FIDELITY D & D BANCORP INC

Previous wording

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of June 30, 2025 compared to December 31, 2024 and a comparison of the results of operations for the three and six months ended June 30, 2025 and 2024. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2024 Annual Report filed on Form 10-K.

Current wording

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of September 30, 2025 compared to December 31, 2024 and a comparison of the results of operations for the three and nine months ended September 30, 2025 and 2024. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2024 Annual Report filed on Form 10-K.

Previous wording

We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for June 2025 was 4.1%, remaining flat compared to December 2024. The local market unemployment rates in the Scranton - Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at June 30, 2025 were 5.1% in market area north and 4.5% in market area south, respectively, an increase of 1.3 percentage points and 1.1 percentage points from the 3.8% and 3.4%, respectively, at December 31, 2024. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 5.5% and 3.1% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to remain flat and grow 0.4%, respectively, in the next year. In light of these expectations, we expect home prices to stabilize with the potential of a declining rate environment at the same time. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

Current wording

We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. Due to the suspension of federal government services in the fourth quarter of 2025, the Company was not able to obtain labor statistics as of September 30, 2025, alternatively, the Company will utilize August 31, 2025 labor statistics in the following comparison. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for August 2025 was 4.3%, up 0.2 percentage points compared to December 2024. The local market unemployment rates in the Scranton – Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at August 31, 2025 were 5.4% in market area north and 5.1% in market area south, respectively, an increase of 1.6 percentage points and 1.7 percentage points from the 3.8% and 3.4%, respectively, at December 31, 2024. The median home values in the Scranton – Wilkes-Barre – Hazleton metro and Allentown – Bethlehem – Easton metro each increased 5.2% and 3.3% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 2.9% and 3.4%, respectively, in the next year. In light of these expectations, we expect home prices to stabilize with the potential of a declining rate environment at the same time. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

Previous wording

For the six months ended June 30, 2025, net income was $12.9 million, or $2.23 diluted earnings per share, a 29% increase, compared to $10.0 million, or $1.73 diluted earnings per share, for the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2025, net income was $20.3 million, or $3.50 diluted earnings per share, a 35% increase, compared to $15.0 million, or $2.59 diluted earnings per share, for the nine months ended September 30, 2024.

Previous wording

As of June 30, 2025 and June 30, 2024, tangible common book value per share (non-GAAP) was $34.25 and $30.52(1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.

Current wording

As of September 30, 2025 and September 30, 2024, tangible common book value per share (non-GAAP) was $36.23 and $32.55(1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.

Previous wording

Net interest income, net interest rate margin, net interest rate spread and the efficiency ratio are presented in the Management's Discussion & Analysis on a fully-taxable equivalent (FTE) basis. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

Current wording

Net interest income, net interest rate margin, net interest rate spread and the efficiency ratio are presented in the Management's Discussion & Analysis on an FTE basis. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

Previous wording

Net income for the quarter ended June 30, 2025 was $6.9 million, or $1.20 diluted earnings per share, compared to $4.9 million, or $0.86 diluted earnings per share, for the quarter ended June 30, 2024. The $2.0 million, or 40%, increase in net income resulted primarily from a $2.8 million increase in net interest income coupled with a $0.8 million increase in non-interest income. This was partially offset by a $1.1 million increase in non-interest expense and a $0.6 million increase in the provision for income tax. In the year-to-date comparison, net income increased by $2.9 million to $12.9 million, or $2.23 diluted earnings per share, from $10.0 million, or $1.73 diluted earnings per share. The increase in net income stemmed from the $4.9 million increase in net interest income and $1.1 million increase in non-interest income. This was partially offset by a $2.0 million increase in non-interest expense and a $1.0 million increase in the provision for income tax.

Current wording

Net income for the quarter ended September 30, 2025 was $7.3 million, or $1.27 per diluted share, compared to $5.0 million, or $0.86 per diluted share, for the quarter ended September 30, 2024. The $2.3 million, or 48%, increase in net income resulted primarily from a $3.0 million increase in net interest income coupled with a $0.5 million decrease in provision for credit losses on loans and unfunded commitments. This was partially offset by a $0.8 million increase in non-interest expense and a $0.4 million increase in the provision for income taxes. For the nine months ended September 30, 2025, net income was $20.3 million, or $3.50 per diluted share, compared to $15.0 million, or $2.59 per diluted share, for the nine months ended September 30, 2024. The $5.3 million, or 35%, increase in net income stemmed from the $7.9 million increase in net interest income and $1.3 million increase in non-interest income. This was partially offset by a $2.8 million increase in non-interest expense and a $1.4 million increase in the provision for income taxes.

Previous wording

Return on average assets (ROA) was 1.04% and 0.81% for the second quarters of 2025 and 2024, respectively, and 0.98% and 0.82% for the six months ended June 30, 2025 and 2024, respectively. During the same time periods, return on average shareholders’ equity (ROE) was 13.02% and 10.44%, respectively, and 12.35% and 10.57%, respectively. The increases in ROA and ROE were primarily the result of an increase in net income during the second quarter of 2025 and year-to-date 2025, compared to the same periods of 2024. Pre-provision net revenue to average assets (non-GAAP) was 1.28% and 1.00% for the three months ended June 30, 2025 and 2024, respectively, and 1.22% and 0.98% for the six months ended June 30, 2025 and 2024, respectively. The increases were due to an increase in income before taxes quarter-over-quarter and year-over-year.

Current wording

Return on average assets (ROA) was 1.08% and 0.79% for the third quarters of 2025 and 2024, respectively, and 1.02% and 0.81% for the nine months ended September 30, 2025 and 2024, respectively. During the same time periods, return on average shareholders’ equity (ROE) was 13.25% and 9.89%, respectively, and 12.67% and 10.34%, respectively. The increases in ROA and ROE were primarily the result of an increase in net income during the third quarter of 2025 and year-to-date 2025, compared to the same periods of 2024. Pre-provision net revenue to average assets (non-GAAP) was 1.30% and 1.05% for the three months ended September 30, 2025 and 2024, respectively, and 1.25% and 1.00% for the nine months ended September 30, 2025 and 2024, respectively. The increases were due to an increase in income before taxes quarter-over-quarter and year-over-year.

Previous wording

Net interest income was $17.9 million for the second quarter of 2025, a 19% increase over the $15.1 million earned for the second quarter of 2024. The $2.8 million increase in net interest income resulted from the increase of $3.7 million in interest income primarily due to a $213.6 million increase in the average balance of interest-earning assets and a 19 basis point increase in fully-taxable equivalent ("FTE") (non-GAAP measurement) yield. The loan portfolio had the most significant impact, producing a $2.8 million increase in FTE interest income from $124.6 million in higher quarterly average balances and an increase of 24 basis points in FTE loan yield. Additionally, the Company experienced an increase of $1.1 million in interest earned from interest-bearing deposits with other financial institutions from $102.0 million in higher average balances. Slightly offsetting the higher interest income, there was a $0.9 million increase in interest expense due to a $178.8 million quarter-over-quarter increase in average interest-bearing liability balances. The increase was primarily contributed to growth of $208.3 million in average interest-bearing deposit balances. However, this deposit growth was partially offset by a $28.5 million decrease in average short-term borrowings.

Current wording

Net interest income was $18.4 million for the third quarter of 2025, representing a 19% increase over the $15.4 million earned for the third quarter of 2024. The $3.0 million increase in net interest income resulted from the increase of $3.4 million in interest income primarily due to a $196.9 million increase in the average balance of interest-earning assets and a 15 basis points increase in FTE (non-GAAP measurement) yield. The loan portfolio had the most significant impact, producing a $2.6 million increase in FTE interest income from $129.2 million in higher quarterly average balances and an increase of 17 basis points in FTE loan yield. Additionally, the Company experienced an increase of $0.8 million in interest earned from interest-bearing deposits with other financial institutions from $78.8 million in higher average balances. The higher interest income was offset by a $0.4 million increase in interest expense due to a $161.4 million quarter-over-quarter increase in average interest-bearing liability balances. The increase was due to growth of $199.0 million in average interest-bearing deposit balances. However, this deposit growth was partially offset by a $37.2 million decrease in average short-term borrowings.

Previous wording

The FTE yield on interest-earning assets was 4.77% for the second quarter of 2025, an increase of 19 basis points from the 4.58% for the second quarter of 2024. The overall cost of interest-bearing liabilities was 2.52% for the second quarter of 2025, a decrease of 6 basis points from the 2.58% for the second quarter of 2024. The cost of funds decreased 1 basis point from 1.96% to 1.95% for the second quarters of 2024 and 2025, respectively. The Company’s FTE net interest spread was 2.25% for the second quarter of 2025, an increase of 25 basis points from 2.00% recorded for the second quarter of 2024. FTE net interest margin increased to 2.92% for the three months ended June 30, 2025 from 2.71% for the same period of 2024 primarily due to the growth in higher yielding taxable commercial loans.

Current wording

The FTE yield on interest-earning assets was 4.83% for the third quarter of 2025, an increase of 15 basis points from 4.68% for the third quarter of 2024. The overall cost of interest-bearing liabilities was 2.55% for the third quarter of 2025, a decrease of 15 basis points from the 2.70% for the third quarter of 2024. The cost of funds decreased 10 basis points from 2.08% to 1.98% for the third quarters of 2024 and 2025, respectively. The Company’s FTE net interest spread was 2.28% for the third quarter of 2025, an increase of 30 basis points from 1.98% recorded for the third quarter of 2024. FTE net interest margin increased to 2.95% for the three months ended September 30, 2025 from 2.70% for the same period of 2024 due to the growth in higher yielding taxable commercial loans.

Previous wording

Net interest income was $35.0 million for the six months ended June 30, 2025 compared to $30.1 million for the six months ended June 30, 2024. The $4.9 million increase in net interest income resulted from the increase of $6.4 million in interest income primarily due to a $181.0 million increase in the average balance of interest-earning assets and a 20 basis point increase in FTE yield. On the asset side, the loan portfolio interest income growth resulted from producing $5.3 million more in interest income from an increase of 25 basis points in FTE loan yields on $120.5 million in higher average balances. Additionally, the Company experienced an increase of $1.5 million in interest earned from interest-bearing deposits with other financial institutions from $71.6 million in higher average balances. The increase in interest income was partially offset by a decrease of $0.3 million in interest earned on the investment portfolio due to decreases of 6 basis points in yield and $11.3 million in average balances. On the funding side, total interest expense increased by $1.5 million primarily due to an increase in interest expense paid on deposits of $2.5 million from 2 basis points higher rates paid on a $194.0 million larger average balance of interest-bearing deposits, partially offset by a decrease in interest expense on borrowings of $1.0 million for the six months ended June 30, 2025 compared to the same period in 2024.

Current wording

Net interest income was $53.4 million for the nine months ended September 30, 2025 compared to $45.5 million for the nine months ended September 30, 2024. The $7.9 million increase in net interest income resulted from the increase of $9.8 million in interest income primarily due to a $186.4 million increase in the average balance of interest-earning assets and a 19 basis point increase in FTE yield. On the asset side, the loan portfolio interest income growth resulted from producing an additional $8.0 million in interest income from an increase of 22 basis points in FTE loan yields on $123.5 million higher average balances. Additionally, the Company experienced an increase of $2.3 million in interest earned from interest-bearing deposits with other financial institutions from $74.0 million higher average balances. The increase in interest income was partially offset by a decrease of $0.5 million in interest earned on the investment portfolio due to decreases of 5 basis points in yield and $11.3 million in average balances. On the funding side, total interest expense increased by $1.9 million primarily due to an increase in interest expense paid on deposits of $3.4 million from $195.7 million larger average balance of interest-bearing deposits, partially offset by a decrease in interest expense on borrowings of $1.4 million for the nine months ended September 30, 2025 compared to the same period in 2024 due to a reduction in average short-term borrowings.

Previous wording

The overall cost of interest-bearing liabilities was 2.51% for the six months ended June 30, 2025 compared to 2.54% for the six months ended June 30, 2024. The cost of funds decreased 1 basis point to 1.94% for the six months ended June 30, 2025 from 1.95% from the same period of 2024. The FTE yield on earning assets was 4.75% for the six months ended June 30, 2025, an increase of 20 basis points from the 4.55% year-to-date June 30, 2024. The Company’s FTE net interest spread was 2.24% for the six months ended June 30, 2025, an increase of 23 basis points from the 2.01% recorded for the same period of 2024. FTE net interest margin increased by 21 basis points to 2.91% for the six months ended June 30, 2025 from 2.70% for the same 2024 period primarily due to the increase in yields earned on loans and leases outpacing the higher rates paid on interest-bearing deposits.

Current wording

The overall cost of interest-bearing liabilities was 2.52% for the nine months ended September 30, 2025 compared to 2.60% for the nine months ended September 30, 2024. The cost of funds decreased 3 basis points to 1.96% for the nine months ended September 30, 2025 from 1.99% for the same period of 2024. The FTE yield on earning assets was 4.78% for the nine months ended September 30, 2025, an increase of 19 basis points from the 4.59% year-to-date September 30, 2024. The Company’s FTE net interest spread was 2.26% for the nine months ended September 30, 2025, an increase of 27 basis points from the 1.99% recorded for the same period of 2024. FTE net interest margin increased by 22 basis points to 2.92% for the nine months ended September 30, 2025 from 2.70% for the same 2024 period primarily due to the increase in yields earned on loans and leases along with a decline in the rates paid on interest-bearing liabilities.

Previous wording

For the remainder of 2025, the Company currently expects to operate in a moderately declining interest rate environment. Management is primarily reliant on the Federal Open Market Committee's (FOMC) statements and forecast. For the six months ended June 30, 2025, the FOMC did not adjust interest rates based on the uncertainty about inflation and the effects of newly introduced tariffs on the economy. The current Blue Chip Financial Forecasts economic consensus anticipates two 25 basis points in rate cuts during the second half of 2025. Currently, the Company maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific assets, being proactive with loan pricing and managing deposit costs to maintain a reasonable spread.

Current wording

For the remainder of 2025, the Company currently expects to operate in a moderately declining interest rate environment. Management is primarily reliant on the Federal Open Market Committee's (FOMC) statements and forecast. During the third quarter of 2025, the FOMC decreased the federal funds rate by 25 basis points. In October 2025, the FOMC decreased the federal funds rate by an additional 25 basis points. The current Blue Chip Financial Forecasts economic consensus anticipates one more 25 basis point decrease to the federal funds rate during the December 2025 FOMC meeting, the final meeting of the fiscal year. Additionally, the Blue Chip Financial Forecasts economic consensus anticipates an additional 50 basis points in rate cuts by the end of 2026. Currently, the Company maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific higher yielding assets, being proactive with loan pricing, and managing deposit costs to maintain a reasonable spread.

Previous wording

The Company’s cost of interest-bearing liabilities was 2.52% and 2.51% for the three and six months ended June 30, 2025, respectively, compared to 2.58% and 2.54% for the same 2024 periods. The reduction in average short-term borrowings contributed to the lower cost of interest-bearing liabilities.

Current wording

The Company’s cost of interest-bearing liabilities was 2.55% and 2.52% for the three and nine months ended September 30, 2025, respectively, compared to 2.70% and 2.60% for the same 2024 periods. The reduction in average short-term borrowings and declining rates paid on interest-bearing deposits contributed to the lower cost of interest-bearing liabilities.

Previous wording

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for June 30, 2025 and 2024 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the second quarters of 2025 and 2024, respectively, and $0.4 million and $0.4 million during the six months ended June 30, 2025 and 2024, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.3 million and $0.4 million are included in interest income from loans and $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended June 30, 2025 and 2024. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.6 million and $0.9 million are included in interest income from loans and $2 thousand and $5 thousand reduced interest expense on deposits and borrowings for the six months ended June 30, 2025 and 2024. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

Current wording

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for September 30, 2025 and 2024 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the third quarters of 2025 and 2024, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2025 and 2024, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.3 million and $0.3 million are included in interest income from loans and $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended September 30, 2025 and 2024, respectively. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.9 million and $1.2 million are included in interest income from loans and $4 thousand and $6 thousand reduced interest expense on deposits and borrowings for the nine months ended September 30, 2025 and 2024, respectively. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

Previous wording

For the three months ended June 30, 2025, the provision for credit losses on loans was $300 thousand and the provision for unfunded commitments was $20 thousand compared to a $275 thousand provision for credit losses on loans and a $140 thousand provision for credit losses on unfunded loan commitments for the three months ended June 30, 2024.

Current wording

For the three months ended September 30, 2025, the provision for credit losses on loans was $200 thousand and the provision for unfunded commitments was $110 thousand compared to a $675 thousand provision for credit losses on loans and a $135 thousand provision for credit losses on unfunded loan commitments for the three months ended September 30, 2024.

Previous wording

For the six months ended June 30, 2025, the provision for credit losses on loans was $755 thousand and the provision for credit losses on unfunded loan commitments was a net benefit of $65 thousand compared to a $400 thousand provision for credit losses on loans and a $90 thousand provision for credit losses on unfunded commitments for the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2025, the provision for credit losses on loans was $955 thousand and the provision for credit losses on unfunded loan commitments was $45 thousand compared to a $1.1 million provision for credit losses on loans and a $225 thousand provision for credit losses on unfunded commitments for the nine months ended September 30, 2024.

Previous wording

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for six months ended June 30, 2025 to maintain an allowance level that management deemed adequate.

Current wording

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for nine months ended September 30, 2025 to maintain an allowance level that management deemed adequate.

Previous wording

Total non-interest income increased $0.7 million, or 16%, to $5.3 million for the second quarter of 2025 compared to $4.6 million for the second quarter of 2024. The increase in non-interest income was primarily attributed to increases of $0.2 million in trust fees, a $0.2 million BOLI death benefit, $0.2 million in loan service charges, and $0.1 million in interchange fees.

Current wording

Total non-interest income increased $0.1 million, or 3%, to $5.1 million for the third quarter of 2025 compared to $5.0 million for the third quarter of 2024. The increase in non-interest income was primarily attributed to increases of $0.1 million in trust fees and $0.1 million in interchange fees. The increases were partially offset by $0.1 million less in commercial loan service charges, mainly due to two commercial loan service charges totaling $0.1 million that were recorded in the third quarter of 2024.

Previous wording

Total non-interest income for the six months ended June 30, 2025 was $10.3 million, an increase of $1.1 million, or 12%, from $9.2 million for the six months ended June 30, 2024. The increase was primarily due to $0.3 million higher fees from trust fiduciary activities. The Company also had $0.2 million more non-interest income resulting from an increase in interchange fees, a $0.2 million BOLI death benefit, and an increase of $0.2 million in service charges on loans primarily from commercial loans. During the first half of 2025, gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities.

Current wording

Total non-interest income for the nine months ended September 30, 2025 was $15.4 million, an increase of $1.2 million, or 9%, from $14.2 million for the nine months ended September 30, 2024. The increase was primarily due to increases of $0.4 million in trust fees and $0.3 million in interchange fees. The Company also had $0.2 million more non-interest income resulting from a BOLI death benefit gain. During the nine months ended September 30, 2025, gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities.

Previous wording

Non-interest expenses increased $1.1 million, or 8%, for the second quarter of 2025 to $14.7 million from $13.6 million for the same quarter of 2024. The increase in non-interest expenses was primarily due to the increases in salaries and benefits expense of $0.8 million, premises and equipment expense of $0.2 million, and advertising expense of $0.2 million. These increases were partially offset by a $0.2 million decrease in professional services for the three months ended June 30, 2025 compared to the same period of 2024.

Current wording

Non-interest expenses increased $0.8 million, or 6%, for the third quarter of 2025 to $14.6 million from $13.8 million for the same quarter of 2024. The increase in non-interest expenses was primarily due to the increases in salaries and benefits expense of $0.6 million primarily due to higher banker incentives and premises and equipment expense of $0.2 million. These increases were partially offset by a $0.1 million decrease in advertising expense for the three months ended September 30, 2025 compared to the same period of 2024.

Previous wording

Non-interest expenses increased to $29.3 million for the six months ended June 30, 2025, an increase of $2.0 million, or 7%, from $27.3 million for the six months ended June 30, 2024. Salaries and benefits expense increased $1.3 million due to an increase in the number of bankers, group insurance costs, and banker incentives in the first half of 2025, compared to the same period in 2024. Additionally, the Company experienced an increase of $0.5 million in advertising and marketing expenses primarily due to a $0.3 million increase in Neighborhood Assistance Program donations from which the Company recognized $0.2 million in additional tax credits causing a corresponding decrease in PA shares tax expense. There was also an increase of $0.5 million in premises and equipment expense primarily due to higher costs for software licenses, subscriptions, and maintenance. The increases were partially offset by $0.3 million less in professional services expense.

Current wording

Non-interest expenses increased to $43.9 million for the nine months ended September 30, 2025, an increase of $2.8 million, or 7%, from $41.1 million for the nine months ended September 30, 2024. Salaries and benefits expense increased $1.9 million due to an increase in bankers, group insurance costs, and banker incentives during the nine months ended September 30, 2025, compared to the same period in 2024. Additionally, the Company saw an increase of $0.4 million in advertising and marketing expenses primarily due to a $0.3 million increase in Neighborhood Assistance Program donations from which the Company recognized $0.2 million in additional tax credits causing a corresponding decrease in PA shares tax expense. There was also an increase of $0.7 million in premises and equipment expense primarily due to higher costs for software licenses, subscriptions, and maintenance. The increases were partially offset by $0.3 million less in professional services expense.

Previous wording

The ratios of non-interest expense less non-interest income to average assets, known as the expense ratio, were 1.38% and 1.48% for the six months ended June 30, 2025 and 2024. The expense ratio decreased because of higher average assets. The efficiency ratio (non-GAAP) decreased from 67.01% at June 30, 2024 to 61.42%(1) at June 30, 2025 due to net interest income increasing.

Current wording

The ratios of non-interest expense less non-interest income to average assets, known as the expense ratio, were 1.39% and 1.46% for the nine months ended September 30, 2025 and 2024. The expense ratio decreased because of higher average assets. The efficiency ratio (non-GAAP) decreased from 66.44% at September 30, 2024 to 61.00%(1) at September 30, 2025 due to net interest income increasing.

Previous wording

The provision for income taxes increased $0.6 million during the three months ended June 30, 2025 compared to the same period in 2024 primarily due to a $2.6 million increase in income before taxes. The provision for income taxes increased $1.0 million during the six months ended June 30, 2025 compared to the same period in 2024 primarily due to a $3.9 million increase in income before taxes and $0.2 million less in tax credits. The Company's effective tax rate was 15.8% at June 30, 2025 compared to 12.7% at June 30, 2024. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income.

Current wording

The provision for income taxes increased $0.4 million during the three months ended September 30, 2025 compared to the same period in 2024 primarily due to a $2.8 million increase in income before taxes. The provision for income taxes increased $1.4 million during the nine months ended September 30, 2025 compared to the same period in 2024 primarily due to a $6.7 million increase in income before taxes, offset somewhat by $0.1 million less in tax credits. The Company's effective tax rate was 15.4% at September 30, 2025 compared to 13.1% at September 30, 2024. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income.

Previous wording

The Company’s total assets had a balance of $2.7 billion as of June 30, 2025, an increase of $114.0 million from December 31, 2024. The increase resulted from $82.1 million in growth in cash and cash equivalents as of June 30, 2025. The loans and leases portfolio increased $37.9 million during the same period of 2025. Asset growth was offset by a decrease of $11.4 million in the investment portfolio. Deposit growth of $94.5 million was used to fund the loan portfolio with the remaining balances held in cash.

Current wording

The Company’s total assets had a balance of $2.7 billion as of September 30, 2025, an increase of $152.1 million from December 31, 2024. The increase resulted from $113.5 million of growth in the loans and leases portfolio during the first nine months of 2025. Cash and cash equivalents also increased by $58.8 million over the same time period as the Company sold investment securities with the proceeds maintained in interest-bearing deposits with financial institutions. Deposit growth of $126.1 million was utilized to fund loan growth and with the excess in interest-bearing cash.

Previous wording

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the six months ended June 30, 2025, AOCI improved by $4.9 million primarily due to the change in fair value of the Company's investment securities.

Current wording

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the nine months ended September 30, 2025, AOCI improved by $11.0 million primarily due to the change in fair value of the Company's investment securities.

Previous wording

As of June 30, 2025, the carrying value of held-to-maturity securities was $226.5 million, net of $12.9 million in remaining transferred discount.

Current wording

As of September 30, 2025, the carrying value of held-to-maturity securities was $226.9 million, net of $12.4 million in remaining transferred discount.

Previous wording

During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of June 30, 2025, the Company recorded the fair value of the swap of $1.1 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $1.1 million increase to the carrying value of designated investment securities.

Current wording

During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of September 30, 2025, the Company recorded the fair value of the swap of $1.0 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $1.0 million increase to the carrying value of designated investment securities.

Previous wording

As of June 30, 2025, the carrying value of investment securities amounted to $545.8 million, or 20% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On June 30, 2025, 35% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).

Current wording

As of September 30, 2025, the carrying value of investment securities amounted to $529.3 million, or 19% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On September 30, 2025, 32% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).

Previous wording

The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $191.1 million ($167.8 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $85.0 million ($78.2 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 36% AAA, 62% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.

Current wording

The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $192.4 million ($173.7 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $82.9 million ($76.5 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 35% AAA, 63% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.

Previous wording

During the first half of 2025, the carrying value of total investments decreased $11.4 million, or 2%. The decline was primarily due to the sale of $17.5 million in available-for-sale securities and $11.3 million in paydowns partially offset by $14.7 million in purchases of securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.

Current wording

As of September 30, 2025, the carrying value of total investments decreased $28.0 million, or 5%. The decline was primarily due to the sale of $40.0 million in available-for-sale securities and $17.6 million in paydowns partially offset by $20.2 million in purchases of securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.

Previous wording

The AFS securities were recorded with a net unrealized loss of $47.8 million and a net unrealized loss of $52.8 million as of June 30, 2025 and December 31, 2024, respectively. Of the $5.0 million net improvement; $7.5 million was attributable to mortgage-backed securities and $0.8 million was attributable to agency securities. This improvement was offset by a $3.3 million decrease to municipal securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.

Current wording

The AFS securities were recorded with a net unrealized loss of $40.7 million and $52.8 million as of September 30, 2025 and December 31, 2024, respectively. Of the $12.1 million net improvement; $9.6 million was attributable to mortgage-backed securities, $1.4 million was attributable to municipal securities, and $1.1 million was attributable to agency securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.

Previous wording

As of June 30, 2025, the Company had $276.3 million in public deposits, or 11% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of June 30, 2025, the balance of pledged securities required was $319.4 million, or 59% of total securities.

Current wording

As of September 30, 2025, the Company had $276.7 million in public deposits, or 11% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of September 30, 2025, the balance of pledged securities required was $325.9 million, or 62% of total securities.

Previous wording

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the six months ended June 30, 2025, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

Current wording

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the nine months ended September 30, 2025, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

Previous wording

During the first half of 2025, the Company sold nineteen available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.8 million as the amortized cost was $17.5 million compared to the sales proceeds of $16.7 million. This sale was due to the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

Current wording

During the first nine months of 2025, the Company sold thirty-three available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.8 million as the amortized cost was $40.0 million compared to the sales proceeds of $39.2 million. These sales were due to the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

Previous wording

Investment in FHLB stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $4.2 million and $3.9 million as of June 30, 2025 and December 31, 2024, respectively. The dividends received from the FHLB totaled $152 thousand and $148 thousand for the six months ended June 30, 2025 and 2024, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of June 30, 2025 and December 31, 2024.

Current wording

Investment in FHLB stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $4.2 million and $3.9 million as of September 30, 2025 and December 31, 2024, respectively. The dividends received from the FHLB totaled $235 thousand and $227 thousand for the nine months ended September 30, 2025 and 2024, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of September 30, 2025 and December 31, 2024.

Previous wording

As of June 30, 2025 and December 31, 2024, loans HFS consisted of residential mortgages with carrying amounts of $0.5 million and $2.1 million, respectively, which approximated their fair values. During the six months ended June 30, 2025, residential mortgage loans with principal balances of $32.0 million were sold into the secondary market and the Company recognized net gains of $0.5 million, compared to $25.5 million and $0.5 million, respectively, during the six months ended June 30, 2024.

Current wording

As of September 30, 2025 and December 31, 2024, loans HFS consisted of residential mortgages with carrying amounts of $0.9 million and $2.1 million, respectively, which approximated their fair values. During the nine months ended September 30, 2025, residential mortgage loans with principal balances of $47.4 million were sold into the secondary market and the Company recognized net gains of $0.7 million, compared to $44.7 million and $0.8 million, respectively, during the nine months ended September 30, 2024.

Previous wording

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At June 30, 2025 and December 31, 2024, the servicing portfolio balance of sold residential mortgage loans was $506.1 million and $495.4 million, respectively, with mortgage servicing rights of $1.3 million and $1.3 million for the same periods, respectively. Additionally, during the first half of 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.

Current wording

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At September 30, 2025 and December 31, 2024, the servicing portfolio balance of sold residential mortgage loans was $509.3 million and $495.4 million, respectively, with mortgage servicing rights of $1.2 million and $1.3 million for the same periods, respectively. Additionally, during the first nine months of 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.

Previous wording

As of June 30, 2025, the Company had gross loans and leases totaling $1.8 billion, an increase of $37.9 million, or 2%, compared to $1.8 billion at December 31, 2024.

Current wording

As of September 30, 2025, the Company had gross loans and leases totaling $1.9 billion, an increase of $114.7 million, or 6%, compared to $1.8 billion at December 31, 2024.

Previous wording

During the six months ended June 30, 2025, the growth in the portfolio was attributed to a $48.5 million increase in the commercial portfolio primarily due to the origination of three commercial real estate owner occupied loans to two borrowers totaling $19.0 million; a single origination totaling $4.7 million to a commercial real estate non owner occupied borrower; $22.0 million in advances on existing commercial construction commitments; and general portfolio growth. The Company also experienced a $3.7 million increase in the residential portfolio, which was offset by the $14.2 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.

Current wording

During the nine months ended September 30, 2025, the growth in the portfolio was attributed to a $130.0 million increase in the commercial portfolio primarily due to the origination of two commercial & industrial loans to a single borrower totaling $30.6 million; a single origination to a municipal borrower totaling $18.5 million; four commercial real estate owner occupied loans to three borrowers totaling $24.9 million; a single origination totaling $4.7 million to a commercial real estate non owner occupied borrower; $32.0 million in advances on existing commercial construction commitments; and general portfolio growth. The Company also experienced a $4.8 million increase in the residential portfolio, which was offset by the $20.0 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.

Previous wording

As of June 30, 2025, the commercial portfolio increased by $48.5 million, or 5%, to $1.1 billion compared to the December 31, 2024 balance of $1.0 billion. The increase was due to growth of $49.7 million in commercial real estate loans partially offset by a $1.2 million reduction in commercial and industrial loans.

Current wording

As of September 30, 2025, the commercial portfolio increased by $130.0 million, or 13%, to $1.2 billion compared to the December 31, 2024 balance of $1.0 billion. The increase was due to growth of $72.4 million in commercial real estate loans and $57.6 million in commercial and industrial loans.