advanced $1.6 million as of June 30, 2026, for a total of $8.6 million outstanding to this BEFD as of June 30, 2026. The payment terms of the new loan are also covered by the terms of the forbearance agreement. This loan is on nonaccrual status as of June 30, 2026, and a $1.2 million specific reserve has been established for this loan. The second loan modification was for an $8.8 million CRE loan that was granted interest only payments until the third quarter of 2026 when it is scheduled to return to full principal and interest payments. The Bank has no commitment to lend additional amounts to this borrower. As of June 30, 2026, this loan was on nonaccrual and had a specific reserve of $734 thousand.
Current report
In July 2026, the 21 st Century Road to Housing Act (the Act) became law. The Act expands the limit on the use of reciprocal deposits that can be excluded from brokered deposit treatment by banks. The Act prescribes a tiered calculation for reciprocal deposits and is expected to more than double the Bank’s capacity for non-brokered reciprocal deposits.
Current report
In 2026, the federal banking agencies amended the CBLR to decrease the CBLR ratio from 9% to 8% effective July 1, 2026. The revisions to the CBLR also provide for a longer grace period for banks that fall out of compliance with the new ratio to regain compliance. Adoption of the new CBLR may be made on the bank’s quarterly call report. The Bank does not expect to adopt the new CBLR ratio.
Removed paragraphs (12)
Previous report
Net income: $6.6 million ($1.48 per diluted share) for the first quarter of 2026. This is an increase of $594 thousand (9.8%) compared to $6.0 million ($1.35 per diluted share) for the fourth quarter of 2025 and an increase of $2.7 million (69.2%) compared to $3.9 million ($0.88 per diluted share) for the first quarter of 2025.
Previous report
Noninterest expense for the first quarter of 2026 increased $776 thousand compared to the same period in 2025. Employee benefits increased $458 thousand primarily in health insurance ($252 thousand), and payroll taxes and benefits ($253 thousand) from the timing of an incentive compensation payout. The 2026 payout occurred in the first quarter of 2026 while the 2025 payout occurred in the second quarter of 2025. Legal and professional fees increased primarily in audit and consulting fees.
Previous report
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA makes permanent certain provisions from the Tax Cuts and Jobs Act and modifies other tax provisions. These provisions have various effective dates. We continue to evaluate the impact of the new legislation but do not expect it to have a material impact on the Corporation’s financial statements.
Previous report
Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–Other Assets Especially Mentioned or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at March 31, 2026 is adequate based on currently available information.
Previous report
Loan quality, as measured by nonaccrual loans, totaled $8.5 million on March 31, 2026 and December 31, 2025 and the nonperforming loans to gross loans ratio was 0.54% at March 31, 2026 compared to 0.55% on December 31, 2025. Loans past due 90-days or more, but still accruing, totaled $17 thousand on March 31, 2026. The nonaccrual loans are comprised primarily of commercial real estate (CRE) loans totaling $7.7 million between four different loans to unrelated borrowers, and one commercial (C&I) loan for $621 thousand. The largest of the four nonaccrual CRE loans is for a $7.0 million construction loan on a mixed-use commercial project which was past due in the 30-59 day aging bucket as of March 31, 2026. The Bank is in continual communication with the developer regarding the funding required to complete the project, the source of funds, as well as other options available to the Bank to protect its interest. The Bank is currently working with the developer on a plan to jointly fund the completion of enclosing the property to protect the collateral. A discounted “as-is” appraisal was received in the first quarter of 2026 and as a result the Bank increased its specific reserve to $1.0 million on March 31, 2026, from $892 thousand on December 31, 2025. As of March 31, 2026, the Bank created a specific reserve of $557 thousand for the previously mentioned nonaccrual C&I loan, based on the valuation of business assets held as collateral.
Previous report
In addition to monitoring nonaccrual loans, the Bank also closely monitors loans to borrowers experiencing financial difficulty when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.
Previous report
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. As of March 31, 2026 and December 31, 2025, there were no modifications made to borrowers experiencing financial difficulty.
Previous report
As of March 31, 2026, the Bank had outstanding loans to a related party of a Bank Director who is considered an “insider” under Regulation O. The Bank Director serves on the Board of Directors of the related party. 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.
Previous report
The loans are currently classified as Substandard (rated 7) 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 March 31, 2026, the outstanding balance of the loans was $4.2 million, and were not past due or on nonaccrual status.
Previous 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.
Previous report
No preferential terms were granted, and the Bank believes the transaction does not impair the independence or objectivity of the Director involved.
Previous report
During the first quarter of 2026, the Bank reassessed the reserve on municipal loans within the commercial loan pool. This reassessment was supported by data showing these loans have a significantly lower loss history and a determination that reasonable and supportable qualitative loss factors are significantly less than other loans within the commercial pool. This resulted in a reversal of approximately $726 thousand in ACL for municipal loans within the commercial loan class.
Reworded paragraphs (40)
Previous wording
For the Three Months Ended March 31, 2026 and 2025
Current wording
For the Three and Six Months Ended June 30, 2026 and 2025
Previous wording
A summary of operating results for Franklin Financial Services Corporation for the three months ended March 31, 2026 are as follows:
Current wording
A summary of operating results for Franklin Financial Services Corporation for the three and six months ended June 30, 2026 are as follows:
Previous wording
Wealth Management: $2.3 million in fees for the first quarter of 2026, an increase of 4.1% from $2.2 million in the first quarter of 2025. Assets under management were $1.417 billion on March 31, 2026.
Current wording
Wealth Management: $2.6 million in fees for the second quarter of 2026, an increase of 6.1% from $2.4 million in the second quarter of 2025. Fees were $4.9 million for the first six months of 2026 compared to $4.6 million for the first six months of 2025, an increase of 5.2%. Assets under management were $1.481 billion on June 30, 2026.
Previous wording
Asset Growth: $2.298 billion in total assets on March 31,2026, an increase of 2.6% from $2.239 billion at year-end 2025.
Current wording
Asset Growth: $2.335 billion in total assets on June 30, 2026, an increase of 4.3% from $2.239 billion at year-end 2025.
Previous wording
Loan Growth: Net loans totaled $1.552 billion on March 31, 2026, an increase of 0.7% from $1.541 billion on December 31, 2025.
Current wording
Loan Growth: Net loans totaled $1.589 billion on June 30, 2026, an increase of 3.1% from $1.541 billion on December 31, 2025.
Previous wording
Deposit Growth: Total deposits of $1.890 billion, an increase of 2.9% from $1.836 billion on December 31, 2025.
Current wording
Deposit Growth: Total deposits of $1.925 billion, an increase of 4.8% from $1.836 billion on December 31, 2025.
Previous wording
Quarterly Performance Metrics: Return on Average Assets (ROA) of 1.20%, Return on Average Equity (ROE) of 15.13%, and Net Interest Margin (NIM) of 3.53%, on an annualized basis for the first quarter of 2026, compared to an ROA of 0.72%, ROE of 10.80% and NIM of 3.05% for the first quarter of 2025.
Current wording
Quarterly Performance Metrics: Return on Average Assets (ROA) of 1.14%, Return on Average Equity (ROE) of 14.80%, and Net Interest Margin (NIM) of 3.50%, on an annualized basis for the second quarter of 2026, compared to an ROA of 1.04%, ROE of 15.64% and NIM of 3.21% for the second quarter of 2025.
Previous wording
On April 9, 2026, the Board of Directors declared $0.34 per share regular quarterly cash dividend for the second quarter of 2026 to be paid on May 27, 2026, toshareholdersof record at the close of business on May 1, 2026. This dividend represents a 3.0% increase over the second quarter 2025 dividend.
Current wording
On July 16, 2026, the Board of Directors declared $0.34 per share regular quarterly cash dividend for the third quarter of 2026 to be paid on August 26, 2026, toshareholdersof record at the close of business on August 7, 2026. This dividend represents a 3.0% increase over the third quarter 2025 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 three months ended March 31, 2026 and 2025 and the year ended December 31, 2025.
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 six months ended June 30, 2026 and 2025 and the year ended December 31, 2025.
Previous wording
The provision for unfunded commitments was $19 thousand compared to $29 thousand for the same period in 2025. The ACL for unfunded commitments was $1.9 million on March 31, 2026 and December 31, 2025, respectfully. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Current wording
The provision for credit losses on unfunded commitments was $39 thousand compared to reversal of $69 thousand for the same period in 2025. The ACL for unfunded commitments was $2.0 million on June 30, 2026 and December 31, 2025, respectively. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Previous wording
For the first quarter of 2026, total income tax was $1.7 million, comprised of $1.4 million in Federal income tax and $229 thousand in state income taxes. Income tax for the first quarter increased by $780 thousand compared to the first quarter of 2025, due to higher pre-tax income in 2026. The effective tax rate for the first quarter of 2026 was 20.1% compared to 18.5% for the same period in 2025. The federal statutory tax rate is 21% for 2026 and 2025.
Current wording
For the second quarter of 2026, total income tax was $1.6 million, comprised of $1.5 million in Federal income tax and $89 thousand in state income taxes. Income tax for the second quarter increased by $228 thousand compared to the second quarter of 2025, due to higher pre-tax income in 2026. The effective tax rate for the second quarter of 2026 was 19.9% compared to 19.3% for the same period in 2025. The federal statutory tax rate is 21% for 2026 and 2025.
Previous wording
Tax equivalent net interest income increased $2.9 million to $18.8 million in the first quarter of 2026 compared to $15.9 million for the same period in 2025. Tax equivalent net interest income increased $1.9 million from balance sheet volume changes and $1.0 million from interest rate changes.
Current wording
Tax equivalent net interest income increased $5.0 million to $38.3 million in the first six months of 2026 compared to $33.3 million for the same period in 2025. Tax equivalent net interest income increased $3.6 million from balance sheet volume changes and $1.4 million from interest rate changes.
Previous wording
For the first quarter of 2026, the provision for credit losses on loans was $202 thousand compared to $750 thousand for the first quarter of 2025. The decrease is due primarily to a change in management’s reassessment of the municipal loans portfolio and qualitative factor decreases for municipal loans, which was partially offset by an increase of $671 thousand for specific reserves on two collateral dependent loans. The ACL ratio for loans was 1.32% on March 31, 2026 and on December 31, 2025.
Current wording
For the first half of 2026, the provision for credit losses on loans was $1.8 million compared to $1.5 million for the same period in 2025. The increase is due primarily to an additional $1.0 million of specific reserves on two collateral dependent loans to unrelated borrowers, which was partially offset by a change in management’s reassessment of the municipal loans portfolio and qualitative factor decreases for municipal loans. See the Loan Quality discussion for additional information on these loans. The ACL ratio for loans was 1.36% on June 30, 2026 and 1.32% on December 31, 2025.
Previous wording
For the first quarter of 2026, noninterest income, before securities transactions, increased $791 thousand compared to the same period in 2025. Wealth Management fees increased, primarily because of growth in assets under management, the gain on sale of loans increased due to a one-time sale of mortgages and other income increased from gains from bank owned life insurance claims.
Current wording
For the first half of 2026, noninterest income, before securities transactions, increased $838 thousand compared to the same period in 2025. Wealth Management fees increased, primarily because of growth in assets under management, the gain on sale of loans increased due to a one-time sale of mortgages and deposit service charges and fees increased due to a higher volume of account analysis fees.
Previous wording
Cash and cash equivalents totaled $210.8 million on March 31, 2026, an increase of $83.1 million from the prior year-end balance of $127.7 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($183.1 million).
Current wording
Cash and cash equivalents totaled $195.0 million on June 30, 2026, an increase of $67.3 million from the prior year-end balance of $127.7 million, as deposit growth has outpaced loan growth during the first half of 2026. Short-term interest-earning deposits are held primarily at the Federal Reserve ($168.9 million).
Previous wording
Available for Sale (AFS) Securities: At March 31, 2026, the AFS securities portfolio had an amortized cost of $465.3 million, a decrease of $16.1 million from the prior year-end, and a fair value of $436.5 million, a decrease of $18.1 million from the prior year-end. During the first three months of 2026, the portfolio returned $17.2 million of principal and $1.2 million was purchased. The Bank did not sell any investments in the first three months of 2026. The AFS portfolio had a net unrealized loss of $28.8 million at March 31, 2026 compared to a net unrealized loss of $26.8 million at the prior year-end. The AFS portfolio averaged $449.3 million with a tax equivalized yield of 3.57% for the three months ended March 31, 2026. This compares to an average of $504.0 million and a tax-equivalized yield of 4.15% for the same period in 2025.
Current wording
Available for Sale (AFS) Securities: At June 30, 2026, the AFS securities portfolio had an amortized cost of $481.4 million, unchanged from the prior year-end, and a fair value of $452.3 million, a decrease of $2.2 million from the prior year-end. During the first six months of 2026, the portfolio returned $33.0 million of principal and $33.2 million was purchased. The Bank did not sell any investments in the first six months of 2026. The AFS portfolio had a net unrealized loss of $29.1 million at June 30, 2026 compared to a net unrealized loss of $26.8 million at the prior year-end. The AFS portfolio averaged $444.6 million with a tax equivalized yield of 3.50% for the six months ended June 30, 2026. This compares to an average of $489.5 million and a tax-equivalized yield of 4.07% for the same period in 2025.
Previous wording
Restricted Stock at Cost: The Bank held $8.9 million of restricted stock at March 31, 2026 and at December 31, 2025. 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.
Current wording
Restricted Stock at Cost: The Bank held $9.0 million of restricted stock at June 30, 2026 and $8.9 million at December 31, 2025. 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 $13.4 million over the prior year-end, primarily in consumer first lien loans. For the first three months of 2026, the Bank originated $25.6 million in mortgages, including $11.1 million for sale through the secondary market compared to $23.0 million of total originations for the same period in 2025. 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 $24.7 million over the prior year-end, primarily in consumer first lien loans. For the first six months of 2026, the Bank originated $62.1 million in mortgages, including $25.5 million for sale through the secondary market compared to $54.8 million of total originations for the same period in 2025. 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 ($32.4 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $24.4 million at March 31, 2026. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. 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 ($38.4 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $15.7 million at June 30, 2026. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. 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 $909.1 million at March 31, 2026 from $903.6 million at the end of the prior year. Included in commercial real estate are approximately $725 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio is 344.7% of risk-based capital at March 31, 2026 compared to 349.9% at December 31, 2025.
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 CRE loans increased to $949.4 million at June 30, 2026 from $903.6 million at the end of the prior year. Included in CRE are approximately $755 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio is 348.2% of risk-based capital at June 30, 2026 compared to 349.9% at December 31, 2025.
Previous wording
Included in CRE are real estate construction loans totaling $208.2 million. At March 31, 2026, the Bank had $84.0 million in real estate construction loans funded with an interest reserve and capitalized $734 thousand of interest in the first three months of 2026 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
Included in CRE are real estate construction loans totaling $220.7 million. At June 30, 2026, the Bank had $94.3 million in real estate construction loans funded with an interest reserve and capitalized $1.3 million of interest in the first six months of 2026 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 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 decreased $11.5 million to $214.0 million at March 31, 2026, compared to $225.5 million at the end of the prior year. On March 31, 2026, the Bank had $97.9 million in tax-free loans compared to $102.0 million at December 31, 2025.
Current wording
Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans decreased $19.6 million to $205.9 million at June 30, 2026, compared to $225.5 million at the end of the prior year. On June 30, 2026, the Bank had $97.8 million in tax-free loans compared to $102.0 million at December 31, 2025.
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. On March 31, 2026, the outstanding commercial participations were $97.2 million, or 8.0%, of commercial purpose loans and 6.2% of total gross loans compared to $100.8 million at December 31, 2025, or 8.2%, of commercial purpose loans and 6.5% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $125.7 million, compared to $129.3 million at December 31, 2025. The commercial loan participations are comprised of $26.5 million of commercial loans and $70.7 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 June 30, 2026, the outstanding commercial participations were $96.4 million, or 7.8%, of commercial purpose loans and 6.0% of total gross loans compared to $100.8 million at December 31, 2025, or 8.2%, of commercial purpose loans and 6.5% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $118.7 million, compared to $129.3 million at December 31, 2025. The commercial loan participations are comprised of $23.6 million of commercial loans and $72.8 million of CRE loans, reported in the respective loan class.
Previous wording
Consumer loans: This category had a balance of $10.7 million at March 31, 2026, compared to $9.7 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 $8.2 million at June 30, 2026, compared to $9.7 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.
Previous 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 $52.7 million on March 31, 2026 compared to $58.8 million at December 31, 2025. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $8.5 million of nonaccrual loans as of March 31, 2026 and December 31, 2025. The credit composition of the watch list, by primary collateral is shown in Note 6 of the accompanying financial statements.
Current wording
Watch list loans (commercial 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 includes both performing and nonperforming loans. Watch list loans totaled $51.6 million at June 30, 2026 compared to $58.8 million at December 31, 2025. The composition of the watch list (commercial 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 a table that presents 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 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 age of payments in the loan portfolio.
Previous wording
Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more past due, nonaccrual loans, or individually evaluated loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for credit losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss. Nonaccrual loans are rated no better than 7-Substandard.
Current wording
Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential for risk of loss. Nonaccrual loans are rated no better than 7-Substandard.
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. On March 31, 2026, the Bank had loans of $15.6 million (7.0% of risk-based capital) that exceeded the supervisory limit, compared to 7.4% at year-end 2025.
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 June 30, 2026, the Bank had loans of $15.0 million (0.9% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.0% at the prior year end.
Previous wording
The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At March 31, 2026, the pooled loan reserve was $19.9 million and approximately 69% of the pooled reserve was from the qualitative component. On March 31, 2026 the Bank had a specific reserve of $1.0 million on one commercial real estate construction loan and a specific reserve of $557 thousand for three commercial loans to a single borrower compared to $1.2 million specific reserves as of December 31, 2025.
Current wording
The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At June 30, 2026, the pooled loan reserve was $19.9 million and approximately 68% of the pooled reserve was from the qualitative component. On June 30, 2026 the Bank had specific reserves of $1.9 million on two CRE loans compared to $1.2 million of specific reserves as of December 31, 2025.
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. The ACL for unfunded commitments was $1.9 million and $1.9 million on March 31, 2026 and December 31, 2025, respectively.
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 $2.0 million on June 30, 2026 and $1.9 million on December 31, 2025.
Previous wording
Total deposits increased $53.9 million during the first three months of 2026 to $1.890 billion. Noninterest checking increased $21.4 million to $331.7 million (17.6% of total deposits), primarily in municipal and small business accounts. Interest-bearing checking decreased by $12.6 million, primarily in retail deposits, while the Bank’s money management product increased $30.4 million across all sectors. Time deposits increased $14.2 million.
Current wording
Total deposits increased $88.8 million during the first six months of 2026 to $1.925 billion. Noninterest checking increased $30.9 million to $341.1 million (17.7% of total deposits), primarily in municipal and small business accounts. Interest-bearing checking decreased by $22.8 million, primarily in retail deposits, while the Bank’s money management product increased $76.8 million across all sectors. Time deposits increased $4.3 million.
Previous wording
As of March 31, 2026, the Bank had deposits of $309.5 million placed in a reciprocal deposit program ($125.9 million in interest-bearing checking and $183.7 million in money management) and $39.9 million in a reciprocal time deposit 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 for regulatory reporting purposes. At March 31, 2026, the Bank’s reciprocal deposits were 16.6% of the Bank’s total liabilities compared to 17.0% at the previous year-end.
Current wording
As of June 30, 2026, the Bank had deposits of $289.5 million placed in a reciprocal deposit program ($105.5 million in interest-bearing checking and $184.0 million in money management) and $37.9 million in a reciprocal time deposit 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 for regulatory reporting purposes. At June 30, 2026, the Bank’s reciprocal deposits were 15.3% of the Bank’s total liabilities compared to 17.0% at the previous year-end.
Previous wording
The Bank estimates that approximately 89% of its deposits are FDIC insured or collateralized as of March 31, 2026, compared to 87% at December 31, 2025.
Current wording
The Bank estimates that approximately 90% of its deposits are FDIC insured or collateralized as of June 30, 2026, compared to 87% at December 31, 2025.
Previous wording
At March 31, 2026, the Bank had $200.0 million in total borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB). The borrowings are comprised of $200.0 million in long-term borrowings with a rate of 4.32%, due January 12, 2027.
Current wording
At June 30, 2026, the Bank had $200.0 million in total borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB), with a rate of 4.32%, due January 12, 2027. The Bank’s decision on how this borrowing is paid off or restructured will be made closer to the maturity date.
Previous wording
At March 31, 2026, 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 $150 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 resets 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.
Current wording
At June 30, 2026, 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 $145 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 resets 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.
Previous wording
Total shareholders’ equity increased $3.5 million to $178.7 million as of March 31, 2026 from December 31, 2025. Retained earnings increased $5.2 million in 2026, with net income of $6.6 million partially offset by cash dividends of $1.5 million. Accumulated other comprehensive loss (AOCL) increased $1.7 million since year-end 2025. The Corporation’s Dividend Reinvestment Plan (DRIP) added $17 thousand in new capital from optional cash contributions and $247 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 22.30% for the first three months of 2026 compared to 36.16% for the same period in 2025.
Current wording
Total shareholders’ equity increased $8.6 million to $183.8 million as of June 30, 2026 from December 31, 2025. Retained earnings increased $10.2 million in 2026, with net income of $13.2 million partially offset by cash dividends of $3.0 million. Accumulated other comprehensive loss (AOCL) increased $1.9 million since year-end 2025. The Corporation’s Dividend Reinvestment Plan (DRIP) added $36 thousand in new capital from optional cash contributions and $495 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 22.70% for the first six months of 2026 compared to 29.39% for the same period in 2025.
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 first quarter of 2026, the Corporation paid a $0.33 per share dividend, compared to $0.33 paid in the fourth quarter of 2025. On April 9, 2026, the Board of Directors declared a $0.34 per share regular quarterly dividend for the second quarter of 2026, which will be paid on May 27, 2026. This represents a 3.0% increase over the second quarter 2025 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 second quarter of 2026, the Corporation paid a $0.34 per share dividend, compared to $0.33 paid in the first quarter of 2026. On July 16, 2026, the Board of Directors declared a $0.34 per share regular quarterly dividend for the third quarter of 2026, which will be paid on August 26, 2026. This represents a 3.0% increase over the third quarter 2025 dividend.
Previous wording
In December 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 three months of 2026, 5,000 shares were purchased to fund the quarterly dividend reinvestment plan.
Current wording
In December 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 2026, 10,950 shares were purchased to fund the quarterly dividend reinvestment plan.
Previous wording
Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are shown in the table below. In addition, a capital conservation buffer of 2.5% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at March 31, 2026 was 5.64% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2026, the Bank was “well capitalized.”
Current wording
Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are shown in the table below. In addition, a capital conservation buffer of 2.5% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at June 30, 2026 was 5.73% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of June 30, 2026, the Bank was “well capitalized.”
Previous wording
Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, marketable securities that are unencumbered ($87.3 million fair value) are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. The Bank also has access to other wholesale funding via the brokered CD market.
Current wording
Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, marketable securities that are unencumbered ($81.3 million fair value) are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. The Bank also has access to other wholesale funding via the brokered CD market and reciprocal deposits via its Wealth Management service.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
Tax equivalent net interest income increased $2.1 million to $19.6 million in the second quarter of 2026 compared to $17.5 million for the same period in 2025. Tax equivalent net interest income increased $1.8 million from balance sheet volume changes and $300 thousand from interest rate changes.
Current report — wording carried from elsewhere
The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities. Loans are classified by type of collateral and residential loans include commercial purpose loans and nonaccrual loans are included in the average loan balance used to calculate the yield. All nontaxable interest income has been adjusted to a tax-equivalent basis using a tax rate of 21%.
Current report — wording carried from elsewhere
The provision for credit losses on unfunded commitments was $58 thousand compared to a reversal of $40 thousand for the same period in 2025. The ACL for unfunded commitments was $2.0 million on June 30, 2026 and $1.9 million on December 31, 2025, respectively. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.
Current report — wording carried from elsewhere
For the first half of 2026, total income tax was $3.3 million, comprised of $3.0 million in Federal income tax and $319 thousand in state income taxes. Income tax for the first half of 2026 increased by $1.0 million compared to the first half of 2025, due to higher pre-tax income in 2026. The effective tax rate for the first half of 2026 was 20.0% compared to 19.0% for the same period in 2025. The federal statutory tax rate is 21% for 2026 and 2025.