FRANKLIN FINANCIAL SERVICES CORP /PA/

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note1. Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank that hasone wholly owned subsidiary, Franklin Financial Properties Corp. Franklin Financial Properties Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of the non-bank subsidiary arenot significant to the consolidated totals. All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of* September 30, 2026*, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s2025 Annual Report on Form10-K. The consolidated results of operations for thethree andnine months ended* September 30, 2026* arenot necessarily indicative of the operating results for the full year. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at* December 31, 2025* has been derived from the audited consolidated financial statements at that date but doesnot include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and cash items with original maturities less than90 days.

Earnings per share are computed based on the weighted average number of shares outstanding during each period end. A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

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Note2. Recent Accounting Pronouncements

Recently adopted accounting standards

Note3. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of income tax effects, included in shareholders' equity, are as follows:

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Note4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of* September 30, 2026* and* December 31, 2025* are as follows:

At* September 30, 2026* and* December 31, 2025*, the fair value of debt securities pledged to secure public deposits, trust deposits, FHLB borrowing commitments and Federal Reserve Bank discount window availability totaled $390.0 million and $353.5 million, respectively. The Bank hasno investment in a single obligor that exceeds10% of shareholders’ equity, except for securities issued by the U.S. Treasury and U.S. government sponsored entities.

The amortized cost and estimated fair value of debt securities at* September 30, 2026*, by contractual maturity, are shown below. Actual maturities* maydiffer from contractual maturities because of prepayment or call options embedded in the securities. Securitiesnot* due at a single maturity date are presented separately.

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Credit Impairment:

The debt securities portfolio contained 468 securities in an unrealized loss position having a fair value of $449.4 million, with $46.2 million in unrealized losses at* September 30, 2026*, an increase of $18.7 million from the prior year-end.

AFS securities in an unrealized loss position are evaluated for credit impairment at least quarterly. For these securities, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The Bank doesnot have the intent to sell and doesnot believe it will more likely thannot be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The unrealized losses identified on debt securities and subject to evaluation at* September 30, 2026* and* December 31, 2025*, were determinednot to be attributable to credit related factors; therefore, the Bank doesnot have an allowance for credit loss for these investments.

The following table summarizes debt securities in the AFS portfolio in an unrealized loss position for which an allowance for credit losses hasnot been recorded, aggregated by investment category, length of time that individual securities have been in continuous unrealized loss position and the number of securities in each category as of* September 30, 2026* and* December 31, 2025*:

Note5. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s mortgage loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property. Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings thereon and are secured by mortgages on real estate. Commercial loans are made to businesses of various sizes for a variety of purposes including construction, property, plant and equipment, and working capital. Commercial loans also include loans to government municipalities. Commercial lending is concentrated in the Bank’s primary market but also includes purchased loan participations. Consumer loans are comprised of installment, home equity and unsecured personal lines of credit.

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Each class of loans involves a different kind of risk. However, risk factors such as changes in interest rates, general economic conditions and changes in collateral values are common across all classes. The risk of each loan class is presented below.

Residential Real Estate1*-4 family*

The largest risk in residential real estate loans to retail customers is the borrower’s inability to repay the loan due to the loss of the primary source of income. The Bank attempts to mitigate this risk through prudent underwriting standards including employment history, current financial condition and credit history. These loans are generally owner occupied and serve as the borrower’s primary residence. The Bank usually holds afirst lien position on these properties but* mayhold asecond* lien position in some home equity loans or lines of credit. Commercial purpose loans, secured by residential real estate, are usually dependent upon repayment from the rental income or other business purposes. These loans are generally non-owner occupied. In addition to the real estate collateral, these loans* mayhave personal guarantees or UCC filings on other business assets. If a payment default occurs on a1*-4 family residential real estate loan, the collateral serves as a source of repayment but* may*be subject to a change in value due to economic conditions.

Residential Real Estate Construction

This class includes loans to individuals for construction of a primary residence and to contractors and developers to improve real estate and construct residential properties. Construction loans to individuals generally bear the same risk as1-4 family residential loans. Additional risks* may*include cost overruns, delays in construction or contractor problems.

Loans to contractors are primarily dependent on the sale of finished homes for repayment. Risks associated with these loans include the borrower’s character and capacity to complete a home, the effect of economic conditions on the valuation of homes, cost overruns, delays in construction or contractor problems. In addition to real estate collateral, these loans* mayhave personal guarantees or UCC filings on other business assets, depending on the financial strength and experience of the contractor. Real estate construction loans are monitored on a regular basis by either an independentthird* party or the responsible loan officer, depending on the size and complexity of the project. This monitoring process includes at a minimum, the submission of invoices or American Institute of Architects (AIA) documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial Real Estate

Commercial real estate loans* maybe secured by various types of commercial property including apartment buildings, retail space, office buildings, warehouses, hotels and motels, manufacturing facilities, agricultural land and mayhave personal guarantees or UCC filings on other business assets, depending on the financial strength of the borrower. Also included in this segment are loans for the construction of commercial real estate buildings and residential site development. Construction loans mayincur additional risks such as cost overruns, delays in construction, or contractor problems. Residential site development loans are primarily dependent on the sale of improved lots for repayment. Construction loans are monitored on a regular basis by either an independentthird* party or the responsible loan officer, depending on the size and complexity of the project. This monitoring process includes at a minimum, the submission of invoices or AIA documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial real estate loans present a higher level of risk than residential real estate loans. Repayment of these loans is normally dependent on cash-flow generated by the operation of a business that utilizes the real estate. The successful operation of the business, and therefore repayment ability,* maybe affected by general economic conditions outside of the control of the operator. On most commercial real estate loans ongoing monitoring of cash flow and other financial performance indicators is completed annually through financial statement analysis. In addition, the value of the collateral maybe negatively affected by economic conditions and maybe insufficient to repay the loan in the event of default. In the event of foreclosure, commercial real estate may*be more difficult to liquidate than residential real estate.

Commercial

Commercial loans are made for various business purposes to finance equipment, inventory, accounts receivables, and operating liquidity. These loans are generally secured by business assets or equipment, non-real estate collateral and/or personal guarantees.

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Commercial loans present a higher level of credit risk than other loans because repayment ability is usually dependent on cash-flow from a business operation that can be affected by general economic conditions. On most commercial loans ongoing monitoring of cash flow and other financial performance indicators occur at least annually through financial statement analysis. In the event of a default, collateral for these loans* maybe more difficult to liquidate, and the valuation of the collateral may*decline more quickly than loans secured by other types of collateral.

Loans to governmental municipalities are also included in the Commercial class. These loans include general obligation notes, indicating that the loan is secured by the “full faith and credit” of the municipal government thereby pledging its taxing authority, and revenue backed loans to a municipal authority secured by revenue from a specific source. These loans generally present less risk than other commercial loans.

Consumer

These loans are made for a variety of reasons to consumers and include term loans and personal lines of credit. The loans* maybe secured or unsecured. Repayment is primarily dependent on the income of the borrower and to a lesser extent the sale of collateral. The underwriting of these loans is based on the consumer’s ability and willingness to repay and is determined by the borrower’s employment history, current financial condition and credit history. Collateral for these loans, if any, usually depreciates quickly and therefore, may**not* be adequate to repay the loan if it is repossessed. Therefore, the overall health of the economy, including unemployment rates and wages, will have an effect on the credit quality in this loan class.

A summary of outstanding loans, by class, at the end of the reporting periods is as follows:

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Note6. Loan Quality and Allowance for Credit Losses

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. Management utilizes a risk rating scale ranging from1-Prime to9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or90 days or more past due and still accruing. The Bank uses the following definitions for risk ratings:

Pass (1-5): Loans are considered pass credits with lower or average risk and arenot otherwise classified.

Other Assets Especially Mentioned (OAEM) (6): Loans classified as OAEM have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses* may*result in deterioration of the repayment prospects for the loan or of the borrower’s credit position at some future date.

Substandard (7): Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies arenot corrected.

Doubtful (8): Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss (9): Loans classified as Loss are considered uncollectable and the loan will be charged-off in the period it is deemed uncollectable. There wereno loans in this category.

Loans that donot share risk characteristics with pooled loans are evaluated on an individual basis. Loans evaluated individually arenot included in the pool evaluation, this includes collateral dependent loans. Loans are considered Collateral Dependent when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any discounts and selling costs as appropriate.

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated6–OAEM or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual or rated7-Substandard or worse. Management, at its discretion,* maydetermine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, butnot* limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank.* When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may*be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Enterprise Risk Management Committee of the Board of Directors.

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The following table presents loans by year of origination and internally assigned risk ratings:

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The following table presents the amortized cost basis of loans on nonaccrual status and loans past due90 days or more and still accruing as of the date presented. No interest was recognized on nonaccrual loans for thenine months ended* September 30, 2026*.

The following table presents the aging of payments of the loan portfolio:

The following table presents, by class, the activity in the Allowance for Credit Losses (ACL) for the periods shown:

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At* September 30, 2026*, the Bank had $17.5 million of loans considered to be collateral dependent. These loans are comprised of a commercial real estate construction loan totaling $8.9 million for a mixed-use project with a specific reserve of $1.2 million and a commercial real estate loan totaling $8.6 million secured bysix commercial office buildings with a specific reserve of $628 thousand, to unrelated borrowers. At* December 31, 2025*, collateral dependent loans totaled $7.1 million for a commercial real estate construction loan for a mixed-use project with a specific reserve of $892 thousand. At* September 30, 2025*, the Bank hadtwo commercial loans to unrelated borrowers totaling $10.2 million that were considered to be collateral dependent with a specific reserve of $894 thousand.

Foreclosure:

At* September 30, 2026* and* December 31, 2025*, the Bank had $0 of residential properties in the process of foreclosure.

Modifications:

The Bank* maymodify loans to borrowers experiencing financial difficulty (BEFD) by providing modifications such as principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit loss. The Bank mayalso provide multiple types of concessions onone* loan.

During thethree months ending* September 30, 2026* and2025, there wereno loans modified for BEFD.

During thenine months ending* September 30, 2026*, the Bank provided modifications totwo unrelated BEFD. One $7.0 million CRE construction loan was modified with a term extension that had a more-than-insignificant payment delay. As of* September 30, 2026*, this loan had matured and repayment has been delayed under the terms of a forbearance agreement. As part of the forbearance agreement, the Bank has committed to lend an additional $2.5 million to the borrower and had advanced $1.9 million as of* September 30, 2026*, for a total of $8.9 million outstanding to this BEFD as of* September 30, 2026*. The payment terms of the new loan are also covered by the terms of the forbearance agreement. This loan is on nonaccrual status as of* September 30, 2026*, and a $1.2 million specific reserve has been established for this loan. Thesecond loan modification was for an $8.6 million CRE loan that was granted a modified payment schedule. The Bank hasno commitment to lend additional amounts to this borrower. As of* September 30, 2026*, this loan was on nonaccrual status and had a specific reserve of $628 thousand.

There wereno loans modified during thenine months ending* September 30, 2025.*

The following table presents the amortized cost basis of loans to borrowers experiencing financial difficulty which were modified during thenine months ended* September 30, 2026*, by class, by type of modification, and the percentage of the amortized cost basis of these loans as compared to the amortized cost basis of each class of financing receivable.

The Bank closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last12 months:

As of* September 30, 2026* there wereno modifications made to borrowers experiencing financial difficulty that had a payment default and were modified in thetwelve months prior to that default. Default is determined at90 or more days past due, upon charge-off, or upon foreclosure.

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Note7. Leases

The Corporation leases various assets in the course of its operations that are subject to recognition on the balance sheet. The Corporation considers all of its leases to be operating leases and it hasno finance leases. The leased assets* mayinclude equipment, and buildings and land (collectively real estate). The equipment leases are shorter term than the real estate leases, and generally have a fixed payment over a defined term without renewal options. Certain equipment leases have purchase options and it was determined the option wasnot* reasonably certain to be exercised. The real estate leases are longer-term and* maycontain renewal options after the initial term, butnone* of the real estate leases contain a purchase option. The renewal options on real estate leases were reviewed and if it was determined the option was reasonably certain to be renewed, the option term was considered in the determination of the lease liability. There is onlyone real estate lease with a variable payment based on an index included in the lease liability.None of the leases contain any restrictive covenants and there areno significant leases that havenot yet commenced. The discount rate used to determine the lease liability is based on the Bank’s fully secured borrowing rate from the Federal Home Loan Bank for a term similar to the lease term. Operating lease expense is included in net occupancy expense in the consolidated statements of income.

Lease costs:

The components of total lease cost were as follows:

Supplemental Lease Information:

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms ofone year or more as of* September 30, 2026*, are as follows:

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Note8. Other Real Estate Owned

The Bank hadno other real estate owned at* September 30, 2026* and* December 31, 2025*.

Note9. Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.

Fair Value Hedges – The Corporation entered into certain interest rate swap contracts designated as fair value portfolio layer hedges of certain available-for-sale investment securities. The Corporation made a fixed payment and received a variable payment over the life of the contracts. The hedges were determined to be effective during all periods presented. On* March 16, 2026,the Corporation terminated the interest rate swap contracts and recognized $69 thousand of interest income on investments. No cash collateral was posted as of September 30, 2026*.

DerivativesNot Designated as Hedges – These derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, arenot used to manage interest rate risk in the Corporation’s assets or liabilities. Derivativesnot designated as hedges arenot speculative and result from a service the Corporation provides to certain lenders which participate in loans.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the Balance Sheet.

The table below presents the effect of the Corporation’s derivative financial instruments that are designated as hedging instruments on the Income Statement.

Effect of Derivatives Designated as Hedging Instruments on the Statement of Financial Performance

The income effect of the derivativenot designated as a hedging instrument was $0 as of* September 30, 2026and2025*.

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The table below presents the carrying amount of the derivative financial instruments for the periods shown:

Note10. Pension

The components of pension expense for the periods presented are as follows:

The service cost component of pension expense is recorded in the salaries line and all other cost components are recorded in the other expense line of the Consolidated Statements of Income.

Note11. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein arenot necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and havenot been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates* may*be different than the amounts reported at each year-end. The Corporation uses the exit price notion to measure the fair value of financial instruments.

FASB ASC Topic820, “Fair Value Measurements”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that arenot measured and reported at fair value on a recurring and nonrecurring basis. The Corporation doesnot report any nonfinancial assets at fair value. FASB ASC Topic820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). Thethree levels of the fair value hierarchy under FASB ASC Topic820 are as follows:

Level1**: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

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Level2**: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that arenot active, and model-based valuation techniques for which all significant assumptions are observable in the market. There* maybe substantial differences in the assumptions used for securities within the same level. For example, prices for U.S. Agency securities have fewer assumptions and are closer to level1* valuations than the private label mortgage-backed securities that require more assumptions and are closer to level3 valuations.

Level3**: Valuation is generated from model-based techniques that use significant assumptionsnot observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information regarding the fair value of the Corporation’s financial instruments shouldnot be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies* may**not* be meaningful.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments

Investment securities: Fair values of investment securities available-for-sale were primarily measured using information from athird-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level2 investment securities are primarily comprised of debt securities issued by states and municipalities, corporations, mortgage-backed securities issued by government agencies, and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. Investment securities are measured at fair value on a recurring basis.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals conducted by an independent, licensed appraiser, less cost to sell. These appraisals* mayutilize a single valuation approach or a combination of approaches including comparable sales and the income approach (Level2*). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level3. Non-real estate collateral* maybe valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level3* fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.No partial charge-offs on these loans were taken in thefirst nine months of2026. Collateral dependent loans are measured at fair value on a nonrecurring basis.

Derivatives: The fair value of derivatives are based on valuation methods using observable market data as of the measurement date (Level2). The fair value of derivatives are determined using quantitative models using multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates and other factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources including, brokers, market transactions andthird-party pricing services. The fair value represents an estimate of the amount the Corporation would receive or pay to terminate the derivative contract.

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Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at the lower of cost or the fair value less costs to sell when acquired. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updatedno less frequently than annually. These appraisals* mayutilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties (Level2*). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level3. In connection with the measurement and initial recognition of other real estate owned, losses are recognized through the allowance for loan losses. Subsequent charge-offs are recognized as an expense. Other real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Fair Value Measurements

The following table presents assets measured at fair value and the basis of measurement used for the periods presented:

For financial assets and liabilities measured at fair value on a recurring basis, there wereno transfers of financial assets or liabilities between Level1 and Level2 during the period ending* September 30, 2026*.

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The following table presents additional quantitative information about Level3 assets measured at fair value on a nonrecurring basis for the periods shown.

The carrying amounts and estimated fair value of financial instrumentsnot carried at fair value are as follows:

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Note12. Deposits

Time deposits greater than*$250,000* at* September 30, 2026* and* December 31, 2025* were $56.0 million and $55.9 million, respectively.

Note13. Borrowings

On* September 30, 2026*, the Bank had $200.0 million in total borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB), compared to $200.0 million on* December 31, 2025*. The borrowings have a rate of 4.32% and are due* January 12, 2027.*

On* September 30, 2026*, the Corporation had $11.0 million of unsecured subordinated debt notes payable of which $6.0 million mature on* September 1, 2030and $5.0 million mature on September 1, 2035.The notes are recorded on the consolidated balance sheet net of remaining debt issuance costs totaling $140 thousand which is being amortized on a pro-rata basis, based on the maturity date of the notes, on an effective interest method. The subordinated notes totaling $6.0 million have a variable interest rate of90*-day Average Secured Overnight Financing Rate (SOFR) plus 4.93% and resets quarterly. The subordinated notes totaling $5.0 million have a fixed interest rate of 5.25% through* June 29, 2030,then convert to a variable rate of90*-day SOFR plus 4.92% for the applicable interest periods through maturity. The Corporation* may,at its option, redeem the notes at par, in whole or in part, at any time5*-years prior to the respective maturity dates. The notes are structured to qualify as Tier2 Capital for the Corporation and there areno debt covenants on the notes.

Note14. Capital Ratios

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are shown in the table below. In addition, a capital conservation buffer of 2.5% is applicable to all of the capital ratios except for the Tier1 Leverage ratio. The capital conservation buffer is equal to the lowest value of thethree applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at* September 30, 2026* was 5.95% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of* September 30, 2026*, the Bank was “well capitalized.”

In2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO). If a bank qualifies as a QCBO and maintains a CBLR of9% or greater, the bank would be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the risk-based capital rule described above. The CBLR rule took effect* January 1, 2020and banks could opt-in through an election in thefirst* quarter2020 regulatory filing. The Bank met the criteria of a QCBO but didnot opt-in to the CBLR.

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In2026, the federal banking agencies amended the CBLR to decrease the CBLR ratio from9% to8% effective* July 1, 2026.The revisions to the CBLR also provide for a longer grace period for banks that fall out of compliance with the new ratio to regain compliance. Adoption of the new CBLR maybe made on the bank’s quarterly call report. The Bank hadnot* elected to adopt the CBLR framework as of* September 30, 2026*.

The consolidated asset limit on small bank holding companies is $3.0 billion and a company with assets under that limit isnot subject to the consolidated capital rules but* may*file reports that include capital amounts and ratios. The Corporation has elected to file those reports.

The following table summarizes the regulatory capital requirements and results as of* September 30, 2026* and* December 31, 2025* for the Corporation and the Bank:

Note15. Revenue Recognition

All of the Corporation’s revenue from contracts with customers within the scope of ASC606 is recognized in non-interest income as presented in its consolidated statements of income. Revenue generating activities that fall within the scope of ASC606 are described as follows:

Wealth Management Fees – these represent fees from wealth management (assets under management), fees from the management and settlement of estates and commissions from the sale of investment and insurance products. Asset management fees are generally assessed based on a tiered fee schedule, based on the value of assets under management, and are recognized monthly when the service obligation is completed. Fees for estate management services are based on the estimated fair value of the estate. These fees are generally recognized monthly over an18-month period that Management has determined to represent the average time to fulfill the performance obligations of the contract. Management has the discretion to adjust this time period as needed based upon the nature and complexity of an individual estate. Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction.

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The following table presents Wealth Management Fees for thethree andnine months ended* September 30, 2026and2025*:

Loan Service Charges – these represent fees on loans for services or charges that occur after the loan has been booked, for example, late payment fees. These also include fees for mortgages settled forthird-party mortgage companies. All of these fees are transactional in nature and are recognized upon completion of the transaction which represents the performance obligation.

Deposit Service Charges and Fees – these represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but arenot limited to, stop payment fees and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Income – this represents interchange fees from cardholder transactions conducted through the card payment network. Cardholders use the debit card to conduct point-of-sale transactions that produce interchange fees. The fees are transaction based and the fee is recognized with the processing of the transaction. These fees are reported net of cardholder rewards.

Other Service Charges and Fees – these are comprised primarily of merchant card fees, credit card fees, ATM surcharges and interchange fees and wire transfer fees. Merchant card fees represent fees the Bank earns from athird party for enrolling a customer in the processor’s program. Credit card fees represent a fee earned by the Bank for a successful referral to a card-issuing company. ATM surcharges and interchange fees are the result of Bank customers conducting ATM transactions that generate fee income and are processed through multiple card networks. All of these fees are transaction based and are recognized at the time of the transaction.

Gains/Losses on the Sale of Other Real Estate – these are recognized when control of the property transfers to the buyer.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company doesnot typically enter into longer-term revenue contracts with customers, and therefore, doesnot experience significant contract balances.

Contract Acquisition Costs

The Corporation expenses all contract acquisition costs as costs are incurred.

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Note16. Commitments and Contingencies

In the normal course of business, the Bank is a party to financial instruments that arenot reflected in the accompanying financial statements and are commonly referred to as off-balance-sheet instruments. These financial instruments are entered into primarily to meet the financing needs of the Bank’s customers and include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risknot recognized in the consolidated balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.

The Bank had the following outstanding commitments for the periods presented:

(1) Reported in Other Liabilities on the Consolidated Balance Sheets

Commitments to extend credit are agreements to lend to a customer as long as there isno violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses with the exception of home equity lines and personal lines of credit and* mayrequire payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts donot* necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on Management’s credit evaluation of the counterparty. Collateral for most commercial commitments varies but* may*include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Collateral for secured consumer commitments consists of liens on residential real estate.

Standby letters of credit are instruments issued by the Bank, which guarantee the beneficiary payment by the Bank in the event of default by the Bank’s customer in the nonperformance of an obligation or service. Most standby letters of credit are extended forone-year periods. Generally, the credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary primarily in the form of certificates of deposit and liens on real estate. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.

Most of the Bank’s business activity is with customers located within its primary market and doesnot involve any significant concentrations of credit to anyone entity or industry.

Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation.

The Corporation establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable, and the amount of the loss can be reasonably estimated. When the Corporation is able to do so, it also determines estimates of possible losses, whether in excess of any accrued liability or where there isno accrued liability.

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These assessments are based on the analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained, the Corporation* maychange its assessments and, as a result, take or adjust the amounts of its accruals and change its estimates of possible losses or ranges of possible losses. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts that maybe accrued or included in estimates of possible losses or ranges of possible losses may**not* represent the actual loss to the Corporation from any legal proceeding. Its exposure and ultimate losses* maybe higher, possibly significantly higher, than amounts it mayaccrue or amounts it may*estimate.

In management’s opinion, the Corporation doesnot anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party at this time will have a material adverse effect on its financial position. The Corporation cannot now determine, however, whether ornot any claim asserted against it will have a material adverse effect on its results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period. Thus, at* September 30, 2026*, the Corporation is unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, havenot yet established any specific accrual for such other matters.

Note17. Segment Reporting

The Corporation’s reportable segments are determined by the President and Chief Operating Officer of the Bank, who is the designated chief operating decision maker (CODM), based upon information provided about the Corporation’s products and services offered primarily between community banking and wealth management segments. The segments are also distinguished by the level of information provided to the CODM, who uses such information to review the performance of various components of the business, which are then aggregated if operating performance, products/services, and customer are similar. The CODM evaluates the financial performance of the Corporation’s business segments by evaluating revenue streams, significant expenses, and budget to actual results to assess the performance of the segments and to determine allocation of resources. This evaluation is also used to assess the performance of each segment to evaluate compensation of certain employees.

Segment pretax profit or loss is used to assess the performance of the community banking segment by monitoring net interest income, fee income and noninterest expense. In this segment, interest income on loans and securities, and banking service fees are the primary source of revenue. Interest expense, the provision for credit losses, and salaries and benefits are the primary expenses.

Segment pretax profit or loss is used to assess the performance of the wealth management segment by monitoring fee income and operating expense, and by assets under management. In this segment, fees from assets under management are the primary source of revenue, while salaries and benefits are the primary expense.

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Note18. Reclassifications

Certain prior period amounts* mayhave been reclassified to conform to the current year presentation. Such reclassifications didnot* affect prior year net income or shareholders’ equity.

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