FIDELITY D & D BANCORP INC

Previous wording

The Company generated $20.8 million in net income in 2024, or $3.60 diluted earnings per share, an increase of $2.6 million, or 14%, from $18.2 million, or $3.19 diluted earnings per share, in 2023. However, the Company’s net interest income performance has been reduced by asset yields being outpaced by the increases of rates paid on deposits. During 2024, federal funds rates remained steady from prior periods until the third quarter of the year. In September 2024, the Federal Open Market Committee (FOMC) decreased interest rates by 50 basis points, and in both November and December of 2024, the FOMC decreased interest rates by another 25 basis points. Currently, consensus economic forecasts are expecting declines between 25 to 50 basis points over the course of fiscal year 2025. The Company does not currently expect to see improvement in net interest margin until the second half of 2025, as rates on interest bearing deposits will take time to match the decreasing rate environment. For 2025, the Company currently 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 to manage margin enhancement 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

The Company generated $28.2 million in net income in 2025, or $4.89 earnings per share, ($4.86 diluted earnings per share) an increase of $7.4 million, or 36%, from $20.8 million, or $3.63 earnings per share, ($3.60 diluted earnings per share) in 2024. The Company’s net interest income performance has increased primarily due to interest income growth. The main driver of the growth in interest income was the average balance increase in the loan and lease portfolio along with improving yields on new originations. Interest expense increased to a lesser extent primarily due to increases in the volume of deposits which replaced short-term borrowings. During 2025, the Federal Open Market Committee (FOMC) decreased the federal funds rate by 75 basis points. Currently, consensus economic forecasts are expecting one to two declines of 25 basis points throughout fiscal year 2026. For 2026, 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

Nationally, the unemployment rate rose from 3.7% at December 31, 2023 to 4.1% at December 31, 2024. The unemployment rates in the Scranton - Wilkes-Barre - Hazleton (market area north) and the Allentown – Bethlehem - Easton (market area south) Metropolitan Statistical Areas (local) increased with both at a lower level than the national unemployment rate. According to the U.S. Bureau of Labor Statistics, the local unemployment rates at December 31, 2024 were 3.8% in the market area north and 3.4% in the market area south, respectively, an increase of 0.3 and 0.1 percentage points from the 3.5% and 3.3%, respectively, at December 31, 2023. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 7.0% and 5.4% 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 1.8% and 2.8% in the next year. In light of these expectations, we believe the real estate values could continue to increase at these levels with the declining rate environment. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

Current wording

Nationally, the unemployment rate rose from 4.1% at December 31, 2024 to 4.4% at December 31, 2025. The unemployment rates in the Scranton - Wilkes-Barre - Hazleton (market area north) and the Allentown – Bethlehem - Easton (market area south) Metropolitan Statistical Areas (local) increased with both at a lower level than the national unemployment rate. According to the U.S. Bureau of Labor Statistics, the local unemployment rates at December 31, 2025 were 4.3% in the market area north and 3.9% in the market area south, respectively, an increase of 0.5 and 0.5 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 5.1% and 2.8% 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 2.5% and 2.7% in the next year. In light of these expectations, we believe the real estate values could continue to increase at these levels with the declining rate environment. 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 years ended December 31, 2024 and 2023, tangible common book value per share (non-GAAP) was $31.98 and $29.57(1), respectively, an increase of 8.2%. 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. See “Non-GAAP Financial Measures” located above within this management’s discussion and analysis.

Current wording

For the years ended December 31, 2025 and 2024, book value per share was $41.39 and $35.56, respectively, an increase of 16%. Over the same periods, tangible common book value per share (non-GAAP) was $37.88 and $31.98(1), respectively, an increase of 18%. 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. See “Non-GAAP Financial Measures” located above within this management’s discussion and analysis.

Previous wording

Non-performing assets represented 0.30% of total assets as of December 31, 2024, up from 0.13% at the prior year end. Non-performing assets to total assets were higher during 2024 mostly due to the percentage change of non-performing assets increasing to a greater extent compared to the growth in total assets.

Current wording

Non-performing assets represented 0.08% of total assets as of December 31, 2025, a decrease from 0.30% at the prior year end. Non-performing assets to total assets decreased during 2025 mostly due to a decline in non-accrual loans.

Previous wording

During 2025, the Company currently expects to operate in a moderately declining interest rate environment throughout the year. Management is primarily reliant on the Federal Open Market Committee's statements and forecast. Management is aware the Company may continue to experience pressure to maintain higher rates on interest-bearing deposits due to the competitive nature of deposits in our market area. To help mitigate any impact of the imminent change to the economic landscape, the Company has successfully developed and will continue to strengthen its association with existing customers, develop new business relationships and generate new loan volumes. The Company’s net interest income performance has been reduced by asset yields being outpaced by higher cost of funds compressing net interest spread. For 2025, the Company currently expects to improve net interest margin compared to 2024.

Current wording

During 2026, the Company currently expects to operate in a moderately declining interest rate environment throughout the year. Management is primarily reliant on the Federal Open Market Committee’s statements and forecast. Management is aware the Company may continue to experience pressure to maintain higher rates on interest-bearing deposits due to the competitive nature of deposits in our market area. Management monitors uninsured deposits which represented approximately 39% of total deposits as of December 31, 2025, primarily within non-personal accounts. Also, as part of the planning process, management incorporates deposit pricing assumptions from its non-maturity deposit study, including estimated beta sensitivity for interest-bearing accounts, and monitors liquidity under multiple stress scenarios through its contingency funding and liquidity risk reporting processes. Accordingly, while competitive funding pressures may continue, management believes its deposit mix, modeled deposit repricing assumptions and liquidity monitoring framework position the Company to manage funding costs and liquidity prudently. Expected loan growth is anticipated to be funded by deposit growth and net interest margin is expected to improve compared to 2025.

Previous wording

Consolidated assets increased $81.5 million, or 3%, to $2.6 billion as of December 31, 2024 from $2.5 billion as of December 31, 2023. The increase in assets was primarily due to loan portfolio growth. The Company reallocated assets and used deposits to fund loan growth.

Current wording

Consolidated assets increased $163.4 million, or 6%, to $2.7 billion as of December 31, 2025 from $2.6 billion as of December 31, 2024. The increase in assets was primarily due to loan portfolio growth. The Company used deposits to fund loan growth.

Previous wording

The Company is a community-based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 21 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market; non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.

Current wording

The Company is a community-based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 21 branch offices and all deposits are insured by the FDIC up to the extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market; non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.

Previous wording

The Company utilizes the CDARS reciprocal program and the ICS reciprocal program to obtain FDIC insurance protection for customers who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $49.4 million and $1.4 million in CDARs as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, ICS reciprocal deposits represented $150.6 million and $151.4 million, or 6% and 7%, respectively, of total deposits which are included in interest-bearing checking accounts in the table above.

Current wording

The Company utilizes the CDARS reciprocal program and the ICS reciprocal program to obtain FDIC insurance protection for customers who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $48.9 million and $49.4 million in CDARS as of December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, ICS reciprocal deposits represented $153.1 million and $150.6 million, or 6% and 6%, respectively, of total deposits which are included in interest-bearing checking accounts in the table above.

Previous wording

As of December 31, 2024, total uninsured deposits were estimated to be $883.6 million, or 38% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies them into ownership categories to estimate amounts over the FDIC insurance limit. As of December 31, 2024, the total of uninsured and non-collateralized deposits to total deposits was $562.2 million, or 24% of deposits. Collateralized deposits totaled $321.4 million, or 14% of total deposits as of December 31, 2024.

Current wording

As of December 31, 2025, total uninsured deposits were estimated to be $954.0 million, or 39% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies them into ownership categories to estimate amounts over the FDIC insurance limit. As of December 31, 2025, the total of uninsured and non-collateralized deposits to total deposits was $656.5 million, or 27% of deposits. Collateralized deposits totaled $297.5 million, or 12% of total deposits as of December 31, 2025.

Previous wording

Approximately 96% of the CDs, with a weighted-average interest rate of 4.36%, are scheduled to mature in 2025 and an additional 2%, with a weighted-average interest rate of 1.20%, are scheduled to mature in 2026. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the fiscal year of 2024, CD retention is over 85%. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company. Additionally, the Company utilized IntraFi's ICS One-way buy to purchase $24.6 million at year-end 2024 compared to no balance at December 31, 2023.

Current wording

Approximately 96% of the CDs, with a weighted-average interest rate of 3.72%, are scheduled to mature in 2026 and an additional 2%, with a weighted-average interest rate of 2.01%, are scheduled to mature in 2027. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the fiscal year of 2025, 87% of maturing CDs were retained in deposit products within the bank. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company.

Previous wording

Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of December 31, 2024, the Company did not use any short-term borrowings to fund loan growth. As of December 31, 2024, the Company had the ability to borrow $157.3 million from the Federal Reserve borrower-in-custody program, full availability of $150.0 million in overnight borrowings with the FHLB open-repo line of credit and $20.0 million from lines of credit with correspondent banks.

Current wording

Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of December 31, 2025, the Company did not use any short-term borrowings to fund loan growth. As of December 31, 2025, the Company had the ability to borrow $145.0 million from the Federal Reserve borrower-in-custody program, full availability of $150.0 million in overnight borrowings with the FHLB open-repo line of credit and $30.0 million from lines of credit with correspondent banks.

Previous wording

As of December 31, 2024, the Company had 5 secured borrowing agreements with third parties with a carrying value of $6.2 million compared to 8 secured borrowing agreements with third parties with a carrying value of $7.4 million as of December 31, 2023, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease throughout 2025 from scheduled amortization and, when possible, early pay-offs.

Current wording

As of December 31, 2025, the Company had 5 secured borrowing agreements with third parties with a carrying value of $6.0 million compared to 5 secured borrowing agreements with third parties with a carrying value of $6.2 million as of December 31, 2024, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease throughout 2026 from scheduled amortization and, when possible, early pay-offs.

Previous wording

The Company had no FHLB advances as of December 31, 2024 and 2023. As of December 31, 2024, the Company had the ability to borrow up to $733.2 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances in 2025.

Current wording

The Company had no FHLB advances as of December 31, 2025 and 2024. As of December 31, 2025, the Company had the ability to borrow up to $812.7 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances in 2026.

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 year ended December 31, 2024, AOCI improved by $0.9 million primarily due to amortization of unrealized losses on securities transferred from AFS to HTM.

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 year ended December 31, 2025, AOCI improved by $14.9 million primarily due to unrealized gains on securities AFS.

Previous wording

As of December 31, 2024, the carrying value of held-to-maturity securities was $225.8 million, net of $13.8 million in remaining transferred discount.

Current wording

As of December 31, 2025, the carrying value of held-to-maturity securities was $227.3 million, net of $11.9 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 December 31, 2024, the Company recorded the fair value of the swap as $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.

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 December 31, 2025, the Company recorded the fair value of the swap as $0.9 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $0.9 million increase to the carrying value of designated investment securities.

Previous wording

As of December 31, 2024, the carrying value of investment securities amounted to $557.2 million, or 22% of total assets, compared to $568.3 million, or 23% of total assets, as of December 31, 2023. On December 31, 2024, 33% 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 December 31, 2025, the carrying value of investment securities amounted to $523.9 million, or 19% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On December 31, 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 book value of $198.6 million ($179.2 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a book value of $91.6 million ($83.4 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds was as follows: 37% AAA, 61% AA, and 1% A. For HTM municipal securities, 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 book value of $187.0 million ($170.7 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a book value of $81.9 million ($75.8 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds was as follows: 35% AAA, 63% AA, and 1% A. For HTM municipal securities, 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 2024, the carrying value of total investments decreased $11.1 million, or 2%. The decline was primarily due to principal reductions totaling $22.8 million coupled with a $1.2 million decline in the unrealized loss position in the AFS portfolio. Partially offsetting these decreases was $15.4 million in purchase of MBS - GSE residential or mortgage-backed securities throughout 2024. 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

During 2025, the carrying value of total investments decreased $33.3 million, or 6%. The decline was primarily due to the sale of $45.7 million in available-for-sale securities and $23.0 million in paydowns partially offset by $25.1 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 $52.8 million and $51.6 million as of December 31, 2024 and 2023, respectively. Of the $1.2 million net decline: $1.3 million was attributable to mortgage-backed securities and $0.5 million was attributable to municipal securities. This decrease was offset by a $0.6 million improvement in 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.

Current wording

The AFS securities were recorded with a net unrealized loss of $36.4 million and $52.8 million as of December 31, 2025 and 2024, respectively. Of the $16.4 million net improvement: $11.2 million was attributable to mortgage-backed securities, $3.9 million attributable to municipal securities, and $1.3 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 December 31, 2024, the Company had $287.1 million in public deposits, or 12% 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 December 31, 2024, the balance of pledged securities required was $322.1 million, or 58% of total securities.

Current wording

As of December 31, 2025, the Company had $266.2 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 December 31, 2025, the balance of pledged securities required was $299.0 million, or 57% of total securities.

Previous wording

Investment in Federal Home Loan Bank (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 of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. The balance in FHLB stock was $3.9 million and $3.8 million as of December 31, 2024 and 2023, respectively. The dividends received from the FHLB totaled $304 thousand and $298 thousand for the years ended December 31, 2024 and 2023, respectively. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of December 31, 2024 and 2023.

Current wording

Investment in Federal Home Loan Bank (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 of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. The balance in FHLB stock was $4.3 million and $3.9 million as of December 31, 2025 and 2024, respectively. The dividends received from the FHLB totaled $323 thousand and $304 thousand for the years ended December 31, 2025 and 2024, respectively. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of December 31, 2025 and 2024.

Previous wording

As of December 31, 2024 and 2023, loans HFS consisted of residential mortgages with carrying amounts of $2.1 million and $1.5 million, respectively, which approximated their fair values. During the year ended December 31, 2024, residential mortgage loans with principal balances of $59.3 million were sold into the secondary market and the Company recognized net gains of $1.0 million, compared to $52.0 million and $0.9 million, respectively, during the year ended December 31, 2023.

Current wording

As of December 31, 2025 and 2024, loans HFS consisted of residential mortgages with carrying amounts of $0.6 million and $2.1 million, respectively, which approximated their fair values. During the year ended December 31, 2025, residential mortgage loans with principal balances of $65.7 million were sold into the secondary market and the Company recognized net gains of $1.0 million, compared to $59.3 million and $1.0 million, respectively, during the year ended December 31, 2024. Additionally, during 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

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. As of December 31, 2024 and 2023, the servicing portfolio balance of sold residential mortgage loans was $495.4 million and $477.7 million, respectively, with mortgage servicing rights of $1.3 million and $1.5 million for the same periods, respectively.

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. As of December 31, 2025 and 2024, the servicing portfolio balance of sold residential mortgage loans was $513.6 million and $495.4 million, respectively, with mortgage servicing rights of $1.1 million and $1.3 million for the same periods, respectively.

Previous wording

As of December 31, 2024, the Company had gross loans and leases totaling $1.8 billion, an increase of $113.6 million, or 7%, compared to $1.7 billion at December 31, 2023.

Current wording

As of December 31, 2025, the Company had gross loans and leases totaling $1.9 billion, an increase of $111.9 million, or 6%, compared to $1.8 billion at December 31, 2024.

Previous wording

During the twelve months ended December 31, 2024, the growth in the portfolio was primarily attributed to a $121.4 million, or 13%, increase in the commercial portfolio due to the origination to two commercial & industrial loans to two different borrowers totaling $17 million; the origination of two municipal loans to two different borrowers totaling $8 million; the origination of five commercial real estate non-owner occupied loans to five different borrowers totaling $39 million; the origination of three commercial real estate owner occupied loans to three different borrowers totaling $17 million; and the origination of four commercial construction loans to three different borrowers totaling $15 million; and general portfolio growth.

Current wording

During the twelve months ended December 31, 2025, the growth in the portfolio was attributed to a $130.6 million increase in the commercial portfolio which was heavily impacted by the origination of two commercial & industrial loans to a single borrower totaling $28.0 million; a single origination to a municipal borrower totaling $18.5 million; six commercial real estate owner occupied loans to five independent borrowers totaling $35.5 million; $25.5 million in construction projects that were completed and converted to non-owner commercial real estate loans and a single origination totaling $4.7 million to a commercial real estate non-owner occupied borrower; and general portfolio growth.

Previous wording

The Company also experienced a $23.8 million increase in the residential portfolio, the result of a higher percentage of adjustable-rate mortgages recorded as held-for-investment during this period. This growth was offset by the $31.6 million reduction in the consumer portfolio attributed to a strategic reduction to not fully reinvest roll-off from the auto portfolio.

Current wording

The Company also experienced a $5.9 million increase in the residential portfolio, which was offset by the $24.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio

Previous wording

For the twelve months ended December 31, 2024, the Company originated $560.6 million loans and lines of credit, an increase of $29.6 million, or 6%, compared to the twelve months ended December 31, 2023.

Current wording

For the twelve months ended December 31, 2025, the Company originated $586.5 million in loans and lines of credit, an increase of $25.9 million, or 4%, compared to the twelve months ended December 31, 2024.

Previous wording

The Company originated $303.4 million total loans in 2024, which was $34.2 million less than in 2023. Commercial real estate loan originations (both owner-occupied and non-owner occupied CRE) increased by $38.3 million in 2024 compared to 2023, with growth attributed to non-owner occupied loans. Loan originations decreased in consumer loans by $37.3 million to $33.0 million, commercial and industrial by $22.2 million to $65.6 million, and residential loans by $12.9 million to $93.6 million. Rising interest rates impacted loan demand and reduced loan originations for these loan categories.

Current wording

The Company originated $320.9 million total loans in 2025, which was $17.5 million more than in 2024. Commercial and industrial loan originations increased by $41.1 million in 2025 compared to 2024, due to enhanced management strategy around the segment. Loan originations decreased in commercial real estate (both owner-occupied and non-owner occupied CRE) by $18.1 million to $93.2 million, residential loans by $4.2 million to $89.4 million, and consumer loans by $1.4 million to $31.6 million.

Previous wording

The Company originated $257.2 million total lines of credit in 2024, which was $63.8 million more than originations in 2023. Line of credit originations increased in commercial by $42.4 million to $183.9 million, residential construction by $12.3 million to $37.7 million, and home equity and other consumer by $9.1 million to $35.6 million.

Current wording

The Company originated $265.5 million total lines of credit in 2025, which was $8.3 million more than originations in 2024. Line of credit originations increased in commercial by $17.3 million to $201.2 million in 2025 compared to 2024. Line of credit originations decreased in residential construction by $7.5 million to $30.2 million and home equity and other consumer by $1.5 million to $34.1 million.

Previous wording

As of December 31, 2024, the commercial portfolio increased by $121.4 million, or 13%, to $1.0 billion compared to the December 31, 2023 balance of $903.2 million due to growth of $27.2 million in total commercial and industrial loans and $94.2 million in growth in commercial real estate loans.

Current wording

As of December 31, 2025, the commercial portfolio increased by $130.6 million, or 13%, to $1.2 billion compared to the December 31, 2024 balance of $1.0 billion due to growth of $66.6 million in total commercial and industrial loans and $64.0 million in growth in commercial real estate loans.

Previous wording

For the twelve months ended December 31, 2024, commercial and industrial (non-municipal) loans increased $20.2 million, or 13%, from $152.6 million as of December 31, 2023 to $172.8 million as of December 31, 2024, which was due to originations of two commercial & industrial borrowers totaling $17 million, along with originations and advances outpacing scheduled payments and curtailments.

Current wording

For the twelve months ended December 31, 2025, commercial and industrial (non-municipal) loans increased $47.7 million, or 28%, from $172.8 million as of December 31, 2024 to $220.5 million as of December 31, 2025, which was due to three commercial & industrial loans to two separate borrowers totaling $32.1 million in the third quarter along with the standard originations and advances outpacing scheduled payments and curtailments.

Previous wording

Non-owner occupied CRE loans are commercial loans not occupied by their owners and thus rely on income from third parties, including multi-family residential tenants and commercial tenants representing various industries. Underwriting on non-owner occupied CRE loans evaluates cash flow derived from the respective tenants and the industries they occupy. As such, management considers non-owner occupied CRE loans as having a higher risk profile than owner occupied CRE loans. In keeping with its risk appetite and relationship management strategy, the Company avoids speculative commercial office space and prefers loans for projects with the following characteristics: sufficient equity, or loan to value, and have either S&P rated tenants with long term leases, loans structured with personal guarantees of owners whose personal financial strength provides meaningful cash flow support to supplement rental income volatility, residential projects with stable rents in desirable locations, or projects with sufficient diversity and industries proven to provide lower risk over the long term.

Current wording

Non-owner occupied CRE loans are commercial loans not occupied by their owners and thus rely on income from third parties, including multi-family residential tenants and commercial tenants representing various industries. Underwriting on non-owner occupied CRE loans evaluates cash flow derived from the respective tenants and the industries they occupy. In keeping with its risk appetite and relationship management strategy, the Company avoids speculative commercial office space and prefers loans for projects with the following characteristics: sufficient equity, or loan to value, and have either S&P rated tenants with long term leases, loans structured with personal guarantees of owners whose personal financial strength provides meaningful cash flow support to supplement rental income volatility, residential projects with stable rents in desirable locations, or projects with sufficient diversity and industries proven to provide lower risk over the long term.

Previous wording

Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of December 31, 2024, the commercial construction portfolio of $50.9 million consisted of $41.3 million, or 81%, of non-owner-occupied loans and $9.6 million, or 19%, of owner-occupied loans.

Current wording

Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. As of December 31, 2025, the commercial construction portfolio of $56.7 million consisted of $37.4 million, or 66%, of non-owner-occupied loans and $19.2 million, or 34%, of owner-occupied loans.

Previous wording

For the twelve months ended December 31, 2024, commercial construction loans increased $11.1 million, or 28%, from $39.8 million on December 31, 2023 to $50.9 million at December 31, 2024. This increase was attributed to $21.4 million in commercial construction commitments originated during the year and $13.9 million in advances during the year on commercial construction loan availability originated prior to December 31, 2023. These advances were partially offset by $0.5 million of paydowns/payoffs and $23.7 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the twelve months ended December 31, 2024.

Current wording

For the twelve months ended December 31, 2025, commercial construction loans increased $5.8 million, or 11%, from $50.9 million on December 31, 2024 to $56.7 million at December 31, 2025. This increase was attributed to $24.4 million in commercial construction commitments originated during the year and $19.9 million in advances during the year on commercial construction loan availability booked prior to December 31, 2025. This increase was partially offset by $33.4 million in construction projects converting to permanent financing to owner and non-owner commercial real estate loans and $5.1 million in loans that were paid off during the twelve months ended December 31, 2025.

Previous wording

Offsetting the reduction in the indirect auto portfolio was growth of $6 million in the HELOC portfolio due to a sales campaign done during the year and growth of $7 million in the consumer other portfolio due to $6 million in personal loans purchased from Banker Healthcare Group (BHG) during the year along with standard portfolio growth.

Current wording

As of December 31, 2025, the total consumer loan portfolio decreased by $24.5 million, or 10%, to $226.3 million compared to the December 31, 2024 balance of $250.8 million, primarily due to a management strategic determination to reduce the indirect auto portfolio based on payoffs with minimal originations, resulting in a $41 million reduction. Offsetting the reduction in the indirect auto portfolio was growth of $12.1 million in the HELOC portfolio due to a sales campaign done during the year and growth of $4.6 million in the consumer other portfolio, which was attributed to $5.6 million loans purchased from the third-party originator BHG Financial during the year.

Previous wording

The residential real estate loan portfolio (non-construction) consisted primarily of held-for-investment residential loans for primary residences, including approximately $401 million in fixed-rate and $104 million in adjustable-rate mortgages as of December 31, 2024.

Current wording

The residential real estate loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including approximately $410 million in fixed-rate and $105 million in adjustable-rate mortgages as of December 31, 2025.

Previous wording

There are no concentrations of loans or customers to several borrowers engaged in similar industries exceeding 10% of total loans that are not otherwise disclosed as a category in the tables above. There are no concentrations of loans that, if resulted in a loss, would have a material adverse effect on the business of the Company. The Company’s loan portfolio does not have a material concentration within a single industry or group of related industries or customers that is vulnerable to the risk of a near-term severe negative business impact. As of December 31, 2024, approximately 77% of the gross loan portfolio was secured by real estate compared to 75% at December 31, 2023.

Current wording

There are no concentrations of loans or customers to several borrowers engaged in similar industries exceeding 10% of total loans that are not otherwise disclosed as a category in the tables above. There are no concentrations of loans that, if resulted in a loss, would have a material adverse effect on the business of the Company. The Company’s loan portfolio does not have a material concentration within a single industry or group of related industries or customers that is vulnerable to the risk of a near-term severe negative business impact. As of December 31, 2025, approximately 77% of the gross loan portfolio was secured by real estate compared to 77% at December 31, 2024.

Previous wording

For the twelve months ended December 31, 2024, the allowance increased $0.9 million, or 5%, to $19.7 million from $18.8 million at December 31, 2023. The increase in the allowance was based on the provisioning of $1.3 million partially offset by net charge-offs of $0.5 million.

Current wording

For the twelve months ended December 31, 2025, the allowance increased $0.5 million, or 3%, to $20.2 million from $19.7 million at December 31, 2024. The increase in the allowance was based on the provisioning of $1.1 million partially offset by net charge-offs of $0.6 million.

Previous wording

The allowance for credit losses as a percentage of total loans decreased to 1.09% as of December 31, 2024 compared to 1.12% at December 31, 2023 based on the changes in current year loss factors and portfolio growth in lower risk segments.

Current wording

The allowance for credit losses as a percentage of total loans decreased to 1.06% as of December 31, 2025 compared to 1.09% at December 31, 2024 based on the changes in current year loss factors, a more favorable economic forecast, and reduction in non-performing loans.