Citizens Financial Services (NASDAQ: CZFS) details capital, loan mix and key risks

Rhea-AI Filing Summary

Citizens Financial Services, Inc., parent of First Citizens Community Bank, is a Pennsylvania-based community banking company with 47 facilities across Pennsylvania, New York, Delaware and New Jersey. It focuses on full-service retail, commercial, agricultural and trust banking.

As of June 30, 2025, non‑affiliate common equity market value was $264.8 million, and as of March 3, 2026 there were 4,807,219 common shares outstanding. The bank uses the community bank leverage ratio framework and reported a leverage ratio of 9.54% at December 31, 2025, above the well‑capitalized threshold.

The loan book is concentrated in commercial real estate, agricultural real estate and other commercial lending, with detailed risks around agriculture (including dairy and poultry exposure), natural gas activity in the Marcellus and Utica Shales, and secondary mortgage operations. The allowance for credit losses was $22.8 million, or 0.97% of total loans and 85.7% of nonperforming loans, at year‑end 2025.

The filing outlines extensive regulatory, liquidity, interest‑rate, competition and technology/cybersecurity risks, describes capital and dividend constraints, and notes goodwill of $85.8 million. In Q4 2025, the company repurchased 3,065 shares at an average price of $55.85, leaving 140,138 shares available under its buyback program.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2025

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-13222

CITIZENS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania		23-2265045
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15 South Main Street, Mansfield, Pennsylvania		16933
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (570) 662-2121

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par value $1.00 per share	CZFS	The Nasdaq Stock Market, LLC
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

	Large accelerated filer ☐	Accelerated filer ☒
	Non-accelerated filer ☐	Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended reporting transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 ☐ Yes ☒ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter; $264,808,000 as of June 30, 2025.

As of March 3, 2026, there were 4,807,219 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Part III is incorporated by reference to the Registrant’s Definitive Proxy Statement for the 2026 Annual Meeting of Shareholders.

Citizens Financial Services, Inc.

Form 10-K

INDEX

	Page
PART I
ITEM 1 – BUSINESS	1 – 8
ITEM 1A – RISK FACTORS	9 – 17
ITEM 1B – UNRESOLVED STAFF COMMENTS	17
ITEM 1C – CYBER SECURITY	17-18
ITEM 2 – PROPERTIES	18
ITEM 3 – LEGAL PROCEEDINGS	18
ITEM 4 – MINE SAFETY DISCLOSURES	18
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	18 – 20
ITEM 6 – RESERVED	20
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21 – 51
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	52 – 112
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	113
ITEM 9A – CONTROLS AND PROCEDURES	113-114
ITEM 9B– OTHER INFORMATION	115
ITEM 9C– DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	115
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	116
ITEM 11 – EXECUTIVE COMPENSATION	116
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	116
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	117
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES	117
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	118 – 120
ITEM 16 – FORM 10-K SUMMARY	120
SIGNATURES	121

Index

PART I

ITEM 1 – BUSINESS.

CITIZENS FINANCIAL SERVICES, INC.

Citizens Financial Services, Inc. (the “Company”), a Pennsylvania corporation, was incorporated on April 30, 1984 to be the holding company for First Citizens Community Bank (the “Bank”), a Pennsylvania-chartered bank and trust company. During 2020, CZFS Acquisition Company, LLC (“CZFS”) was formed as a wholly owned subsidiary of the Company, and subsequently the Company’s interest in the Bank was transferred to CZFS to facilitate the merger with MidCoast Community Bancorp, Inc. (“MidCoast”) and its wholly owned subsidiary, MidCoast Community Bank (“MC Bank”), which was completed on April 17, 2020. During 2024, the Company terminated the corporate existence of CZFS and the interest in the Bank was transferred back to the Company. On June 16, 2023, the Company acquired HV Bancorp, Inc. (“HVBC”) and its wholly owned subsidiary, Huntingdon Valley Bank (“HVB”). The Company is primarily engaged in the ownership and management of CZFS, its subsidiary, the Bank and the Bank’s wholly owned subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). During 2024, the Bank terminated the corporate existence of Realty.

AVAILABLE INFORMATION

A copy of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current events reports on Form 8-K, and amendments to these reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge through the Company’s web site at www.firstcitizensbank.com as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission. Copies of the reports the Company files electronically with the Securities and Exchange Commission are also available through the Securities and Exchange Commission’s website at www.sec.gov. Information on our website shall not be considered as incorporated by reference into this Form 10-K.

FIRST CITIZENS COMMUNITY BANK

The Bank is a full-service bank engaged in a broad range of banking activities and services for individual, business, governmental and institutional customers. These activities and services principally include checking, savings, and time deposit accounts; residential, commercial and agricultural real estate, commercial and industrial, state and political subdivision and consumer loans; and a variety of other specialized financial services. The Trust and Investment division of the Bank offers a full range of client investment, estate, mineral management and retirement services.

The Bank’s main office is located at 15 South Main Street, Mansfield (Tioga County), Pennsylvania. In addition to the main office in Mansfield, the Bank operates 38 full service offices, two limited branch offices and two mortgage centers in its market areas. The Bank’s north central, Pennsylvania market area consists of the Pennsylvania Counties of Bradford, Clinton, Potter, Lycoming and Tioga in north central Pennsylvania. It also includes Allegany, Steuben, Chemung and Tioga Counties in Southern New York. The south-central Pennsylvania market consists of Lebanon county and portions of Berks, Lancaster and Schuylkill Counties in Pennsylvania. The Central Pennsylvania market consists of our offices in Centre, Clinton, Lycoming and Union counties and the surrounding communities. Our Delaware market consists of Wilmington and Dover, Delaware and portions of Chester County, Pennsylvania and was due to the MidCoast acquisition, which added two offices in Wilmington, Delaware and one office in Dover, Delaware. In November of 2020, the Bank opened a full-service branch in Chester County, Pennsylvania and in 2024, the Bank opened a limited production office in Georgetown, Delaware. The south east Pennsylvania market consists of Montgomery, Bucks and Philadelphia counties in Pennsylvania, as well as Burlington County New Jersey and was the result of the HVBC acquisition. The economy of the Bank’s market areas are diversified and include manufacturing industries, wholesale and retail trade, service industries, agricultural and the production of natural resources of gas and timber. We are dependent geographically upon the economic conditions in north central, central and south-central Pennsylvania, the southern tier of New York and the cities and surrounding areas of Wilmington and Dover, Delaware.

The economy of the Bank’s market areas are diversified and include manufacturing industries, wholesale and retail trade, service industries, agricultural and the production of natural resources of gas and timber. We are dependent geographically upon the economic conditions in north central, central south-east and south-central Pennsylvania, the southern tier of New York and the cities and surrounding areas of Wilmington and Dover, Delaware.

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COMPETITION

The banking industry in the Bank’s service areas is intensely competitive, with competitors including local community banks, larger regional banks, and financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, mortgage banking firms, financial companies, financial affiliates of industrial companies, FinTech and internet entities, and government sponsored agencies, such as Freddie Mac, Fannie Mae and Farm Credit. Competitive pressures continue to increase in our service areas as entities seek both loan and deposit growth, as well as geographic expansion. The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

Additional information related to our business and competition is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

HUMAN CAPITAL RESOURCES

At December 31, 2025, we had a total of 405 employees, including 32 part-time and 8 commissioned employees and of which approximately 71% are women. The full-time equivalent of our total employees at December 31, 2025 was 380. As a financial institution, approximately 42% of our employees are employed at our branch and loan production offices. The success of our business is highly dependent on our employees, who provide value to our customers and communities through their dedication to our mission. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

We encourage and support the growth and development of our associates and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development are advanced through internally developed training programs and specialty education within banking and using universities that offer Banking Management programs. We believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. At December 31, 2025, 19% of our current staff had been with us for fifteen years or more.

The safety, health and wellness of our employees is a top priority. All employees are asked not to come to work when they experience signs or symptoms of illness. On an ongoing basis, we further promote the health and wellness of our associates by strongly encouraging work-life balance and sponsoring various wellness programs, whereby associates are compensated for incorporating healthy habits into their daily routines.

SUPERVISION AND REGULATION

GENERAL

The Bank is subject to extensive regulation, examination and supervision by the Pennsylvania Department of Banking and Securities (“PDB”) and, as a member of the Federal Reserve System, by the Board of Governors of the Federal Reserve System (the “FRB”). Federal and state banking laws and regulations govern, among other things, the scope of a bank’s business, the investments a bank may make, the reserves against deposits a bank must maintain, terms of deposit accounts, loans a bank makes, the interest rates a bank charges and collateral a bank takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. The Company is registered as a bank holding company and is subject to supervision and regulation by the FRB under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

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PENNSYLVANIA BANKING LAWS

The Pennsylvania Banking Code (“Banking Code”) contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and administrative discretion to the PDB so that the supervision and regulation of state-chartered banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

Pennsylvania law also provides Pennsylvania state-chartered institutions elective parity with the power of national banks, federal thrifts, and state-chartered institutions in other states as authorized by the FDIC, subject to a required notice to the PDB. The Federal Deposit Insurance Corporation Act (“FDIA”), however, prohibits state-chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments which are not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is restricted by the FDIA.

In April 2008, banking regulators in the States of New Jersey, New York, and Pennsylvania entered into a Memorandum of Understanding (the “Interstate MOU”) to clarify their respective roles, as home and host state regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act of 1997. The Interstate MOU establishes the regulatory responsibilities of the respective state banking regulators regarding bank regulatory examinations and is intended to reduce the regulatory burden on state-chartered banks branching within the region by eliminating duplicative host state compliance exams. Under the Interstate MOU, the activities of branches we established in New York would be governed by Pennsylvania state law to the same extent that federal law governs the activities of the branch of an out-of-state national bank in such host states. Issues regarding whether a particular host state law is preempted are to be determined in the first instance by the PDB. In the event that the PDB and the applicable host state regulator disagree regarding whether a particular host state law is pre-empted, the PDB and the applicable host state regulator would use their reasonable best efforts to consider all points of view and to resolve the disagreement.

COMMUNITY REINVESTMENT ACT

The Community Reinvestment Act, (“CRA”), as implemented by FRB regulations, provides that the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FRB, in connection with its examination of the Bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain corporate applications by such institution, such as mergers and branching. The Bank’s most recent rating was “Satisfactory”. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy.

CAPITAL REQUIREMENTS

Federal regulations require FDIC-insured depository institutions, including state-chartered, FRB-member banks, to meet several minimum capital standards. These capital standards were effective January 1, 2015, and result from a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6.0% and 8.0%, respectively, and a leverage ratio of at least 4% of Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The Company has exercised the AOCI opt-out option and therefore AOCI is not incorporated into common equity Tier 1 capital. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

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In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

The FRB has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances.

As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the “CBLR”) framework for determining its capital adequacy, as discussed above. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At December 31, 2025, the Bank’s leverage ratio was 9.54%, which is more than the ratio required to be considered “well-capitalized” under the CBLR framework.

PROMPT CORRECTIVE ACTION RULES

Federal law establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. The law requires that certain supervisory actions be taken against undercapitalized institutions, the severity of which depends on the degree of undercapitalization. The FRB has adopted regulations to implement the prompt corrective action legislation as to state member banks. The regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

Subject to a narrow exception, a receiver or conservator must be appointed for an institution that is “critically undercapitalized” within specified time frames. The regulations also provide that a capital restoration plan must be filed with the FRB within 45 days of the date an institution is deemed to have received notice that it is “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized”. Compliance with the capital restoration plan must be guaranteed by any parent holding company up to the lesser of 5% of the depository institution’s total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital requirements. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The FRB could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

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STANDARDS FOR SAFETY AND SOUNDNESS

The federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness in various areas such as internal controls and information systems, internal audit, loan documentation and credit underwriting, interest rate exposure, asset growth and quality, earnings and compensation, fees and benefits. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the FRB determines that a state member bank fails to meet any standard prescribed by the guidelines, the FRB may require the institution to submit an acceptable plan to achieve compliance with the standard.

ENFORCEMENT

The PDB maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and remove directors, officers or employees. The PDB also has the power to appoint a conservator or receiver for a bank upon insolvency, imminent insolvency, unsafe or unsound condition or certain other situations. The FRB has primary federal enforcement responsibility over FRB-member state banks and has authority to bring actions against the institution and all institution-affiliated parties, including shareholders, who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on the bank. Formal enforcement action may range from the issuance of a capital directive or a cease and desist order, to removal of officers and/or directors. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The FDIC, as deposit insurer, has the authority to recommend to the FRB that enforcement action be taken with respect to a member bank. If the FRB does not take action, the FDIC has authority to take such action under certain circumstances. In general, regulatory enforcement actions occur with respect to situations involving unsafe or unsound practices or conditions, violations of law or regulation or breaches of fiduciary duty. Federal and Pennsylvania law also establish criminal penalties for certain violations.

REGULATORY RESTRICTIONS ON BANK DIVIDENDS

The Bank may not declare a dividend without approval of the FRB, unless the dividend to be declared by the Bank’s Board of Directors does not exceed the total of: (i) the Bank’s net profits for the current year to date, plus (ii) its retained net profits for the preceding two years, less any required transfers to surplus.

Under Pennsylvania law, the Bank may only declare and pay dividends from its accumulated net earnings. In addition, the Bank may not declare and pay dividends from the surplus funds that Pennsylvania law requires that it maintain. Under these policies and subject to the restrictions applicable to the Bank, the Bank could have declared, during 2025, without prior regulatory approval, aggregate dividends of approximately $21.1 million, plus net profits earned to the date of such dividend declaration.

BANK SECRECY ACT

Under the Bank Secrecy Act (“BSA”), banks and other financial institutions are required to retain records to assure that the details of financial transactions can be traced if investigators need to do so. Banks are also required to report most cash transactions in amounts exceeding $10,000 made by or on behalf of their customers. Failure to meet BSA requirements may expose the Bank to statutory penalties, and a negative compliance record may affect the willingness of regulating authorities to approve certain actions by the Bank requiring regulatory approval, including acquisitions and opening new branches.

INSURANCE OF DEPOSIT ACCOUNTS

The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations.

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As required by the Dodd-Frank Act, the FDIC has issued final rules implementing changes to the assessment rules. The rules change the assessment base used for calculating deposit insurance assessments from deposits to total assets, less tangible (Tier 1) capital. Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of revenue collected from the industry. The range of adjusted assessment rates is now 2.5 to 45 basis points of the new assessment base. The rule is expected to benefit smaller financial institutions, which typically rely more on deposits for funding, and shift more of the burden for supporting the insurance fund to larger institutions, which are thought to have greater access to nondeposit funding. No institution may pay a dividend if it is in default of its assessments. As a result of the Dodd-Frank Act, deposit insurance per account owner is $250,000 for all types of accounts.

The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% to 1.35% of estimated insured deposits. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC to establish a maximum fund ratio. The FDIC has exercised that discretion by establishing a long range fund ratio of 2%.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

FEDERAL RESERVE SYSTEM

Under FRB regulations, the Bank is required to maintain reserves against its transaction accounts (primarily NOW and regular checking accounts). These reserve requirements are subject to annual adjustment by the FRB. For 2025, the Bank would have been required to maintain average daily reserves equal to 3% on aggregate transaction accounts of up to and including $645.8 million, plus 10% on the remainder, and the first $37.8 million of otherwise reservable balances would have been exempt. In March 2020, the FRB reduced all reserve requirements to zero in response to the COVID-19 pandemic.

PROHIBITIONS AGAINST TYING ARRANGEMENTS

State-chartered banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

OTHER REGULATIONS

Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s operations are also subject to federal and state laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

• Truth in Savings Act; and

• Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws.

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The Bank’s operations also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

• The USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements also applicable to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

• The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

HOLDING COMPANY REGULATION

The Company, as a bank holding company, is subject to examination, supervision, regulation, and periodic reporting under the BHCA, as administered by the FRB. The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval is also required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company.

A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property under certain conditions; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.

A bank holding company that meets specified conditions, including that its depository institutions subsidiaries are “well capitalized” and “well managed,” can opt to become a “financial holding company.” A “financial holding company” may engage in a broader array of financial activities than permitted to a typical bank holding company. Such activities can include insurance underwriting and investment banking. The Company does not anticipate opting for “financial holding company” status at this time.

The Company is exempt from the FRB’s consolidated capital adequacy guidelines for bank holding companies because the Company’s consolidated assets are less than $3.0 billion as of June 30, 2025. The FRB consolidated capital adequacy guidelines are at least as stringent as those required for the subsidiary depository institutions.

A bank holding company is generally required to give the FRB prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to that approval requirement for well-capitalized bank holding companies that meet certain other conditions.

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The FRB has issued a policy statement regarding the payment of dividends and other capital distributions by bank holding companies. In general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The FRB’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

The Federal Deposit Insurance Act makes depository institutions liable to the Federal Deposit Insurance Corporation for losses suffered or anticipated by the insurance fund in connection with the default of a commonly controlled depository institution or any assistance provided by the Federal Deposit Insurance Corporation to such an institution in danger of default. That law would have potential applicability if the Company ever held as a separate subsidiary a depository institution in addition to the Bank.

The status of the Company as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

ACQUISITION OF THE HOLDING COMPANY

Under the Change in Bank Control Act (the “CIBCA”), a federal statute, a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of the Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company and the Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain prior approval from the FRB before it may obtain “control” of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to control in any manner the election of a majority of the Company’s directors. An existing bank holding company would be required to obtain the FRB’s prior approval under the BHCA before acquiring more than 5% of the Company’s voting stock.

EFFECT OF GOVERNMENT MONETARY POLICIES

The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market activities in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These operations are used in varying combinations to influence overall economic growth and indirectly, bank loans, securities, and deposits. These variables may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.

In view of the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, no prediction can be made as to possible changes in interest rates, deposit levels, loan demand or their effect on the business and earnings of the Company and the Bank. Additional information is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in this Annual Report on Form 10-K.

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ITEM 1A – RISK FACTORS.

The following discussion sets forth the material risk factors that could affect the Company’s consolidated financial condition and results of operations. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect the Company. Any risk factor discussed below could by itself, or combined with other factors, materially and adversely affect the Company’s business, results of operations, financial condition, capital position, liquidity, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings.

RISKS RELATED TO CHANGES IN MARKET INTEREST RATES

Changing interest rates may decrease our earnings and asset values.

Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits and borrowings. Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could adversely affect our net interest margin and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the asset yields catch up. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets.

Changes in interest rates also affect the value of the Bank’s interest-earning assets, and in particular the Bank’s securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders’ equity, net of tax, while unrealized gains and losses on equity securities directly impact earnings. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity or net income.

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the CPI coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur. In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

RISKS RELATED TO OUR LIQUIDITY

Access to Liquidity

Liquidity is the ability to meet cash flow obligations as they come due and cash flow needs on a timely basis and at a reasonable cost. The liquidity of the Bank is used to make loans and to repay deposit and borrowing liabilities as they become due, or are demanded by customers and creditors. Many factors affect the Bank’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and standing in the marketplace, and general economic conditions.

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The Bank’s primary source of funding is customer deposits, gathered throughout its network of banking offices. Through its subsidiary (First Citizens Community Bank), the Company is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. The Company has a line of credit with the FHLB-Pittsburgh that is secured by a blanket lien on its loan portfolio. Access to this line of credit is critical if a funding need arises. However, there can be no assurance that the FHLB-Pittsburgh will be able to provide funding when needed, nor can there be assurance that the FHLB-Pittsburgh will provide funds specifically to the Company should its financial condition deteriorate and/or regulators prevent that access. The inability to access this source of funds could have a materially adverse effect on the Company’s financial flexibility if alternate financing is not available at acceptable interest rates. The failure of the FHLB-Pittsburgh or the FHLB system in general, may materially impair the Corporation’s ability to meet short- and long-term liquidity needs or to meet growth plans. In addition, the Bank also maintains borrowing capacity with the Federal Reserve Bank of Philadelphia. The Bank’s securities and loan portfolios provide a source of contingent liquidity that could be accessed in a reasonable time period through sales.

The Corporation’s management and Board of Directors, through the Asset-Liability Committee (the “ALCO”), monitor liquidity and the ALCO establishes and monitors acceptable liquidity ranges. The Bank actively manages its liquidity position through target ratios. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity.

Changes in economic conditions, including consumer savings habits and availability of or access to capital, could potentially have a significant impact on the Bank’s liquidity position, which in turn could materially impact the Corporation’s financial condition, results of operations and cash flows.

RISKS RELATED TO OUR LENDING ACTIVITIES

Activities related to the drilling for natural gas in the Marcellus and Utica Shale formations impacts certain customers of the Bank.

Our north central Pennsylvania market area is predominately centered in the Marcellus and Utica Shale natural gas exploration and drilling area, and as a result, the economy in north central Pennsylvania is influenced by the natural gas industry. Loan demand, deposit levels and the market value of local real estate are impacted by this activity. While the Company does not lend to the various entities directly engaged in exploration, drilling or production activities, many of our customers provide transportation and other services and products that support natural gas exploration and production activities. Therefore, our customers are impacted by changes in the market price for natural gas, as a significant downturn in this industry could impact the ability of our borrowers to repay their loans in accordance with their terms. Additionally, exploration and drilling activities may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection. Regulatory and market pricing of natural gas could also impact and/or reduce demand for loans and deposit levels or loan collateral values. These factors could have a material adverse effect on our business, prospects, financial condition and results of operations.

Higher credit losses could require us to increase our allowance for credit losses through a charge to earnings.

When we loan money, we incur the risk that our borrowers do not repay their loans. We reserve for credit losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio. The process for determining the amount of the allowance is critical to our financial results and condition. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might underestimate the credit losses inherent in our loan portfolio and have credit losses in excess of the amount reserved. We might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. A decline in the national economy and the local economies of the areas in which the loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional credit loss allowances in future periods. In addition, bank regulators may require us to make a provision for credit losses or otherwise recognize further loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures, and our credit loss allowance. Any increase in our allowance for credit losses or loan charge-offs as required by such regulatory authorities could have a material adverse effect on our financial condition and results of operations.

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Our allowance for credit losses amounted to $22.8 million, or 0.97% of total loans outstanding and 85.7% of nonperforming loans, on December 31, 2025. Our allowance for credit losses at December 31, 2025 may not be sufficient to cover future credit losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease our earnings.

During 2023, the Bank implemented ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changed the impairment model for most financial assets. The underlying premise of the update was that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement was affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The implementation of this standard did result in a decrease of $2.2 million to the Company’s allowance for credit losses effective January 1, 2023 compared to December 31, 2022.

Our emphasis on commercial real estate, agricultural real estate, construction and other commercial loan lending may expose us to increased lending risks.

At December 31, 2025, we had $1.22 billion in loans secured by commercial real estate, $347.4 million in agricultural real estate loans, $94.0 million in construction loans and $179.2 million in other commercial loans. Commercial real estate loans, agricultural real estate, construction and other commercial loans represented 51.8%, 14.8%, 4.0% and 7.6%, respectively, of our loan portfolio. At December 31, 2025, we had $18.3 million of reserves specifically allocated to these loan types. While commercial real estate, agricultural real estate, construction and other commercial loans are generally more interest rate sensitive and carry higher yields than do residential mortgage loans, these types of loans generally expose a lender to greater risk of non-payment and loss than single-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family residential mortgage loans. We monitor loan concentrations on an individual relationship and industry wide basis to monitor the amount of risk we have in our loan portfolio.

Agricultural loans are dependent for repayment on the successful operation and management of the farm property, the health of the agricultural industry broadly, and on the location of the borrower in particular, and other factors outside of the borrower’s control.

At December 31, 2025, our agricultural loans, consisting primarily of agricultural real estate loans and other agricultural loans, totaled $377.7 million, representing 16.1% of our total loan portfolio. The primary activities of our agricultural customers include dairy and beef farms, poultry and swine operations, crops and support businesses.  Agricultural markets are highly sensitive to real and perceived changes in the supply and demand of agricultural products. Weaker prices could reduce the value of agricultural land in our local markets and thereby increase the risk of default by our borrowers or reduce the foreclosure value of agricultural land, animals and equipment that serves as collateral for certain of our loans. At December 31, 2025, the Company had loans to the dairy industry totaling $114.6 million, or 4.9% of total loans and 30.3% of total agricultural loans compared to 4.8% of total loans and 31.3% of total agricultural loans at December 31, 2024. As of December 31, 2025, we have loans to poultry producers for layers, broilers and turkeys totaling $110.2 million, or 4.7% of total loans and 29.2% of total agricultural loans.

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Our agricultural loans are dependent on the profitable operation and management of the farm property securing the loan and its cash flows. The success of a farm property may be affected by many factors outside the control of the borrower, including:

• adverse weather conditions (such as hail, drought and floods), restrictions on water supply or other conditions that prevent the planting or harvesting of a crop or limit crop yields;

• loss of crops or livestock due to disease, like Avian influenza, or other factors;

• declines in the market prices or demand for agricultural products (both domestically and internationally), for any reason;

• increases in production costs (such as the costs of labor, rent, feed, fuel and fertilizer);

• the impact of domestic and international government policies and regulations (including changes in price supports, subsidies, government-sponsored crop insurance, minimum ethanol content requirements for gasoline, tariffs, trade barriers, trade agreements and health and environmental regulations);

• access to technology and the successful implementation of production technologies;

• changes in the general economy that could affect the availability of off-farm sources of income and prices of real estate for borrowers;

• and disruptions in the supply chain and the processing of product and delivery to the final retail channel

Lower prices for agricultural products may cause farm revenues to decline and farm operators may be unable to reduce expenses as quickly as their revenues decline. In addition, many farms are dependent on a limited number of key individuals whose injury or death could significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired. Consequently, agricultural loans may involve a greater degree of risk than residential mortgage lending, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment (some of which is highly specialized with a limited or no market for resale) or perishable assets such as livestock or crops. In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value.

Loan participations comprise a portion of our loan portfolio and a decline in loan participation volume could hurt profits and slow loan growth.

We have actively engaged in loan participations whereby we are invited to participate in loans, primarily commercial real estate and municipal loans, originated by another financial institution known as the lead lender.  We have participated with other financial institutions in both our primary markets and out of market areas. We underwrite any loan we participate in as if we are originating the loan. The primary difference is that financial information is received from the participating financial institution and not the borrower. The loans we participate in as a purchaser totaled $121.0 million and $95.9 million at December 31, 2025 and 2024, respectively. As a percent of total loans, participation purchased loans were 5.1%, and 4.2% as of December 31, 2025 and 2024, respectively.  Our profits and loan growth could be significantly and adversely affected if the volume of loan participations would materially decrease, whether because loan demand declines, loan payoffs, lead lenders may come to perceive us as a potential competitor in their respective market areas, or otherwise.

Environmental liability associated with lending activities could result in losses.

In the course of our business, we may foreclose on and take title to properties securing our loans. If hazardous substances were discovered on any of these properties, we could be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses and may materially limit use of properties we acquire through foreclosure, reduce their value or limit our ability to sell them in the event of a default on the loans they secure. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

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RISKS RELATED TO OUR INVESTMENT SECURITIES

The Company’s investment securities portfolio is subject to credit risk, market risk, and liquidity risk, and declines in value in its investment securities portfolio may require it to record impairment charges that could have a material adverse effect on its results of operations and financial condition.

The Company’s investment securities portfolio has risks beyond its control that can significantly influence the portfolio’s fair value. These factors include, but are not limited to, changes in interest rates, changes in prepayment speeds, changes in general economic conditions, rating agency downgrades of the securities, defaults of the issuers of the securities and market liquidity. Any change in current accounting principles or interpretations of these principles could impact the Company’s assessment of fair value and thus its determination of other-than-temporary impairment of the securities in its investment securities portfolio. The Bank may be required to record other-than-temporary impairment charges on its investment securities if they suffer declines in value that are considered other-than-temporary. Numerous factors, including collateral deterioration underlying securities, lack of liquidity for resales of certain investment securities, absence of reliable pricing information for certain investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could negatively affect the Bank’s securities portfolio in future periods. An other-than-temporary impairment charge could have a material adverse effect on the Company’s results of operations and financial condition.

RISKS RELATED TO OUR SECONDARY MORTGAGE OPERATIONS

Income from secondary mortgage market operations is volatile, and we may incur losses or charges with respect to our secondary mortgage market operations which would negatively affect our earnings.

We generally sell in the secondary market the longer term fixed-rate residential mortgage loans that we originate, earning non-interest income in the form of gains on sale. When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans available for sale. In addition to interest rate levels, weak or deteriorating economic conditions also tend to reduce loan demand. Although we sell loans in the secondary market without recourse, we are required to give customary representations and warranties to the buyers. If we breach those representations and warranties, the buyers can require us to repurchase the loans and we may incur a loss on the repurchase. Because we generally retain the servicing rights on the loans we sell in the secondary market, we are required to record a mortgage servicing right asset, which we test annually for impairment. The value of mortgage servicing rights tends to increase with rising interest rates and to decrease with falling interest rates, with refinance activity increasing in falling rate environments. If we are required to take an impairment charge on our mortgage servicing rights our earnings would be adversely affected.

As a result of acquisitions, the Bank acquired a portfolio of loans sold to the FHLB, which were sold under the Mortgage Partnership Finance Program (“MPF”). While the Bank was not an active participant in the MPF program in 2025, we continue to evaluate the program to see if it would be beneficial to our customers and our performance. The MPF portfolio balance was $7,774,000 at December 31, 2025. The FHLB maintains a first-loss position for the MPF portfolio that totals $171,000. Should the FHLB exhaust its first-loss position, recourse to the Bank’s credit enhancement would be up to the next $197,000 of losses. The Bank has not experienced any losses for the MPF portfolio.

RISKS RELATED TO OUR MARKET AREA

The Company’s financial condition and results of operations are dependent on the economy in the Bank’s market area.

The Bank’s primary market area consists of the Pennsylvania Counties of Bradford, Clinton, Lycoming, Potter, and Tioga in north central Pennsylvania, Lebanon, Schuylkill, Berks and Lancaster in south central, Pennsylvania, Centre and Clinton in central Pennsylvania, and Allegany, Steuben, Chemung and Tioga Counties in southern New York. In Delaware, we consider the cities and surrounding areas of Wilmington and Dover, Delaware, as well as Kennett Square, Pennsylvania in Chester County, as primary market areas. With the acquisition of HVBC, we have expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. The majority of the Bank’s loans and deposits come from households and businesses whose primary address is located in the Bank’s primary market areas. Because of the Bank’s concentration of business activities in its market area, the Company’s financial condition and results of operations depend upon economic conditions in its market areas. Adverse economic conditions in our market areas could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations. Conditions such as inflation, recession, unemployment, high interest rates and short money supply and other factors beyond our control may adversely affect our profitability. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the States of Pennsylvania, New York, New Jersey and Delaware could adversely affect the value of our assets, revenues, results of operations and financial condition. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

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RISKS RELATED TO LAWS AND REGULATIONS

Regulation of the financial services industry is significant, and future legislation could increase our cost of doing business or harm our competitive position.

We are subject to extensive regulation, supervision and examination by the FRB and the PDB, our primary regulators, and by the FDIC, as insurer of our deposits. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for credit losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our profitability and operations. Future legislative changes could require changes to business practices or force us to discontinue businesses and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.

Our ability to pay dividends is limited by law.

Our ability to pay dividends to our shareholders largely depends on our receipt of dividends from the Bank. The amount of dividends that the Bank may pay to us is limited by federal and state laws and regulations. We also may decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for use in our business.

Federal and state banking laws, our articles of incorporation and our by-laws may have an anti-takeover effect.

Federal law imposes restrictions, including regulatory approval requirements, on persons seeking to acquire control over us. Pennsylvania law also has provisions that may have an anti-takeover effect. These provisions may serve to entrench management or discourage a takeover attempt that shareholders consider to be in their best interest or in which they would receive a substantial premium over the current market price.

RISKS RELATED TO COMPETITION

Strong competition within the Bank’s market areas could hurt profits and slow growth.

The Bank faces intense competition both in making loans and attracting deposits. This competition has made it more difficult for the Bank to make new loans and at times has forced the Bank to offer higher deposit rates. Price competition for loans and deposits might result in the Bank earning less on loans and paying more on deposits, which would reduce net interest income. Competition also makes it more difficult to increase the volume of our loan and deposit portfolios. As of June 30, 2025, which is the most recent date for which information is made available by the FDIC, we held 34.1% of the FDIC insured deposits in Bradford, Potter and Tioga Counties, Pennsylvania, which was the second largest share of deposits out of eight financial institutions with offices in the area, and 6.1% of the FDIC insured deposits in Allegany County, New York, which was the third largest share of deposits out of three financial institutions with offices in this area. As of June 30, 2025, we held 9.1% of the FDIC insured deposits in Lebanon County, Pennsylvania, which was the fourth largest share out of the 12 financial institutions with offices in the County. As of June 30, 2025, we held 3.7% of the FDIC insured deposits in Clinton County, Pennsylvania, which was the eighth largest share out of the eight financial institutions with offices in the County. Our offices in Berks, Centre, Chester, Lancaster, Lycoming, Schuylkill, Montgomery, Bucks and Philadelphia Counties of Pennsylvania and our offices in Wilmington and Dover, Delaware and Burlington, New Jersey all have less than 3% of the FDIC insured deposits of the corresponding County as of June 30, 2025. This data does not include deposits held by credit unions. Competition also makes it more difficult to hire employees and more expensive to retain experienced employees. Some of the institutions with which the Bank competes have substantially greater resources and lending limits than the Bank has and may offer services that the Bank does not provide. Management expects competition to increase in the future as a result of legislative, regulatory and technological changes (fintech) and the continuing trend of consolidation in the financial services industry. The Bank’s profitability depends upon its continued ability to compete successfully in its market area.

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Disintermediation of Banks

Customers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Customers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. In addition, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial services. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of deposits would also decrease the amount of funds available to lend back to our communities. Further, many of our competitors have fewer regulatory constraints and may have lower cost structures than us. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. Our ability to compete successfully depends on a number of factors, including, among other things, (i) the ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; (ii) the ability to expand within our marketplace and with our market position; (iii) the scope, relevance and pricing of products and services offered to meet customer needs and demands; (iv) the rate at which we introduce new products and services relative to our competitors; (v) customer satisfaction with our level of service; and (vi) industry and general economic trends. Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

RISKS RELATED TO OUR OPERATIONS

We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.

We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to depend on our ability to retain and recruit key commercial and agricultural loan officers. The unexpected loss of services of any key management personnel or commercial and agricultural loan officers could have an adverse effect on our business and financial condition because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

We are periodically subject to examination and regulation by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us.

Federal and state banking agencies periodically conduct examinations of our business, including compliance with applicable laws and regulations. If, as a result of an examination, a banking agency was to determine that the financial condition, capital resources, asset quality, asset concentration, earnings prospects, management, liquidity, sensitivity to market risk or other aspects of any of our operations has become unsatisfactory, or that we or our management is in violation of any law or regulation, it could take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the composition of our assets or liabilities, to assess civil monetary penalties against us and/or our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such regulatory actions, our business, results of operations and reputation may be negatively impacted.

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We are subject to certain risks in connection with our use of technology.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, our loans, and to deliver on-line and electronic banking services. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact.

In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information or the confidential or other information of our customers, clients, or counterparties. If one or more of such events were to occur, the confidential and other information processed and stored in, and transmitted through, our computer systems and networks could potentially be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients, or counterparties. This could cause us significant reputational damage or result in our experiencing significant losses from fraud or otherwise.

Furthermore, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Also, we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain.

We routinely transmit and receive personal, confidential, and proprietary information by e-mail and other electronic means. We have discussed and worked with our customers, clients, and counterparties to develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information. Any interception, misuse, or mishandling of personal, confidential, or proprietary information being sent to or received from a customer, client, or counterparty could result in legal liability, regulatory action, and reputational harm, and could have a significant adverse effect on our competitive position, financial condition, and results of operations.

Our risk management framework may not be effective in mitigating risks and/or losses to us.

We have implemented a risk management framework to manage our risk exposure. This framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies which involve management assumptions and judgment. There is no assurance that our risk management framework will be effective under all circumstances or that it will adequately mitigate any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.

RISKS RELATED TO OUR MERGER AND ACQUISITION ACTIVITY

Impairment of goodwill could require charges to earnings, which could result in a negative impact on our results of operations.

Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to the Company, adversely impacting the Company’s liquidity and ability to pay dividends. The most significant assumptions affecting our goodwill impairment evaluation are variables including the market price of our Common Stock, projections of earnings, and the control premium above our current stock price that an acquirer would pay to obtain control of us. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our Common Stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Bank’s earnings and thereby restrict the Bank’s ability to make dividend payments to us without prior regulatory approval, because Federal Reserve policy states the bank holding company dividends should be paid from current earnings. At December 31, 2025, the book value of our goodwill was $85.8 million, all of which was recorded at the Bank.

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We may fail to realize all of the anticipated benefits of entering new markets.

As a result of completed and proposed acquisitions and the hiring of additional agricultural and commercial lending teams, the Company enters new banking market areas. The success of entering these new markets depends upon, in part, the Company’s ability to realize the anticipated benefits and cost savings from combining the businesses of the Company and the acquisition, as well as organically growing loans and deposits. To realize these anticipated benefits and cost savings, the businesses and individuals must be successfully combined and operated. If the Company is not able to achieve these objectives, the anticipated benefits, including growth and cost savings related to the combined businesses, may not be realized at all or may take longer to realize than expected. If the Company fails to realize the anticipated benefits of the acquisitions and the new employee hiring’s, the Company’s results of operations could be adversely affected.

ITEM 1B – UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 1C – CYBERSECURITY

Risk Management and Strategy

Cybersecurity is a critical component of our risk management program, given the increasing reliance on technology and potential of cyber threats. Our Information Security Officer is primarily responsible for the cybersecurity / information security program. The Information Security Officer reports directly to the Chief Operating Officer and periodically reports to the Audit and Examination Committee of our board of directors.

Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around regulatory guidance and related industry standards. In addition, we leverage various cyber-related associations, threat intelligence feeds, and audits to facilitate and promote program effectiveness. The information security program is periodically reviewed by the Information Security Officer in collaboration with information technology management with the goal of addressing changing threats and conditions.

We employ a layered defensive strategy when designing our cybersecurity controls. We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations, and tabletop exercises. We engage in regular monitoring and assessments of our technology infrastructure using internal staff and third-party specialists. We conduct ongoing social engineering testing and training across our entire employee base. We maintain a vendor management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and our supply chain. Our internal audit group, as well as our independent auditors periodically review our processes, systems, and controls, including with respect to our information security program, to assess their design and operating effectiveness and make recommendations to strengthen our risk management program.

We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including engagement of appropriate third parties such as insurance providers and incident response professionals, and timely reporting to our CEO and Board of Directors as appropriate. The Incident Response Plan is coordinated by the Information Security Officer and key members of management are embedded into the Plan by its design. The Incident Response Plan facilitates coordination across multiple areas of our organization and is evaluated at least annually.

Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is always present. Our internal systems, processes, and controls are designed to mitigate loss from cyber-attacks. While we have experienced cybersecurity incidents in the past, risks from cybersecurity threats have not materially affected our company to date. For further discussion of risks from cybersecurity threats, see the section captioned “We are subject to certain risks in connection with our use of technology” in Item 1A. Risk Factors.

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Governance

Our Information Security Officer is responsible for managing our information security program, inclusive of cybersecurity risk assessment, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, and business continuity. Some of these responsibilities are carried out in collaboration with other internal departments, such as the information technology department. In any case, the Information Security Officer provides guidance, oversight, and monitoring of the information security program, and acts in an independent role, reporting directly to the Chief Operating Officer and subsequently to the Audit and Examination Committee of the board of directors. Our Information Security Officer has extensive bank operations experience, has attained Certified Banking Security Manager certification with the banking industry, and attends relevant cybersecurity training sessions on a regular basis. Our information technology department consists of technology professionals with varying degrees of education and experience. Our information technology management team has significant technology and operational experience, including experience in mitigating and responding to cybersecurity threats.

The Audit and Examination Committee of our board of directors is responsible for overseeing our information and cybersecurity risk management program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks. Our Information Security Officer provides quarterly reports to the Audit and Examination Committee of our board of directors regarding the information security program, cybersecurity and/or privacy incidents, key cybersecurity initiatives, and other matters relating to cybersecurity processes. These reports may occur more frequently if a significant issue or incident is being addressed.

ITEM 2 – PROPERTIES.

The headquarters of the Company and Bank are located at 15 South Main Street, Mansfield, Pennsylvania. The building contains the central offices of the Company and Bank. The Bank owns twenty-five banking facilities and leases twenty-two other facilities.

The net book value of owned banking facilities and leasehold improvements totaled $16,857,000 as of December 31, 2025. The properties are adequate to meet the needs of the employees and customers. We have equipped all of our facilities with current technological improvements for data processing.

ITEM 3 - LEGAL PROCEEDINGS.

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company’s consolidated financial condition or results of operations.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s common stock is listed on the Nasdaq Stock Market under the symbol “CZFS”. The Company has paid dividends since April 30, 1984, the effective date of our formation as a bank holding company. The Company’s Board of Directors expects that comparable cash dividends will continue to be paid by the Company in the future; however, future dividends necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors in existence at the time the Board of Directors considers a dividend distribution. Cash available for dividend distributions to stockholders of the Company comes primarily from dividends paid to the Company by the Bank. Therefore, restrictions on the ability of the Bank to make dividend payments are directly applicable to the Company. Under the Pennsylvania Business Corporation Law of 1988, the Company may pay dividends only if, after payment, the Company would be able to pay debts as they become due in the usual course of our business and total assets will be greater than the sum of total liabilities. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. Also see “Supervision and Regulation – Regulatory Restrictions on Bank Dividends,” “Supervision and Regulation – Holding Company Regulation,” and “Note 16 – Regulatory Matters” to the consolidated financial statements.

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As of March 3, 2026, the Company had 1,793 stockholders of record.  The computation of stockholders of record excludes investors whose shares were held for them by a bank or broker at that date. The following table presents information regarding the Company’s stock repurchases during the three months ended December 31, 2025:

Period		Total Number of Shares (or units Purchased)				Average Price Paid per Share (or Unit)				Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs				Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
10/1/25 to 10/31/25			-			$	0.00				-				143,203
11/1/25 to 11/30/25			2,080			$	56.06				2,080				141,123
12/1/25 to 12/31/25			985			$	55.82				985				140,138
Total			3,065			$	55.85				3,065				140,138

(1) On April 22, 2023, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares at an aggregate purchase price not to exceed $15.0 million over a period of 36 months. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors. No time limit was placed on the duration of the share repurchase program. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Additionally, during the quarter ended December 31, 2025, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the Amended and Restated First Citizens Community Bank Annual Incentive Plan. Additionally, during the quarter ended December 31, 2025, certain employees resigned from the Company and forfeited unvested restricted shares awarded to them through the Amended and Restated First Citizens Community Bank Annual Incentive Plan.

Performance Graph

The performance graph below compares the cumulative total shareholder return on Citizens Financial Services, Inc. Common Stock with the cumulative total return on the equity securities of companies included in the Russell 3000 Index and the KBW NASDAQ Regional Banking index, measured at the last trading day of each year shown. The graph assumes an investment of $100 on December 31, 2020 and reinvestment of dividends on the date of payment without commissions. The performance graph represents past performance and should not be considered to be an indication of future performance.

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Copyright© 2026 Russell Investment Group. All rights reserved.

			12/20				12/21				12/22				12/23				12/24				12/25
Citizens Financial Services, Inc.			100.00				112.91				148.10				129.87				133.40				125.46
Russell 3000			100.00				125.66				101.53				127.88				158.32				185.47
KBW NASDAQ Regional Banking			100.00				136.64				127.17				126.66				143.38				152.71

ITEM 6 – [RESERVED]

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY STATEMENT

We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the Bank, First Citizens Insurance, Realty or the Company on a consolidated basis. When we use words such as “believes,” “expects,” “anticipates,” or similar expressions, we are making forward-looking statements. Forward-looking statements may prove inaccurate. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements:

• Interest rates could change more rapidly or more significantly than we expect or remain inverted for a longer period than anticipated.

• The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.

• The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.

• It could take us longer than we anticipate implementing strategic initiatives, including expansions, designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.

• Acquisitions and dispositions of assets and companies could affect us in ways that management has not anticipated.

• We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.

• We may become subject to new and unanticipated accounting, tax, regulatory or compliance practices or requirements. Failure to comply with any one or more of these requirements could have an adverse effect on our operations.

• We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.

• We could experience greater losses than expected due to the ever-increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.

• We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.

• The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products as a result of weather, government regulations, international trade agreements and consumer tastes, which could negatively impact certain of our customers.

• Loan concentrations in certain industries could negatively impact our results, if financial results or economic conditions deteriorate.

• A budget impasse in the Commonwealth of Pennsylvania and/or a Federal Government shutdown could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank, as well as individuals who receive state and federal benefits.

• Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.

Additional factors are discussed in this Annual Report on Form 10-K under “Item 1A. Risk Factors.” These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

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INTRODUCTION

The following is management’s discussion and analysis of the significant changes in financial condition, the results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements for the Company. The Company’s consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes. Except as noted, tabular information is presented in thousands of dollars.

The Company engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Lycoming, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster and Chester counties in south central Pennsylvania and Allegany County in southern New York. In Delaware, the primary areas are the Cities of Wilmington and Dover and the surrounding area. We also have a limited branch office in Union county, Pennsylvania, which primarily serves agricultural and commercial customers in the central Pennsylvania market. With the HVBC acquisition, we have expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 47 banking facilities, 39 of which operate as bank branches. In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Ephrata, Fivepointville, State College, Kennett Square, Warrington, Williamsport, Plumsteadville, Philadelphia, two branches near the city of Lebanon and two branches in Huntington Valley. The Company has limited branch offices located in Winfield, Pennsylvania and Georgetown, Delaware. In New York, our office is in Wellsville. In Delaware, we have three branches in Wilmington and one in Dover. The mortgage centers acquired as part of the acquisition are located in Huntington Valley, PA and Mount Laurel, NJ. The business banking facility is located in Philadelphia, PA. In the fourth quarter of 2023, we opened a branch in Williamsport, Pennsylvania. During 2024, the Montgomeryville, PA mortgage office was closed and the Georgetown office was opened.

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company. The Company uses its asset/liability and funds management policies to control and manage interest rate risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans with customers and the purchasing of securities. The Company’s primary credit risk is in the loan portfolio. The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk. These guidelines include, among other things, contingent funding alternatives.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information, which could include identify theft, or theft of customer information through third parties. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

Regulatory risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company and its subsidiary. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

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Readers should carefully review the risk factors described in other documents the Company files with the SEC, including the annual reports on Form 10-K, the quarterly reports on Form 10-Q and any current reports on Form 8-K filed by us.

TRUST AND INVESTMENT SERVICES; OIL AND GAS SERVICES

Our Investment and Trust Division is committed to helping our customers meet their financial goals. The Trust Division offers professional trust administration, investment management services, estate planning and administration, custody of securities and individual retirement accounts. In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management. Assets held by the Bank in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Bank. As of December 31, 2025, and 2024, assets owned and invested by customers of the Bank through the Bank’s investment representatives totaled $317,895,000 and $395,869,000 million, respectively. Additionally, as summarized in the table below, the Trust Department had assets under management as of December 31, 2025 and 2024 of $194,841,000 and $180,710,000, respectively. During the year ended December 31, 2025, $3,918,000 of new trust accounts were opened, $8,312,000 of additional contributions to trust accounts were made, $15,622,000 was distributed from trust accounts, and $2,081,000 of accounts were closed. As a result of market fluctuations, the fair value of the trust accounts increased approximately $19,604,000 during the year ended December 31, 2025. The following table reflects trust accounts by investment type and structure:

(market values - in thousands)		2025				2024
INVESTMENTS:
Bonds		$	19,721			$	18,432
Stock			30,970				32,804
Savings and Money Market Funds			22,242				21,496
Mutual Funds			105,599				91,846
Mineral interests			3,760				3,000
Mortgages			718				738
Real Estate			9,807				9,812
Miscellaneous			2,024				2,582
TOTAL		$	194,841			$	180,710
ACCOUNTS:
Trusts			54,244				51,232
Guardianships			745				330
Employee Benefits			74,067				67,275
Investment Management			65,784				61,871
Custodial			1				2
TOTAL		$	194,841			$	180,710

Our financial consultants offer full service brokerage and financial planning services throughout the Bank’s market areas. Appointments can be made at any Bank branch. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.

RESULTS OF OPERATIONS

Net income for the year ended December 31, 2025 was $36,572,000, which represents an increase of $8,754,000, or 31.5%, when compared to 2024 primarily due to an increase in net interest income after the provision for credit losses of $11,758,000. Net income for the year ended December 31, 2024 was $27,818,000, which represents an increase of $10,007,000, or 56.2%, when compared to 2023 due primarily to the absence of one-time costs associated with the HVBC acquisition that were recognized in 2023. Basic earnings per share were $7.62, $5.80 and $3.98 for 2025, 2024 and 2023, respectively, while diluted earnings per share were $7.62, $5.79 and $3.98 for 2025, 2024 and 2023, respectively.

Net income is influenced by five key components: net interest income, provision for credit losses, non-interest income, non-interest expenses, and the provision for income taxes.

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Net Interest Income

The most significant source of revenue is net interest income; the amount by which interest earned on interest-earning assets exceeds interest paid on interest-bearing liabilities. Factors that influence net interest income are changes in volume of interest-earning assets and interest-bearing liabilities as well as changes in the associated interest rates.

The following table sets forth the Company’s average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and rate “spread” created.

Analysis of Average Balances and Interest Rates

		2025												2024												2023
		Average Balance (1)				Interest				Average Rate				Average Balance (1)				Interest				Average Rate				Average Balance (1)				Interest				Average Rate
(dollars in thousands)			$			$					%				$			$					%				$			$					%
ASSETS
Short-term investments:
Interest-bearing deposits at banks			23,767				384				1.62				28,264				730				2.58				24,470				572				2.34
Total short-term investments			23,767				384				1.62				28,264				730				2.58				24,470				572				2.34
Interest bearing time deposits at banks			3,820				118				3.09				3,878				121				3.09				5,255				164				3.10
Investment securities:
Taxable (6)			378,387				11,610				3.07				359,724				8,685				2.41				383,241				8,043				2.10
Tax-exempt (3)			109,125				3,324				3.05				105,141				2,650				2.52				112,806				2,866				2.54
Total investment securities			487,512				14,934				3.06				464,865				11,335				2.44				496,047				10,909				2.20
Loans:
Residential mortgage loans			346,313				20,841				6.02				356,292				20,758				5.83				290,971				15,918				5.47
Construction loans			135,920				9,744				7.17				182,714				13,607				7.45				135,315				9,485				7.01
Commercial Loans			1,320,836				84,059				6.36				1,265,922				80,849				6.39				1,101,452				66,105				6.00
Agricultural Loans			362,880				21,227				5.85				350,588				18,978				5.41				342,980				17,061				4.97
Loans to state & political subdivisions			52,730				2,071				3.93				55,919				2,213				3.96				59,308				2,299				3.88
Other loans			96,097				6,898				7.18				83,916				6,717				8.00				74,555				5,660				7.59
Loans, net of discount (2)(3)(4)			2,314,776				144,840				6.26				2,295,351				143,122				6.24				2,004,581				116,528				5.81
Total interest-earning assets			2,829,875				160,276				5.66				2,792,358				155,308				5.56				2,530,353				128,173				5.07
Cash and due from banks			9,727												9,306												9,341
Bank premises and equipment			21,638												21,124												19,871
Other assets			180,011												183,674												139,474
Total non-interest earning assets			211,376												214,104												168,686
Total assets			3,041,251												3,006,462												2,699,039
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Business Interest Checking			20,148				179				0.89				8,756				88				1.01				-				-				-
NOW accounts			718,185				15,361				2.14				756,689				19,117				2.53				666,505				13,396				2.01
Savings accounts			287,162				1,336				0.47				296,275				1,532				0.52				318,299				1,314				0.41
Money market accounts			453,545				12,919				2.85				397,942				12,482				3.14				364,385				8,713				2.39
Certificates of deposit			470,285				17,255				3.67				481,862				19,107				3.97				328,553				8,276				2.52
Total interest-bearing deposits			1,949,325				47,050				2.41				1,941,524				52,326				2.70				1,677,742				31,699				1.89
Other borrowed funds			326,026				14,117				4.33				323,409				15,536				4.80				326,577				15,159				4.64
Total interest-bearing liabilities			2,275,351				61,167				2.69				2,264,933				67,862				3.00				2,004,319				46,858				2.34
Demand deposits			387,914												385,702												382,979
Other liabilities			40,650												40,593												38,419
Total non-interest-bearing liabilities			428,564												426,295												421,398
Stockholders’ equity			337,336												315,234												273,322
Total liabilities & stockholders’ equity			3,041,251												3,006,462												2,699,039
Net interest income							99,109												87,446												81,315
Net interest spread (5)											2.97	%											2.56	%											2.73	%
Net interest income as a percentage of average interest-earning assets											3.50	%											3.13	%											3.21	%
Ratio of interest-earning assets to interest-bearing liabilities											124.00												123.00												126.00

(1) Averages are based on daily averages.

(2) Includes loan origination and commitment fees.

(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21% for 2025, 2024 and 2023.

(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.

(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

(6) Included dividend income

24

Index

For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Federal statutory rate for the corresponding year. Accordingly, tax equivalent adjustments for investments and loans have been made accordingly to the previous table for the years ended December 31, 2025, 2024 and 2023, respectively (in thousands):

		2025				2024				2023
Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (non-tax adjusted) (GAAP)		$	14,738			$	11,629			$	11,043
Tax equivalent adjustment			698				557				602
Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (tax equivalent basis) (Non-GAAP)		$	15,436			$	12,186			$	11,645

		2025				2024				2023
Interest and fees on loans (non-tax adjusted) (GAAP)		$	144,430			$	142,688			$	116,075
Tax equivalent adjustment			410				434				453
Interest and fees on loans (tax equivalent basis) (Non-GAAP)		$	144,840			$	143,122			$	116,528

		2025				2024				2023
Total interest income		$	159,168			$	154,317			$	127,118
Total interest expense			61,167				67,862				46,858
Net interest income (GAAP)			98,001				86,455				80,260
Total tax equivalent adjustment			1,108				991				1,055
Net interest income (tax equivalent basis) (Non-GAAP)		$	99,109			$	87,446			$	81,315

The following table shows the tax-equivalent effect of changes in volume and rates on interest income and expense (in thousands):

Analysis of Changes in Net Interest Income on a Tax-Equivalent Basis

		2025 vs. 2024 (1)												2024 vs. 2023 (1)
		Change in Volume				Change in Rate				Total Change				Change in Volume				Change in Rate				Total Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks		$	(103	)		$	(243	)		$	(346	)		$	95			$	63			$	158
Interest bearing time deposits at banks			(3	)			-				(3	)			(43	)			-				(43	)
Investment securities:
Taxable			472				2,453				2,925				(438	)			1,080				642
Tax-exempt			102				572				674				(194	)			(22	)			(216	)
Total investment securities			574				3,025				3,599				(632	)			1,058				426
Total investment income			468				2,782				3,250				(580	)			1,121				541
Loans:
Residential mortgage loans			(475	)			558				83				3,752				1,088				4,840
Construction loans			(3,372	)			(491	)			(3,863	)			3,499				623				4,122
Commercial Loans			3,494				(284	)			3,210				10,314				4,430				14,744
Agricultural Loans			681				1,568				2,249				370				1,547				1,917
Loans to state & political subdivisions			(125	)			(17	)			(142	)			(134	)			48				(86	)
Other loans			626				(445	)			181				737				320				1,057
Total loans, net of discount			829				889				1,718				18,538				8,056				26,594
Total Interest Income			1,297				3,671				4,968				17,958				9,177				27,135
Interest Expense:
Interest-bearing deposits:
Business Interest Checking			100				(9	)			91				-				88				88
NOW accounts			(936	)			(2,820	)			(3,756	)			1,974				3,747				5,721
Savings accounts			(46	)			(150	)			(196	)			(90	)			308				218
Money Market accounts			1,277				(840	)			437				854				2,915				3,769
Certificates of deposit			(452	)			(1,400	)			(1,852	)			4,861				5,970				10,831
Total interest-bearing deposits			(57	)			(5,219	)			(5,276	)			7,599				13,028				20,627
Other borrowed funds			126				(1,545	)			(1,419	)			(151	)			528				377
Total interest expense			69				(6,764	)			(6,695	)			7,448				13,556				21,004
Net interest income		$	1,228			$	10,435			$	11,663			$	10,510			$	(4,379	)		$	6,131

(1) The portion of the total change attributable to both volume and rate changes during the year has been allocated to volume and rate components based upon the absolute dollar amount of the change in each component prior to allocation.

25

Index

2025 vs. 2024

Tax equivalent net interest income for 2025 was $99,109,000 compared to $87,446,000 for 2024, an increase of $11,663,000 or 13.3%. Total interest income increased $4,968,000, as loan interest income increased $1,718,000, and total investment income increased $3,250,000. Interest expense decreased $6,695,000 from 2024.

Total tax equivalent interest income from investment securities increased $3,599,000 in 2025 from 2024. The average balance of investment securities increased $22,647,000, which had an effect of increasing interest income by $574,000 due to volume. During 2025, the Bank made purchases to replace maturing securities, as well as making purchases to increase the size of the investment portfolio for pledging purposes, as well as enhancing yield. The average tax-effected yield on our investment portfolio increased from 2.44% in 2024 to 3.06% in 2025. The increase in the tax-effected yield is attributable to purchases made during 2024 and 2025, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 62 basis points (bps) to 3.06%, interest income on investment securities increased $3,025,000, with the increase related to taxable securities. The investment strategy for 2025 used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available. As the rate cycle continues to progress, the bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise. During 2025, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries and municipal securities that provided convexity to the Bank’s investment portfolio. The Company believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, including a rising rate environment, while providing sufficient cashflows to meet liquidity needs.

Loan interest income increased $1,718,000 in 2025 from 2024. The average balance of our loan portfolio increased by $19,425,000 in 2025 compared to 2024, which resulted in an increase in interest income of $829,000 due to volume. The increase in average loans for 2025 was due to an increase in the average balance of outstanding student loans and an increase in agricultural loans. The average tax-effected yield on our loan portfolio was 6.26% for 2025 compared to 6.24% for 2024 resulting in an increase in loan interest income of $889,000.

• Interest income on residential mortgage loans increased $83,000. The average balance of residential mortgage loans decreased $9,979,000 due to loan payments and pay-offs from individuals refinancing loans on the secondary market. This resulted in a decrease of $475,000 due to volume. The change due to rate was an increase of $558,000 as the average yield on residential mortgages increased from 5.83% in 2024 to 6.02% in 2025 as loans originated and added to the portfolio are at higher rates than the average portfolio loan rate as of December 31, 2024.

• The average balance of construction loans decreased $46,794,000 from 2024 to 2025 as a result of projects in our Delaware market and the southeast Pennsylvania market being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $3,372,000 on total interest income due to volume. The average yield on construction loans decreased from 7.45% to 7.17%, which correlated to a $491,000 decrease in interest income and is due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.

• Interest income on commercial loans increased $3,210,000 from 2024 to 2025 due to an increase in the average balance of commercial loans of $54,914,000. The growth was primarily attributable to completed construction projects converting to permanent financing. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $3,494,000. Our lenders have been able to attract and retain loan relationships in their markets by providing excellent customer service and having attractive products. We believe our lenders are adept at customizing and structuring loans to customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the Small Business Administration (SBA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area. The average yield on commercial loans decreased 3 bps to 6.36% in 2025, resulting in a decrease in interest income due to rate of $284,000. The decrease in yield on commercial loans was due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.

26

Index

• Interest income on agricultural loans increased $2,249,000 from 2024 to 2025. The increase in the average balance of agricultural loans of $12,292,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $681,000. The average yield on agricultural loans increased from 5.41% in 2024 to 5.85% in 2025 due to the increase in market rates as well as the pay-off of an agricultural relationship that was previously on non-accrual status that paid several loans off during 2025 that generated $781,000 of additional interest income. This resulted in an increase in interest income due to rate of $1,568,000. We believe our lenders are adept at customizing and understanding the needs of individual borrowers, and have the expertise to structure loans for customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the United States Department of Agriculture’s (USDA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area.

• The average balance of other loans increased $12,181,000 as a result of an increase in outstanding student loans. This resulted in an increase of $626,000 on total interest income due to volume. The average tax equivalent yield on other loans decreased from 8.00% in 2024 to 7.18% in 2025, decreasing interest income by $445,000 in other loans. This decline is attributable to the decrease in market rates in 2025 due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.

Total interest expense decreased $6,695,000 in 2025 compared to 2024.  The majority of the decrease was due to a decrease in the average rate paid on interest bearing liabilities of 31 basis points to 2.69%, resulting in interest expense of $6,764,000. The decrease in rates was driven by the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. The average rate on money markets decreased from 3.14% to 2.85%, resulting in a decrease in interest expense of $840,000. The average rate paid on savings accounts decreased 5 bps and resulted in a decrease in interest expense of $46,000. The average rate paid on NOW accounts decreased from 2.53% to 2.14% resulting in a decrease in interest expense of $2,820,000.  The average rate paid on certificates of deposits decreased from 3.97% to 3.67% resulting in a decrease in interest expense of $1,400,000. The average rate paid on other borrowed funds decreased from 4.80% to 4.33% resulting in a decrease in interest expense of $1,545,000.

Average interest-bearing liabilities increased $10,418,000 million in 2025, with average interest-bearing deposits increasing $7,801,000 million and average other borrowings increasing $2,617,000. While there was an overall increase in average deposits, average NOW accounts and certificates of deposits decreased in total $50,081,000, decreasing interest expense $1,388,000, which offset the increase in interest expense of $1,277,000 from the average balance of money market accounts increasing $55,603,000. The increase in average deposits was due to organic growth across all regions of the Company and helped offset a decrease in average brokered deposits of $51,216,000. We continue to see customers exchange non-interest bearing deposits for interest bearing products that are both non-maturity and term. The average balance of other borrowed funds increased $2,617,000 which corresponds to an increase in interest expense of $126,000.

Our tax equivalent net interest margin for 2025 was 3.50% compared to 3.13% for 2024, with the change attributable to the yield of interest-earning assets increasing and the cost from interest-bearing liabilities decreasing during 2025. The yield on interest-earning assets increased primarily due to investment securities purchased during 2025 replacing investment cashflows from purchases made prior to 2023 in a much lower rate environment. Due to the Federal Reserve decreasing the Fed Fund target rate in late 2024 and in 2025. We experienced a decrease in the cost of interest-bearing deposits and borrowings. Inflation levels remain above the Fed’s target but the committee believes sufficient progress has been made to bring overnight rates down to what they consider the upper band of neutral in response to some weakening in employment.  The yield curve has a positive slope but flatter relative to long term averages. 

2024 vs. 2023

Tax equivalent net interest income for 2024 was $87,446,000 compared to $81,315,000 for 2023, an increase of $6,131,000 or 7.5%. Total interest income increased $27,135,000, as loan interest income increased $26,594,000, and total investment income increased $541,000. Interest expense increased $21,004,000 from 2023.

27

Index

Total tax equivalent interest income from investment securities increased $426,000 in 2024 from 2023. The average balance of investment securities decreased $31,182,000, which had an effect of decreasing interest income by $632,000 due to volume. During 2024, the Bank had limited investment activity in the first half of the year and used investment cashflows to fund loan activity, as well as to offset seasonal deposit fluctuations. The average tax-effected yield on our investment portfolio increased from 2.20% in 2023 to 2.44% in 2024. The increase in the tax-effected yield is attributable to purchases made during 2023 and 2024, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 24 basis points (bps) to 2.44%, interest income on investment securities increased $1,058,000, with the increase related to taxable securities. The investment strategy for 2024 was similar to 2023 in that cashflows from the investment portfolio were used to repay overnight borrowings as well as fund loan growth. The decrease in the average balance of the investment portfolio was due to investment repayments and maturities. During 2024, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries, which were primarily purchased at a discount.

In total, loan interest income increased $26,594,000 in 2024 from 2023. The average balance of our loan portfolio increased by $290,770,000 in 2024 compared to 2023, which resulted in an increase in interest income of $18,538,000 due to volume, primarily due to the HVBC acquisition completed in June 2023 being included in the Company’s results for the entirety of 2024 and an increase in the average balance of student loans. The average tax-effected yield on our loan portfolio was 6.24% for 2024 compared to 5.81% for 2023 resulting in an increase in loan interest income of $8,056,000. The tax-effected yield increased during 2024 due to a rise in market interest rates.

• Interest income on residential mortgage loans increased $4,840,000. The average balance of residential mortgage loans increased $65,321,000 as a result of the HVBC acquisition, resulting in an increase of $3,752,000 due to volume. The change due to rate was an increase of $1,088,000 as the average yield on residential mortgages increased from 5.47% in 2023 to 5.83% in 2023 as a result of the higher rate environment in 2023 and 2024.

• The average balance of construction loans increased $47,399,000 from 2023 to 2024 as a result of projects in our south eastern Pennsylvania market acquired as part of the HVBC acquisition, and the Delaware market, which resulted in an increase of $3,499,000 in interest income. The average yield on construction loans increased from 7.01% to 7.45%, which correlated to a $623,000 increase in interest income.

• Interest income on commercial loans increased $14,744,000 from 2023 to 2024. The increase in the average balance of commercial loans of $164,470,000 is primarily attributable to the HVBC acquisition. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $10,314,000. The average yield on commercial loans increased 39 bps to 6.39% in 2024, resulting in an increase in interest income due to rate of $4,430,000. The increase in yield on commercial loans was a result of the higher rate environment in 2023 and 2024.

• Interest income on agricultural loans increased $1,917,000 from 2023 to 2024. The increase in the average balance of agricultural loans of $7,608,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $370,000. The average yield on agricultural loans increased from 4.97% in 2023 to 5.41% in 2024 due to the increase in market rates, resulting in an increase in interest income due to rate of $1,547,000.

• The average balance of other loans increased $9,361,000 million as a result of an increase in outstanding student loans. This resulted in an increase of $737,000 on total interest income due to volume. The average tax equivalent yield on other loans increased from 7.59% in 2023 to 8.00% in 2024, increasing interest income by $320,000 in other loans due to the increase in market rates in 2023 and 2024.

Total interest expense increased $21,004,000 in 2024 compared to 2023. The majority of the increase was due to an increase in the average rate paid on interest bearing liabilities of 66 basis points to 3.00%. This increase resulted in an increase in interest expense of $13,356,000. The increase in rates was driven by the Federal Reserve’s response to inflation during 2022 and 2023 by increasing interest rates, which were not offset by the rate cuts made in the second half of 2024. The average rate on money markets increased from 2.39% to 3.14% resulting in an increase in interest expense of $2,915,000. The average rate paid on savings accounts increased 11 bps and resulted in an increase in interest expense of $308,000. The average rate paid on NOW accounts increased from 2.01% to 2.53% resulting in an increase in interest expense of $3,747,000. The average rate paid on certificates of deposits increased from 2.52% to 3.97% resulting in an increase in interest expense of $5,970,000. The average rate paid on other borrowed funds increased from 4.64% to 4.80% resulting in an increase in interest expense of $528,000.

28

Index

Average interest-bearing liabilities increased $260,614,000 in 2024, with average interest-bearing deposits increasing $263,782,000 and average other borrowings decreasing $3,168,000. As a result of the increase in average deposits, interest expense increased $7,599,000 as a result of the change in volume. Increases in average deposits, which were primarily driven by the HVBC acquisition, included NOW accounts of $90,184,000 and money market accounts of $33,557,000. Certificates of deposits increased $153,309,000 due to the acquisition, an increase in brokered CD’s and conversion of non-maturity deposits to term products. During 2024, a new business interest bearing checking account was created that had an average balance $8,756,000. The average balance of other borrowed funds decreased $3,168,000 due to the maturity of several borrowings, which corresponds to a decrease in interest expense of $151,000.

Our tax equivalent net interest margin for 2024 was 3.13% compared to 3.21% for 2023, with the change attributable to the yield of interest-earning assets increasing less than the cost from interest-bearing liabilities during 2024. Interest rates continued to increase during the first half of 2024 due to the increases in market interest rates and competitive pressure for deposits. With inflation decreasing, the Federal Reserve did start decreasing rates, but rates still remained high in relation to previous years. During 2024, inflation remained above the Federal Reserve’s targets, but had decreased enough that allowed the Federal Reserve to lower rates, but not to the extent the market had forecast at the beginning of 2024. The yield curve remained inverted for the majority of 2024, but some positive slope did return to the curve during the 4^th quarter of 2024 due to a decrease in short term rates as well as an increase in long term interest rates.

PROVISION FOR CREDIT LOSSES

For the year ended December 31, 2025, we recorded a provision for credit losses of $2,375,000, which represents a decrease of $212,000 from the $2,587,000 provision recorded in 2024. The provision for 2025 was driven by the current economic forecasts and specific reserves for non-accrual loans at December 31, 2025. The provision for 2024 was driven by other commercial loans that were originated by HVBC that subsequent to the acquisition deteriorated and were charged-off during 2024. The provision in 2024 was also impacted by an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also “Financial Condition – Allowance for Credit Losses - Loans and Credit Quality Risk”).

For the year ended December 31, 2024, we recorded a provision for credit losses of $2,587,000, which represents a decrease of $2,941,000 from the $5,528,000 provision recorded in 2023. The provision for 2023 includes $4,591,000 associated with the HVBC acquisition and $162,000 as a provision for off-balance sheet items, which is also primarily attributable to the HVBC acquisition. Excluding these items, the provision for 2024 is $1,650,000 more than 2023 and is due to other commercial loans that were originated by HVBC that subsequent to the acquisition have deteriorated and were charged-off during 2024. The provision in 2024 is also higher due to an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also “Financial Condition – Allowance for Credit Losses - Loans and Credit Quality Risk”).

NON-INTEREST INCOME

The following table reflects non-interest income by major category for the years ended December 31 (dollars in thousands):

		2025				2024				2023
Service charges			5,569				5,749				5,639
Trust			792				816				764
Brokerage and insurance			2,627				2,381				1,924
Equity security gains (losses), net			67				145				(144	)
Available for sale security losses, net			-				-				(51	)
Gains on loans sold			2,290				2,316				1,452
Earnings on bank owned life insurance			1,433				1,684				1,254
Gain on sale of Braavo division			-				1,102				-
Other			1,566				1,208				767
Total		$	14,344			$	15,401			$	11,605

29

Index

		2025/2024								2024/2023
		Change								Change
		Amount				%				Amount				%
Service charges		$	(180	)			(3.1	)		$	110				2.0
Trust			(24	)			(2.9	)			52				6.8
Brokerage and insurance			246				10.3				457				23.8
Equity security gains (losses), net			(78	)			(53.8	)			289				(200.7	)
Available for sale security losses, net			-			NA					51				(100.0	)
Gains on loans sold			(26	)			(1.1	)			864				59.5
Earnings on bank owned life insurance			(251	)			(14.9	)			430				34.3
Gain on sale of Braavo division			(1,102	)			(100.0	)			1,102			NA
Other			358				29.6				441				57.5
Total		$	(1,057	)			(6.9	)		$	3,796				32.7

2025 vs. 2024

Non-interest income decreased $1,057,000 in 2025 from 2024, or (6.9%). There were no sales of available for sale securities during 2025 or 2024. During 2025, net equity security gains amounted to $67,000 as a result of market conditions experienced in 2025 compared to gains of $145,000 in 2024.

Gains on loans sold decreased $26,000 compared to 2024. The decrease in gains on loans sold is attributable to a slight decrease in the amount of loans of $1,417,000, or (1.0%). The decrease in earnings on bank owned life insurance is due to death proceeds from the passing of former employees in 2024. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. The proceeds from the sale totaled approximately $7.2 million and generated a pre-tax gain of approximately $1.1 million. The increase in other income is due to derivative income earned by offering customers a product similar to a back to back swap.

2024 vs. 2023

Non-interest income increased $3,796,000 in 2024 from 2023, or 32.7%. There were no sales of available for securities during 2024. During 2023, we experienced a $51,000 net loss on available for sale securities. During 2023, we sold $10.0 million of municipal securities for a pre-tax loss of $51,000. Additionally, $76.5 million of securities obtained as part of the HVBC acquisition were sold for no gain or loss during the second quarter of 2023. During 2024, net equity security gains amounted to $145,000 as a result of market conditions experienced in 2024 compared to losses of $144,000 in 2023.

Gains on loans sold increased $864,000 compared to 2023. The increase in gains on loans sold is attributable to the HVBC acquisition and its residential lending model, which focused on originating and selling residential mortgage loans, which includes the use of interest rate locks and other derivative activities, which is included in other income and accounts for the majority of the change in other income of $441,000. The increase in earnings on bank owned life insurance is due to the HVBC acquisition as well as death proceeds from the passing of former employees in 2024 exceeding those received in 2023. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo.

30

Index

Non-interest Expenses

The following tables reflect the breakdown of non-interest expense by major category for the years ended December 31 (dollars in thousands):

		2025				2024				2023
Salaries and employee benefits			39,402				39,347				34,990
Occupancy			5,299				5,013				4,123
Furniture and equipment			1,209				1,038				822
Professional fees			2,341				2,599				1,962
FDIC insurance			1,710				1,996				1,475
Pennsylvania shares tax			739				1,114				583
Amortization of intangibles			478				564				373
Merger and acquisition			-				-				9,269
ORE expenses			267				212				166
Software expenses			1,844				1,953				1,784
Other			11,443				11,550				9,215
Total		$	64,732			$	65,386			$	64,762

		2025/2024								2024/2023
		Change								Change
		Amount				%				Amount				%
Salaries and employee benefits		$	55				0.1			$	4,357				12.5
Occupancy			286				5.7				890				21.6
Furniture and equipment			171				16.5				216				26.3
Professional fees			(258	)			(9.9	)			637				32.5
FDIC insurance			(286	)			(14.3	)			521				35.3
Pennsylvania shares tax			(375	)			(33.7	)			531				91.1
Amortization of intangibles			(86	)			(15.2	)			191				51.2
Merger and acquisition			-			NA					(9,269	)			(100.0	)
ORE expenses			55				25.9				46				27.7
Software expenses			(109	)			(5.6	)			169				9.5
Other			(107	)			(0.9	)			2,335				25.3
Total		$	(654	)			(1.0	)		$	624				1.0

2025 vs. 2024

Non-interest expenses for 2025 totaled $64,732,000, which represents a decrease of $654,000 compared to 2024 expenses of $65,386,000. Salary and benefit costs increased $55,000, or 0.1%, due to due to additional healthcare expenses and post-employment benefits. There were 12 fewer full-time equivalent employees FTEs in 2025 compared to 2024.

The decrease in professional fees and software costs is due to the sale of the Braavo division in 2024. The decrease in FDIC insurance expense is due to an increase in the Bank’s leverage ratio experienced during 2025. Pennsylvania shares tax decreased due to an increase in tax credits obtained through charitable contributions that are included in other expenses. Occupancy expenses increased due to an increase in depreciation associated with the Company’s decision to relocate its branch in the City of Williamsport that is expected to occur in the first half of 2026 that shortened the useful life of the current location. The increase in furniture and fixture expense is due to depreciation associated with purchases made in 2025 and 2024.

2024 vs. 2023

Non-interest expenses for 2024 totaled $65,386,000, which represents an increase of 624,000, compared to 2023 expenses of $64,762,000. Salary and benefit costs increased $4,357,000, or 12.5%, due to an additional 34.3 full-time equivalent employees (FTE) as a result of the HVBC acquisition, merit increases for 2024, as well as an increase in health insurance costs due to additional headcount and claims.

The increases in occupancy, furniture and fixtures, software expenses and amortization expenses was due to the HVBC acquisition and additional branches acquired as part of it. FDIC insurance expense increased $521,000 due to the Company’s increased size and the Bank’s lower leverage capital ratio during the first half of 2024 compared to 2023. Professional fees increased due to increased legal expenses, of which $201,000 was related to the sale of certain Braavo assets. Pennsylvania shares tax increased due to the increased size of the Bank. Other expenses increased primarily due to the acquisition, with increases experienced in subscriptions, marketing and advertising, postage, printing, data communication expenses and FHLB letter of credit fees. Independent of the HVBC acquisition, other expenses increased due to insurance reimbursements received in 2023 to cover amounts previously charged-off through expense. Merger and acquisition costs for the HVBC acquisition totaled $9,269,000 in 2023 and included professional and consulting fees, printing, travel, contract termination payments and severance-related expenses.

31

Index

Provision for Income Taxes

The provision for income taxes was $8,666,000, $6,065,000 and $3,764,000 for 2025, 2024 and 2023, respectively. The effective tax rates for 2025, 2024 and 2023 were 19.2%, 17.9% and 17.5%, respectively.

The increase in income tax expense of $2,601,000 in 2025 compared to 2024 was due to the increase of $11,405,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,395,000 at a 21% tax rate.

The increase in income tax expense of $2,301,000 in 2024 compared to 2023 was due to the increase of $12,168,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,555,000 at a 21% tax rate.

We are involved in seven limited partnership agreements that operate low-income housing projects in our market areas. During 2025 and 2024 we recognized credits on three of the seven projects, while in 2023 we recognized credits related to two projects. Tax credits associated with four of the partnerships were fully utilized by December 2022. We started recognizing credits on two of the partnerships during 2023 and on one partnership in 2024. We anticipate recognizing an aggregate of $6.9 million of tax credits over the next eleven years.

FINANCIAL CONDITION

The following table presents ending balances (dollars in millions), the dollar amount of change and the percentage change during the past year:

		2025 Balance				Increase				% Change				2024 Balance
Total assets		$	3,064.6			$	38.9				1.3			$	3,025.7
Total investments			444.7				18.8				4.4				425.9
Total loans, net			2,327.8				36.3				1.6				2,291.5
Total deposits			2,377.0				(5.0	)			(0.2	)			2,382.0
Total borrowings			309.4				11.7				3.9				297.7
Total stockholders’ equity			338.1				38.4				12.8				299.7

Cash and Cash Equivalents

Cash and cash equivalents totaled $34,291,000 at December 31, 2025 compared to $42,202,000 at December 31, 2024. The decrease is due to a decrease in the cash held at the Federal Reserve. Management actively measures and evaluates the Company’s liquidity through our Asset – Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year. Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.

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Index

Investments

The following table shows the year-end composition of the investment portfolio, at fair value, for the two years ended December 31 (dollars in thousands):

		2025 Amount				% of Total				2024 Amount				% of Total
Available-for-sale:
U. S. Agency securities		$	49,755				11.1			$	53,487				12.5
U.S. Treasuries			82,654				18.5				120,502				28.2
Obligations of state & political Subdivisions			115,886				26.0				94,902				22.2
Corporate obligations			11,297				2.5				10,438				2.4
Mortgage-backed securities			185,149				41.5				146,583				34.3
Equity securities			1,815				0.4				1,747				0.4
Total		$	446,556				100.0			$	427,659				100.0

The Company’s investment portfolio increased during 2025 by $18,897,000. This increase was fueled by $82,406,000 of purchases made during 2025, which offset the maturities and calls that took place in 2025. During 2025, $58,301,000, $23,105,000 and $1,000,000 of mortgage backed securities, obligations of political subdivisions and corporate securities were purchased, respectively. The purchases in 2025 were offset by $25,346,000 of principal repayments and $53,460,000 of calls and maturities. The fair value of our investment portfolio increased approximately $15,847,000 in 2025 due to decreases in market interest rates during 2025. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve, the effective yield on our investment portfolio for 2025 was 3.06% compared to 2.44% for 2024 on a tax equivalent basis.

In related to activity by the Federal Reserve, there were similarities between 2024 and 2025 in that there was elevated volatility and, after a long pause, the Fed cut rates the last few months of each year.   A new Presidential administration introduced tariffs as a negotiation strategy which caused big market swings in the first half of the year. As the year progressed the Fed became comfortable with the effect of tariffs and the two mandates of full employment and stable prices were sufficiently in balance to permit them to lower rates to the top end of what the FOMC considered a neutral rate. This also provided a measure of cushion in response to a weakening employment market. At the end of the year, officials became increasingly divided with each move, leading to another call for a pause after the December rate decision. The record-long government shutdown distorted and delayed many key economic reports officials use to assess the economy’s trajectory. After 175 bps of easing over the cycle, policy was back within a range of neutral estimates. Importantly, economic growth remained resilient, inflation remained above target, and a run of data fostered a quippy catch phrase of low-hiring, low-firing labor conditions. These rate cuts allowed the yield curve to steepen with the 2-year to 10-year US Treasury spread increasing from 30bps at the start of the year to 69bps at the end of the year.   Even so, the very short end of the yield curve remained inverted.   The Bank’s investment strategy used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available.  As the rate cycle continues to progress, the Bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise. 

At December 31, 2025, the Company did not own any securities, other than government-sponsored and government-guaranteed mortgage-backed securities, that had an aggregate book value in excess of 10% of its consolidated stockholders’ equity at that date.

The expected principal repayments at amortized cost and average weighted yields for the investment portfolio (excluding equity securities) as of December 31, 2025, are shown below (dollars in thousands). Expected principal repayments, which include prepayment speed assumptions for mortgage-backed securities, are significantly different than the contractual maturities detailed in Note 4 of the consolidated financial statements. Yields on tax-exempt securities are presented on a fully taxable equivalent basis, assuming a 21% tax rate, which was the rate in effect at December 31, 2025.

		One Year or Less								After One Year to Five years								After Five Years to Ten Years								After Ten Years								Total
		Amortized Cost				Yield %				Amortized Cost				Yield %				Amortized Cost				Yield %				Amortized Cost				Yield %				Amortized Cost				Yield %
Available-for-sale securities:
U.S. agency securities		$	8,602				3.3			$	35,052				1.9			$	8,997				2.0			$	-				-			$	52,651				2.2
U.S. treasuries			28,953				1.3				55,598				1.7				-				-				-				-				84,551				1.6
Obligations of state & political subdivisions			16,470				3.5				38,025				1.9				36,295				2.9				29,818				3.3				120,608				2.8
Corporate obligations			9,512				5.4				1,792				8.5				-				-				-				-				11,304				5.9
Mortgage-backed securities			61,728				4.5				59,967				3.7				49,651				3.0				22,059				3.5				193,405				3.7
Total available-for-sale		$	125,265				3.6			$	190,434				2.5			$	94,943				2.9			$	51,877				3.4			$	462,519				3.0

33

Index

At December 31, 2025, approximately 68.3% of the amortized cost of debt securities is expected to mature, call or pre-pay within five years or less. The Company expects that earnings from operations, the levels of cash held at the Federal Reserve and other correspondent banks, the high liquidity level of the available-for-sale securities, growth of deposits and the availability of borrowings from the Federal Home Loan Bank and other third-party banks will be sufficient to meet future liquidity needs.

Loans Held for Sale

Loans held for sale decreased $214,000 to $9,393,000 as of December 31, 2025 from December 31, 2024. The rate environment for 2025 continued to place pressure on refinancing activity as well as new home purchases.

Loans

The Bank’s lending efforts have historically focused on the north central Pennsylvania counties of Tioga, Bradford and Potter, south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster and Allegheny, Steuben and Tioga counties of southern New York. We have a limited branch office in Union County that is staffed by a lending team to primarily support agricultural opportunities, and offices in State College, Mill Hall and Williamsport to support commercial opportunities in central Pennsylvania, especially Centre, Clinton and Lycoming Counties. The Williamsport branch was opened in 2023. The MidCoast acquisition expanded our markets into the State of Delaware with activity centered around the cities of Wilmington and Dover, Delaware, which was further supported by branch openings in Kennett Square, Pennsylvania and Greenville, Delaware. During 2024, the Bank opened a limited production office in Georgetown, Delaware, to primarily support agricultural customers in the Delaware market. In June 2023, we completed the HVBC acquisition, which expanded our markets into south east Pennsylvania, including the counties of Montgomery, Bucks and Philadelphia. It also includes a Mortgage production office in Mount Laurel, New Jersey.

We originate loans primarily to our existing customer base, with new customers generated through the strong relationships that our lending teams have with their customers, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank’s website. The Bank offers a variety of loans, although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans. As of December 31, 2025, approximately 85.1% of our loan portfolio consisted of real estate loans. All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors.

The Bank primarily offers fixed rate residential mortgage loans with terms of up to 25 years and adjustable rate mortgage loans (with amortization schedules up to 30 years) with interest rates and payments that adjust based on one, three, five and fifteen year fixed periods. Loan to value ratios are usually 80% or less with exceptions for individuals with excellent credit and low debt to income and/or high net worth. Adjustable rate mortgages are tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate. Home equity loans are written with terms of up to 15 years at fixed rates. Home equity lines of credit are variable rate loans tied to the Prime Rate generally with a ten year draw period followed by a ten year repayment period. Home equity loans are typically written with a maximum 80% loan to value.

Commercial real estate loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value ratio of 80% or less. During 2025, 2024 and 2023, the Bank offered certain customers derivative contracts that allowed the customer to obtain a fixed interest rate for a period up to 10 years. Where feasible, the Bank participates in the United States Department of Agriculture’s (USDA) and Small Business Administration (“SBA”) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area.

Agriculture is an important industry throughout our market areas. Therefore, the Bank has not only developed an agriculture lending team with significant experience that has a thorough understanding of this industry, but also continually looks for additional employees with a thorough understanding of agriculture. We have an agricultural loan policy to assist in underwriting agricultural loans. Agricultural loans are made to a diversified customer base that include dairy, swine and poultry farmers and their support businesses. Agricultural loans focus on character, cash flow and collateral, while also considering the particular risks of the industry. Loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value of less than 80%. We evaluate the financial strength of the integrators we have exposure to with our poultry and swine agricultural customers. The Bank is a preferred lender under the USDA’s Farm Service Agency (FSA) and participates in the FSA guaranteed loan program.

The Bank believes that a secondary education can provide individuals with upward mobility. As such, the Bank has partnered with industry leaders to provide individuals with private student loans that can undergraduate, graduate and parent loans that can cover up to the cost of attendance of college or university. In addition, prior student loans can also be refinanced. Our partners assist in ensuring that the application, approval and servicing processes are best in class.  Loans are offered with either fixed or variable rates and terms typically range from five to fifteen years, but depending on the program can be up to twenty years. Payments options include deferral until after graduation, interest only while enrolled in school, a flat payment and full principal and interest.

34

Index

The Bank, as part of its commitment to the communities it serves, is an active lender for projects by our local municipalities and school districts. These loans range from short term bridge financing to 20 year term loans for specific projects. These loans are typically written at rates that adjust at least every five years. Due to the size of certain municipal loans, we have developed participation lending relationships with other community banks that allow us to meet regulatory compliance issues, while meeting the needs of the customer. At December 31, 2025, the aggregate balance of our participation loans, in which a portion was sold to other lenders totaled $334,913,000, of which $149,344,000 was sold.

Activity associated with exploration for natural gas continued in 2024 in the Company’s north central Pennsylvania market. Certain entities drilled new wells and created new pad sites and pipelines, while other companies only maintained their existing wells. While the Bank has loaned to companies that service the exploration activities, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company were to service industry customers which included trucking companies, stone quarries and other support businesses. We also originated loans to businesses and individuals for restaurants, hotels and apartment rentals that were developed and expanded to meet the housing and living needs of the gas workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities were originated in a prudent and cautious manner and were subject to specific policies and procedures for lending to these entities, which included lower loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

The following table shows the year-end composition of the loan portfolio as of December 31, 2025 and 2024 (dollars in thousands):

		2025								2024
		Amount				%				Amount				%
Real estate:
Residential		$	340,972				14.5			$	351,398				15.2
Commercial			1,218,514				51.8				1,121,435				48.5
Agricultural			347,448				14.8				327,722				14.2
Construction			93,965				4.0				164,326				7.1
Consumer			88,210				3.8				109,505				4.7
Other commercial loans			179,166				7.6				155,012				6.7
Other agricultural loans			30,247				1.3				29,662				1.3
State & political subdivision loans			52,100				2.2				54,182				2.3
Total loans			2,350,622				100.0				2,313,242				100.0
Less allowance for credit losses			22,806								21,699
Net loans		$	2,327,816							$	2,291,543

		2025/2024
		Change
		Amount				%
Real estate:
Residential		$	(10,426	)			(3.0	)
Commercial			97,079				8.7
Agricultural			19,726				6.0
Construction			(70,361	)			(42.8	)
Consumer			(21,295	)			(19.4	)
Other commercial loans			24,154				15.6
Other agricultural loans			585				2.0
State & political subdivision loans			(2,082	)			(3.8	)
Total loans		$	37,380				1.6

Total loans grew $37,380,0000 in 2025 and total $2,350,622,000 at the end of 2025. The primary driver of growth during 2025 was increases in real estate lending and other commercial loans.

35

Index

Residential real estate loans decreased $10,426,000 primarily due to the interest rate environment that lessened demand. During 2025, $153,519,000 of residential real estate loans were originated for sale on the secondary market, which compares to $155,379,000 for 2024. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income. During 2025, the Bank originated and added to its residential real estate portfolio $13,909,000 of loans.

The following table presents the maturity distribution of our loan portfolio as of December 31, 2025 (in thousands). The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

		Due in One year or less				After one year but within five years				After five years through fifteen years				After fifteen years				Total
Real estate:
Residential		$	1,667			$	9,324			$	61,161			$	268,820			$	340,972
Commercial			175,823				542,011				376,851				123,829				1,218,514
Agricultural			22,626				24,608				171,679				128,535				347,448
Construction			27,345				33,966				12,645				20,009				93,965
Consumer			80,506				2,983				4,554				167				88,210
Other commercial loans			90,042				39,583				49,364				177				179,166
Other agricultural loans			18,151				8,250				3,846				-				30,247
State & political subdivision loans			1,415				817				39,745				10,123				52,100
		$	417,575			$	661,542			$	719,845			$	551,660			$	2,350,622

The following table presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of loans in accordance with changes in the interest rate index that mature after December 31, 2026 (in thousands).

Sensitivity of loans to changes in interest rates - loans due after December 31, 2026:		Predetermined interest rate				Floating or adjustable interest rate				Total
Real estate:
Residential		$	178,013			$	161,292			$	339,305
Commercial			493,008				549,683				1,042,691
Agricultural			16,594				308,228				324,822
Construction			24,023				42,597				66,620
Consumer			4,767				2,937				7,704
Other commercial loans			24,393				64,731				89,124
Other agricultural loans			6,606				5,490				12,096
State & political subdivision loans			16,314				34,371				50,685
		$	763,718			$	1,169,329			$	1,933,047

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of December 31, 2025, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 287.0% of consolidated risk based capital. Construction, land and land development loans represented 30.5% of consolidated risk based capital as of December 31, 2025. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital and may adversely affect shareholder returns. The Company has an extensive Capital Policy and Capital Plan, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. Due to the concentration in commercial real estate loans, the Company has implemented enhanced monitoring and risk assessment procedures with respect to this portfolio. As of December 31, 2025, management believes that it has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.

36

Index

Given the significance of commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of December 31, 2025 (dollars in thousands):

2025		Owner Occupied								Non-Owner Occupied								Total
Commercial Real Estate:		Amount				%				Amount				%				Amount				%
Residential Rental and Speculation		$	7,636				0.63	%		$	185,033				15.19	%		$	192,669				15.81	%
Multifamily Rental			-				0.00	%			185,860				15.25	%			185,860				15.25	%
Retail			41,287				3.39	%			123,523				10.14	%			164,810				13.53	%
Mixed Use			14,699				1.21	%			87,757				7.20	%			102,456				8.41	%
Hotel/Motel			-				0.00	%			98,063				8.05	%			98,063				8.05	%
Office			14,224				1.17	%			67,660				5.55	%			81,884				6.72	%
Industrial/Flex/Warehouse			21,865				1.79	%			57,323				4.70	%			79,188				6.50	%
Specialty			51,019				4.19	%			24,785				2.03	%			75,804				6.22	%
Land			2,425				0.20	%			55,709				4.57	%			58,134				4.77	%
Student Housing			-				0.00	%			52,797				4.33	%			52,797				4.33	%
Amusement/Entertainment			30,632				2.51	%			837				0.07	%			31,469				2.58	%
Self Storage			479				0.04	%			24,166				1.98	%			24,645				2.02	%
Schools/Higher Ed/Vocational			6,918				0.57	%			13,187				1.08	%			20,105				1.65	%
Food and beverage			14,999				1.23	%			1,221				0.10	%			16,220				1.33	%
Medical office			8,636				0.71	%			7,521				0.62	%			16,157				1.33	%
Healthcare/Hospitals			6,748				0.55	%			-				0.00	%			6,748				0.55	%
Senior Living			-				0.00	%			6,529				0.54	%			6,529				0.54	%
Other			2,351				0.19	%			2,625				0.22	%			4,976				0.41	%
Total		$	223,918				18.38	%		$	994,596				81.62	%		$	1,218,514				100.00	%

2024		Owner Occupied								Non-Owner Occupied								Total
Commercial Real Estate:		Amount				%				Amount				%				Amount				%
Residential Rental		$	6,717				0.60	%		$	177,003				15.78	%		$	183,720				16.38	%
Multifamily Rental			522				0.05	%			175,314				15.63	%			175,836				15.68	%
Retail			57,365				5.12	%			114,620				10.22	%			171,985				15.34	%
Hotel/Motel			43,178				3.85	%			62,941				5.61	%			106,119				9.46	%
Mixed Use			21,051				1.88	%			69,783				6.22	%			90,834				8.10	%
Industrial/Flex/Warehouse			24,387				2.17	%			65,232				5.82	%			89,619				7.99	%
Office			11,280				1.01	%			57,767				5.15	%			69,047				6.16	%
Land			2,800				0.25	%			49,111				4.38	%			51,911				4.63	%
Specialty			26,545				2.37	%			23,427				2.09	%			49,972				4.46	%
Student Housing			-				0.00	%			47,346				4.22	%			47,346				4.22	%
Amusement/Entertainment			16,896				1.51	%			5,067				0.45	%			21,963				1.96	%
Medical office			10,549				0.94	%			7,664				0.68	%			18,213				1.62	%
Self Storage			1,921				0.17	%			9,769				0.87	%			11,690				1.04	%
Other			1,865				0.17	%			9,221				0.82	%			11,086				0.99	%
Schools/Higher Ed/Vocational			934				0.08	%			8,020				0.72	%			8,954				0.80	%
Healthcare/Hospitals			7,162				0.64	%			-				0.00	%			7,162				0.64	%
Senior Living			-				0.00	%			5,978				0.53	%			5,978				0.53	%
Total		$	233,172				20.79	%		$	888,263				79.21	%		$	1,121,435				100.00	%

37

Index

The following table provides a breakdown of our construction portfolio by collateral type as of December 31, 2025 (dollars in thousands):

		December 31, 2025								December 31, 2024
Construction:		Amount				%				Amount				%
Residential		$	32,732				34.83	%		$	59,334				36.11	%
Multifamily			24,844				26.44	%			49,838				30.33	%
Industrial/Flex/Warehouse			19,586				20.84	%			15,337				9.33	%
Agricultural and land			10,432				11.10	%			4,528				2.76	%
Office			3,148				3.35	%			8,456				5.15	%
Food and beverage			1,519				1.62	%			-				0.00	%
Mixed Use			558				0.59	%			7,580				4.61	%
Self Storage			476				0.51	%			11,986				7.29	%
Specialty			398				0.42	%			-				0.00	%
Retail			150				0.16	%			2,299				1.40	%
Other			122				0.13	%			881				0.54	%
Hotel/Motel			-				0.00	%			623				0.38	%
Schools/Higher Ed/Vocational			-				0.00	%			3,464				2.11	%
Total		$	93,965				100.00	%		$	164,326				100.00	%

The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio (“LTV”). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at December 31, 2025 and 2024 (dollars in thousands):

	2025												2024
LTV Range	Number of Loans				Amount				%				Number of Loans				Amount				%
0%-25%		832			$	177,207				14.54	%			820			$	152,157				12.49	%
25.01%-50%		550				387,019				31.76	%			546				323,919				26.58	%
50.01%-60%		289				226,199				18.56	%			303				209,845				17.22	%
60.01%-70%		340				273,932				22.48	%			333				267,687				21.97	%
70.01%-75%		132				117,272				9.62	%			181				122,075				10.02	%
75.01%-80%		44				30,080				2.47	%			51				36,544				3.00	%
>80%		5				6,805				0.56	%			8				9,208				0.76	%
Total		2,192			$	1,218,514				100.00	%			2,242			$	1,121,435				92.03	%

Allowance for Credit Losses – Loans and Credit Quality Risk

The allowance for credit losses – loans is maintained at a level which, in management’s judgment, is adequate to absorb probable future credit losses inherent in the loan portfolio. The provision for credit losses is charged against current income. Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance. The allowance for credit losses - loans was $22,806,000 or 0.97% of total loans as of December 31, 2025 as compared to $21,699,000 or 0.94% of loans as of December 31, 2024. The $1,107,000 increase is a result of a $1,888,000 provision for credit losses – loans, less net charge-offs of $781,000. Net charge-offs for 2025 are driven by loans acquired as part of the HVBC acquisition due to collateral issues and the acquired medical student loan portfolio from HVBC.

The adequacy of the allowance for credit losses – loans is subject to a formal, quarterly analysis by management of the Company. In order to better analyze the risks associated with the loan portfolio, the entire portfolio is divided into several categories. As stated above, commercial loans on non-accrual status are specifically reviewed and given a specific reserve, if appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, Note 1, “Summary of Significant Accounting Policies,” and Note 5, “Loans,” in the consolidated financial statements provides additional disclosure on the allowance for credit losses. The Company adopted ASC 326 effective January 1, 2023. Note 1, “Summary of Significant Accounting Policies,” in the consolidated financial statements provides additional disclosure on the adoption of ASC 326.

38

Index

The following table shows the distribution of the allowance for credit losses - loans and the percentage of loans compared to total loans by loan category (dollars in thousands) as of December 31:

		2025								2024
		Amount				%				Amount				%
Real estate loans:
Residential		$	3,112				14.5			$	1,940				15.2
Commercial			10,017				51.8				9,174				48.5
Agricultural			4,841				14.8				3,529				14.2
Construction			916				4.0				1,402				7.1
Consumer			1,201				3.8				1,338				4.7
Other commercial loans			2,534				7.6				3,766				6.7
Other agricultural loans			115				1.3				133				1.3
State & political subdivision loans			55				2.2				61				2.3
Unallocated			15				N/A				356				N/A
Total allowance for loan losses		$	22,806				100.0			$	21,699				100.0

The following tables presents the activity in the allowance for credit losses – loans, by portfolio segment, for 2025, 2024 and 2023 (in thousands).

		Balance at December 31, 2024				Charge-offs				Recoveries				Provision				Balance at December 31, 2025
Real estate loans:
Residential		$	1,940			$	-			$	-			$	1,172			$	3,112
Commercial			9,174				(40	)			-				883				10,017
Agricultural			3,529				-				-				1,312				4,841
Construction			1,402				-				-				(486	)			916
Consumer			1,338				(327	)			41				149				1,201
Other commercial loans			3,766				(491	)			36				(777	)			2,534
Other agricultural loans			133				-				-				(18	)			115
State and political subdivision loans			61				-				-				(6	)			55
Unallocated			356				-				-				(341	)			15
Total		$	21,699			$	(858	)		$	77			$	1,888			$	22,806

		Balance at December 31, 2023				Charge-offs				Recoveries				Provision				Balance at December 31, 2024
Real estate loans:
Residential		$	2,354			$	(5	)		$	-			$	(409	)		$	1,940
Commercial			9,178				-				-				(4	)			9,174
Agricultural			3,264				-				-				265				3,529
Construction			1,950				-				-				(548	)			1,402
Consumer			1,412				(107	)			22				11				1,338
Other commercial loans			2,313				(2,561	)			21				3,993				3,766
Other agricultural loans			270				-				-				(137	)			133
State and political subdivision loans			45				-				-				16				61
Unallocated			367				-				-				(11	)			356
Total		$	21,153			$	(2,673	)		$	43			$	3,176			$	21,699

39

Index

		Balance at December 31, 2022				Impact of adopting CECL				Allowance for credit loss on PCD acquired loans				Charge-offs				Recoveries				Provision				Balance at December 31, 2023
Real estate loans:
Residential		$	1,056			$	79			$	108			$	(1	)		$	-			$	1,112			$	2,354
Commercial			10,120				(3,070	)			39				-				-				2,089				9,178
Agricultural			4,589				(1,145	)			-				-				-				(180	)			3,264
Construction			801				(103	)			37				-				-				1,215				1,950
Consumer			135				1,040				677				(365	)			40				(115	)			1,412
Other commercial loans			1,040				(328	)			828				(963	)			9				1,727				2,313
Other agricultural loans			489				(219	)			-				-				-				-				270
State and political
subdivision loans			322				(280	)			-				-				-				3				45
Unallocated			-				726				-				-				-				(359	)			367
Total		$	18,552			$	(3,300	)		$	1,689			$	(1,329	)		$	49			$	5,492			$	21,153

The following table provides information related to credit loss experience and net (charge-offs) recoveries for 2025, 2024 and 2023 (dollars in thousands).

2025		Credit Loss Expense (Benefit)				Net (charge- offs) Recoveries				Average Loans				Ratio of net (charge-offs) recoveries to Average loans				Allowance to total loans				Non- accrual loans as a percent of loans				Allowance to total non- accrual loans
Real estate:
Residential		$	1,172				-			$	346,313				0.00	%			0.91	%			1.01	%			90.39	%
Commercial			883				(40	)			1,153,166				0.00	%			0.82	%			0.94	%			86.14	%
Agricultural			1,312				-				334,201				0.00	%			1.39	%			0.62	%			225.69	%
Construction			(486	)			-				135,920				0.00	%			0.97	%			0.55	%			177.52	%
Consumer			149				(286	)			96,097				-0.30	%			1.36	%			0.87	%			155.97	%
Other commercial loans			(777	)			(455	)			167,670				-0.27	%			1.41	%			4.37	%			33.81	%
Other agricultural loans			(18	)			-				28,679				0.00	%			0.38	%			1.33	%			28.54	%
State & political subdivision loans			(6	)			-				52,730				0.00	%			0.11	%			0.00	%		NA
Unallocated			(341	)			-				-			NA				NA				NA				NA
Total		$	1,888			$	(781	)		$	2,314,776				-0.03	%			0.97	%			1.13	%			85.73	%
2024			Credit Loss Expense (Benefit)				Net (charge- offs) Recoveries				Average Loans				Ratio of net (charge-offs) recoveries to Average loans				Allowance to total loans				Non- accrual loans as a percent of loans				Allowance to total non- accrual loans
Real estate:
Residential		$	(409	)		$	(5	)		$	356,292				0.00	%			0.55	%			0.82	%			67.57	%
Commercial			(4	)			-				1,109,075				0.00	%			0.82	%			1.28	%			63.87	%
Agricultural			265				-				324,500				0.00	%			1.08	%			1.24	%			86.88	%
Construction			(548	)			-				182,714				0.00	%			0.85	%			0.17	%			495.41	%
Consumer			11				(85	)			83,916				-0.10	%			1.22	%			0.92	%			133.53	%
Other commercial loans			3,993				(2,540	)			156,847				-1.62	%			2.43	%			1.67	%			145.86	%
Other agricultural loans			(137	)			-				26,088				0.00	%			0.45	%			1.81	%			24.77	%
State & political subdivision loans			16				-				55,919				0.00	%			0.11	%			0.00	%		NA
Unallocated			(11	)			-				-			NA				NA				NA				NA
Total		$	3,176			$	(2,630	)		$	2,295,351				-0.11	%			0.94	%			1.11	%			84.43	%

40

Index

2023
Real estate:
Residential		$	1,112				(1	)		$	290,971				0.00	%			0.65	%			0.86	%			76.38	%
Commercial			2,089				-				986,188				0.00	%			0.84	%			0.10	%			808.63	%
Agricultural			(180	)			-				312,423				0.00	%			1.04	%			0.85	%			122.25	%
Construction			1,215				-				135,315				0.00	%			1.00	%			1.20	%			82.73	%
Consumer			(115	)			(325	)			74,555				-0.44	%			2.72	%			1.35	%			201.43	%
Other commercial loans			1,727				(954	)			115,264				-0.83	%			1.59	%			1.20	%			132.17	%
Other agricultural loans			-				-				30,557				0.00	%			0.88	%			1.60	%			54.88	%
State & political subdivision loans			3				-				59,308				0.00	%			0.08	%			0.00	%		NA
Unallocated			(359	)			-				-			NA				NA				NA				NA
Total		$	5,492			$	(1,280	)		$	2,004,581				-0.06	%			0.94	%			0.54	%			173.57	%

The Company believes it utilizes a disciplined and thorough loan review process based upon its internal loan policy approved by the Company’s Board of Directors.  The purpose of the review is to assess loan quality, analyze delinquencies, identify problem loans, evaluate potential charge-offs and recoveries, and assess general overall economic conditions in the markets served.  An external independent loan review is performed on our commercial portfolio at least semi-annually for the Company.  The external consultant is engaged to review 1) a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated.

Management believes it uses the best information available to make such determinations and the allowance for credit losses – loans is adequate as of December 31, 2025. However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination. A prolonged downturn in the economy, changes in the economies of various segments of our agricultural and commercial portfolios, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, credit loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank’s allowance for credit losses - loans. The banking agencies could require the recognition of additions to the allowance for credit losses based upon their judgment of information available to them at the time of their examination.

On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports. Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list. The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include. Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan from the watchlist. In certain cases, loans may be placed on non-accrual status or charged-off based upon management’s evaluation of the borrower’s ability to pay. All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans, other commercial loans and other agricultural loans on non-accrual are evaluated quarterly for impairment.

See also “Note 5 – Loans and Related Allowance for Credit Losses - Loans” to the consolidated financial statements.

As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Bank’s allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate loans total 66.6% of the loan portfolio at December 31 2025, 64.7% of the allowance is assigned to these portions of the loan portfolio. Residential real estate loans comprise 14.5% of the loan portfolio as of December 31, 2025 and 13.7% of the allowance is assigned to this segment. Other commercial loans comprise 7.6% of the loan portfolio as of December 31, 2025 and 11.6% of the allowance is assigned to this segment.

41

Index

The following table is a summary of our non-performing assets for the years ended December 31, 2025 and 2024 (in thousands).

		2025				2024
Non-performing loans:
Non-accruing loans		$	26,602			$	25,701
Accrual loans - 90 days or more past due			229				276
Total non-performing loans			26,831				25,977
Foreclosed assets held for sale			2,358				2,635
Total non-performing assets		$	29,189			$	28,612

 The following table identifies amounts of loans contractually past due 30 to 90 days and non-performing loans by loan category, as well as the change from December 31, 2024 to December 31, 2025 in non-performing loans (in thousands). Non-performing loans include those accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans. Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management’s assessment of its ultimate ability to collect principal and interest.

		December 31, 2025																December 31, 2024
						Non-Performing Loans																Non-Performing Loans
		30 - 89 Days Past Due				90 Days Past Due Accruing				Non- accrual				Total Non- Performing				30 - 89 Days Past Due				90 Days Past Due Accruing				Non- accrual				Total Non- Performing
Real estate:
Residential		$	3,168			$	151			$	3,443			$	3,594			$	1,527			$	-			$	2,871			$	2,871
Commercial			4,394				-				11,497				11,497				3,915				-				14,364				14,364
Agricultural			1,178				55				2,145				2,200				383				269				4,062				4,331
Construction			-				-				516				516				1,119				-				283				283
Consumer			309				15				770				785				312				7				1,002				1,009
Other commercial loans			203				8				7,828				7,836				760				-				2,582				2,582
Other agricultural loans			17				-				403				403				-				-				537				537
Total nonperforming loans		$	9,269			$	229			$	26,602			$	26,831			$	8,016			$	276			$	25,701			$	25,977

		Change in Non-Performing Loans
		2025 / 2024
		Amount				%
Real estate:
Residential		$	723				25.2
Commercial			(2,867	)			(20.0	)
Agricultural			(2,131	)			(49.2	)
Construction			233			NA
Consumer			(224	)			(22.2	)
Other commercial loans			5,254				203.5
Other agricultural loans			(134	)			(25.0	)
Total nonperforming loans		$	854				3.3

Nonperforming loans increased $854,000 during 2025. During 2025, several large relationships were placed on non-accrual status, including one construction loan relationship, a commercial relationship that includes a commercial real estate loan and an other commercial loan and finally a commercial real estate relationship. Two commercial relationships and two agricultural relationships were returned to accrual status during 2025 and three loans that were on non-accrual status as of December 31, 2024  paid off during 2025. All non-performing commercial, agricultural and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter ends. In addition, non-performing residential loans with a balance in excess of $150,000 are individually evaluated. The specific reserves for these non-performing loans as of December 31, 2025 was $1,039,000 compared to specific reserves for non-performing loans as of December 31, 2024 of $888,529. In addition, the Bank’s policy is to reserve 100% of all non-performing student loans. The reserve for these loans was $770,000 and $1,002,000 as of December 31, 2025 and 2024, respectively.

Management believes that the allowance for credit losses - loans December 31, 2025 was adequate at that date, which was based on the following factors:

• Specific reserves for non-performing loans total $1,808,000.

• The Company has a history of low charge-offs, which were 0.03% of average loans on an annualized basis for 2025 and 0.11% for 2024, which included the charge-offs related to the Braavo loans.

42

Index

Bank Owned Life Insurance

The Company holds bank owned life insurance policies to offset current and future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits. As of December 31, 2025, and 2024, the cash surrender value of the life insurance was $51,501,000 and $50,341,000, respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. The amounts recorded as non-interest income totaled $1,433,000, $1,684,000 and $1,254,000 in 2025, 2024 and 2023, respectively. The decrease in 2025 compared to 2024 is due to death proceeds received in 2024 upon the passing of a former employee. The increase in 2024 compared to 2023 is due to the HVBC acquisition being outstanding for the entire year versus a partial year in 2023. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers’ credit ratings.

Effective January 1, 2015, the Company restructured its agreements so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under the restructured agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds. The policies acquired as part of the acquisition of MidCoast are only for the benefit of the Bank. The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of an acquisition in 2015, provide a fixed dollar benefit for the beneficiary’s’ estate, which is dependent on several factors including whether the covered individual was a Director of the acquired company or an employee of the acquired company and their salary level. As of December 31, 2025, and 2024, included in other liabilities on the Consolidated Balance sheet is a liability of $529,000 and $514,000, respectively, for the obligation under the split-dollar benefit agreements.

Fair Value of Derivative Instruments - asset

The Company holds derivative instruments to hedge interest rate risk, to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet, and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivative instrument assets was $6,927,000 and $10,370,000, respectively. The change in the fair value of financial instruments was due to the changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest rate hedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.

Deferred Tax Asset

Deferred tax assets are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates.  Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period. (See Note 12 for additional information) As of December 31, 2025 and 2024, the balance for deferred tax assets was $11,440,000 and $15,199,000, respectively. The change was due to the change in the market value of the Bank’s available-for-sale investment portfolio, the amortization of various credit and interest rate marks associated with acquisitions and the usage of net operating losses acquired from acquisitions.

Other Assets

Other assets decreased $1,486,000 in 2025 to $53,145,000 from $54,631,000 in 2024. The decrease was driven by a decrease in other receivables of $2,871,000 due to timing of payments associated with a participation loan and a participating bank and a decrease in tax receivable of $2,098,000. Regulatory stock increased $2,221,000 and there was a $634,000 increase in the right to use asset.

43

Index

Deposits

The following table shows the breakdown of deposits by deposit type (dollars in thousands) at December 31:

		2025								2024								2023
		Amount				%				Amount				%				Amount				%
Non-interest-bearing deposits		$	516,657				21.7			$	532,776				22.4			$	523,784				22.6
Interest-bearing demand deposits			25,576				1.1				18,004				0.8			$	-				-
NOW accounts			593,825				25.0				581,673				24.4				670,712				28.9
Savings deposits			286,554				12.1				292,918				12.3				307,357				13.2
Money market deposit accounts			480,509				20.2				434,856				18.3				400,154				17.2
Certificates of deposit			473,858				19.9				521,801				21.8				419,474				18.1
Total		$	2,376,979				100.0			$	2,382,028				100.0			$	2,321,481				100.0

		2025/2024								2024/2023
		Change								Change
		Amount				%				Amount				%
Non-interest-bearing deposits		$	(16,119	)			(3.0	)		$	8,992				1.7
Interest-bearing demand deposits			7,572			42.1					18,004			NA
NOW accounts			12,152				2.1				(89,039	)			(13.3	)
Savings deposits			(6,364	)			(2.2	)			(14,439	)			(4.7	)
Money market deposit accounts			45,653				10.5				34,702				8.7
Certificates of deposit			(47,943	)			(9.2	)			102,327				24.4
Total		$	(5,049	)			(0.2	)		$	60,547				2.6

2025

Total deposits decreased $5,049,000 in 2025, or 0.2%. While less in 2025 than 2024, competitive pressure for deposits continues to be at the forefront. Additionally, we have numerous state and political organization depositors with seasonal funding timelines. During 2025, brokered certificates of deposit decreased $33,055,000 to $60,000,000. Additionally, a school district in our southeastern Pennsylvania market saw a decrease in their balance of $58,946,000 due to the lack of state budget for parts of 2025. We continue to work on enhancing our cash management services to improve our customer services. As a percentage of total deposits, non-interest-bearing deposits totaled 21.7% as of the end of 2025, which compares to 22.4% at the end of 2024. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition.

2024

Total deposits increased $60,547,000 in 2024, or 2.6%. With the rise in market interest rates, competitive pressure for deposits increased during 2024. During 2024, brokered certificates of deposit decreased $16.2 million to $93.1 million. As a percentage of total deposits, non-interest-bearing deposits totaled 22.4% as of the end of 2024, which compares to 22.6% at the end of 2023.

Remaining maturities of certificates of deposit in excess of FDIC insurance limits are as follows for December 31, 2025 (dollars in thousands):

		2025
3 months or less		$	35,532
Over 3 months through 6 months			30,842
Over 6 months through 12 months			41,106
Over 12 months			29,136
Total		$	136,616
As a percent of total certificates of deposit			28.83	%

Uninsured deposits as of December 31, 2025 and 2024 are estimated based on regulatory reporting requirements to be $1,124,675,000 and $1,160,581,000, respectively. Included in this balance as of December 31, 2025 and 2024 are balances held through Intrafi, which provides customers with FDIC insurance coverage by placing customer funds with insured banks within the Intrafi network, as well as deposits collateralized by securities (almost exclusively municipal deposits), which together total $646,677,000, or 27.2%, and $638,624,000, or 26.8% of the Bank’s total deposits, respectively. As a result, deposits in excess of $250,000 that are unsecured total $477,998,000, or 20.1% and $521,957,00, or 21.9% of deposits as of December 31, 2025 and 2024, respectively.

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Deposits by type of depositor are as follows (dollars in thousands) at December 31:

		2025								2024								2023
		Amount				%				Amount				%				Amount				%
Individuals		$	1,072,845				45.1			$	1,134,144				47.6			$	1,129,655				48.7
Businesses and other organizations			767,673				32.3				741,566				31.1				748,257				32.2
State & political subdivisions			536,461				22.6				506,318				21.3				443,569				19.1
Total		$	2,376,979				100.0			$	2,382,028				100.0			$	2,321,481				100.0

Borrowed Funds

Borrowed funds increased $11,727,000 during 2025. Short term borrowings from the FHLB increased $65,339,000 and totaled $263,483,000 as of December 31, 2025 compared to $198,144,000 as of December 31, 2024. Long term borrowings from the FHLB decreased $41,350,000 and were all paid-off as of December 31, 2025. The Company has a line of credit with an unaffiliated bank for $15.0 million, which is unused as of December, 31, 2025. Management continually monitors interest rates in order to minimize interest rate risk in future years and as part of this may extend some of the short-term borrowings via term notes. The Bank has four interest rate swap agreements outstanding to convert floating-rate debt to fixed rate debt on notional amounts of  $10.0 million and three agreements with individual notional amounts of $6.0 million. The $10.0 million agreements were originated on April 1, 2020 and expire on April 1, 2025 and April 1, 2027, respectively. The three $6.0 million agreements originated on May 14, 2020 had a two year forward start date and expire on May 14, 2027, 2029 and 2032. During 2025, one swap agreement for $15.0 million matured. The Company has an interest rate swap agreement outstanding that was entered into on April 13, 2020 to convert floating-rate debt to fixed rate debt on a notional amount of $7.5 million. The interest rate swap agreement expires on June 17, 2027.  The interest rate swap instruments involve an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amounts. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period in which they arise. The fair value of the interest rate swaps at December 31, 2025 was $2,487,000 and is included within fair value of derivative instruments – asset on the consolidated balance sheets.

Fair Value of Derivative Instruments – liability

The Company holds derivative instruments to hedge interest rate risk and to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivatives instrument liabilities was $4,100,000 and $5,817,000, respectively. The change in the fair value of financial instruments was due to changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest hate hedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.

Other Liabilities

Other liabilities decreased $2,875,000 to $32,856,000 during 2025. The primary driver was a decrease of $4,459,000 due to payments made in 2025 to the low-income housing projects in which the Bank is a partner. Other liabilities increased $682,000 due to an increase in the liability associated with right of use assets due to leases entered into during 2025.

Stockholders’ Equity

We evaluate stockholders’ equity in relation to total assets and the risk associated with those assets. The greater our capital resources, the greater the likelihood of meeting our cash obligations and absorbing unforeseen losses. For these reasons, capital adequacy has been, and will continue to be, of paramount importance. Due to its importance, we develop a capital plan and stress test capital levels using various techniques and assumptions annually to ensure that in the event of unforeseen circumstances, we would remain in compliance with our capital plan approved by the Board of Directors and regulatory requirement levels.

Our Board of Directors determines our cash dividend rate after considering our capital requirements, current and projected net income, and other factors. In 2025 and 2024, the Company paid out 26.11% and 33.44% of net income in cash dividends, respectively. The decrease in the payout percentage was due to the increase in net income in 2025 due to the expansion of the net interest margin.

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As of December 31, 2025, the total number of common shares outstanding was 4,807,080. For comparative purposes, outstanding shares for prior periods were adjusted for the June 2025 stock dividend in computing earnings and cash dividends per share as detailed in Note 1 of the consolidated financial statements. As part of the Company’s employee stock purchase plan, the Company issued 1,157 shares at a cost of $68,000. During 2025, we purchased 6,151 shares of treasury stock at a weighted average cost of $58.09 per share. The Company awarded 4,431 shares of restricted stock to employees at a weighted average cost per share of $57.28 under an equity incentive plan. The Board of Directors was awarded 3,674 shares at a cost of $58.71 per share.

Stockholders’ equity increased 12.8% in 2025 to $338,051,000. Excluding accumulated other comprehensive loss, stockholders’ equity increased $27,173,000, or 8.4%. Net income for 2025 was $36,572,000, offset by net cash dividends of $9,548,000 and net treasury stock activity of ($36,000). All of the Company’s debt investment securities are classified as available-for-sale, making this portion of the Company’s balance sheet more sensitive to the changing market value of investments. Accumulated other comprehensive loss decreased $11,144,000 from December 31, 2024, primarily as a result of the increase in the fair market value of the investment portfolio. Total stockholders’ equity was approximately 11.0% of total assets as of December 31, 2025, compared to 9.9% of total assets as of December 31, 2024.

LIQUIDITY

Liquidity is a measure of the Company’s ability to efficiently meet normal cash flow requirements of both borrowers and depositors. Liquidity is needed to meet depositors’ withdrawal demands, extend credit to meet borrowers’ needs, provide funds for normal operating expenses and cash dividends, and fund future capital expenditures.

To maintain proper liquidity, we use funds management policies along with our investment and asset liability policies to assure we can meet our financial obligations to depositors, credit customers and stockholders. Management monitors liquidity by reviewing loan demand, investment opportunities, deposit pricing and the cost and availability of borrowing funds. Additionally, the bank has established various limits and ratios to monitor liquidity. On a quarterly basis, we stress test our liquidity position to ensure that the Bank has the capability of meeting its cash flow requirements in the event of unforeseen circumstances. The Company’s historical activity in this area can be seen in the Consolidated Statement of Cash Flows from investing and financing activities.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. The most important source of funds is the deposits that are primarily core deposits (deposits from customers with other relationships). Short-term debt from the Federal Home Loan Bank supplements the Company’s availability of funds as well as a line of credit arrangement with a corresponding bank. Other sources of short-term funds include brokered CDs and the sale of loans, if needed.

The Company’s use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is detailed. Other significant uses of funds are capital expenditures, purchase of loans and acquisition premiums. Surplus funds are then invested in investment securities.

Capital expenditures, including software purchases in 2025 totaled $1,296,000, which included:

■ ATM upgrades totaling $463,000

■ Computers, servers and copier purchases of $162,000

■ Dover branch remodel totaling $321,000

Capital expenditures, including software purchases in 2024 totaled $1,314,000, which included:

■ ATM upgrades totaling $935,000

■ Computers, servers and copier purchases of $245,000

We expect these expenditures will support our initiatives and will create operating efficiencies, while providing quality customer service.

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In addition to the Bank’s cash balances, the Bank achieves additional liquidity primarily from its investment in the FHLB of Pittsburgh and the resulting borrowing capacity obtained through this investment, investments that mature in less than one year and expected principal repayments from mortgage backed securities.  The Bank has a maximum borrowing capacity at the Federal Home Loan Bank of approximately $1,115,189,000, inclusive of any outstanding amounts, as a source of liquidity.  The Bank also has two unsecured federal funds lines with third party providers in the total amount of $34.0 million as of December 31, 2025, which are unsecured and a borrower in custody agreement was established with the FRB in the amount of $11,798,000, which is collateralized by $21,827,000 of municipal loans, which is unused at December 31, 2025. The Company has a $15.0 million line of credit with a New York community bank, which is unused as of December 31, 2025.

The Company is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders.  The Company also has repurchased shares of its common stock.  The Company’s primary source of income is dividends received from the Bank.  The Bank may not declare a dividend without approval from the FRB, unless the dividend to be declared by the Bank’s Board of Directors does not exceed the total of:  (i) the Bank’s net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus.  In addition, the Bank can only pay dividends to the extent that its retained net profits (including the portion transferred to surplus) exceed its bad debts.  The FRB, the OCC, the PDB and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions.  The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend.  At December 31, 2025, the Company (unconsolidated basis) had liquid assets of $4,586,000.

CONTRACTUAL OBLIGATIONS

The Company has various financial obligations, including contractual obligations which may require cash payments. The following table (in thousands) presents as of December 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the obligations can be found in Notes 9, 10, 13 and 19 to the Consolidated Financial Statements.

Contractual Obligations		One year or Less				One to Three Years				Three to Five Years				Over Five Years				Total
Deposits without a stated maturity		$	1,877,545			$	-			$	-			$	-			$	1,877,545
Time deposits			366,083				82,962				19,456				5,357				473,858
FHLB Advances			160,483				-				-				-				160,483
Term borrowings - FHLB			103,000				-				-				-				103,000
Stifel			3,320				-				-				-				3,320
Note Payable			-				-				-				7,500				7,500
Subordinated Debt			-				-				-				19,648				19,648
Repurchase agreements			15,497				-				-				-				15,497
Low income housing partnerships			605				787				26				121				1,539
Operating leases			1,921				3,814				3,035				4,285				13,055
Total		$	2,528,454			$	87,563			$	22,517			$	36,911			$	2,675,445

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For information about our loan commitments, unused lines of credit and letters of credit, see Note 17 of the notes to consolidated financial statements.

For the year ended December 31, 2025, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our consolidated financial condition, results of operations or cash flows.

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INTEREST RATE AND MARKET RISK MANAGEMENT

The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.

Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, since the Company has no trading portfolio, it is not subject to trading risk.

At December 31, 2025, the Company had equity securities that represent only 0.06% of our total assets, and therefore market risk related to equity securities is not significant.

The primary factors that make assets interest-sensitive include adjustable-rate features on loans and investments, loan repayments, investment maturities and money market investments. The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit, repurchase agreements and short-term borrowings. Savings deposits, NOW accounts and money market investor accounts, with the exception of top interest tier money market and NOW accounts, are considered core deposits and are not short-term interest sensitive and therefore are included in the table below in the over five year column. Top interest tier money market and NOW accounts are included in the table below in the within three month column. Borrowings subject to swap arrangements are included in the table below based on the swap arrangement maturity.

The following table shows the cumulative static gap (at amortized cost) for various time intervals (dollars in thousands):

Maturity or Re-pricing of Company Assets and Liabilities as of December 31, 2025

		Within Three Months				Four to Twelve Months				One to Two Years				Two to Three Years				Three to Five Years				Over Five Years				Total
Interest-earning assets:
Interest-bearing deposits at banks		$	10,358			$	844			$	2,976			$	-			$	-			$	-			$	14,178
Investment securities			76,879				50,995				69,993				33,386				58,511				172,755				462,519
Residential mortgage loans			40,328				71,112				57,332				47,691				68,903				55,606				340,972
Construction loans			46,430				22,980				24,555				-				-				-				93,965
Commercial and farm loans			477,468				325,290				458,669				203,257				231,422				79,269				1,775,375
Loans to state & political subdivisions			8,441				11,418				7,000				1,781				3,655				19,805				52,100
Other loans			81,218				1,590				1,518				861				804				2,219				88,210
Total interest-earning assets		$	741,122			$	484,229			$	622,043			$	286,976			$	363,295			$	329,654			$	2,827,319
Interest-bearing liabilities:
Interest-bearing demand deposits		$	21,074			$	-			$	-			$	-			$	-			$	4,502			$	25,576
NOW accounts			406,828				-				-				-				-				186,997				593,825
Savings accounts			-				-				-				-				-				286,554				286,554
Money Market accounts			440,874				-				-				-				-				39,635				480,509
Certificates of deposit			126,086				239,997				56,357				26,605				19,456				5,357				473,858
Long-term borrowing			254,300				19,648				23,500				-				6,000				6,000				309,448
Total interest-bearing liabilities		$	1,249,162			$	259,645			$	79,857			$	26,605			$	25,456			$	529,045			$	2,169,770
Excess interest-earning assets (liabilities)		$	(508,040	)		$	224,584			$	542,186			$	260,371			$	337,839			$	(199,391	)
Cumulative interest-earning assets		$	741,122			$	1,225,351			$	1,847,394			$	2,134,370			$	2,497,665			$	2,827,319
Cumulative interest-bearing liabilities			1,249,162				1,508,807				1,588,664				1,615,269				1,640,725				2,169,770
Cumulative gap		$	(508,040	)		$	(283,456	)		$	258,730			$	519,101			$	856,940			$	657,549
Cumulative interest rate sensitivity ratio (1)			0.59				0.81				1.16				1.32				1.52				1.30

(1) Cumulative interest-earning assets divided by interest-bearing liabilities.

The previous table and the simulation models discussed below are presented assuming money market investment accounts and NOW accounts in the top interest rate tier are re-priced within the first three months. The loan amounts reflect the principal balances expected to be re-priced as a result of contractual amortization and anticipated early payoffs.

Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on the Bank’s net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competition and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. We have not experienced the kind of earnings volatility that might be indicated from gap analysis.

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The Bank currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Bank’s risk exposure. In this analysis, the Bank examines the results of movements in interest rates with additional assumptions made concerning the timing of interest rate changes, prepayment speeds on mortgage loans and mortgage securities and deposit pricing movements. Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of December 31, 2025 (dollars in thousands):

Changes in Rates		Prospective One-Year Net Interest Income				Change In Prospective Net Interest Income				% Change In Prospective Net Interest Income
-400 Shock		$	114,544			$	10,869				10.48	%
-300 Shock			111,243				7,568				7.30	%
-200 Shock			107,847				4,172				4.02	%
-100 Shock			105,526				1,851				1.79	%
Base			103,675				-				0.00	%
+100 Shock			101,236				(2,439	)			-2.35	%
+200 Shock			98,513				(5,162	)			-4.98	%
+300 Shock			95,941				(7,734	)			-7.46	%
+400 Shock			93,325				(10,350	)			-9.98	%

The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure. Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. The projections above utilize a static balance sheet and do not include any changes that may result from the growth of the Bank. Management has developed policy limits for acceptable changes in net interest income for multiple scenarios, including shock scenarios. As of December 31, 2025, changes in net interest income projected for all scenarios, including the shock scenarios noted above, are in line with Bank policy limits for interest rate risk.

CRITICAL ACCOUNTING POLICIES; CRITICAL ACCOUNTING ESTIMATES

 The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments and critical accounting estimates.

Allowance for Credit Losses

The Company’s allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macroeconomic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Company does business.

Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

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The evaluation is comprised of specific and pooled components. The specific component is the Company’s evaluation of credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan’s initial effective interest rate if not collateral dependent. The majority of the Company’s loans subject to individual evaluation are considered collateral dependent. All other loans are evaluated collectively for credit loss by pooling loans based on similar risk characteristics.

As a significant percentage of the Company’s loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

The pooled component of the evaluation is determined by applying reasonable and supportable economic forecasts and historical averages to the remaining loans segmented by similar risk characteristics. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan’s contractual life. The cash flows are discounted back to the balance sheet date using each loan’s effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of allowance for credit loss required by the calculation.

One of the most significant judgments used in projecting loss rates when estimating the allowance for credit losses is the macro-economic forecasts provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate, national gross domestic product and changes in home values. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate and gross domestic product. Changes in the macro-economic forecast, especially for the national unemployment rate and gross domestic product, could significantly impact the calculated estimated credit losses between reporting periods.

Other key assumptions in the calculation of the allowance for credit losses include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at December 31, 2025 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Company’s historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.

The quantitative estimated losses are supplemented by more qualitative factors that impact potential losses. Qualitative factors include changes in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The allowance for credit loss may be materially affected by these qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by management’s current assessment of the risks related to the loan portfolio and/or external factors. The qualitative factors applied at December 31, 2025, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.

While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Company’s control, such as the performance of the Company’s portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit losses. Additionally, the level of allowance for credit losses may fluctuate based on the balance and mix of the loan portfolio. If actual results differ significantly from management’s assumptions, the Company’s allowance for credit loss may not be sufficient to cover inherent losses in the Company’s loan portfolio, resulting in additions to the Company’s allowance for credit losses and an increase in the provision for credit losses.

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Goodwill and Other Intangible Assets

As discussed in Note 1 of the consolidated financial statements, the Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performed a quantitative assessment in 2025 to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Based on the fair value of the reporting unit, no impairment of goodwill was recognized in 2025, 2024 or 2023.

Business Combinations

Business combinations are accounted for by applying the acquisition method. As of the acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposits intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs.

Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

This information is included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate and Market Risk Management”, appearing in this Annual Report on Form 10-K.

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Citizens Financial Services, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Citizens Financial Services, Inc. and subsidiaries (the “Company”) as of December 31, 2025 and 2024; the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 12, 2026, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Allowance for Credit Losses (ACL)

Description of the Matter

The Company’s loan portfolio totaled $2.3 billion as of December 31, 2025, which includes the associated ACL on loans totaling $22.8 million. As discussed in Notes 1 and 5 to the financial statements, the ACL related to loan requires significant judgment about the expected future losses, which is based on a base loss projection determined through the calculation of discounted cash flows of each loan portfolio segment. The probably of default and other loss rate assumptions are based on a combination of peer loss data, Company-specific data, and economic forecasts. Management then applies qualitative adjustments to the base loss projection to reflect changes in the Company’s internal and external environment that are different from the conditions that existed during the historical loss calculation period. The qualitative adjustments are based on observable data points evaluated over a historical period, which help management determine how the related risks are evolving over time. Management uses a Qualitative Scorecard (Scorecard) to provide the adjustments to the historical loss information. The Scorecard contains a five-category approach (improvement, no change, minor risk, moderate risk, and major risk) to measure risk in the loan pools that may not be captured in the quantitative methodology.

We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments are highly subjective. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters.

53

Index

How We Addressed the Matter in Our Audit

The primary procedures we performed related to this critical audit matter (CAM) included the following:

• Obtained an understanding of the Company’s process for establishing the ACL, including how management evaluates the qualitative adjustments to the base loss projection

• Tested the design, implementation, and operating effectiveness of internal controls specifically related to the determination and review of these qualitative adjustments

• Evaluated and tested the reliability of the data used to evaluate the significant qualitative factor adjustments

• Evaluated the directional consistency and reasonableness of management’s conclusions regarding Scorecard category based on the trends identified in the underlying data

• Reconciled the Scorecard category from management’s calculation back to the ACL model for accuracy

We have served as the Company’s auditor since 1994.

/s/S.R. Snodgrass, P.C.

Cranberry Township, Pennsylvania

March 12, 2026

54

Index

Citizens Financial Services, Inc.

Consolidated Balance Sheet

		December 31,
(in thousands, except share data)		2025				2024
ASSETS:
Cash and cash equivalents:
Noninterest-bearing		$	23,933			$	30,284
Interest-bearing			10,358				11,918
Total cash and cash equivalents			34,291				42,202
Interest bearing time deposits with other banks			3,820				3,820
Equity securities			1,815				1,747
Available-for-sale securities			444,741				425,912
Loans held for sale			9,393				9,607
Loans (net of allowance for credit losses: $ 2025, 22,806; 2024, $21,699)			2,327,816				2,291,543
Premises and equipment			20,998				21,395
Accrued interest receivable			10,698				10,307
Goodwill			85,758				85,758
Bank owned life insurance			51,501				50,341
Other intangibles			2,221				2,892
Fair value of derivative instruments - asset			6,927				10,370
Deferred tax asset			11,440				15,199
Other assets			53,145				54,631
TOTAL ASSETS		$	3,064,564			$	3,025,724
LIABILITIES:
Deposits:
Noninterest-bearing		$	516,657			$	532,776
Interest-bearing			1,860,322				1,849,252
Total deposits			2,376,979				2,382,028
Borrowed funds			309,448				297,721
Accrued interest payable			3,130				4,693
Fair value of derivative instruments - liability			4,100				5,817
Other liabilities			32,856				35,731
TOTAL LIABILITIES			2,726,513				2,725,990
STOCKHOLDERS’ EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares 2025 and 2024; none issued in 2025 or 2024			-				-
Common Stock $1.00 par value; authorized 25,000,000 shares 2025 and 2024; issued 5,255,807 and 5,207,577 share in 2025 and 2024, respectively			5,256				5,208
Additional paid-in capital			147,965				144,984
Retained earnings			213,623				189,443
Accumulated other comprehensive loss			(12,377	)			(23,521	)
Treasury stock, at cost: 448,727 and 447,965 shares for 2025 and 2024, respectively			(16,416	)			(16,380	)
TOTAL STOCKHOLDERS’ EQUITY			338,051				299,734
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,064,564			$	3,025,724

See accompanying notes to consolidated financial statements.

55

Index

Citizens Financial Services, Inc.

Consolidated Statement of Income

Year Ended December 31,

(in thousands, except per share data)		2025				2024				2023
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans		$	144,430			$	142,688			$	116,075
Interest-bearing deposits with banks			502				851				736
Investment securities:
Taxable			9,910				7,135				6,636
Nontaxable			2,626				2,093				2,264
Dividends			1,700				1,550				1,407
TOTAL INTEREST AND DIVIDEND INCOME			159,168				154,317				127,118
INTEREST EXPENSE:
Deposits			47,050				52,326				31,699
Borrowed funds			14,117				15,536				15,159
TOTAL INTEREST EXPENSE			61,167				67,862				46,858
NET INTEREST INCOME			98,001				86,455				80,260
Provision for credit losses			2,375				2,587				937
Provision for credit losses - acquisition day 1 non-PCD			-				-				4,591
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			95,626				83,868				74,732
NON-INTEREST INCOME:
Service charges			5,569				5,749				5,639
Trust			792				816				764
Brokerage and insurance			2,627				2,381				1,924
Equity security gains (losses), net			67				145				(144	)
Available for sale security losses, net			-				-				(51	)
Gains on loans sold			2,290				2,316				1,452
Earnings on bank owned life insurance			1,433				1,684				1,254
Gain on sale of Braavo division			-				1,102				-
Other			1,566				1,208				767
TOTAL NON-INTEREST INCOME			14,344				15,401				11,605
NON-INTEREST EXPENSES:
Salaries and employee benefits			39,402				39,347				34,990
Occupancy			5,299				5,013				4,123
Furniture and equipment			1,209				1,038				822
Professional fees			2,341				2,599				1,962
Federal depository insurance			1,710				1,996				1,475
Pennsylvania shares tax			739				1,114				583
Amortization of intangibles			478				564				373
Merger and acquisition			-				-				9,269
ORE expenses			267				212				166
Software expenses			1,844				1,953				1,784
Other			11,443				11,550				9,215
TOTAL NON-INTEREST EXPENSES			64,732				65,386				64,762
Income before provision for income taxes			45,238				33,883				21,575
Provision for income taxes			8,666				6,065				3,764
NET INCOME		$	36,572			$	27,818			$	17,811
PER COMMON SHARE DATA:
EARNINGS PER SHARE - BASIC		$	7.62			$	5.80			$	3.98
EARNINGS PER SHARE – DILUTED		$	7.62			$	5.79			$	3.98
Number of shares used in computation - basic			4,797,520				4,797,258				4,476,235
Number of shares used in computation - diluted			4,800,093				4,802,139				4,476,235

See accompanying notes to consolidated financial statements.

56

Index

Citizens Financial Services, Inc.

Consolidated Statement of Changes in Comprehensive Income

Year Ended December 31,

(in thousands)		2025				2024				2023
Net Income		$	36,572			$	27,818			$	17,811
Other Comprehensive income
Securities available for sale
Unrealized holding gain (loss) during the period			15,847				2,118				11,692
Income tax effect			(3,328	)			(444	)			(2,455	)
Subtotal			12,519				1,674				9,237
Reclassification adjustment for (gains) losses included in income			-				-				51
Income tax effect			-				-				(12	)
Subtotal			-				-				39
Unrealized loss (gain) on interest rate swap			(1,750	)			(1,205	)			(1,431	)
Income tax effect			368				253				301
Other comprehensive (loss) gain on interest rate swap			(1,382	)			(952	)			(1,130	)
Change in unrecognized pension costs			9				846				106
Income tax effect			(2	)			(178	)			(22	)
Other comprehensive gain (loss) gain on unrecognized pension costs			7				668				84
Net other comprehensive income			11,144				1,390				8,230
Comprehensive income		$	47,716			$	29,208			$	26,041

See accompanying notes to consolidated financial statements.

57

Index

Citizens Financial Services, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

(in thousands, except share data)										Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total
		Common Stock
		Shares				Amount
		Balance, December 31, 2022			4,427,687																								$	4,428			$	80,911			$	164,922			$	(33,141	)		$	(16,973	)		$	200,147
Comprehensive income:
Net income															17,811												17,811
Net other comprehensive income																			8,230								8,230
Stock dividend (1%)			39,209				39				2,982				(3,021	)											-
Issuance of Common stock			693,858				694				59,443																60,137
Purchase of treasury stock (2,775 shares)																							(265	)			(265	)
Restricted stock, executive and Board of Director awards											(319	)											431				112
Restricted stock vesting											197																197
Sale of treasury stock (410 shares)											6												28				34
Forfeited restricted stock											13												(13	)			-
Change in Accounting policy for allowance for credit losses															1,766												1,766
Cash dividends, $1.899 per share															(8,503	)											(8,503	)
Balance, December 31, 2023			5,160,754			$	5,161			$	143,233			$	172,975			$	(24,911	)		$	(16,792	)		$	279,666
Comprehensive income:
Net income															27,818												27,818
Net other comprehensive income																			1,390								1,390
Stock dividend (1%)			46,589				47				2,001				(2,048	)											-
Issuance of Common stock for ESPP			234				-				16																16
Purchase of treasury stock (3,881 shares)																							(202	)			(202	)
Restricted stock, executive and Board of Director awards											(541	)											647				106
Restricted stock vesting											242																242
Forfeited restricted stock											33												(33	)			-
Cash dividends, $1.931 per share															(9,302	)											(9,302	)
Balance, December 31, 2024			5,207,577			$	5,208			$	144,984			$	189,443			$	(23,521	)		$	(16,380	)		$	299,734
Comprehensive income:
Net income															36,572												36,572
Net other comprehensive income																			11,144								11,144
Stock dividend (1%)			47,073				47				2,797				(2,844	)											-
Issuance of Common stock for ESPP			1,157				1				67																68
Purchase of treasury stock (6,151 shares)																							(358	)			(358	)
Restricted stock, executive and Board of Director awards											(261	)											380				119
Restricted stock vesting											320																320
Sale of treasury stock											-												-				-
Forfeited restricted stock											58												(58	)			-
Cash dividends, $1.980 per share															(9,548	)											(9,548	)
Balance, December 31, 2025			5,255,807			$	5,256			$	147,965			$	213,623			$	(12,377	)		$	(16,416	)		$	338,051

See accompanying notes to consolidated financial statements.

58

Index

Citizens Financial Services, Inc.

Consolidated Statement of Cash Flows

		Year Ended December 31,
(in thousands)		2025				2024				2023
Cash Flows from Operating Activities:
Net income		$	36,572			$	27,818			$	17,811
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			2,375				2,587				5,528
Depreciation and amortization			2,104				1,806				1,520
Amortization and accretion of loans and other assets			(3,810	)			(3,186	)			(3,119	)
Amortization and accretion on investment securities			618				1,372				1,581
Deferred income taxes			797				1,771				595
Equity security (gains) losses, net			(67	)			(145	)			144
Available for sale security (gains) losses, net			-				-				51
Earnings on bank owned life insurance			(1,433	)			(1,684	)			(1,254	)
Stock awards			625				412				309
Originations of loans held for sale			(153,519	)			(155,379	)			(87,323	)
Proceeds from sales of loans held for sale			155,948				157,365				90,782
Realized gains on loans sold			(2,290	)			(2,316	)			(1,452	)
Realized gains on sale of Braavo			-				(1,102	)			-
(Increase) decrease in accrued interest receivable			(391	)			736				(1,485	)
Increase (decrease) in accrued interest payable			(1,563	)			395				2,181
Other, net			568				2,732				668
Net cash provided by operating activities			36,534				33,182				26,537
Cash Flows from Investing Activities:
Available-for-sale securities:
Proceeds from sales of available-for-sale securities			-				-				86,504
Proceeds from maturity and principal repayments of securities			78,806				62,858				27,007
Purchase of securities			(82,406	)			(70,423	)			(10,246	)
Proceeds from sale of equity securities			-				335				127
Proceeds from redemption of Regulatory Stock			33,638				28,072				24,915
Purchase of Regulatory Stock			(35,859	)			(27,599	)			(29,127	)
Net increase in loans			(33,481	)			(70,245	)			(43,951	)
Purchase of interest bearing time deposits			-				(100	)			(100	)
Proceeds from matured interest bearing time deposits with other banks			-				350				2,085
Purchase of premises, equipment and software			(1,296	)			(1,314	)			(2,617	)
Proceeds from sale of premises and equipment			12				-				-
Proceeds from bank owned life insurance			272				1,241				1,098
Investments in low income housing partnerships			-				-				(1,470	)
Proceeds from sale of foreclosed assets held for sale			238				567				335
Proceeds from sale of Braavo assets			-				7,185				-
Acquisition, net of cash paid			-				-				4,905
Net cash (used in) provided by investing activities			(40,076	)			(69,073	)			59,465
Cash Flows from Financing Activities:
Net (decrease) increase in deposits			(5,049	)			60,548				(56,092	)
Proceeds from long-term borrowings			-				-				40,000
Repayments of long-term borrowings			(42,000	)			(35,000	)			-
Net increase (decrease) in short-term borrowed funds			52,705				9,279				(34,569	)
Purchase of treasury stock			(358	)			(202	)			(265	)
Purchase of restricted stock			(187	)			(64	)			-
Sale of treasury stock			-				-				34
Issuance of common stock for employee stock purchase plan			68				16				-
Dividends paid			(9,548	)			(9,302	)			(8,503	)
Net cash (used in) provided by financing activities			(4,369	)			25,275				(59,395	)
Net (decrease) increase in cash and cash equivalents			(7,911	)			(10,616	)			26,607
Cash and Cash Equivalents at Beginning of Year			42,202				52,818				26,211
Cash and Cash Equivalents at End of Year		$	34,291			$	42,202			$	52,818

59

Index

Supplemental Disclosures of Cash Flow Information:
Interest paid		$	62,730			$	67,466			$	44,677
Income taxes paid		$	6,590			$	2,826			$	5,130
Non-cash activities:
Stock dividend		$	2,844			$	2,048			$	3,021
Real estate acquired in settlement of loans		$	40			$	2,635			$	147
Investments matured and not settled included in other assets		$	-			$	-			$	8,000
Investments in low income housing included in other assets and liabilities		$	-			$	-			$	6,530
Right of use asset and liability		$	2,065			$	306			$	28
CECL adjustment		$	-			$	-			$	3,300
Acquisition of										HV Bancorp, Inc.
Non-cash assets acquired
Available-for-sale securities		$	-			$	-			$	79,248
Interest bearing time deposits with other banks			-				-				-
Loans held fo sale			-				-				10,750
Loans			-				-				475,338
Premises and equipment			-				-				2,310
Accrued interest receivable			-				-				2,226
Bank owned life insurance			-				-				10,387
Intangibles			-				-				2,972
Deferred tas asset			-				-				7,706
Other assets			-				-				18,213
Goodwill			-				-				54,382
			-				-				663,532
Liabilities assumed
Noninterest-bearing deposits			-				-				197,549
Interest-bearing deposits			-				-				335,815
Accrued interest payable			-				-				885
Borrowed funds			-				-				58,647
Other liabilities			-				-				11,988
			-				-				604,884
Net non-cash assets acquired			-				-				58,648
Cash and cash equivalents acquired		$	-			$	-			$	18,017

See accompanying notes to consolidated financial statements.

60

Index

CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

Citizens Financial Services, Inc. (individually and, collectively with its subsidiaries, the “Company”) is headquartered in Mansfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and its wholly owned subsidiary, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”). During 2024, the Company terminated the corporate existence of CZFS Acquisition Company, LLC (“CZFS”), which included transferring ownership of the Bank to the Company. CZFS was formed in March 2020 as part of the merger with Midcoast Community Bancorp. Inc. (“MidCoast”). During 2024, the Bank terminated the corporate existence of 1^st Realty of PA, LLC (“Realty”), which included transferring ownership of all assets to the Bank. Realty was formed in March of 2019 to manage and sell properties acquired by the Bank in the settlement of a bankruptcy filing with a commercial customer.  On December 11, 2015, the Company completed its acquisition of The First National Bank of Fredericksburg (“FNB”).  On December 8, 2017, the Bank completed its acquisition of the S&T Bank branch in State College (“State College”). On April 17, 2020, the Company completed its acquisition of MidCoast. On June 16, 2023, the Company completed the HVBC acquisition. In December 2023, the Bank opened a full-service branch in Williamsport, Pennsylvania. In October 2024, the Bank opened a limited production office in Georgetown, Delaware. As of December 31, 2025, the Bank operates thirty-nine full-service banking branches in Potter, Tioga, Bradford, Clinton, Lycoming, Lebanon, Lancaster, Berks, Schuylkill, Centre, Chester, Bucks, Montgomery and Philadelphia counties, Pennsylvania, Allegany County, New York, the cities of Wilmington and Dover, Delaware, Burlington County, New Jersey, a limited branch office in Union county, Pennsylvania, a limited production officer in Georgetown, Delaware and two mortgage centers in Bucks county, Pennsylvania and Burlington County, New Jersey. The Bank also provides trust services, including the administration of trusts and estates, retirement plans, and other employee benefit plans, along with a brokerage division that provides a comprehensive menu of investment services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services.  The Company and Bank are supervised by the Board of Governors of the Federal Reserve System, while the Bank is subject to additional regulation and supervision by the Pennsylvania Department of Banking.

A summary of significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:

Basis of Presentation

The consolidated financial statements include the accounts of the Company, and its subsidiary, First Citizens Community Bank, and its subsidiary, First Citizens Insurance Agency, Inc. for 2025 and 2024. For 2023, the consolidated financial statements include the accounts of the Company, and its subsidiary CZFS, and its subsidiary, First Citizens Community Bank, and its subsidiaries, First Citizens Insurance Agency, Inc. and 1^st Realty of PA, LLC. These consolidated statements have been prepared in accordance with U.S. generally accepted accounting principles. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates

In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to determination of the allowance for credit losses, goodwill, derivatives, pension plans and deferred tax assets and liabilities.

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Index

Operating Segments

An operating segment is defined as a component of an enterprise that engages in business activities that generates revenue and incurs expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of resource allocation and performance. While the Company’s chief decision makers monitor the revenue streams of the various Company’s products, services and regions, operations are managed and financial performance is evaluated on a Company-wide basis. Consistent with our internal reporting, the Company’s business activities are reported as one segment, which is community banking.

Cash and Cash Equivalents

Cash equivalents include cash on hand, deposits in banks and interest-earning deposits. Interest-earning deposits with original maturities of 90 days or less are considered cash equivalents.

Interest bearing time deposits with other banks are not included with cash and cash equivalents as the original maturities were greater than 90 days.

Investment Securities

Investment securities at the time of purchase are classified as one of the three following types:

Held-to-Maturity Securities - Includes securities that the Company has the positive intent and ability to hold to maturity. These securities are reported at amortized cost. The Company had no held-to-maturity securities as of December 31, 2025 and 2024.

Trading Securities - Includes debt securities bought and held principally for the purpose of selling them in the near term. Such securities are reported at fair value with unrealized holding gains and losses included in earnings. The Company had no trading securities as of December 31, 2025 and 2024.

Available-for-Sale Securities – Includes debt securities not classified as held-to-maturity or trading securities that will be held for indefinite periods of time. These securities may be sold in response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and yield of alternative investments. Such securities are reported at fair value, with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of the estimated income tax effect.

The amortized cost of investments in debt securities is adjusted for amortization of premiums and accretion of discounts, computed by a method that results in a level yield. Gains and losses on the sale of investment securities are computed on the basis of specific identification of the adjusted cost of each security.

The fair value of investments, except certain state and municipal securities, is based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value is based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued.

Allowance for Credit Losses (Debt Securities Available-for Sale)

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

62

Index

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management confirms that an available-for-sale security is uncollectable or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2025 and 2024, the Company determined that the unrealized loss positions in available-for-sale debt securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 4, “Investment Securities,” and Note 20, “Fair Value of Financial Instruments,” for more information about available-for-sale debt securities.

Accrued interest receivable on available-for-sale debt securities totaled $2,399,000 and $2,135,000 at December 31, 2025 and 2024, respectively, and is included within accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Equity Securities – This category includes common stocks of public companies. Such securities are reported at fair value with unrealized holding gains and losses included in earnings. Dividends are recognized as income when earned.

Restricted Stock - Common stock of the Federal Reserve Bank, Federal Home Loan Bank of Pittsburgh (“FHLB”) and correspondent banks represent ownership in institutions which are wholly owned by other financial institutions. These restricted equity securities are accounted for at cost and are classified as other assets.

Loans Held for Sale

Certain newly originated fixed-rate residential mortgage loans are classified as held for sale, because it is management’s intent to sell these residential mortgage loans. The residential mortgage loans held for sale are carried at fair value.

Loans

Interest on all loans is recognized on the accrual basis based upon the principal amount outstanding. The accrual of interest income on loans is discontinued when, in the opinion of management, doubt exists as to the ability to collect such interest. Payments received on non-accrual loans are applied to the outstanding principal balance or recorded as interest income, depending upon our assessment of our ultimate ability to collect principal and interest. Loans are returned to the accrual status when factors indicating doubtful collectability cease to exist.

The Company recognizes nonrefundable loan origination fees, SBA fees and certain direct loan origination costs over the life of the related loan as an adjustment of loan yield using the interest method.

Purchased Credit Deteriorated (“PCD”) Loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

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Allowance for Credit Losses - Loans

The allowance for credit losses on loans represents management’s estimate of expected credit losses over the estimated life of our existing portfolio of loans. The allowance for credit losses is a valuation account that is deducted from the loan’s amortized cost basis to present the net amount expected to be collected on the loans. The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses on loans at the amount of expected credit losses inherent within the loan portfolio. Loans are recorded as charge-offs against the allowance when management confirms a loan balance is uncollectable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, see Note 5, “Loans,” for additional detail.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has segregated its portfolio segments based on federal call report codes which classify loans based on the primary collateral supporting the loan. The following are the Company’s segmented portfolios:

Residential Real Estate: The Bank originates residential mortgage and home equity loans primarily in its various market areas in Pennsylvania, New York and Delaware. These loans are secured by first and junior liens on a primary residence or investment property. The primary risk characteristics associated with residential loans typically involve major changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce or death. Residential loans that have adjustable rates could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Commercial Real Estate: The Bank originates mortgage loans to operating companies primarily in its various market areas in Pennsylvania, New York and Delaware. The property may be owner-occupied or non-owner-occupied real estate properties and include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Owner-occupied loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrower’s ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.

Agricultural Real Estate: The Bank originates loans secured by farmland and improvements thereon, secured by mortgages primarily in its various market areas in Pennsylvania, New York and Delaware. Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland also includes grazing or pasture land, whether tillable or not and whether wooded or not. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources.

Construction: The Bank originates construction loans to finance land development preparatory to erecting new structures or the on-site construction of residential, industrial, commercial, or multi-family buildings, primarily in its various market areas in Pennsylvania, New York and Delaware. Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions.

Consumer: The Bank originates loans to individuals for household, family, and other personal expenditures, which may include automobile loans and loans for college. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. The primary risk characteristics associated with other consumer loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

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Other Commercial Loans: The Bank originates lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as other assets of the business, or guarantors. Other commercial loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrower’s ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. The ability of the Bank to foreclose and realize sufficient value from business assets securing these loans is often uncertain. To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral. The Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

Other Agricultural Loans: The Bank originates loans secured or unsecured to farm owners and operators (including tenants) or to nonfarmers for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or marketing of livestock, and for purchases of farm machinery, equipment, and implements. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources.

State and Political Subdivision Loans: The Bank originates various types of loans made directly to municipalities. These loans are repaid through general cash flows or through specific revenue streams, such as water and sewer fees. The primary risk characteristics associated with municipal loans are the municipality’s ability to manage cash flow, balance the fiscal budget, fixed asset and infrastructure requirements. Additional risks include changes in demographics, as well as social and political conditions.

Methods utilized by management to estimate expected credit losses include a discounted cash flow (“DCF”) model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations and a weighted average remaining maturity (“WARM”) model which contemplates expected losses at a pool-level, utilizing historic loss information. Management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. After the end of the reasonable and supportable forecast period, the loss rates revert to the mean loss rate over a period of eight quarters.

Historical credit loss experience, including examination of loss experience at representative peer institutions when the Company’s loss history does not result in estimations that are meaningful to users of the Company’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors.

The DCF model uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicators utilized by the Company are federal unemployment rates, national gross domestic production and national housing price index. In building the CECL methodology utilized in the DCF model, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Federal unemployment rates and national gross domestic production and national housing price index.

The WARM model uses combined historic loss rates for the Company and peer institutions, if necessary, gathered from call report filings. The selected period for which historic loss rates are used is dependent on management’s evaluation of current conditions and expectations of future loss conditions.

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Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation and typically represent collateral dependent loans but may also include other nonperforming loans. The Company uses the practical expedient to measure individually evaluated loans as collateral dependent and/or when repayment is expected to be provided substantially through the operation or sale of the collateral. Expected credit losses are based on the fair value at the reporting date, adjusted for selling costs as appropriate. For collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

Accrued interest receivable on loans held for investment totaled $7,943,000 and $7,868,000 at December 31, 2025 and 2024, respectively, and is included within Accrued interest receivable. This amount is excluded from the estimate of expected credit losses.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Management estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Bank and applying the loss factors used in the allowance for credit losses on loans methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan segment. The estimate of credit losses on off balance sheet credit exposures is $1,163,000 and $676,000 at December 31, 2025 and 2024, respectively, and was reported in other liabilities on the consolidated balance sheets.

Loan Charge-off Policies

Consumer loans are generally fully or partially charged down to the fair value of collateral securing the asset when the loan is 180 days past due for open-end loans or 120 days past due for closed-end loans unless the loan is well secured and in the process of collection. All other loans are generally charged down to the estimated net realizable value when the loan is 90 days past due.

Collateral-Dependent Loans

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans and leases deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral consists of various types of real estate including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land.

Loans to Borrowers Experiencing Financial Difficulty

A loan is classified as a modified loan to a borrower experiencing financial difficulty when a contractual loan modification in the form of principal forgiveness, an interest rate reduction, an other-than-significant payment delay or a term extension (or a combination thereof) has been granted to an existing borrower experiencing financial difficulties. The goal when modifying a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow difficulties. Accruing modified loans to borrowers experiencing financial difficulty are primarily comprised of loans on which interest is being accrued under the modified terms, and the loans are current or less than 90 days past due.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell. Prior to foreclosure, as the value of the underlying loan is written down to fair market value of the real estate or other assets to be acquired by a charge to the allowance for credit losses, if necessary. Any subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of related income and losses on disposition, are included in other expenses and gains and losses are included in other non-interest income or other non-interest expense.

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Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed on straight line and accelerated methods over the estimated useful lives of the assets, which range from 3 to 15 years for furniture, fixtures and equipment and 5 to 40 years for building premises. Repair and maintenance expenditures which extend the useful life of an asset are capitalized and other repair expenditures are expensed as incurred.

When premises or equipment are retired or sold, the remaining cost and accumulated depreciation are removed from the accounts and any gain or loss is credited to income or charged to expense, respectively.

Leases

The Company has operating leases for several branch locations. Generally, the underlying lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company may also lease certain office equipment under operating leases. Many of our leases include both lease (e.g., minimum rent payments) and non-lease components (e.g., common-area or other maintenance costs). The Company accounts for each component separately based on the standalone price of each component. In addition, there are several operating leases with lease terms of less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our right of use (“ROU”) assets and lease liabilities.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at the sole discretion of management and is based on whether the extension options are reasonably certain to be exercised after considering all facts and circumstances of the lease. If management determines that the Company is reasonably certain to exercise the extension option(s), the additional term is included in the calculation of the lease liability.

As most of our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate, commensurate with the lease terms based on the information available at the lease commencement date in determining the present value of the lease payments.

Intangible Assets

Intangible assets, other than goodwill, include core deposit intangibles and mortgage servicing rights (“MSRs”). Core deposit intangibles are a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The core deposit intangibles are being amortized over 10 years using the sum-of-the-years digits method of amortization.

The Company recognizes MSRs as assets when mortgage loans are sold and the rights to service those loans are retained. Mortgage servicing rights are initially recorded at fair value by using discounted cash flows to calculate the present value of estimated future net servicing income.

 The Company accounts for the MSRs under the amortization method. The mortgage servicing rights are initially recorded at fair value and amortized in proportion to the estimated expected future net servicing income generated from servicing the loan. The mortgage servicing rights are evaluated for impairment by estimating the fair value of the mortgage servicing rights and comparing that value to the carrying amount. The Company obtains a third-party valuation to assist with estimating the fair value of the MSRs. A valuation allowance would be established if the carrying amount of these mortgage servicing rights exceeds fair value. There was no impairment recognized in 2025, 2024 or 2023.

Goodwill

On an annual basis, the Company evaluated its goodwill for impairment.  When management determines that a quantitative assessment of impairment is necessary, a calculation of the fair value of the reporting unit is completed and compared to its carrying amount.  If the fair value exceeds the carrying amount, no impairment is present.  If the carrying of the reporting unit exceeds its calculated fair value and impairment loss is recognized equal to the difference between fair value and carrying value. The Company may also perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. During 2025, management’s approach to goodwill impairment was a quantitative assessment. During 2024 and 2023, the assessments were qualitative. Based on the fair value of the reporting unit, no impairment of goodwill was recognized in 2025, 2024 or 2023.

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Bank Owned Life Insurance

The Company has purchased life insurance policies on certain employees. Any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under these agreements, the Company receives the cash surrender value of the policy plus 50% of the benefit in excess of the cash surrender value and the remaining amount of the payout will be given to the beneficiary named by the insured person in the policy. The Company is the sole beneficiary of any death benefits received from non-active insured persons. Additionally, as a result of the MidCoast acquisition, the Company acquired life insurance policies on former MidCoast employees. The Company is owner and sole beneficiary of these policies. Additionally, as part of the HVBC acquisition, the Company acquired life insurance policies on former HVBC employees. Under these agreements, the Bank receives the cash surrender value of the policy plus the benefit in excess of the cash surrender value less $50,000 to $100,000 that be given to the beneficiary named by the insured person in the policy if the insured person passes while employed by the Company. The Company is the sole beneficiary of any death benefits received from non-active insured persons. The Company acquired life insurance policies on former FNB employees and directors, as part of the acquisition of FNB. The policies obtained as part of the acquisition provide a fixed dollar benefit to the former employee or director beneficiaries, whether or not the insured person is affiliated with the Company at the time of his or her death. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized. Increases in the cash surrender value are recognized as other non-interest income. The obligation of $529,000 and $514,000 under split-dollar benefit agreements to former employees and directors or their beneficiaries have been recognized as liabilities on the consolidated balance sheet at December 31, 2025 and 2024. The (benefit)/expenses associated with the split dollar benefit were $51,000, ($96,000) and ($50,000) for 2025, 2024 and 2023, respectively.

Income Taxes

The Company and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period.

Derivatives

Derivative financial instruments are recognized as assets or liabilities at fair value. The Company has interest rate swap agreements which are used as part of its asset liability management to help manage interest rate risk. The Company also has derivatives as a result of its residential lending platform. The Company does not use derivatives for trading purposes.

At the inception of a derivative contract, the Company designates the derivative as one of three types based on the purpose of the contract and belief as to its effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

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The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

Employee Benefit Plans

The Company has a noncontributory defined benefit pension plan covering employees hired before January 1, 2007. It is the Company’s policy to fund pension costs on a current basis to the extent deductible under existing tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

The Company has a defined contribution 401(k) plan covering eligible employees. The employee may also contribute to the plan on a voluntary basis, up to a maximum percentage allowable not to exceed the limits of Code Sections 401(k). Under the plan, the Company also makes contributions on behalf of eligible employees, which vest immediately. For employees hired after January 1, 2007, in lieu of the pension plan, an additional annual discretionary 401(k) plan contribution is made and is equal to a percentage of an employee’s base compensation.

The Company also has a profit-sharing plan for employees which provide tax-deferred salary savings to plan participants. The Company has a deferred compensation plan for directors who have elected to defer all or portions of their fees until their retirement or termination from service.

The Company has a restricted stock plan which covers eligible employees and non-employee corporate directors. Under the plan, awards are granted based upon performance related requirements and are subject to certain vesting criteria. Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period.

The Company has an employee stock purchase plan that allows employees to withhold money from their paychecks, which is then utilized to purchase shares of the Company’s stock.

The Company maintains a non-qualified supplemental executive retirement plan (“SERP”) for certain executives to compensate those executive participants in the Company’s noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. The SERP is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the SERP are payable from the general assets of the Company. Expenses under the SERP are recognized as earned over the expected years of service.

The Company maintains a non-tax qualified executive deferred compensation plan (“Deferred Compensation Plan”) for eligible employees designated by the board of directors. Each of the named executive officers are eligible to participate in the Deferred Compensation Plan. The Deferred Compensation Plan is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the Deferred Compensation Plan are payable from the general assets of the Company. Expenses under the Deferred Compensation Plan are recognized as earned over the expected years of service.

Advertising Costs

Advertising and promotion costs are generally expensed as incurred and amounted to $1,114,000, $1,178,000 and $952,000 for the years ended December 31, 2025, 2024 and 2023, respectively.

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Comprehensive Income (Loss)

The Company is required to present comprehensive income in a full set of general purpose financial statements for all periods presented. Other comprehensive income (loss) is comprised of unrealized holding gains (losses) on the available-for-sale securities portfolio, unrealized gains (losses) on interest rate swaps and unrecognized pension costs.

Recent Accounting Pronouncements – Adopted in 2025

In December 2023, the FASB issued ASU 2023-09, Expanded Income Tax Disclosure Requirements (Topic 740, which requires public business entities to improve income tax disclosures primarily related to an entity’s effective tax rate reconciliation and income taxes paid information. This guidance became effective for annual periods beginning after December 15, 2024. This Update did not have a significant impact on the Company’s financial statements.

See footnote 12 for the revised disclosures.

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Recent Accounting Pronouncements – Not Yet Effective

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures. This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements.

In December 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This new guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The ASU requires entities to apply a preexisting contract approach. To qualify for induced conversion accounting under this approach, the inducement offer is required to preserve the form of consideration and result in an amount of consideration that is no less than that issuable pursuant to the preexisting conversion privileges. The guidance is effective for fiscal years beginning after December 15, 2025, with early adoption permitted, and it can be adopted either on a prospective or retrospective basis. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating the impact of this new guidance on its financial statements.

In January 2025, the FASB issued ASU 2025-02, Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122.  This ASU was issued pursuant to SEC Staff Accounting Bulletin No. 122, which rescinds the interpretive guidance included in Section FF of Topic 5 in the Staff Accounting Bulletin series entitled Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users. This ASU has no impact on non-public business entities and is effective for fiscal years beginning after December 15, 2024.  This Update is not expected to have a significant impact on the Company’s financial statements.

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In May 2025, the FASB issued ASU 2025-03, Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which revises the guidance in ASC 805 on identifying the accounting acquirer in a business combination in which the legal acquiree is a variable interest entity (VIE). The reporting entity can determine that a transaction in which the legal acquiree is a VIE represents a reverse acquisition in which the legal acquirer is identified as the acquiree for accounting purposes.  ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted.  The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs after the initial adoption date.  This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2025, the FASB issued ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts With Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer, which clarifies the accounting for share-based consideration payable to a customer under ASC 718 and ASC 606. The amendments refine key aspects of the guidance, including the definition of “performance condition” as well as the measurement requirements and the treatment of forfeitures.  The amendments will be effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods. Early adoption is permitted for financial statements that have not yet been issued. The Company is currently evaluating the impact of this new guidance on its financial statements.

In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides the following relief when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, including those acquired in a business combination under Topic 805, Business Combinations: (1) Practical expedient (available to all entities): Allows an entity to assume that current conditions as of the balance sheet date remain unchanged over the remaining life of an asset in developing reasonable and supportable forecasts as part of estimating expected credit losses. This removes the requirement to incorporate macroeconomic forecasts for assets within the scope of the ASU; (2) Accounting policy election (available to entities other than public business entities): Provided that the practical expedient is elected, this policy election permits eligible entities to consider post-balance-sheet collection activity when estimating expected credit losses.  The new guidance will be effective for interim and annual periods beginning after December 15, 2025, and is to be adopted on a prospective basis. The Company is currently evaluating the impact of this new guidance on its financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for internal-use software that is developed using an incremental and iterative method (e.g., agile method). The guidance removes all references to project stages in ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. The guidance specifies that the property, plant, and equipment disclosure requirements under ASC 360-10 apply to capitalized software costs accounted for under ASC 350-40, regardless of how those costs are presented in the financial statements. The guidance, which applies to all entities, is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Entities may apply the guidance using a prospective, retrospective, or modified transition approach. Early adoption is permitted.  The Company is currently evaluating the impact of this new guidance on its financial statements.

In 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract, which (1) refines the scope of the guidance on derivatives in ASC 815 (Issue 1) and (2) clarifies the guidance on share-based payments from a customer in ASC 606 (Issue 2). The ASU is intended to address concerns about the application of derivative accounting to contracts that have features based on the operations or activities of one of the parties to the contract and to reduce diversity in the accounting for share-based payments in revenue contracts.  The ASU adds a new scope exception for certain contracts that are not traded on an exchange and have an underlying that is based on operations or activities specific to one of the parties to the contract.  This ASU clarifies that when an entity has a right to receive a share-based payment from its customer in exchange for the transfer of goods or services, the share-based payment should be accounted for as noncash consideration within the scope of ASC 606.  ASU 2025-07 is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods.  Early adoption is permitted.  The Company is currently evaluating the impact of this new guidance on its financial statements.

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In November 2025, the FASB issued ASU 2025-08, Financial Instruments – Credit Losses (Topic 326), which amends the guidance in Topic 326 to expand the population of acquired financial assets subject to the gross-up approach to include loans (excluding credit cards) that are acquired without credit deterioration and deemed “seasoned.” All non-purchased credit deteriorated loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-purchased credit deteriorated loans (excluding credit cards) are considered to be seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. ASU 2025-08 should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Early adoption is permitted.  The Company is currently evaluating the impact of this new guidance on its financial statements.

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815), which amends certain aspects of the hedge accounting guidance in ASC 815 to more closely align hedge accounting with the economics of an entity’s risk management activities. The amendments, among other things, provide more flexibility for cash flow hedges and hedging of raw materials and other nonfinancial assets, as well as simplify hedge accounting for flexible debt and foreign currency debt. ASU 2025-09 should be applied prospectively for public business entities for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. For all other entities, the ASU is to be applied prospectively and is effective for fiscal years beginning after December 15, 2027, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its financial statements.

In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities (Topic 832), which adds guidance on the recognition, measurement, and presentation of government grants. Among other things, the ASU defines whether a grant is related to an asset or to income. Under either scenario, an entity will not be able to recognize the grant until it is probable that both (a) the entity will comply with the conditions attached to the government grant, and (b) the government grant will be received. The new guidance is effective for public business entities in annual periods beginning after December 15, 2028, (including interim periods within) and one year later for all other entities, with early adoption permitted in any period for which financial statements have not yet been issued. The guidance can be applied on a modified prospective basis, a modified retrospective basis, or a full retrospective basis. This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, to clarify interim disclosure requirements, the form and content of interim financial statements, and when ASC Topic 270 applies. The amendments in the ASU provide a list of specific interim disclosures that are required by generally accepted accounting principles (GAAP), which, together with the disclosure principle, represent the complete population of required disclosures in interim reporting periods. The intent of the disclosure principle is to help entities determine whether any disclosures not specified in Topic 270 should be provided in interim reporting periods. ASU 2025-11 may be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements for public business entities for interim periods in fiscal years beginning after December 15, 2027, and all other entities in interim periods in fiscal years beginning after December 15, 2028.  The Company is currently evaluating the impact of this new guidance on its financial statements.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements, to address 33 issues that amend the Codification to (1) clarify, (2) correct errors, or (3) make minor improvements that affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments make the Codification easier to understand and apply. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods.  This Update is not expected to have a significant impact on the Company’s financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

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Treasury Stock

The purchase of the Company’s common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a last-in-first-out basis.

Cash Flows

The Company utilizes the net reporting of cash receipts and cash payments for deposit, short-term borrowing and lending activities.

Trust, Brokerage and Insurance Assets and Income

Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such assets are not assets of the Company. The majority of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under management. Trust fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management. None of the contracts with trust customers provide for incentive-based fees. In addition, trust revenue includes fees for provision of services, including employee benefit plan administration, tax return preparation and estate planning and settlement. Fees for such services are billed based on contractual arrangements or established fee schedules and are typically billed upon completion of providing such services. Brokerage and insurance commissions from the sales of investments and insurance products are recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the customer’s portfolio. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

Earnings Per Share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

		2025				2024				2023
Basic earnings per share computation:
Net income applicable to common stock		$	36,572,000			$	27,818,000			$	17,811,000
Weighted average common shares outstanding			4,797,520				4,797,258				4,476,235
Earnings per share - basic		$	7.62			$	5.80			$	3.98
Diluted earnings per share computation:
Net income applicable to common stock		$	36,572,000			$	27,818,000			$	17,811,000
Weighted average common shares outstanding for basic earnings per share			4,797,520				4,797,258				4,476,235
Add: Dilutive effects of restricted stock			2,573				4,881				-
Weighted average common shares outstanding for dilutive earnings per share			4,800,093				4,802,139				4,476,235
Earnings per share - dilutive		$	7.62			$	5.79			$	3.98

Nonvested shares of restricted stock totaling 1,883, 2,430 and 4,623 were outstanding during 2025, 2024 and 2023, respectively, but were not included in the computation of diluted earnings per common share because to do so would be anti-dilutive. These anti-dilutive shares had per share prices ranging from $49.43-$83.38, $61.98-$83.38 and $56.81-$83.38 for 2025, 2024 and 2023, respectively.

Reclassification

Certain of the prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no material effect on net income or stockholders’ equity.

2. REVENUE RECOGNITION

Under ASC Topic 606, management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of this topic. The main types of noninterest income within the scope of the standard are as follows:

• Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

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• Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers’ accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client assets in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

• Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

• Brokerage and insurance – Fees include commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the customer’s portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the years ended December 31, 2025, 2024 and 2023 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

Revenue stream
Service charges on deposit accounts		2025				2024				2023
Overdraft fees		$	1,505			$	1,612			$	1,501
Statement fees			255				181				194
Interchange revenue			3,307				3,382				3,246
ATM income			120				134				138
Other service charges			382				440				560
Total Service Charges			5,569				5,749				5,639
Trust			792				816				764
Brokerage and insurance			2,627				2,381				1,924
Other			893				664				645
Total		$	9,881			$	9,610			$	8,972

3. RESTRICTIONS ON CASH AND DUE FROM BANKS

Effective March 26, 2020, the Federal Reserve reduced reserve requirements to zero for all depository institutions. There were no required federal reserves included in “Cash and due from banks” at December 31, 2025 or December 31, 2024. The required reserves are used to facilitate the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of vault cash and a depository amount held with the Federal Reserve Bank. Federal law prohibits the Company from borrowing from the Bank unless the loans are secured by specific collateral.

Non-retirement account deposits with one financial institution are insured up to $250,000. At times, the Company maintains cash and cash equivalents with other financial institutions in excess of the insured amount.

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4. INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at December 31, 2025 and 2024 were as follows (in thousands):

December 31, 2025		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
Available-for-sale securities:
U.S. Agency securities		$	52,651			$	12			$	(2,908	)		$	-			$	49,755
U.S. Treasuries			84,551				225				(2,122	)			-				82,654
Obligations of state and political subdivisions			120,608				1,070				(5,792	)			-				115,886
Corporate obligations			11,304				405				(412	)			-				11,297
Mortgage-backed securities in government sponsored entities			193,405				1,103				(9,359	)			-				185,149
Total available-for-sale securities		$	462,519			$	2,815			$	(20,593	)		$	-			$	444,741
December 31, 2024
Available-for-sale securities:
U.S. Agency securities		$	58,594			$	6			$	(5,113	)		$	-			$	53,487
U.S. Treasuries			126,220				6				(5,724	)			-				120,502
Obligations of state and political subdivisions			103,137				4				(8,239	)			-				94,902
Corporate obligations			11,206				297				(1,065	)			-				10,438
Mortgage-backed securities in government sponsored entities			160,380				232				(14,029	)			-				146,583
Total available-for-sale securities		$	459,537			$	545			$	(34,170	)		$	-			$	425,912

The following table shows the Company’s gross unrealized losses and fair value for available for sale securities, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2025 and 2024 (in thousands).  As of December 31, 2025, the Company owned 242 securities each of whose fair value was less than its cost basis for a period twelve months or greater and 21 securities each of whose fair value was less than its cost basis for a period less than twelve months. As of December 31, 2024, the Company owned 312 securities each of whose fair value was less than its cost basis for a period twelve months or greater and five securities each of whose fair value was less than its cost basis for a period less than twelve months.

		Less than Twelve Months								Twelve Months or Greater								Total
2025		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
U.S. agency securities		$	-			$	-			$	45,104			$	(2,908	)		$	45,104			$	(2,908	)
U.S. Treasuries			-				-				72,784				(2,122	)			72,784				(2,122	)
Obligations of states and political subdivisions			5,642				(98	)			72,858				(5,694	)			78,500				(5,792	)
Corporate obligations			-				-				6,588				(412	)			6,588				(412	)
Mortgage-backed securities in government sponsored entities			36,858				(247	)			79,922				(9,112	)			116,780				(9,359	)
Total securities		$	42,500			$	(345	)		$	277,256			$	(20,248	)		$	319,756			$	(20,593	)
2024
U.S. agency securities		$	-			$	-			$	51,470			$	(5,113	)		$	51,470			$	(5,113	)
U.S. Treasuries			5,553				(11	)			110,992				(5,713	)			116,545				(5,724	)
Obligations of states and political subdivisions			4,186				(39	)			86,773				(8,200	)			90,959				(8,239	)
Corporate obligations			345				(33	)			6,970				(1,032	)			7,315				(1,065	)
Mortgage-backed securities in government sponsored entities			35,044				(817	)			82,425				(13,212	)			117,469				(14,029	)
Total securities		$	45,128			$	(900	)		$	338,630			$	(33,270	)		$	383,758			$	(34,170	)

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As of December 31, 2025 and 2024, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

There were no sales of available-for-sale securities during 2025 and 2024. Proceeds from sales of securities available-for-sale during 2023 were $86,504,000. Sales for 2023 were primarily the result of selling investments obtained as part of the HVBC acquisition for no gain or loss on the day of acquisition. The gross losses realized during 2023 consisted of $89,000 from the sales of seven municipal securities. The gross gains realized during 2023 consisted of $38,000 from the sales of two municipal securities. Gross gains and gross losses were realized as follows on available for sale securities (in thousands):

		2025				2024				2023
Gross gains		$	-			$	-			$	38
Gross losses			-				-				(89	)
Net losses		$	-			$	-			$	(51	)

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The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during 2025, 2024 and 2023 and the portion of unrealized gains for the period that relates to equity investments held at December 31, 2025, 2024 and 2023 (in thousands):

Equity Securities		2025				2024				2023
Net gains (losses) recognized in equity securities during the period		$	67			$	145			$	(144	)
Less: Net gains (losses) realized on the sale of equity securities during the period			-				(4	)			14
Net unrealized gains (losses)		$	67			$	149			$	(158	)

Investment securities with an approximate carrying value of $367,936,000 and $340,371,000 at December 31, 2025 and 2024, respectively, were pledged to secure public funds and certain other deposits as provided by law and certain borrowing arrangements of the Company.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at December 31, 2025, by contractual maturity are shown below (in thousands). Municipal securities that have been refunded and will therefore pay-off on the call date are reflected in the table below utilizing the call date as the date of repayment as payment is guaranteed on that date:

Available-for-sale securities:		Amortized Cost				Fair Value
Due in one year or less		$	36,430			$	36,054
Due after one year through five years			114,102				110,690
Due after five years through ten years			96,763				92,014
Due after ten years			215,224				205,983
Total		$	462,519			$	444,741

5. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

The Company grants commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout north central, central, south-central and south-eastern Pennsylvania, Burlington County, New Jersey, southern New York and Wilmington and Dover, Delaware. Although the Company had a diversified loan portfolio at December 31, 2025 and 2024, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio, as well as how those segments are analyzed within the allowance for credit losses as of December 31, 2025 and 2024 (in thousands):

		December 31,
		2025				2024
Real estate loans:
Residential		$	340,972			$	351,398
Commercial			1,218,514				1,121,435
Agricultural			347,448				327,722
Construction			93,965				164,326
Consumer			88,210				109,505
Other commercial loans			179,166				155,012
Other agricultural loans			30,247				29,662
State and political subdivision loans			52,100				54,182
Total			2,350,622				2,313,242
Allowance for credit losses – loans			22,806				21,699
Net loans		$	2,327,816			$	2,291,543

As of December 31, 2025, and 2024, net unamortized loan fees and costs of $1,981,000 and $2,587,000, respectively, were included in the carrying value of loans. Purchased loans acquired in connection with the FNB acquisition, the State College branch acquisition, the MidCoast acquisition and the HVBC acquisition were recorded at fair value on their acquisition date without a carryover of the related allowance for credit losses.

Real estate loans serviced for Freddie Mac, Fannie Mae and the FHLB, which are not included in the Consolidated Balance Sheet, totaled $181,675,000 and $193,507,000 at December 31, 2025 and 2024, respectively. Loans sold to Freddie Mac and Fannie Mae were sold without recourse and total $173,901,000 and $184,578,000 at December 31, 2025 and 2024, respectively. Additionally, the Bank acquired a portfolio of loans sold to the FHLB during the acquisitions of FNB and HVBC, which were sold under the Mortgage Partnership Finance Program (“MPF”). The Bank was not an active participant in the MPF program in 2025 or 2024. The MPF portfolio balance was $7,774,000 and $8,929,000 at December 31, 2025 and 2024, respectively. The FHLB maintained a first-loss position for the MPF portfolio that totaled $171,000 and $168,000 as of December 31, 2025 and 2024, respectively. Should the FHLB exhaust its first-loss position, recourse to the Bank’s credit enhancement would be up to the next $197,000 and $229,000 of losses as of December 31, 2025 and 2024, respectively. The Bank did not experience any losses for the MPF portfolio during 2025, 2024 or 2023.

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The segments of the Bank’s loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist of 15 to 30 year first mortgages on residential real estate, while residential real estate home equities are consumer purpose installment loans or lines of credit secured by a mortgage which is often a second lien on residential real estate with terms of 15 years or less. Commercial real estate are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate are loans secured by a mortgage on real estate used in agriculture production. Construction real estate are loans secured by residential or commercial real estate used during the construction phase of residential and commercial projects. Consumer loans are typically unsecured or primarily secured by collateral other than real estate and overdraft lines of credit connected with customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivisions are loans for state and local municipalities for capital and operating expenses or tax-free loans used to finance commercial development.

Allowance for Credit Losses

The following table presents the components of the allowance for credit losses as of December 31, 2025 and 2024 (in thousands):

		December 31,
		2025				2024
Allowance for Credit Losses – Loans		$	22,806			$	21,699
Allowance for Credit Losses – Off-Balance Sheet credit Exposure			1,163				676
Total allowance for credit losses		$	23,969			$	22,375

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The following table presents the activity in the allowance for credit losses for 2025, 2024 and 2023 (in thousands):

		Allowance for Credit Losses – Loans				Allowance for Credit Losses – Off- Balance Sheet credit Exposure				Total
Balance at December 31, 2022		$	18,552			$	165			$	18,717
Impact of adopting CECL			(3,300	)			1,064				(2,236	)
Allowance for credit loss on PCD acquired loans			1,689				-				1,689
Loans charge-off			(1,329	)			-				(1,329	)
Recoveries of loans previously charged-off			49				-				49
Net loans charged-off			(1,280	)			-				(1,280	)
Provision for credit losses – acquisition day 1 non-PCD			4,591				-				4,591
Provision for credit losses			901				36				937
Balance at December 31, 2023		$	21,153			$	1,265			$	22,418
Balance at December 31, 2023		$	21,153			$	1,265			$	22,418
Loans charge-off			(2,673	)			-				(2,673	)
Recoveries of loans previously charged-off			43				-				43
Net loans charged-off			(2,630	)			-				(2,630	)
Provision for credit losses			3,176				(589	)			2,587
Balance at December 31, 2024		$	21,699			$	676			$	22,375
Balance at December 31, 2024		$	21,699			$	676			$	22,375
Loans charge-off			(858	)			-				(858	)
Recoveries of loans previously charged-off			77				-				77
Net loans charged-off			(781	)			-				(781	)
Provision for credit losses			1,888				487				2,375
Balance at December 31, 2025		$	22,806			$	1,163			$	23,969

The following tables presents the activity in the allowance for credit losses – loans, by portfolio segment, for 2025, 2024 and 2023 (in thousands).

		Balance at December 31, 2024				Charge-offs				Recoveries				Provision				Balance at December 31, 2025
Real estate loans:
Residential		$	1,940			$	-			$	-			$	1,172			$	3,112
Commercial			9,174				(40	)			-				883				10,017
Agricultural			3,529				-				-				1,312				4,841
Construction			1,402				-				-				(486	)			916
Consumer			1,338				(327	)			41				149				1,201
Other commercial loans			3,766				(491	)			36				(777	)			2,534
Other agricultural loans			133				-				-				(18	)			115
State and political subdivision loans			61				-				-				(6	)			55
Unallocated			356				-				-				(341	)			15
Total		$	21,699			$	(858	)		$	77			$	1,888			$	22,806

		Balance at December 31, 2023				Charge-offs				Recoveries				Provision				Balance at December 31, 2024
Real estate loans:
Residential		$	2,354			$	(5	)		$	-			$	(409	)		$	1,940
Commercial			9,178				-				-				(4	)			9,174
Agricultural			3,264				-				-				265				3,529
Construction			1,950				-				-				(548	)			1,402
Consumer			1,412				(107	)			22				11				1,338
Other commercial loans			2,313				(2,561	)			21				3,993				3,766
Other agricultural loans			270				-				-				(137	)			133
State and political subdivision loans			45				-				-				16				61
Unallocated			367				-				-				(11	)			356
Total		$	21,153			$	(2,673	)		$	43			$	3,176			$	21,699

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Index

		Balance at December 31, 2022				Impact of adopting CECL				Allowance for credit loss on PCD acquired loans				Charge-offs				Recoveries				Provision				Balance at December 31, 2023
Real estate loans:
Residential		$	1,056			$	79			$	108			$	(1	)		$	-			$	1,112			$	2,354
Commercial			10,120				(3,070	)			39				-				-				2,089				9,178
Agricultural			4,589				(1,145	)			-				-				-				(180	)			3,264
Construction			801				(103	)			37				-				-				1,215				1,950
Consumer			135				1,040				677				(365	)			40				(115	)			1,412
Other commercial loans			1,040				(328	)			828				(963	)			9				1,727				2,313
Other agricultural loans			489				(219	)			-				-				-				-				270
State and political
subdivision loans			322				(280	)			-				-				-				3				45
Unallocated			-				726				-				-				-				(359	)			367
Total		$	18,552			$	(3,300	)		$	1,689			$	(1,329	)		$	49			$	5,492			$	21,153

The following table presents loans and the allowance for credit losses by portfolio segment, under the CECL methodology as of December 31, 2025 and 2024 (in thousands):

		Allowance for Credit Losses – Loans												Loans
2025		Collectively evaluated for impairment				Individually evaluated for impairment				Total Allowance for Credit Losses – Loans				Collectively evaluated for impairment				Individually evaluated for impairment				Total Loans
Real estate loans:
Residential		$	3,050			$	62			$	3,112			$	338,600			$	2,372			$	340,972
Commercial			9,757				260				10,017				1,193,742				24,772				1,218,514
Agricultural			4,841				-				4,841				345,302				2,146				347,448
Construction			830				86				916				93,450				515				93,965
Consumer			327				874				1,201				87,301				909				88,210
Other commercial loans			1,903				631				2,534				171,343				7,823				179,166
Other agricultural loans			115				-				115				29,844				403				30,247
State and political subdivision loans			55				-				55				52,100				-				52,100
Unallocated			15				-				15				-				-				-
Total		$	20,893			$	1,913			$	22,806			$	2,311,682			$	38,940			$	2,350,622
2024
Real estate loans:
Residential		$	1,902			$	38			$	1,940			$	349,909			$	1,489			$	351,398
Commercial			9,070				104				9,174				1,105,847				15,588				1,121,435
Agricultural			3,529				-				3,529				323,660				4,062				327,722
Construction			1,402				-				1,402				164,043				283				164,326
Consumer			324				1,014				1,338				108,478				1,027				109,505
Other commercial loans			3,019				747				3,766				152,430				2,582				155,012
Other agricultural loans			133				-				133				29,125				537				29,662
State and political subdivision loans			61				-				61				54,182				-				54,182
Unallocated			356				-				356				-				-				-
Total		$	19,796			$	1,903			$	21,699			$	2,287,674			$	25,568			$	2,313,242

Non-performing Loans

Non-performing loans include nonaccrual loans, described in more detail below, and all loans past due 90 or more days. Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

81

Index

The following table reflects the non-performing loan receivables, as well as those on non-accrual status as of December 31, 2025 and 2024, respectively. The balances are presented by class of loan receivable (in thousands):

		December 31, 2025																December 31, 2024
		Nonaccrual With a related allowance				Nonaccrual Without a related allowance				90 days or greater past due and accruing				Total non- performing loans				Nonaccrual With a related allowance				Nonaccrual Without a related allowance				90 days or greater past due and accruing				Total non- performing loans
Real estate loans:
Mortgages		$	153			$	3,229			$	-			$	3,382			$	165			$	2,541			$	-			$	2,706
Home Equity			-				61				151				212				-				165				-				165
Commercial			2,860				8,637				-				11,497				2,099				12,265				-				14,364
Agricultural			-				2,145				55				2,200				-				4,062				269				4,331
Construction			233				283				-				516				-				283				-				283
Consumer			770				-				15				785				1,002				-				7				1,009
Other commercial loans			6,282				1,546				8				7,836				2,382				200				-				2,582
Other agricultural loans			-				403				-				403				-				537				-				537
		$	10,298			$	16,304			$	229			$	26,831			$	5,648			$	20,053			$	276			$	25,977

As of December 31, 2025 and 2024, there were $16,304,000 and $20,053,000, respectively, of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to the realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of December 31, 2025 and 2024 (in thousands):

		December 31, 2025																December 31, 2024
		Real Estate				Other				None				Total				Real Estate				Other				None				Total
Real estate loans:
Mortgages		$	3,382			$	-			$	-			$	3,382			$	2,706			$	-			$	-			$	2,706
Home Equity			61				-				-				61				165				-				-				165
Commercial			11,497				-				-				11,497				14,364				-				-				14,364
Agricultural			2,145				-				-				2,145				4,062				-				-				4,062
Construction			516				-				-				516				283				-				-				283
Consumer			-				-				770				770				-				-				1,002				1,002
Other commercial loans			-				7,828				-				7,828				-				2,582				-				2,582
Other agricultural loans			-				403				-				403				-				537				-				537
		$	17,601			$	8,231			$	770			$	26,602			$	21,580			$	3,119			$	1,002			$	25,701

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural, and state and political subdivision loans, management uses an internal risk rating system to monitor and assess credit quality. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

• Pass (Grades 1-6) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

• Special Mention (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

82

Index

• Substandard (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

• Loss (Grade 10) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated.

The following tables represent credit exposures by internally assigned grades, by origination year, as of December 31, 2025 and 2024 (in thousands):

83

Index

																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
December 31, 2025		2025				2024				2023				2022				2021				Prior				Cost Basis				to Term				Total
Commercial real estate
Risk Rating
Pass		$	127,490			$	59,760			$	128,989			$	329,694			$	172,617			$	294,237			$	34,709			$	1,971			$	1,149,467
Special Mention			-				5,042				797				5,784				8,770				7,208				733				-				28,334
Substandard			-				-				1,021				24,582				3,024				9,772				2,314				-				40,713
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	127,490			$	64,802			$	130,807			$	360,060			$	184,411			$	311,217			$	37,756			$	1,971			$	1,218,514
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	40			$	-			$	-			$	40
Agricultural real estate
Risk Rating
Pass		$	54,278			$	30,648			$	18,810			$	47,254			$	20,747			$	139,424			$	18,558			$	131			$	329,850
Special Mention			55				40				3,276				1,384				1,731				1,893				1,723				-				10,102
Substandard			1,297				667				-				2,052				657				2,103				645				75				7,496
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	55,630			$	31,355			$	22,086			$	50,690			$	23,135			$	143,420			$	20,926			$	206			$	347,448
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Construction																			-
Risk Rating
Pass		$	30,394			$	15,456			$	8,490			$	25,772			$	-			$	-			$	5,215			$	-			$	85,327
Special Mention			-				-				-				206				2,943				-				-				-				3,149
Substandard			-				-				789				4,417				283				-				-				-				5,489
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	30,394			$	15,456			$	9,279			$	30,395			$	3,226			$	-			$	5,215			$	-			$	93,965
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Other commercial loans																			-
Risk Rating
Pass		$	33,300			$	27,244			$	18,039			$	4,938			$	6,098			$	3,819			$	74,628			$	232			$	168,298
Special Mention			-				-				-				-				-				-				2,442				-				2,442
Substandard			-				117				-				1,784				40				714				4,257				1,443				8,355
Doubtful			-				-				-				-				-				-				66				5				71
Total		$	33,300			$	27,361			$	18,039			$	6,722			$	6,138			$	4,533			$	81,393			$	1,680			$	179,166
Current period gross charge-offs		$	-			$	49			$	-			$	-			$	-			$	63			$	379			$	-			$	491
Other agricultural loans																			-
Risk Rating
Pass		$	5,677			$	3,520			$	1,440			$	408			$	1,602			$	288			$	14,761			$	-			$	27,696
Special Mention			-				936				15				-				-				-				639				-				1,590
Substandard			-				-				294				438				-				-				229				-				961
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	5,677			$	4,456			$	1,749			$	846			$	1,602			$	288			$	15,629			$	-			$	30,247
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
State and political subdivision loans																			-
Risk Rating
Pass		$	1,504			$	27			$	1,291			$	12,737			$	9,932			$	26,509			$	100			$	-			$	52,100
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	1,504			$	27			$	1,291			$	12,737			$	9,932			$	26,509			$	100			$	-			$	52,100
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total																			-
Risk Rating
Pass		$	252,643			$	136,655			$	177,059			$	420,803			$	210,996			$	464,277			$	147,971			$	2,334			$	1,812,738
Special Mention			55				6,018				4,088				7,374				13,444				9,101				5,537				-				45,617
Substandard			1,297				784				2,104				33,273				4,004				12,589				7,445				1,518				63,014
Doubtful			-				-				-				-				-				-				66				5				71
Total		$	253,995			$	143,457			$	183,251			$	461,450			$	228,444			$	485,967			$	161,019			$	3,857			$	1,921,440

84

Index

																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
December 31, 2024		2024				2023				2022				2021				2020				Prior				Cost Basis				to Term				Total
Commercial real estate
Risk Rating
Pass		$	52,122			$	84,465			$	360,989			$	200,869			$	114,839			$	223,601			$	28,178			$	1,786			$	1,066,849
Special Mention			-				810				3,495				1,874				1,372				8,501				1,674				-				17,726
Substandard			85				1,057				19,884				2,843				629				11,785				176				401				36,860
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	52,207			$	86,332			$	384,368			$	205,586			$	116,840			$	243,887			$	30,028			$	2,187			$	1,121,435
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Agricultural real estate
Risk Rating
Pass		$	32,199			$	22,372			$	46,644			$	26,132			$	29,770			$	126,876			$	14,351			$	115			$	298,459
Special Mention			2,930				3,138				7,109				-				-				5,315				2,248				-				20,740
Substandard			708				140				2,179				1,250				-				3,604				529				113				8,523
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	35,837			$	25,650			$	55,932			$	27,382			$	29,770			$	135,795			$	17,128			$	228			$	327,722
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Construction																			-
Risk Rating
Pass		$	48,026			$	56,916			$	34,995			$	-			$	-			$	-			$	1,355			$	-			$	141,292
Special Mention			-				-				19,391				2,950				-				-				-				-				22,341
Substandard			-				-				410				283				-				-				-				-				693
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	48,026			$	56,916			$	54,796			$	3,233			$	-			$	-			$	1,355			$	-			$	164,326
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Other commercial loans																			-
Risk Rating
Pass		$	33,211			$	22,808			$	6,773			$	7,542			$	2,150			$	3,464			$	68,573			$	75			$	144,596
Special Mention			20				-				1,798				178				62				56				4,888				32				7,034
Substandard			213				-				195				-				234				641				422				1,661				3,366
Doubtful			-				-				-				-				-				-				-				16				16
Total		$	33,444			$	22,808			$	8,766			$	7,720			$	2,446			$	4,161			$	73,883			$	1,784			$	155,012
Current period gross charge-offs		$	-			$	-			$	59			$	-			$	-			$	-			$	2,502			$	-			$	2,561
Other agricultural loans																			-
Risk Rating
Pass		$	4,576			$	2,008			$	888			$	3,870			$	407			$	220			$	14,812			$	-			$	26,781
Special Mention			1,341				-				-				-				-				400				67				-				1,808
Substandard			-				354				455				9				-				113				131				11				1,073
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	5,917			$	2,362			$	1,343			$	3,879			$	407			$	733			$	15,010			$	11			$	29,662
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
State and political subdivision loans																			-
Risk Rating
Pass		$	-			$	1,442			$	13,460			$	10,522			$	5,319			$	23,439			$	-			$	-			$	54,182
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	-			$	1,442			$	13,460			$	10,522			$	5,319			$	23,439			$	-			$	-			$	54,182
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total																			-
Risk Rating
Pass		$	170,134			$	190,011			$	463,749			$	248,935			$	152,485			$	377,600			$	127,269			$	1,976			$	1,732,159
Special Mention			4,291				3,948				31,793				5,002				1,434				14,272				8,877				32				69,649
Substandard			1,006				1,551				23,123				4,385				863				16,143				1,258				2,186				50,515
Doubtful			-				-				-				-				-				-				-				16				16
Total		$	175,431			$	195,510			$	518,665			$	258,322			$	154,782			$	408,015			$	137,404			$	4,210			$	1,852,339

85

Index

For residential real estate mortgage loans, home equity loans, and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail above, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity, by origination year, as of December 31, 2025 and 2024 (in thousands):

																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
December 31, 2025		2025				2024				2023				2022				2021				Prior				Cost Basis				to Term				Total
Residential real estate
Payment Performance
Performing		$	13,909			$	13,209			$	23,135			$	81,239			$	41,842			$	111,948			$	-			$	-			$	285,282
Nonperforming			-				-				-				1,057				1,132				1,193				-				-				3,382
Total		$	13,909			$	13,209			$	23,135			$	82,296			$	42,974			$	113,141			$	-			$	-			$	288,664
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Home equity																			-
Payment Performance
Performing		$	2,854			$	2,528			$	2,533			$	1,727			$	1,150			$	6,918			$	34,100			$	286			$	52,096
Nonperforming			63				-				18				-				-				110				21				-				212
Total		$	2,917			$	2,528			$	2,551			$	1,727			$	1,150			$	7,028			$	34,121			$	286			$	52,308
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer																			-
Payment Performance
Performing		$	1,934			$	1,050			$	373			$	354			$	412			$	2,577			$	80,725			$	-			$	87,425
Nonperforming			-				10				-				-				11				764				-				-				785
Total		$	1,934			$	1,060			$	373			$	354			$	423			$	3,341			$	80,725			$	-			$	88,210
Current period gross charge-offs		$	-			$	-			$	11			$	1			$	-			$	285			$	30			$	-			$	327
Total																			-
Payment Performance
Performing		$	18,697			$	16,787			$	26,041			$	83,320			$	43,404			$	121,443			$	114,826			$	286			$	424,804
Nonperforming			63				10				18				1,057				1,143				2,067				20				-				4,378
Total		$	18,760			$	16,797			$	26,059			$	84,377			$	44,547			$	123,510			$	114,846			$	286			$	429,182

																										Revolving				Revolving
																										Loans				Loans
																										Amortized				Converted
December 31, 2024		2024				2023				2022				2021				2020				Prior				Cost Basis				to Term				Total
Residential real estate
Payment Performance
Performing		$	11,487			$	23,870			$	88,581			$	45,731			$	27,537			$	101,823			$	-			$	-			$	299,029
Nonperforming			-				-				382				751				463				1,110				-				-				2,706
Total		$	11,487			$	23,870			$	88,963			$	46,482			$	28,000			$	102,933			$	-			$	-			$	301,735
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	5			$	-			$	-			$	5
Home equity																			-
Payment Performance
Performing		$	2,987			$	3,456			$	2,418			$	1,454			$	1,525			$	7,937			$	29,302			$	419			$	49,498
Nonperforming			-				-				-				-				83				82				-				-				165
Total		$	2,987			$	3,456			$	2,418			$	1,454			$	1,608			$	8,019			$	29,302			$	419			$	49,663
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer																			-
Payment Performance
Performing		$	2,076			$	880			$	589			$	543			$	317			$	2,520			$	101,570			$	1			$	108,496
Nonperforming			-				7				-				-				6				996				-				-				1,009
Total		$	2,076			$	887			$	589			$	543			$	323			$	3,516			$	101,570			$	1			$	109,505
Current period gross charge-offs		$	-			$	13			$	27			$	-			$	-			$	38			$	29			$	-			$	107
Total																			-
Payment Performance
Performing		$	16,550			$	28,206			$	91,588			$	47,728			$	29,379			$	112,280			$	130,872			$	420			$	457,023
Nonperforming			-				7				382				751				552				2,188				-				-				3,880
Total		$	16,550			$	28,213			$	91,970			$	48,479			$	29,931			$	114,468			$	130,872			$	420			$	460,903

86

Index

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of December 31, 2025 and 2024 (in thousands):

																						Total
		30-59 Days				60-89 Days				90 Days				Total Past								Loans
December 31, 2025		Past Due				Past Due				Or Greater				Due				Current				Receivables
Real estate loans:
Mortgages		$	2,737			$	1,073			$	1,675			$	5,485			$	283,179			$	288,664
Home Equity			146				17				181				344				51,964				52,308
Commercial			1,733				2,695				9,871				14,299				1,204,215				1,218,514
Agricultural			1,020				158				1,982				3,160				344,288				347,448
Construction			-				233				283				516				93,449				93,965
Consumer			161				148				785				1,094				87,116				88,210
Other commercial loans			256				49				7,500				7,805				171,361				179,166
Other agricultural loans			17				-				403				420				29,827				30,247
State and political subdivision loans			-				-				-				-				52,100				52,100
Total		$	6,070			$	4,373			$	22,680			$	33,123			$	2,317,499			$	2,350,622
Loans considered non-accrual		$	396			$	778			$	22,451			$	23,625			$	2,977			$	26,602
Loans still accruing			5,674				3,595				229				9,498				2,314,522				2,324,020
Total		$	6,070			$	4,373			$	22,680			$	33,123			$	2,317,499			$	2,350,622
December 31, 2024
Real estate loans:
Mortgages		$	1,464			$	227			$	1,605			$	3,296			$	298,439			$	301,735
Home Equity			138				170				148				456				49,207				49,663
Commercial			2,782				1,360				6,528				10,670				1,110,765				1,121,435
Agricultural			1,569				140				1,845				3,554				324,168				327,722
Construction			1,119				-				283				1,402				162,924				164,326
Consumer			292				20				1,009				1,321				108,184				109,505
Other commercial loans			478				282				2,336				3,096				151,916				155,012
Other agricultural loans			403				-				-				403				29,259				29,662
State and political
subdivision loans			-				-				-				-				54,182				54,182
Total		$	8,245			$	2,199			$	13,754			$	24,198			$	2,289,044			$	2,313,242
Loans considered non-accrual		$	2,428			$	-			$	13,478			$	15,906			$	9,795			$	25,701
Loans still accruing			5,817				2,199				276				8,292				2,279,249				2,287,541
Total		$	8,245			$	2,199			$	13,754			$	24,198			$	2,289,044			$	2,313,242

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers in financial distress by providing 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 losses.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

87

Index

The following table shows the amortized cost basis, by class of loans receivable, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during 2025, 2024 and 2023 (dollars in thousands):

		For the year ended December 31, 2025
		Number of loans				Amortized Cost Basis				% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1			$	108				0.04	%
Commercial			7				13,275				1.09	%
Other commercial loans			1				178				0.10	%
Total			9			$	13,561
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			4			$	1,369				0.11	%
Agricultural			1				219				0.06	%
Total			5			$	1,588

		For the year ended December 31, 2024
		Number of loans				Amortized Cost Basis				% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1			$	12				0.00	%
Total			1			$	12
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Other commercial loans			1			$	149				0.11	%
Total			1			$	149

		For the year ended December 31, 2023
		Number of loans				Amortized Cost Basis				% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1			$	126				0.04	%
Commercial			4				1,142				0.10	%
Agricultural			3				688				0.22	%
Other commercial loans			1				610				0.45	%
Total			9			$	2,566
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1			$	315				0.10	%
Commercial			3				261				0.02	%
Other commercial loans			5				1,108				0.81	%
Total			9			$	1,684

The following table shows, by class of loans receivable, information regarding the financial effect on accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during 2025, 2024 and 2023:

For the year ended December 31, 2025
Term Extension
Loan Type		Number of loans			Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1		Extended the loan maturity 5 years with a 30 year amortization
Commercial			7		Extended the loan maturity one year
Other commercial loans			1		Extended the loan maturity 10 years as termed out or line of credit
Total			9
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			4		Extended the loan maturity 5 years with 3 loans having a 30 year amortization and one loan having a 20 year amortization
Agricultural			1		Extended the loan maturity 5 years with amortization of 12 years
Total			5

For the year ended December 31, 2024
Term Extension
Loan Type		Number of loans			Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1		Extended the loan maturity 4 months
Total			1
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Other commercial loans			1		Extended the loan maturity 120 months
Total			1

For the year ended December 31, 2023
Term Extension
Loan Type		Number of loans			Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1		Extended the loan maturity 4 months
Commercial			4		Extended the weighted average loan maturity 4 months
Agricultural			3		Extended the weighted average loan maturity 5 months
Other commercial loans			1		Extended the loan maturity 60 months
Total			9
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages			1		Extended the loan maturing 10 months
Commercial			3		Extended the weighted average loan maturity 5 months
Other commercial loans			5		Extended the weighted average loan maturity 13 months
Total			9

There were no accruing or nonaccrual modified loans to borrowers experiencing financial difficulty that were modified during 2025 for which there were payment defaults after the modification date for 2025.

The following presents, by class of loans, the amortized cost and payment status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty at December 31, 2025 (in thousands):

						30-89 Days				90 Days
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty		Current				Past Due				Or Greater				Total
Real estate loans:
Mortgages		$	108			$	-			$	-			$	108
Commercial			13,275				-				-				13,275
Other commercial loans			178				-				-				178
Total		$	13,561			$	-			$	-			$	13,561
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		$	1,369			$	-			$	-			$	1,369
Agricultural			219				-				-				219
Total		$	1,588			$	-			$	-			$	1,588

88

Index

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of December 31, 2025 and 2024, included with other assets are $2,358,000 and $2,635,000, respectively, of foreclosed assets. As of December 31, 2025, there are no consumer residential mortgages included within the foreclosed assets. As of December 31, 2025, the Company has initiated formal foreclosure proceedings on $617,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

6. PREMISES & EQUIPMENT

Premises and equipment at December 31, 2025 and 2024 are summarized as follows (in thousands):

		December 31,
		2025				2024
Land		$	5,839			$	5,839
Buildings			22,970				23,012
Furniture, fixtures and equipment			9,439				9,047
Construction in process			1,999				2,172
			40,247				40,070
Less: accumulated depreciation			19,249				18,675
Premises and equipment, net		$	20,998			$	21,395

Depreciation expense amounted to $1,625,000, $1,242,000 and $1,147,000 for 2025, 2024 and 2023, respectively.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table provides the gross carrying value and accumulated amortization of intangible assets as of December 31, 2025 and 2024 (in thousands):

		December 31, 2025												December 31, 2024
		Gross carrying value				Accumulated amortization				Net carrying value				Gross carrying value				Accumulated amortization				Net carrying value
Amortized intangible assets (1):
MSRs		$	2,362			$	(1,793	)		$	569			$	2,478			$	(1,717	)		$	761
Core deposit intangibles			3,072				(1,420	)			1,652				4,713				(2,582	)			2,131
Total amortized intangible assets		$	5,434			$	(3,213	)		$	2,221			$	7,191			$	(4,299	)		$	2,892
Unamortized intangible assets:
Goodwill		$	85,758											$	85,758

(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for the next five years of amortized intangible assets (in thousands). We based our projections of amortization expense shown below on existing asset balances at December 31, 2025. Future amortization expense may vary from these projections:

		MSRs				Core deposit intangibles				Total
Year ended December 31, 2025		$	266			$	478			$	744
Estimate for year ending December 31,
2026			205				395				600
2027			150				339				489
2028			103				284				387
2029			67				230				297
2030			33				177				210
2031 and thereafter			11				227				238
Total			569				1,652				2,221

89

Index

8. FEDERAL HOME LOAN BANK STOCK

As a member of the FHLB of Pittsburgh, the Bank is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of December 31, 2025, and 2024, included in other assets, the Bank held $16,745,000 and $14,524,000, respectively, of FHLB stock. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated by management.  The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) A significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  Management considered that the FHLB’s regulatory capital ratios are strong, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend.

9. DEPOSITS

The following table shows the breakdown of deposits as of December 31, 2025 and 2024, by deposit type (in thousands):

		2025				2024
Non-interest-bearing deposits		$	516,657			$	532,776
Interest bearing demand deposits			25,576				18,004
NOW accounts			593,825				581,673
Savings deposits			286,554				292,918
Money market deposit accounts			480,509				434,856
Certificates of deposit			473,858				521,801
Total		$	2,376,979			$	2,382,028

Certificates of deposit of $250,000 or more amounted to $138,366,000 and $191,015,000 at December 31, 2025 and 2024, respectively. Brokered deposits totaled $60,000,000 and $93,055,000 as of December 31, 2025 and 2024, respectively.

The following are maturities of certificates of deposit as of December 31, 2025 (in thousands):

2026		$	366,083
2027			56,357
2028			26,605
2029			11,369
2030			8,087
Thereafter			5,357
Total certificates of deposit		$	473,858

10. BORROWED FUNDS AND REPURCHASE AGREEMENTS

The following table shows the breakdown of borrowed funds as of December 31, 2025 and 2024 (dollars in thousands):

														Weighted average interest rate:
2025		Balance at December 31				Highest balance at any month-end				Average balance				Paid during the year				As of year-end
Securities Sold Under Agreements to Repurchases (a)		$	15,497			$	18,997			$	16,891				3.89	%			3.37	%
FHLB Advances(b)			160,483				236,253				193,712				4.64	%			3.93	%
Bank Federal Funds Lines I			-				-				1				4.63	%			0.00	%
FRB BIC Line (d)			-				-				91				4.48	%			0.00	%
Line of Credit I			-				7,072				2,012				8.56	%			0.00	%
Other Secured Borrowings (g)			3,320				6,540				4,705				4.25	%			3.64	%
Subordinated Debt (h)			19,648				19,648				19,447				6.29	%			6.22	%
Notes Payable (i)			7,500				7,500				7,500				3.57	%			3.57	%
Term Loans (j)			103,000				134,536				81,667				3.19	%			3.91	%
Total Borrowed Funds		$	309,448			$	430,546			$	326,026				4.33	%			4.03	%

90

Index

														Weighted average interest rate:
2024		Balance at December 31				Highest balance at any month-end				Average balance				Paid during the year				As of year-end
Securities Sold Under Agreements to Repurchases (a)		$	17,338			$	17,921			$	16,768				4.79	%			4.06	%
FHLB Advances(b)			135,144				199,789				147,727				5.64	%			4.71	%
Bank Federal Funds Lines I			-				-				1				5.66	%			0.00	%
FRB BIC Line (d)			-				-				99				5.50	%			0.00	%
Line of Credit I			7,572				12,572				10,467				8.71	%			7.76	%
FRB Term Funding Program (f)			-				20,000				15,137				4.85	%			0.00	%
Other Secured Borrowings (g)			6,540				12,060				9,281				5.24	%			4.33	%
Subordinated Debt (h)			19,277				19,276				19,090				6.25	%			6.11	%
Notes Payable (i)			7,500				7,500				7,500				3.65	%			3.65	%
Term Loans (j)			104,350				109,170				97,339				2.88	%			4.45	%
Total Borrowed Funds		$	297,721			$	398,288			$	323,409				4.80	%			4.73	%

(a)   We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The collateral pledged on the repurchase agreements by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 is presented in the following tables (in thousands).

		Remaining Contractual Maturity of the Agreements
		Overnight and				Up to								Greater than
2025		Continuous				30 Days				30 – 90 Days				90 days				Total
Repurchase Agreements:
U.S. agency securities		$	21,977			$	-			$	-			$	-			$	21,977
Total carrying value of collateral pledged		$	21,977			$	-			$	-			$	-			$	21,977
Total liability recognized for repurchase agreements																		$	15,497
2024
Repurchase Agreements:
U.S. agency securities		$	21,364			$	-			$	-			$	-			$	21,364
Total carrying value of collateral pledged		$	21,364			$	-			$	-			$	-			$	21,364
Total liability recognized for repurchase agreements																		$	17,338

(b)   FHLB Advances consist of an “Open RepoPlus” agreement with the FHLB of Pittsburgh. FHLB “Open RepoPlus” advances are short-term borrowings that bear interest based on the FHLB discount rate or Federal Funds rate, whichever is higher.  The Company has a borrowing limit of $1,115,189,000, inclusive of any outstanding advances and letters of credit. FHLB advances are secured by a blanket security agreement that includes the Company’s FHLB stock, as well as certain investment and mortgage-backed securities held in safekeeping at the FHLB and certain residential and commercial mortgage loans.  A portion of these advances, $28,000,000, are subject to interest rate swap arrangements as of December 31, 2025. See Note 18 for additional information.

(c)   The federal funds lines consist of unsecured lines from two third party banks at market rates.  The Bank has a borrowing limit totaling $34,000,000, inclusive of any outstanding balances.  No specific collateral is required to be pledged for these borrowings.

(d)   The Federal Reserve Bank Borrower in Custody (FRB BIC) Line consists of a borrower in custody agreement opened in January 2010 with the Federal Reserve Bank of Philadelphia secured by municipal loans maintained in the Company’s possession.  As of December 31, 2025, and 2024, the Company has a borrowing limit of $11,798,000 and $14,353,000, respectively, inclusive of any outstanding advances. The approximate carrying value of the municipal loan collateral was $21,827,000 and $25,750,000 as of December 31, 2025 and 2024, respectively.

(e)   The Company renewed a $15.0 million revolving line of credit in December 2025 with an unaffiliated bank with a maturity date of January 1, 2027, subject to certain covenants. The line is subject to an unused fee on the unborrowed portion of the Line of Credit on a quarterly basis, equal to 0.25% of the unused amount of the Line of Credit, calculated on a pro-rata basis, payable within thirty (30)-days after the end of each calendar quarter. Interest on outstanding borrowings is payable at 3 month term SOFR plus 300 bps. No specific collateral is required to be pledged for these borrowings.

91

Index

(f)   The Federal Reserve’s Bank Term Funding Program (BTFP) consisted of a loan agreement opened in the second quarter of 2023 with the Federal Reserve Bank of Philadelphia secured by US treasury and SBA securities. The BTFP offered loans of up to one year in length. The loan was repaid and closed in the fourth quarter of 2024.

(g)  The Company entered into an agreement with a counterparty that provides for the Company the right to obtain collateral from the counterparty depending on the value of the underlying derivative instrument. The value of the collateral obtained can fluctuate daily. A market interest rate is required to be paid on any collateral held. As of December 31, 2025, the Company is holding $3,320,000 of collateral, which is included in cash and cash equivalents on the Consolidated Balance sheet.

(h)   In April 2021, the Company issued $10.0 million of fixed to floating rate subordinated notes that mature on April 16, 2031, unless redeemed earlier. The notes bear interest at 4% per annum through April 16, 2026 and subsequently pay interest at the 90-day average secured overnight financing rate, determined on the determination date of the applicable interest period, plus 323 basis points. The Company may redeem the notes, in whole or in part, on or after April 16, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Issuance costs associated with the notes totaled $131,000 and were capitalized and will be amortized over the life of the note on a straight-line basis, which approximates the effective yield method. As of December 31, 2025, the net unamortized issuance costs totaled $69,000. As part of the HVBC acquisition, the Company acquired a subordinated note issued by HVBC with a par value of $10.0 million and a fair market value of $8,873,000 on the date of acquisition. This note has a maturity date of May 28, 2031, and has a coupon rate of 4.50% per annum through May 28, 2026. Thereafter, the note rate is adjustable and resets quarterly based on the then current 90-day average Secured Overnight Financing Rate (“SOFR”) plus 325 basis points for U.S. dollar denominated loans as published by the Federal Reserve Bank of New York. The Company may, at its option, at any time on an interest payment date, on or after May 28, 2026, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption. The carrying value of the note as of December 31, 2025 and 2024 was $9,717,000 and  $9,358,000, respectively.

(i)    In December 2003, the Company formed a special purpose entity (“Entity”) to issue $7,500,000 of floating rate obligated mandatory redeemable trust preferred securities as part of a pooled offering.  The rate was determined quarterly and floated based on the 3-month SOFR plus 2.80 percent.   The Entity may redeem them, in whole or in part, at face value after December 17, 2008, and on a quarterly basis thereafter.  The Company borrowed the proceeds of the issuance from the Entity in December 2003 in the form of a $7,500,000 note payable.  Debt issue costs of $75,000 have been capitalized and fully amortized as of December 31, 2008.  Under current accounting rules, the Company’s minority interest in the Entity was recorded at the initial investment amount and is included in the other assets section of the balance sheet.  The Entity is not consolidated as part of the Company’s consolidated financial statements. The $7,500,000 note payable is subject to an interest rate swap arrangement. See Note 18 for additional information.

(j)    Term Loans consist of separate loans with the FHLB of Pittsburgh as follows (dollars in thousands):

					December 31,				December 31,
Interest Rate			Maturity		2025				2024
Fixed:
	4.14%		January 2, 2026			10,000				-
	4.15%		February 13, 2026			18,000				-
	3.82%		January 30, 2026			75,000				-
	4.92%		January 2, 2025			-				25,000
	4.76%		February 14, 2025			-				18,000
	5.05%		January 6, 2025			-				20,000
	4.47%		May 12, 2025			-				10,000
	5.03%		July 7, 2025			-				26,350
	4.32%		November 12,2025			-				5,000
Total term loans					$	103,000			$	104,350

92

Index

The following are maturities of borrowed funds as of December 31, 2025 (in thousands):

2026		$	282,300
2027			-
2028			-
2029			-
2030			-
Thereafter			27,148
Total borrowed funds		$	309,448

11. EMPLOYEE BENEFIT PLANS

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed, noncontributory defined benefit pension plan covering substantially all employees and officers hired prior to January 1, 2007.  The pension plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the pension plan. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the pension plans’ actuary. The Bank did not make any contributions to the pension plans in 2025, 2024 or 2023.

In lieu of the pension plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation.  The contribution amount is placed in a separate account within the 401(k) plan and is subject to a vesting requirement. Contributions by the Company totaled $618,000, $539,000 and $354,000 for 2025, 2024 and 2023, respectively.

The following table sets forth the obligation and funded status of the pension plan as of December 31 (in thousands):

		2025				2024
Change in benefit obligation
Benefit obligation at beginning of year		$	8,871			$	9,556
Service cost			274				329
Interest cost			452				422
Actuarial (Gain) / Loss			307				(395	)
Settlement gain			-				(18	)
Benefits paid			(944	)			(1,023	)
Benefit obligation at end of year			8,960				8,871
Change in plan assets
Fair value of plan assets at beginning of year			11,726				11,662
Actual return (loss) on plan assets			1,110				1,087
Employer contribution			-				-
Plan expenses			-				-
Benefits paid			(944	)			(1,023	)
Fair value of plan assets at end of year			11,892				11,726
Funded status		$	2,932			$	2,855

Amounts not yet recognized as a component of net periodic pension cost as of December 31 (in thousands):

Amounts recognized in accumulated other comprehensive loss consists of:		2025				2024
Net loss		$	376			$	385
Prior service cost			-				-
Total		$	376			$	385

The accumulated benefit obligation for the defined benefit pension plan was $8,960,000 and $8,871,000 at December 31, 2025 and 2024 respectively.

93

Index

The components of net periodic benefit costs for the years ended December 31 are as follows (in thousands):

		2025				2024				2023
Service cost		$	274			$	329			$	306
Interest cost			452				422				433
Return on plan assets			(794	)			(791	)			(769	)
Settlement loss			-				104				-
Net amortization and deferral			-				33				41
Net periodic benefit (income) cost		$	(68	)		$	97			$	11

The Company does not expect to amortize any estimated net loss from accumulated other comprehensive loss into the net periodic benefit cost (income) in 2026.

The weighted-average assumptions used to determine benefit obligations at December 31, 2025, 2024 and 2023 is summarized in the following table. The change in the discount rate is the primary driver of the actuarial loss that occurred in 2025 of $307,000.

		2025				2024				2023
Discount rate FCCB Plan			5.00	%			5.25	%			4.50	%
Rate of compensation increase			3.00	%			3.00	%			3.00	%

The weighted-average assumptions used to determine net periodic benefit cost (income) for the year ended December 31, 2025, 2024 and 2023 is summarized in the following table.

		2025				2024				2023
Discount rate FCCB Plan			5.25	%			4.50	%			4.75	%
Expected long-term return on plan assets FCCB plan			7.00	%			7.00	%			7.00	%
Rate of compensation increase			3.00	%			3.00	%			3.00	%

The long-term rate of return on plan assets gives consideration to returns currently being earned on plan assets as well as future rates expected to be earned.  The investment objective is to maximize total return consistent with the interests of the participants and beneficiaries, and prudent investment management.  The allocation of the pension plan assets is determined on the basis of sound economic principles and is continually reviewed in light of changes in market conditions.  Asset allocation favors equity securities, with a target allocation of 50-70%.  The target allocation for debt securities is 30-50%.  At December 31, 2025, the pension plan had a sufficient cash and money market position in order to re-allocate the equity portfolio for diversification purposes and reduce risk in the total portfolio.  The following table sets forth by level, within the fair value hierarchy as defined in footnote 20, the Plan’s assets at fair value as of December 31, 2025 and 2024 (dollars in thousands):

2025		Level I				Level II				Level III				Total				Allocation
Cash and cash equivalents		$	362			$	-			$	-			$	362				3.0	%
Equity Securities			671				-				-				671				5.6	%
Mutual Funds and ETF’s			7,804				-				-				7,804				65.6	%
Corporate Bonds			-				3,055				-				3,055				25.8	%
Total		$	8,837			$	3,055			$	-			$	11,892				100.0	%

2024		Level I				Level II				Level III				Total				Allocation
Cash and cash equivalents		$	312			$	-			$	-			$	312				2.7	%
Equity Securities			5,902				-				-				5,902				50.3	%
Mutual Funds and ETF’s			3,025				-				-				3,025				25.8	%
Corporate Bonds			-				2,487				-				2,487				21.2	%
Total		$	9,239			$	2,487			$	-			$	11,726				100.0	%

Equity securities include the Company’s common stock in the amounts of $671,000 (5.6% of total plan assets) and $737,000 (6.3% of total plan assets) at December 31, 2025 and 2024, respectively.

94

Index

The Bank does not expect to make a contribution to its pension plan in 2026.  Expected future benefit payments that the Bank estimates from its pension plan are as follows (in thousands):

2026		$	1,141
2027			956
2028			684
2029			608
2030			274
2031- 2035			5,911

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k).  Under the plan, the Company also makes required contributions on behalf of the eligible employees.  The Company’s contributions vest immediately.  Contributions by the Company totaled $903,000, $898,000 and $769,000 for 2025, 2024 and 2023, respectively.

Directors’ Deferred Compensation Plan

The Company’s directors may elect to defer all or portions of their fees until their retirement or termination from service.  Amounts deferred under the deferred compensation plan earn interest based upon the highest current rate offered to certificate of deposit customers.  Amounts deferred under the deferred compensation plan are not guaranteed and represent a general liability of the Company.  As of December 31, 2025, and 2024, an obligation of $648,000 and $626,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $26,000, $30,000 and $27,000 for the years ended December 31, 2025 2024 and 2023, respectively.

Restricted Stock Plan

 

The Company maintains a Restricted Stock Plan (“the Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company’s common stock and may be subject to certain vesting requirements including in the case of employees, continuous employment or service with the Company.  In April 2016, the Company’s stockholders authorized a total of 150,000 shares of the Company’s common stock to be made available under the Plan. As of December 31, 2025, 99,781 shares remain available to be issued under the Plan. The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation. The following table details the vesting, awarding and forfeiting of unearned restricted shares during 2025:

		2025
						Weighted
						Average
		Shares				Market Price
Outstanding, beginning of year			10,927			$	53.81
Granted			4,431				57.28
Forfeited			(1,162	)			49.83
Vested			(5,682	)			56.23
Outstanding, end of year			8,514			$	54.54

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period.  Compensation expense related to restricted stock was $291,000, $264,000 and $239,000 for the years ended December 31, 2025, 2024 and 2023, respectively. The per share weighted-average grant-date fair value of restricted shares granted during 2025, 2024 and 2023 was $57.28, $45.59 and $77.77, respectively.  At December 31, 2025, the total compensation cost related to nonvested awards that has not yet been recognized was $464,000, which is expected to be recognized over the next 3 years.

95

Index

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan (“SERP”) for certain executives to compensate those executive participants in the Company’s noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law.  At December 31, 2025 and 2024, an obligation of $2,367,000 and $2,131,000, respectively, for the SERP was included in other liabilities in the Consolidated Balance Sheet.  Expenses related to the SERP totaled $278,000, $124,000 and $233,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Benefit payments for 2025, 2024 and 2023 were $42,000, $889,000 and $42,000, respectively.

Deferred Compensation Plan

In 2018, the Company initiated a non-qualified executive deferred compensation plan for eligible employees designated by the Board of Directors.  At December 31, 2025 and 2024, an obligation of $2,037,000 and $1,757,000, respectively, was included in other liabilities for the deferred compensation plan in the Consolidated Balance Sheet. Expenses related to the deferred compensation plan totaled $302,000, $254,000 and $268,000 for the years ended December 31, 2025, 2024 and 2023, respectively. There were no benefit payments in 2025, 2024 and 2023. Benefit payments related to the deferred compensation plan totaled $22,000 for the year ended December 31, 2025. There were no benefit payments made in 2024 or 2023.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan (“ESPP”) in which most employees are eligible to participate. Employees in the United States who choose to participate are granted an opportunity to purchase common stock at 95 percent of market value on the last day of the quarterly purchase period. The ESPP authorizes the issuance, and the purchase by employees, of up to 100,000 shares of common stock through payroll deductions. No employee is allowed to buy more than $25,000 of common stock in any year, based on the market value of the common stock at the beginning of the purchase period. Employees purchased 1,157 shares at a weighted average price of $59.16 under the ESPP during 2025. During 2024, employees purchased 234 shares at a weighted average price of $70.61 under the ESPP. At December 31, 2025, 98,609 shares remained available to be issued through the ESPP.

Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees acquired through the acquisition of FNB.  At December 31, 2025 and 2024 an obligation of $471,000 and $525,000 respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet.  Expenses related to the salary continuation plan totaled $37,000, $41,000 and  $44,000 for the years ended December 31, 2025, 2024 and 2023, respectively. Benefit payments related to the salary continuation plan totaled $91,000, $91,000 and $87,000 for the years ended December 31, 2025, 2024 and 2023, respectively.

Continuation of Life Insurance Plan

The Company has promised a continuation of life insurance coverage to certain persons post-retirement. GAAP requires the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person’s term of service. The estimated present value of future benefits to be paid totaled $529,000 and $514,000 at December 31, 2025 and 2024, respectively, which is included in other liabilities in the Consolidated Balance Sheet. (Benefits)/Expenses for the plan totaled $51,000, ($96,000) and ($50,000) for the years ended December 31, 2025, 2024 and 2023, respectively.

12. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

		Year Ended December 31,
		2025				2024				2023
Currently payable		$	7,869			$	4,294			$	3,169
Deferred			797				1,771				595
Provision for income taxes		$	8,666			$	6,065			$	3,764

96

Index

The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2025 and 2024, respectively (in thousands):

		2025				2024
Deferred tax assets:
Allowance for credit losses		$	5,439			$	5,449
Deferred compensation			704				648
Allowance for losses on available-for-sale securities			112				130
Interest on non-accrual loans			1,886				1,588
Incentive plan accruals			684				682
Other real estate owned			16				16
Unrealized losses on available-for-sale securities			3,733				7,061
Low income housing tax credits			-				15
NOL carry forward			898				1,458
Non-PCD loan interest rate			3,575				4,200
Right of use asset			2,263				2,120
Accrued vacation			301				308
Other			429				334
Total		$	20,040			$	24,009
Deferred tax liabilities:
Premises and equipment		$	(926	)		$	(745	)
Investment securities accretion			(652	)			(611	)
Loan fees and costs			(1,056	)			(933	)
Goodwill and core deposit intangibles			(2,736	)			(2,804	)
Pension and other retirement obligation			(119	)			(152	)
Low income housing tax credits			(17	)			-
Mortgage servicing rights			(120	)			(160	)
Unrealized gains on equity securities			(21	)			(3	)
Unrealized gains on interest rate swap			(522	)			(890	)
Borrowings fair value adjustment			(59	)			(254	)
Right of use asset			(2,226	)			(2,093	)
Other			(146	)			(165	)
Total			(8,600	)			(8,810	)
Deferred tax (liability) asset, net		$	11,440			$	15,199

No valuation allowance was established at December 31, 2025 and 2024, due to the certain tax strategies and anticipated future taxable income as evidenced by the Company’s expected earnings potential.

The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

		Year Ended December 31,
		2025								2024								2023
Provision at statutory rates on pre-tax income		$	9,500				21.0	%		$	7,115				21.0	%		$	4,531				21.0	%
Effect of tax-exempt income			(934	)			-2.1	%			(854	)			-2.5	%			(895	)			-4.1	%
State and local income taxes, net of federal income tax benefit (a)			150				0.3	%			172				0.5	%			62				0.3	%
Low income housing tax credits			(820	)			-1.8	%			(688	)			-2.1	%			(585	)			-2.8	%
Low income housing expense			755				1.7	%			339				1.0	%			399				1.8	%
Bank owned life insurance			(301	)			-0.7	%			(354	)			-1.0	%			(263	)			-1.2	%
Nondeductible interest			290				0.7	%			308				0.9	%			251				1.2	%
Nondeductible merger and acquisition expenses			-				0.0	%			-				0.0	%			247				1.1	%
Other items			26				0.1	%			27				0.1	%			17				0.1	%
Provision for income taxes		$	8,666				19.2	%		$	6,065				17.9	%		$	3,764				17.4	%

(a) Taxes in New York and New Jersey make up the majority of the effect of the state and local tax category.

Income taxes paid for 2025, 2024 and 2023 were $6,590,000, $2,826,000 and $5,130,000, respectively. The following table provides a breakdown of the payments by taxing entity as well as the 5% threshold used to determine whether further disaggregation of information is required (dollars in thousands):

Taxes Paid		2025				2024				2023
U.S. Federal Taxes		$	6,500			$	2,500			$	5,100
State and Local Taxes
New Jersey			35				320				-
New York			55				6				30
Total income taxes paid		$	6,590			$	2,826			$	5,130
Threshold %			5	%			5	%			5	%
Threshold amount		$	330			$	141			$	257

97

Index

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2021 have been closed for purposes of examination by the federal and state taxing authorities.

13.  AFFORDABLE HOUSING PROJECTS TAX CREDIT PARTNERSHIPS

The Company makes equity investments in various limited partnerships or limited liability companies that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code.  The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act.  The primary activities of these entities include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.  Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner or non-managing member in each LIHTC limited partnership or limited liability company, respectively.  Each of these entities is managed by an unrelated third-party general partner or managing member who exercises significant control over the affairs of the entity.  The general partner or managing member has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership or managing member of a limited liability company.  Duties entrusted to the general partner or managing member include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds.  Except for limited rights granted to the limited partner(s) or non-managing member(s) relating to the approval of certain transactions, the limited partner(s) and non-managing members may not participate in the operation, management, or control of the entity’s business, transact any business in the entity’s name or have any power to sign documents for or otherwise bind the entity.  In addition, the general partner or managing member may only be removed by the limited partner(s) or managing member(s) in the event of a failure to comply with the terms of the agreement or negligence in performing its duties.

The general partner or managing member of each entity has both the power to direct the activities which most significantly affect the performance of each entity and the obligation to absorb losses or the right to receive benefits that could be significant to the entities.  Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC entity.  The Company uses the effective yield method to account for its pre-2015 investments in these entities.  Beginning January 1, 2015, any new investments that meet the requirements of the proportional amortization method are recognized using the proportional amortization method.  The Company’s net affordable housing tax credit investments were $7,139,000 and $7,915,000 as of December 31, 2025 and 2024, respectively, and are included in other assets in the consolidated balance sheet. The Company’s net affordable housing tax credit unfunded commitments were $1,539,000 and $5,997,000 as of December 31, 2025 and 2024, respectively, and are included in other liabilities in the consolidated balance sheet. All partnerships entered into prior to 2015 were fully amortized as of December 31, 2022.

Unfunded Commitments

As of December 31, 2025, the expected payments for unfunded affordable housing commitments were as follows (in thousands):

2026		$	605
2027			491
2028			296
2029			12
2030			14
Thereafter			121
		$	1,539

98

Index

The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the years ended December 31, 2025, December 31, 2024, and December 31, 2023 (in thousands).

		2025				2024				2023
Proportional Amortization Method
Tax credits and other tax benefits recognized		$	971			$	976			$	948
Amortization Expense in Provision for Income Taxes			776				627				762

There were no impairment losses related to LIHTC investments for the years ended December 31, 2025, December 31, 2024, and December 31, 2023.

14. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss, net of tax, as of December 31, were as follows (in thousands):

		2025				2024
Net unrealized gain on securities available for sale		$	(17,778	)		$	(33,624	)
Tax effect			3,733				7,060
Net -of-tax amount			(14,045	)			(26,564	)
Unrealized loss on interest rate swap			2,486				4,236
Tax effect			521				889
Net -of-tax amount			1,965				3,347
Unrecognized pension costs			(376	)			(385	)
Tax effect			79				81
Net -of-tax amount			(297	)			(304	)
Total accumulated other comprehensive income		$	(12,377	)		$	(23,521	)

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the years ended December 31, 2025, 2024 and 2023 (in thousands):

		Unrealized gain (loss) on available for sale securities (a)				Unrealized gain (loss) on interest rate swap (a)				Defined Benefit Pension Items (a)				Total
Balance as of December 31, 2022		$	(37,514	)		$	5,429			$	(1,056	)		$	(33,141	)
Other comprehensive income (loss) before reclassifications (net of tax)			9,237				610				52				9,899
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)			39				(1,740	)			32				(1,669	)
Net current period other comprehensive income (loss)			9,276				(1,130	)			84				8,230
Balance as of December 31, 2023		$	(28,238	)		$	4,299			$	(972	)		$	(24,911	)
Balance as of December 31, 2023		$	(28,238	)		$	4,299			$	(972	)		$	(24,911	)
Other comprehensive income (loss) before reclassifications (net of tax)			1,674				1,036				642				3,352
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)			-				(1,988	)			26				(1,962	)
Net current period other comprehensive income (loss)			1,674				(952	)			668				1,390
Balance as of December 31, 2024		$	(26,564	)		$	3,347			$	(304	)		$	(23,521	)
Balance as of December 31, 2024		$	(26,564	)		$	3,347			$	(304	)		$	(23,521	)
Other comprehensive income (loss) before reclassifications (net of tax)			12,519				(13	)			7				12,513
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)			-				(1,369	)			-				(1,369	)
Net current period other comprehensive income (loss)			12,519				(1,382	)			7				11,144
Balance as of December 31, 2025		$	(14,045	)		$	1,965			$	(297	)		$	(12,377	)

(a) Amounts in parentheses indicate debits

99

Index

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Details about accumulated other comprehensive income (loss)		Amount reclassified from accumulated comprehensive income (loss) (a)											Affected line item in the Consolidated Statement of Income
		December 31,
		2025				2024				2023
Unrealized gains and losses on available for sale securities
		$	-			$	-			$	(51	)	Available for sale securities (losses) gains, net
			-				-				12		Provision for income taxes
		$	-			$	-			$	(39	)	Net of tax
Unrealized gain (loss) on interest rate swap		$	1,733			$	2,516			$	2,203		Interest expense
			(364	)			(528	)			(463	)	Provision for income taxes
		$	1,369			$	1,988			$	1,740		Net of tax
Defined benefit pension items
		$	-			$	(33	)		$	(41	)	Other expenses
			-				7				9		Provision for income taxes
		$	-			$	(26	)		$	(32	)	Net of tax
Total reclassifications		$	1,369			$	1,962			$	1,669

(a) Amounts in parentheses indicate debits

15. RELATED PARTY TRANSACTIONS

Certain executive officers and directors of the Company, or companies in which they have 10 percent or more beneficial ownership, were indebted to the Bank. A summary of loan activity for the years ended December 31, 2025 and 2024 with officers, directors, stockholders and associates of such persons is listed below (in thousands):

		Year Ended December 31,
		2025				2024
Balance, beginning of year		$	10,985			$	12,915
New loans			3,444				3,388
Repayments			(4,267	)			(5,318	)
Balance, end of year		$	10,162			$	10,985
letter of credits		$	-			$	10

16. REGULATORY MATTERS

Dividend Restrictions:

The approval of the Federal Reserve Board (“FRB”) is required for the Bank to pay dividends to the Company if the total of all dividends declared in any calendar year exceeds the Bank’s net income (as defined) for that year combined with its retained net income for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2026 without approval of the FRB or Pennsylvania Department of Banking of approximately $31,723,000, plus the Bank’s 2026 year-to-date net income at the time of the dividend declaration.

Loans:

The Bank is subject to regulatory restrictions which limit its ability to loan funds to the Company.  At December 31, 2025, the Bank’s regulatory lending limit amounted to approximately $46,266,000.

100

Index

Regulatory Capital Requirements:

Federal regulations require the Bank to maintain minimum amounts of capital. Specifically, the Bank is required to maintain certain minimum dollar amounts and ratios of Total, Tier I and Common Equity Tier I capital to risk-weighted assets and of Tier I capital to average total assets.

In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital categories ranging from “well capitalized” to “critically under-capitalized.” Should any institution fail to meet the requirements to be considered “adequately capitalized”, it would become subject to a series of increasingly restrictive regulatory actions.

As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the “CBLR”) framework for determining its capital adequacy.  Under the CBLR framework a qualifying community bank is considered well-capitalized if its leverage ratio (Tier 1 capital divided by average total consolidated assets) exceeds 9%. If a qualifying community bank’s leverage ratio falls below 9%, then it will have two calendar quarters to return to 9%, subject to the qualifying community bank utilizing the grace period must maintain a CBLR of at least 8%. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At December 31, 2025, the Bank was considered “well-capitalized” under the CBLR framework, with a leverage ratio of 9.54%. At December 31, 2024, the Bank leverage ratio under the CBLR framework was 8.99%, which is less than the 9.0% requirement to be considered “well-capitalized” under the CBLR. As such, as of December 31, 2024, the Bank reverted to the prompt corrective action framework. The following table provides the Bank’s computed risk‑based capital ratios as of December 31, 2024, which reflects the Bank being well capitalized on that date (dollars in thousands):

		Actual								For Capital Adequacy Purposes								To Be Well Capitalized Under Prompt Corrective Action Provisions
2024		Amount				Ratio				Amount				Ratio				Amount				Ratio
Total Capital (to Risk Weighted Assets):
Company		$	284,931				11.88	%		$	191,824				8.00	%		$	239,780				10.00	%
Bank		$	287,020				11.99	%		$	191,501				8.00	%		$	239,376				10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company		$	243,761				10.17	%		$	143,868				6.00	%		$	191,824				8.00	%
Bank		$	265,207				11.08	%		$	143,625				6.00	%		$	191,501				8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company		$	236,261				9.86	%		$	107,901				4.50	%		$	155,857				6.50	%
Bank		$	265,207				11.08	%		$	107,719				4.50	%		$	155,594				6.50	%
Tier 1 Capital (to Average Assets):
Company		$	243,761				8.26	%		$	118,096				4.00	%		$	147,620				5.00	%
Bank		$	265,207				8.99	%		$	118,007				4.00	%		$	147,508				5.00	%

17. COMMITMENTS, CONTINGENT LIABILITIES, RISKS AND UNCERTAINTIES

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate or liquidity risk in excess of the amount recognized in the consolidated balance sheet.

Credit Extension Commitments

The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Financial instruments, whose contract amounts represent credit risk at December 31, 2025 and 2024, are as follows (in thousands):

101

Index

		2025				2024
Commitments to extend credit		$	503,969			$	432,123
Standby letters of credit			11,612				9,799
		$	515,581			$	441,922

Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company on extension of credit is based on management’s credit assessment of the counter party.

Standby letters of credit are conditional commitments issued by the Company to guarantee a financial agreement between a customer and a third party. Performance letters of credit represent conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized during the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

The Company also offers limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing for business, personal or household use. The non-contractual amount of financial instruments with off-balance sheet risk at December 31, 2025 was $12,207,000. The Company reserves the right to discontinue this service without prior notice.

Legal and Regulatory Proceedings

In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. Litigation may relate to lending, deposit and other customer relationships, vendor and contractual issues, employee matters, intellectual property matters, personal injuries and torts, regulatory and legal compliance, and other matters. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously.

The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of a probable loss is not reasonably estimable, the Company does not accrue legal reserves. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.”

While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

102

Index

18. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed interest payments. As of December 31, 2025, the Company had five interest rate swaps with a notional of $35,500,000 associated with the Company’s cash outflows associated with various floating-rate amounts. As of December 31, 2024, the Company had six interest rate swaps with a notional of $50,500,000 associated with the Company’s cash outflows with various floating-rate amounts.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the periods ended December 31, 2025 and 2024. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate liabilities.

Customer Swaps

The Company also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of customers desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. In order to economically hedge the interest rate risk associated with offering this product, the Company simultaneously enters into derivative contracts with third parties to offset the customer contracts, such that the Company minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts decrease over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to customers. The Company utilizes a loan hedging program to accommodate clients preferring a fixed rate loan. The loan documents include an addendum with a zero premium collar. The zero premium collar is a cap and floor at the same interest rate, resulting in a fixed rate to the borrower. To hedge this embedded option, the Company enters into a dealer facing trade exactly mirroring the terms of the loan addendum. At December 31, 2025, the Company had interest rate swaps related to this program with an aggregate notional amount of $54,089,000.

Mortgage Banking Derivatives

To Be Announced Securities

To be announced securities (“TBAs”) are “forward delivery” securities considered derivative instruments under derivatives and hedging accounting guidance. The Company utilizes TBAs to protect against the price risk inherent in derivative loan commitments. TBAs are valued based on forward dealer marks from the Company’s approved counterparties. The Company utilizes a third-party market pricing service, which compiles current prices for instruments from market sources and those prices represent the current executable price. TBAs are recorded at fair value on the consolidated statements of financial condition in mortgage banking derivatives or other liabilities with changes in fair value recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income. The fair value of the Company’s derivative instruments, other than IRLCs, that are measured at fair value on a recurring basis is determined by utilizing quoted prices from dealers in such securities or third-party models utilizing observable market inputs.

103

Index

Interest Rate Lock Commitments

Interest rate loan commitments known as IRLCs that relate to the origination of mortgages that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance FASB ASC 815, Derivatives and Hedging. IRLCs are recognized at fair value on the consolidated statements of financial condition as mortgage banking derivatives or as other liabilities with changes in their fair values recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income.

Forward Loan Sales Commitments

Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancellation or expiration. IRLC, generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Forward loan sales commitments are recognized at fair value on the Consolidated Statements of Financial Condition as mortgage banking derivatives or as other liabilities with changes in their fair values recorded as a gain (loss) from hedging instruments in non-interest income in the Consolidated Statements of Income.

Counterparty Credit Risk

As a result of its derivative contracts, the Company is exposed to credit risk. Specifically, approved counterparties and exposure limits are defined. On at least an annual basis, the customer derivative contracts and related counterparties are evaluated for credit risk with an adjustment made to the contract’s fair value. In accordance with the interest rate agreements with derivative dealers, the Company may be required to post margin to these counterparties. At December 31, 2025, the Company has required collateral with certain of its derivative counterparties in the amount of $5,560,000 and was holding $3,320,000 of collateral from derivative counterparties.

The following table reflects the estimated fair value positions of derivative contracts as of December 31, 2025 and 2024:

Derivatives designated as hedging instruments under ASC 815 (in thousands):

				Notional Amount											Fair Value December 31,
Third party interest rate swaps		Balance Sheet Location		2025				2024			Interest rate Paid		Interest rate Received		2025				2024
Maturing in 2027		Fair value of derivative instruments - asset		$	10,000			$	10,000		Fixed - 0.65%		Compounded Overnight SOFR + 26.161		$	366			$	786
Maturing in 2027		Fair value of derivative instruments - asset			7,500				7,500		Fixed - 3.57%		Compounded Overnight SOFR + 26.161+280			303				620
Maturing in 2027		Fair value of derivative instruments - asset			6,000				6,000		Fixed - 0.61%		Compounded Overnight SOFR + 26.161			241				500
Maturing in 2029		Fair value of derivative instruments - asset			6,000				6,000		Fixed - 0.72%		Compounded Overnight SOFR + 26.161			552				854
Maturing in 2032		Fair value of derivative instruments - asset			6,000				6,000		Fixed - 0.82%		Compounded Overnight SOFR + 26.161			1,025				1,326
Maturing in 2025		Fair value of derivative instruments - asset			-				15,000		Fixed - 0.57%		Compounded Overnight SOFR + 26.161			-				150
				$	35,500			$	50,500						$	2,487			$	4,236

Derivatives not designated as hedging instruments under ASC 815 (in thousands):

				December 31, 2025								December 31, 2024
Interest Rate Products		Balance Sheet Location		Notional Amount				Fair Value				Notional Amount				Fair Value
Zero Premium Collar		(Fair value of derivative instruments - liability)		$	38,348			$	(3,693	)		$	49,678			$	(5,817	)
Zero Premium Collar		Fair value of derivative instruments - asset			15,741				407				-				-
IRLCs		Fair value of derivative instruments - asset			11,596				340				10,728				317
Dealer Offset to Zero Premium Collar		Fair value of derivative instruments - asset			38,348				3,693				49,678				5,817
Dealer Offset to Zero Premium Collar		(Fair value of derivative instruments - liability)			15,741				(407	)			-				-

104

Index

The following table presents the effect of the Company’s cash flow hedge accounting on Accumulated Other Comprehensive Income for the years ended December 31, 2025, 2024 and 2023 (in thousands):

The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

		Amount of (Loss) Gain Recognized in OCI on Derivatives											Location of Gain Reclassified from Accumulated OCI into Income		Amount of (loss) gain reclassified from Accumulated OCI into income
		Year Ended December 31,													Year Ended December 31,
Derivatives in Hedging relationships		2025				2024				2023					2025				2024				2023
Interest rate Products		$	(1,749	)		$	(1,205	)		$	(1,431	)	Interest Expense		$	1,733			$	2,516			$	2,203

19. LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Lessee Accounting

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches with terms extending through 2039. All of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s Consolidated Balance Sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as right-of-use (“ROU”) assets and corresponding lease liabilities.

The following table represents the Consolidated Balance Sheet classification of the Company’s ROU assets and lease liabilities (in thousands). The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), on the Consolidated Balance Sheet.

		Balance at December 31,
Lease Type		2025				2024			Affected line item on the Consolidated Balance Sheet
Right of Use Assets
Operating		$	10,600			$	9,966		Other Assets
Lease Liabilities:
Operating		$	10,777			$	10,095		Other Liabilities

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For leases obtained as of the HVBC acquisition, the rate for the remaining lease term as of June 16, 2023 was used. The following table displays the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases outstanding as of December 31, 2025:

		Operating
Weighted average term (years)			7.78
Weighted average discount rate			4.29	%

The following table represents lease costs and other lease information for the years ended December 31, 2025, 2024, and 2023, respectively (in thousands). As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

105

Index

		December 31,
Lease Cost		2025				2024				2023
Operating lease cost		$	1,895			$	1,953			$	1,400
Variable lease cost			264				250				177
Total lease cost		$	2,159			$	2,203			$	1,577

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2025 along with a reconciliation to the discounted amount recorded on the December 31, 2025 Consolidated Balance Sheet (in thousands):

Undiscounted cash flows due within		Operating
2026		$	1,921
2027			1,951
2028			1,863
2029			1,643
2030			1,392
2031 and thereafter			4,285
Total undiscounted cash flows			13,055
Impact of present value discount			2,278
Amount reported on balance sheet		$	10,777

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

 A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

106

Index

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The following tables present the assets reported on the consolidated balance sheet at their fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands) by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

2025		Level I				Level II				Level III				Total
Fair value measurements on a recurring basis:
Assets
Equity securities		$	1,815			$	-			$	-			$	1,815
Available for sale securities:
U.S. Agency securities			-				49,755				-				49,755
U.S. Treasuries securities			-				82,654				-				82,654
Obligations of state and political subdivisions			-				115,886				-				115,886
Corporate obligations			-				11,297				-				11,297
Mortgage-backed securities in government sponsored entities			-				185,149				-				185,149
Other Assets
Derivative instruments			-				6,587				340				6,927
Liabilities
Derivative instruments			-				(4,100	)			-				(4,100	)

2024		Level I				Level II				Level III				Total
Fair value measurements on a recurring basis:
Assets
Equity securities		$	1,747			$	-			$	-			$	1,747
Available for sale securities:
U.S. Agency securities			-				53,487				-				53,487
U.S. Treasuries securities			-				120,502				-				120,502
Obligations of state and political subdivisions			-				94,902				-				94,902
Corporate obligations			-				10,438				-				10,438
Mortgage-backed securities in government sponsored entities			-				146,583				-				146,583
Other Assets
Derivative instruments			-				10,053				317				10,370
Liabilities
Derivative instruments			-				(5,817	)			-				(5,817	)

The following tables represent assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2025 and 2024 (in thousands):

		Level 3
		IRLC - Asset				IRLC - Liability
Beginning Balance: December 31, 2024		$	317			$	-
Total gains (losses) (unrealized): Included in other comprehensive loss			-				-
Total (loss) gains included in earnings and held at reporting date			23				-
Purchases, sales and settlements			-				-
Transfers out of Level 3			-				-
Ending Balance December 31, 2025		$	340			$	-
Change in unrealized (losses) gains for the period included in earnings (or changes in net assets) for assets held as of December 31, 2025		$	23				-
Change in unrealized losses for the period included other comprehensive loss for assets held as of December 31, 2025		$	-				-

107

Index

		Level 3
		IRLC - Asset				IRLC - Liability
Beginning Balance: December 31, 2023		$	324			$	-
Total gains (losses) (unrealized): Included in other comprehensive loss			-				-
Total (loss) gains included in earnings and held at reporting date			(7	)			-
Purchases, sales and settlements			-				-
Transfers out of Level 3			-				-
Ending Balance December 31, 2024		$	317			$	-
Change in unrealized (losses) gains for the period included in earnings (or changes in net assets) for assets held as of December 31, 2024		$	(7	)			-
Change in unrealized losses for the period included other comprehensive loss for assets held as of December 31, 2024		$	-				-

At December 31, 2025 and 2024, the Company has classified $340,000 and $317,000, respectively, of net derivative assets related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund.

Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at December 31, 2025 and 2024 (dollars in thousands):

Quantitative Information about Level 3 Fair Value Measurements

2025

Fair Value

Valuation Technique(s)

Unobservable input

Range

Weighted average

Measured at Fair Value on a Recurring Basis:

Net derivative asset and liability:

IRLC

340

Discounted cashflows

Pull-though rates

75.39%-97.16

%

85.90

%

2024
Measured at Fair Value on a Recurring Basis:
Net derivative asset and liability:
IRLC			317		Discounted cashflows	Pull-though rates			76.35%-100.00	%			89.65	%

Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2025 and 2024 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.

Assets measured at fair value on a nonrecurring basis as of December 31, 2025 and 2024 (in thousands) are included in the table below:

2025		Level I				Level II				Level III				Total
Collateral dependent loans		$	-			$	-			$	8,628			$	8,628
Other real estate owned			-				-				2,358				2,358

108

Index

2024		Level I				Level II				Level III				Total
Collateral dependent loans		$	-			$	-			$	3,579			$	3,579
Other real estate owned			-				-				2,486				2,486

• Collateral-Dependent Loans (in accordance with ASC 326) - The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $259,000 at December 31, 2025.

• Other Real Estate Owned – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques (dollars in thousands).

Quantitative Information about Level 3 Fair Value Measurements

2025

Fair Value

Valuation Technique(s)

Unobservable input

Range

Weighted average

Collateral dependent loans

8,628

Appraised Collateral Values

Discount for time since appraisal

0-100%

32.18%

Selling costs

8%-10%

9.43%

Holding period

1 - 12 months

11.62 months

Other real estate owned

2,358

Appraised Collateral Values

Discount for time since appraisal

7.5%

7.50%

2024

Fair Value

Valuation Technique(s)

Unobservable input

Range

Weighted average

Collateral dependent loans

3,579

Appraised Collateral Values

Discount for time since appraisal

0-100%

36.67%

Selling costs

4%-12%

7.05%

Holding period

1 - 12 months

11.04 months

Other real estate owned

2,486

Appraised Collateral Values

Discount for time since appraisal

20-32%

31.32%

109

Index

Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

December 31, 2025		Carrying Amount				Fair Value				Level I				Level II				Level III
Financial assets:
Interest bearing time deposits with other banks		$	3,820			$	3,802			$	-			$	-			$	3,802
Loans held for sale			9,393				9,393				-				-				9,393
Net loans			2,327,816				2,295,926				-				-				2,295,926
Financial liabilities:
Deposits			2,376,979				2,375,552				1,877,545				-				498,007
Borrowed funds			309,448				304,486				-				-				304,486

December 31, 2024
Financial assets:
Interest bearing time deposits with other banks		$	3,820			$	3,820			$	-			$	-			$	3,820
Loans held for sale			9,607				9,607				-				-				9,607
Net loans			2,291,543				2,209,083				-				-				2,209,083
Financial liabilities:
Deposits			2,382,028				2,377,438				1,842,223				-				535,215
Borrowed funds			297,721				284,852				-				-				284,952

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The carrying amounts for cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

21. SEGMENT REPORTING

The Company’s reportable segment is determined by the Chief Executive Officer, who is the designated the chief operating decision maker, based upon information provided about the Company’s products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business such as branches, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker will evaluate the financial performance of the Company’s business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company’s segment and in the determination of allocating resources. The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision maker uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, provisions for credit losses, payroll, and occupancy expenses provide the significant expenses in the banking operation. All operations are domestic.

110

Index

Accounting policies for the segment are the same as those described in Note 1. The measure of segment assets is reported on the balance sheet as total consolidated assets. Segment performance is evaluated using consolidated net income. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements (in thousands):

		Community Banking
		2025				2024				2023
Total Interest and Dividend Income		$	159,168			$	154,317			$	127,118
Total non-interest income			14,344				15,401				11,605
Total Consolidated Revenues			173,512				169,718				138,723
Less:
Interest Expense			61,167				67,862				46,858
Segment net interest income and non-interest income			112,345				101,856				91,865
Less:
Provision for credit losses			2,375				2,587				5,528
Salaries and employee benefits			39,402				39,347				34,990
Occupancy			5,299				5,013				4,123
Other segment expenses			20,181				21,226				25,709
Income Taxes			8,516				5,865				3,704
Segment net income/consolidated net income		$	36,572			$	27,818			$	17,811

22. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

The following is condensed financial information for Citizens Financial Services, Inc.:

CITIZENS FINANCIAL SERVICES, INC.

CONDENSED BALANCE SHEET

		December 31,
(in thousands)		2025				2024
Assets:
Cash		$	2,904			$	1,743
Investments			1,682				1,599
Investment in subsidiary:
First Citizens Community Bank			358,001				328,190
Other assets			3,342				3,389
Total assets		$	365,929			$	334,921
Liabilities:
Other liabilities		$	730			$	840
Borrowed funds			27,148				34,348
Total liabilities			27,878				35,188
Stockholders’ equity			338,051				299,733
Total liabilities and stockholders’ equity		$	365,929			$	334,921

CITIZENS FINANCIAL SERVICES, INC.

CONDENSED STATEMENT OF INCOME

		Year Ended December 31,
(in thousands)		2025				2024				2023
Dividends from:
Bank subsidiary		$	21,053			$	16,676			$	13,213
Equity securities			101				98				113
Interest income			6				12				20
Total income			21,160				16,786				13,346
Realized securities gains (losses)			83				153				(209	)
Expenses			3,087				2,427				3,130
Income before equity in undistributed earnings of subsidiary			18,156				14,512				10,007
Equity in undistributed earnings - First Citizens Community Bank			18,416				13,306				7,804
Net income		$	36,572			$	27,818			$	17,811
Comprehensive income		$	47,716			$	29,208			$	26,041

111

Index

CITIZENS FINANCIAL SERVICES, INC.

STATEMENT OF CASH FLOWS

		Year Ended December 31,
(in thousands)		2025				2024				2023
Cash flows from operating activities:
Net income		$	36,572			$	27,818			$	17,811
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries			(18,416	)			(13,306	)			(7,804	)
Investment securities losses (gains), net			(83	)			(153	)			209
Other, net			685				(84	)			(206	)
Net cash provided by operating activities			18,758				14,275				10,010
Cash flows from investing activities:
Proceeds from the sale of equity securities			-				335				127
Investment in subsidiaries			-				-				(15,000	)
Acquisition of HVB			-				-				(10,780	)
Net cash provided by (used in) investing activities			-				335				(25,653	)
Cash flows from financing activities:
Cash dividends paid			(9,548	)			(9,302	)			(8,503	)
(Repayment) Issuance of short-term debt			(7,572	)			(5,000	)			12,572
Purchase of treasury stock			(358	)			(202	)			(265	)
Sale of treasury stock			-				-				34
Issuance of common stock for employee stock purchase plan			68				16				-
Purchase of restricted stock			(187	)			(64	)			-
Net cash (used in) provided by financing activities			(17,597	)			(14,552	)			3,838
Net increase (decrease) in cash			1,161				58				(11,805	)
Cash at beginning of year			1,743				1,685				13,490
Cash at end of year		$	2,904			$	1,743			$	1,685

112

Index

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A – CONTROLS AND PROCEDURES.

As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 5), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course by management or employees in the normal course of performing their assigned functions.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting.

 In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Because there were no material weaknesses discovered, management believes that, as of December 31, 2025, the Company’s internal control over financial reporting was effective.

The Company’s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effective operation of the Company’s internal control over financial reporting as of December 31, 2025, and this report is included in this Item under the heading “Attestation Report of Independent Registered Public Accounting Firm.”

/s/ Randall E. Black

By: Randall E. Black

Chief Executive Officer and President

(Principal Executive Officer)

Date: March 12, 2026

/s/ Stephen J. Guillaume

By: Stephen J. Guillaume

Chief Financial Officer

(Principal Financial & Accounting Officer)

Date: March 12, 2026

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Index

Attestation Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Citizens Financial Services, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Citizens Financial Services, Inc. and subsidiaries (the “Company”)’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024; and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, of the Company; and our report dated March 12, 2026, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/S.R. Snodgrass, P.C.

Cranberry Township, Pennsylvania

March 12, 2026

114

Index

ITEM 9B – OTHER INFORMATION.

During the three months ended December 31, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).

ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable

115

Index

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

For information relating to the directors of the Company, the section captioned “Proposal 1. Election of Directors” in the Company’s Proxy Statement for the 2026 Annual Meeting of Stockholders (the “2026 Proxy Statement”) is incorporated by reference.

Executive Officers

For information relating to officers of the Company, the section captioned “Proposal 1. Election of Directors” in the 2026 Proxy Statement is incorporated by reference.

Compliance with Section 16(a) of the Exchange Act

For information regarding compliance with Section 16(a) of the Exchange Act, the section captioned “Other Information Relating to Directors and Executive Officers - Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 2026 Proxy Statement is incorporated by reference.

Disclosure of Code of Ethics

The Company has adopted a Code of Ethics that applies to directors, officers and employees of the Company and the Bank. A copy of the Code of Ethics is posted on the Company’s website at www.firstcitizensbank.com. The Company intends to satisfy the disclosure requirement of Form 8-K regarding an amendment to, or a waiver from, a provision of its Code of Ethics by posting such information on its website.

Corporate Governance

For information regarding the audit committee and its composition and the audit committee financial expert, the section captioned “Corporate Governance – Committees of the Board of Directors” in the Company’s 2026 Proxy Statement is incorporated by reference.

Insider Trading Policy

The Company has adopted an Insider Trading Policy governing the purchase, sale and/or other dispositions of the Company’s securities by its directors, officers and employees and by the Company itself. A copy of the Insider Trading Policy is filed as an exhibit to this Annual Report on Form 10-K.

ITEM 11 – EXECUTIVE COMPENSATION

Executive Compensation

For information regarding executive and director compensation, the sections captioned “Director Compensation”, “Executive Compensation”, “Compensation Discussion and Analysis” and “Compensation Committee Report” in the Company’s 2026 Proxy Statement are incorporated by reference.

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

(a) Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Company’s 2026 Proxy Statement.

(b) Security Ownership of Management Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Company’s 2026 Proxy Statement.

(c) Changes in Control Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

116

Index

(d) Equity Compensation Plan Information The following table sets forth information as of December 31, 2025 about Company common stock that may be issued under the Company’s 2016 Restricted Stock Plan. The plan was approved by the Company’s stockholders.

Plan Category

Number of securities to be issued upon the exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)

Equity compensation plans approved by security holders

n/a

n/a

99,781

Equity compensation plans not approved by security holders

n/a

n/a

n/a

Total

n/a

n/a

99,781

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

For information regarding certain relationships and related transactions, the section captioned “Other Information Relating to Directors and Executive Officers - Transactions with Related Persons” in the Company’s 2026 Proxy Statement is incorporated by reference.

Director Independence

For information regarding director independence, the section captioned “Corporate Governance – Director Independence” in the Company’s 2026 Proxy Statement is incorporated by reference.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

For information regarding the principal accountant fees and expenses the section captioned “Audit – Related Matters” in the Company’s 2026 Proxy Statement is incorporated by reference.

117

Index

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as a part of this report:

 1. The following financial statements are incorporated by reference in Item 8:

Report of Independent Registered Public Accounting Firm (PCAOB ID 74)

Consolidated Balance Sheet as of December 31, 2025 and 2024

Consolidated Statement of Income for the Years Ended December 31, 2025, 2024 and 2023

Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023

Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2025, 2024 and 2023

Consolidated Statement of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023

Notes to Consolidated Financial Statements

 2. All financial statement schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statement or in the notes thereto, which are incorporated by reference at subsection(a)(1) of this item.

3. The following Exhibits are filed herewith, or incorporated by reference as a part of this report

3.1		Restated Articles of Incorporation of Citizens Financial Services, Inc.(1)
3.2		Articles of Amendment of Restated Articles of Incorporation of Citizens Financial Services, Inc. (2)
3.3		Bylaws of Citizens Financial Services, Inc.(3)
3.4		Amendment No. 1 to Amended and restated Bylaws of Citizens Financial Services, Inc. (4)
4.1		Form of Common Stock Certificate of Citizens Financial Services, Inc (5)
4.2		Form of Subordinated Note – Citizens Financial Services, Inc.  (6)
4.3		Form of Subordinated Note – HV Bancorp, Inc. (7)
10.1		*Amended and Restated Executive Employment Agreement between Citizens Financial Services, Inc., First Citizens Community Bank and Randall E. Black(8)
10.2		*Citizens Financial Services, Inc. Directors’ Deferred Compensation Plan(9)
10.3		*Citizens Financial Services, Inc. Directors’ Life Insurance Program(10)
10.4		*Supplemental Executive Retirement Plan(11)
10.5		*Second Amendment to First Citizens Community Bank Supplemental Executive Retirement Plan(12)
10.6		*Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Jeffrey R, White
10.7		*First Citizens Community Bank Annual Incentive Plan (13)
10.8		*Amended and Restated First Citizens Community Bank Annual Incentive Plan(14)
10.9		*First Citizens Community Bank Endorsement Split-Dollar Life Insurance Plan (15)
10.10		Citizens Financial Services, Inc. 2016 Equity Incentive Plan (16)
10.11		*Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Jeffrey L. Wilson (17)
10.12		*Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and David Z. Richards, Jr. (18)
10.13		*First Citizens Community Bank Executive Deferred Compensation Plan  (19)
10.14		*Amended and Restated First Citizens Community Bank Executive Deferred  Compensation Plan (20)
10.15		*First Citizens Community Bank Long Term Incentive Plan (21)
10.16		*Change in Control Agreement, between First Citizens Community Bank, Citizens Financial Services, Inc. (as guarantor) and Stephen J. Guillaume(22)
10.17		2023 Employee Stock Purchase Plan(23)
19		Insider Trading Policy

118

Index

21		List of Subsidiaries
23		Consent of S.R. Snodgrass, P.C., Independent Registered Public Accountants
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer
32.2		Section 1350 Certification of Chief Financial Officer
97		Citizens Financial Services, Inc. Clawback Policy
101		The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet, (ii) the Consolidated Statement of Income, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) related notes.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Management contract or compensatory plan, contract or arrangement

⁽¹⁾          Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018.

⁽²⁾            Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on April 26, 2021.

⁽³⁾            Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on December 17, 2020.

⁽⁴⁾            Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on November 23, 2022

⁽⁵⁾           Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Commission on March 9, 2023.

⁽⁶⁾           Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on April 16, 2021.

⁽⁷⁾               Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K of HV Bancorp, Inc. as filed with the Commission on June 01, 2021.

⁽⁸⁾            Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, as filed with the Commission on August 9, 2012.

⁽⁹⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as filed with the Commission on August 8, 2019.

⁽¹⁰⁾          Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Commission on March 15, 2005.

⁽¹¹⁾          Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Commission on March 7, 2013.

⁽¹²⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed with the Commission on November 4, 2021.

119

Index

⁽¹³⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, as filed with the Commission on August 8, 2013.

⁽¹⁴⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, as filed with the Commission on November 7, 2024

⁽¹⁵⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on January 7, 2015.

⁽¹⁶⁾          Incorporated by reference to Exhibit A to the Company’s definitive proxy statements for the 2016 Annual Meeting of Shareholders, as filed with the Commission on March 10, 2016.

⁽¹⁷⁾          Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the Commission on March 6, 2025.

⁽¹⁸⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on January 3, 2025.

⁽¹⁹⁾         Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Commission on March 7, 2019.

⁽²⁰⁾          Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Commission on March 10, 2022

⁽²¹⁾          Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Commission on March 12, 2020.

⁽²²⁾          Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, as filed with the Commission on January 3, 2025.

⁽²³⁾          Incorporated by reference to Exhibit 10.1 to the Company’s Form S-8, as filed with the Commission on October 22, 2024.

ITEM 16 – FORM 10-K SUMMARY

Not Applicable.

120

Index

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Citizens Financial Services, Inc.

(Registrant)

/s/ Randall E. Black

By: Randall E. Black

Chief Executive Officer and President

(Principal Executive Officer)

Date: March 12, 2026

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature and Capacity	Date
/s/ Randall E. Black	March 12, 2026
Randall E. Black, Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ Stephen J. Guillaume	March 12, 2026
Stephen J. Guillaume, Chief Financial Officer
(Principal Financial & Accounting Officer)
/s/ Robert W. Chappell	March 12, 2026
Robert W. Chappell, Director
/s/ R. Joseph Landy	March 12, 2026
R. Joseph Landy, Director
/s/ Roger C. Graham, Jr.	March 12, 2026
Roger C. Graham, Director
/s/ Rinaldo A. DePaola	March 12, 2026
Rinaldo A. DePaola, Director
/s/ Thomas E. Freeman	March 12, 2026
Thomas E. Freeman, Director
/s/ Christopher W. Kunes	March 12, 2026
Christopher W. Kunes
/s/ David Z, Richards, Jr.	March 12, 2026
David Z. Richards, Jr., Director
/s/ Mickey L. Jones.	March 12, 2026
Mickey L. Jones, Director
/s/ Janie M Hifiger	March 12, 2026
Janie M Hilfiger, Director
/s/ Terry B, Osborne	March 12, 2026
Terry B. Osborne, Director
/s/ John P, Painter II	March 12, 2026
/s/ John P, Painter II, Director
/s/ Joseph B. Bower Jr	March 12, 2026
Joseph B. Bower Jr, Director

121

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FAQ

What does Citizens Financial Services (CZFS) primarily do?

Citizens Financial Services, Inc. operates First Citizens Community Bank, a full-service community bank. It offers deposits, residential, commercial and agricultural loans, plus trust, investment and oil and gas-related services across Pennsylvania, New York, Delaware and New Jersey.

How well-capitalized is Citizens Financial Services’ bank subsidiary?

First Citizens Community Bank uses the community bank leverage ratio framework. At December 31, 2025, it reported a leverage ratio of 9.54%, exceeding the regulatory standard to be considered well-capitalized under that framework, supporting its ability to absorb potential losses.

What are CZFS’s key loan concentrations and related risks?

Loans are concentrated in commercial real estate, agricultural real estate, construction and other commercial credits. At December 31, 2025, agricultural loans were $377.7 million, or 16.1% of loans, with specific exposure to dairy and poultry, which are sensitive to commodity prices and industry conditions.

How large is the allowance for credit losses at Citizens Financial Services?

At December 31, 2025, the allowance for credit losses was $22.8 million. This represented 0.97% of total loans outstanding and 85.7% of nonperforming loans, providing a buffer against potential credit losses across its commercial, agricultural and consumer portfolios.

What is Citizens Financial Services’ market value and share count?

The aggregate market value of voting and non-voting common equity held by non-affiliates was $264.8 million as of June 30, 2025. As of March 3, 2026, Citizens Financial Services had 4,807,219 shares of common stock outstanding, traded on Nasdaq under the symbol CZFS.

What cybersecurity governance does Citizens Financial Services have?

Cybersecurity is overseen by an Information Security Officer who reports to the Chief Operating Officer and the board’s Audit and Examination Committee. The company uses layered defenses, employee training, testing, vendor risk management and an Incident Response Plan to manage cyber risks and incidents.

Does Citizens Financial Services (CZFS) pay dividends and repurchase stock?

CZFS has paid dividends since its 1984 formation and expects comparable payments subject to earnings, capital and legal limits. In Q4 2025, it repurchased 3,065 shares at an average price of $55.85, leaving 140,138 shares authorized for repurchase under its board-approved program.