[10-Q] Citizens Financial Services, Inc. Quarterly Earnings Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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 0-13222

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

N/A

(Former Name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has filed all reports 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 transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No  ☒

The number of outstanding shares of the Registrant’s Common Stock, as of August 1, 2025, was 4,807,314.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of June 30, 2025 and December 31, 2024	1
	Consolidated Statement of Income for the Three and Six Months Ended June 30, 2025 and 2024	2
	Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 2025 and 2024	3
	Consolidated Statement of Changes in Stockholders’ Equity for the Three and Six Months ended June 30, 2025 and 2024	4
	Consolidated Statement of Cash Flows for the Six Months ended June 30, 2025 and 2024	5
	Notes to Consolidated Financial Statements	6-33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33-58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58-59
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
	Signatures	61

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(in thousands except share data)		June 30, 2025				December 31, 2024
ASSETS:
Cash and due from banks:
Noninterest-bearing		$	26,799			$	30,284
Interest-bearing			22,685				11,918
Total cash and cash equivalents			49,484				42,202
Interest bearing time deposits with other banks			3,820				3,820
Equity securities			1,768				1,747
Available-for-sale securities			431,649				425,912
Loans held for sale			15,529				9,607
Loans (net of allowance for credit losses: 2025 $22,109 and 2024, $21,699)			2,219,646				2,291,543
Premises and equipment			21,776				21,395
Accrued interest receivable			10,603				10,307
Goodwill			85,758				85,758
Bank owned life insurance			50,770				50,341
Other intangibles			2,530				2,892
Fair value of derivative instruments			8,272				10,370
Deferred tax asset			13,913				15,199
Other assets			51,756				54,631
TOTAL ASSETS		$	2,967,274			$	3,025,724
LIABILITIES:
Deposits:
Noninterest-bearing		$	499,252			$	532,776
Interest-bearing			1,793,410				1,849,252
Total deposits			2,292,662				2,382,028
Borrowed funds			313,219				297,721
Accrued interest payable			2,741				4,693
Fair value of derivative instruments - liability			4,701				5,817
Other liabilities			40,298				35,731
TOTAL LIABILITIES			2,653,621				2,725,990
STOCKHOLDERS’ EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares at June 30, 2025 and December 31, 2024; none issued in 2025 or 2024			-				-
Common stock
$1.00 par value; authorized 25,000,000 shares at June 30, 2025 and December 31, 2024, issued 5,255,190 at June 30, 2025 and 5,207,577 at December 31, 2024			5,255				5,208
Additional paid-in capital			147,878				144,984
Retained earnings			197,940				189,443
Accumulated other comprehensive loss			(21,026	)			(23,521	)
Treasury stock, at cost: 448,190 shares at June 30, 2025 and 447,965 shares at December 31, 2024			(16,394	)			(16,380	)
TOTAL STOCKHOLDERS’ EQUITY			313,653				299,734
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,967,274			$	3,025,724

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except share and per share data)		2025				2024				2025				2024
INTEREST INCOME:
Interest and fees on loans		$	35,227			$	35,067			$	70,783			$	70,200
Interest-bearing deposits with banks			132				262				275				505
Investment securities:
Taxable			2,397				1,663				4,736				3,287
Nontaxable			584				520				1,131				1,052
Dividends			409				390				838				791
TOTAL INTEREST INCOME			38,749				37,902				77,763				75,835
INTEREST EXPENSE:
Deposits			11,449				12,655				23,743				24,976
Borrowed funds			3,652				3,947				7,370				8,601
TOTAL INTEREST EXPENSE			15,101				16,602				31,113				33,577
NET INTEREST INCOME			23,648				21,300				46,650				42,258
Provision for credit losses			750				2,002				1,375				2,787
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			22,898				19,298				45,275				39,471
NON-INTEREST INCOME:
Service charges			1,303				1,385				2,594				2,757
Trust			183				201				407				445
Brokerage and insurance			627				563				1,310				1,228
Gains on loans sold			739				479				1,011				896
Equity security gains (losses), net			32				(87	)			21				(32	)
Gain on sale of Braavo division			-				-				-				1,102
Earnings on bank owned life insurance			355				328				701				996
Other			426				467				1,048				915
TOTAL NON-INTEREST INCOME			3,665				3,336				7,092				8,307
NON-INTEREST EXPENSES:
Salaries and employee benefits			9,976				9,617				20,265				19,907
Occupancy			1,182				1,266				2,538				2,590
Furniture and equipment			318				295				583				531
Professional fees			525				698				1,042				1,401
FDIC insurance			495				509				945				1,034
Pennsylvania shares tax			305				330				624				640
Amortization of intangibles			127				147				254				296
Software expenses			453				494				885				1,008
Other real estate owned expenses			73				175				192				162
Other			2,693				2,715				5,247				5,320
TOTAL NON-INTEREST EXPENSES			16,147				16,246				32,575				32,889
Income before provision for income taxes			10,416				6,388				19,792				14,889
Provision for income taxes			1,953				1,113				3,708				2,590
NET INCOME		$	8,463			$	5,275			$	16,084			$	12,299
PER COMMON SHARE DATA:
Net Income - Basic		$	1.76			$	1.10			$	3.35			$	2.56
Net Income - Diluted		$	1.76			$	1.10			$	3.35			$	2.56
Cash Dividends Paid		$	0.490			$	0.480			$	0.980			$	0.961
Number of shares used in computation - basic			4,797,716				4,796,000				4,797,642				4,795,596
Number of shares used in computation - diluted			4,800,384				4,800,770				4,800,862				4,800,991

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

		Three Months Ended June 30,								Six Months Ended, June 30,
(in thousands)		2025				2024				2025				2024
Net income		$	8,463			$	5,275			$	16,084			$	12,299
Other comprehensive income (loss):
Change in unrealized (losses) gains on available for sale securities			(568	)			1,154				4,371				(1,166	)
Income tax effect			120				(243	)			(918	)			246
Change in unrecognized pension cost			-				14				-				16
Income tax effect			-				(3	)			-				(3	)
Change in unrealized loss on interest rate swaps			(429	)			(296	)			(1,213	)			(144	)
Income tax effect			90				62				255				30
Other comprehensive (loss) income, net of tax			(787	)			688				2,495				(1,021	)
Comprehensive income		$	7,676			$	5,963			$	18,579			$	11,278

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

		Common Stock								Additional Paid-in				Retained				Accumulated Other Comprehensive				Treasury				Total  Stockholders’
(in thousands, except share data)		Shares				Amount				Capital				Earnings				Income (Loss)				Stock				Equity
Balance, March 31, 2025			5,207,824			$	5,208			$	145,010			$	194,709			$	(20,239	)		$	(16,392	)		$	308,296
Comprehensive income:
Net income															8,463												8,463
Net other comprehensive loss																			(787	)							(787	)
Stock dividend			47,073				47				2,797				(2,844	)											-
Issuance of Common stock for ESPP			293								17																17
Purchase of treasury stock (866 shares)																							(52	)			(52	)
Restricted stock, executive and Board of Director awards (3,934 shares)											(187	)											50				(137	)
Restricted stock vesting											241																241
Cash dividends, $0.490 per share															(2,388	)											(2,388	)
Balance, June 30, 2025			5,255,190			$	5,255			$	147,878			$	197,940			$	(21,026	)		$	(16,394	)		$	313,653
Balance, December 31, 2024			5,207,577			$	5,208			$	144,984			$	189,443			$	(23,521	)		$	(16,380	)		$	299,734
Comprehensive income:
Net income															16,084												16,084
Net other comprehensive income																			2,495								2,495
Stock dividend			47,073				47				2,797				(2,844	)											-
Issuance of Common stock for ESPP			540								32																32
Purchase of treasury stock (1,834 shares)																							(109	)			(109	)
Restricted stock, executive and Board of Director awards (4,834 shares)											(185	)											102				(83	)
Restricted stock vesting											243																243
Forfeited restricted stock (119 Shares)											7												(7	)			-
Cash dividends, $0.980 per share															(4,743	)											(4,743	)
Balance, June 30, 2025			5,255,190			$	5,255			$	147,878			$	197,940			$	(21,026	)		$	(16,394	)		$	313,653
Balance, March 31, 2024			5,160,754				5,161			$	143,227				177,693				(26,620	)		$	(16,787	)			282,674
Comprehensive income:
Net income															5,275												5,275
Net other comprehensive income																			688								688
Stock dividend			46,589				46				2,001				(2,047	)											-
Purchase of treasury stock (881 shares)																							(36	)			(36	)
Restricted stock, executive and Board of Director awards (2,167 shares)											(408	)											445				37
Restricted stock vesting											165												-				165
Cash dividends, $0.480 per share															(2,333	)											(2,333	)
Balance, June 30, 2024			5,207,343			$	5,207			$	144,985			$	178,588			$	(25,932	)		$	(16,378	)		$	286,470
Balance, December 31, 2023			5,160,754			$	5,161			$	143,233			$	172,975			$	(24,911	)		$	(16,792	)		$	279,666
Comprehensive income:
Net income															12,299												12,299
Net other comprehensive loss																			(1,021	)							(1,021	)
Stock dividend			46,589				46				2,001				(2,047	)											-
Purchase of treasury stock (1,776 shares)																							(81	)			(81	)
Restricted stock, executive and Board of Director awards (882 shares)											(417	)											495				78
Restricted stock vesting											168												-				168
Cash dividends, $0.961 per share															(4,639	)											(4,639	)
Balance, June 30, 2024			5,207,343			$	5,207			$	144,985			$	178,588			$	(25,932	)		$	(16,378	)		$	286,470

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

		Six Months Ended June 30,
(in thousands)		2025				2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	16,084			$	12,299
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			1,375				2,787
Depreciation and amortization			921				958
Amortization and accretion of loans and other assets			(1,691	)			(2,243	)
Amortization and accretion of investment securities			430				759
Deferred income taxes			623				425
Equity securities (gains) losses, net			(21	)			32
Earnings on bank owned life insurance			(701	)			(996	)
Vesting of restricted stock			243				168
Originations of loans held for sale			(73,045	)			(74,816	)
Proceeds from sales of loans held for sale			68,109				70,820
Realized gains on loans sold			(1,011	)			(896	)
Realized gains on sale of Braavo			-				(1,102	)
(Increase) decrease in accrued interest receivable			(296	)			261
(Decrease) increase in accrued interest payable			(1,952	)			1,184
Other, net			7,861				6,838
Net cash provided by operating activities			16,929				16,478
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from maturity and principal repayments			33,486				27,061
Purchase of securities			(35,282	)			(14,045	)
Proceeds from sale of equity securities			-				335
Purchase of interest bearing time deposits with other banks			-				(100	)
Proceeds from matured interest bearing time deposits with other banks			-				350
Proceeds from life insurance			272				1,147
Proceeds from redemption of regulatory stock			16,397				15,665
Purchase of regulatory stock			(17,146	)			(14,135	)
Net decrease (increase)  in loans			73,137				(13,486	)
Purchase of premises and equipment			(1,080	)			(226	)
Proceeds from sale of premises and equipment			12				-
Proceeds from sale of foreclosed assets held for sale			170				392
Proceeds from sale of Braavo assets			-				7,185
Net cash provided by investing activities			69,966				10,143
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits			(89,366	)			(48,385	)
Repayments of long-term borrowings			(10,000	)			(5,000	)
Net increase in short-term borrowed funds			24,760				17,099
Purchase of treasury and restricted stock			(296	)			(81	)
Sale of stock for ESPP			32				-
Dividends paid			(4,743	)			(4,639	)
Net cash used in financing activities			(79,613	)			(41,006	)
Net increase (decrease) in cash and cash equivalents			7,282				(14,385	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			42,202				52,818
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	49,484			$	38,433
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	33,065			$	32,393
Income taxes paid		$	2,500			$	750
Loans transferred to foreclosed property		$	40			$	2,490
Right of use asset and liability		$	377			$	169
Stock Dividend		$	2,844			$	2,047

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Index

CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the “Company”) is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiary, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”). During 2024, the Company and Bank began the process to terminate the corporate existence of CZFS Acquisition Company, LLC and 1st Realty of PA LLC.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders’ equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim consolidated financial statements at June 30, 2025 and for the periods ended June 30, 2025 and 2024 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The financial performance reported for the Company for the six month period ended June 30, 2025 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2024.

Note 2 – Revenue Recognition

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 three and six months ended June 30, 2025 and 2024 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Revenue stream		2025				2024				2025				2024
Service charges on deposit accounts
Overdraft fees		$	368				394			$	727			$	798
Statement fees			44				44				94				86
Interchange revenue			768				811				1,529				1,555
ATM income			29				33				60				66
Other service charges			94				103				184				252
Total Service Charges			1,303				1,385				2,594				2,757
Trust			183				201				407				445
Brokerage and insurance			627				563				1,310				1,228
Other			254				241				495				373
Total		$	2,367			$	2,390			$	4,806			$	4,803

6

Index

Note 3 – Earnings per Share

The following table sets forth the computation of earnings per share.

		Three months ended June 30,								Six months ended June 30,
		2025				2024				2025				2024
Net income applicable to common stock		$	8,463,000			$	5,275,000			$	16,084,000			$	12,299,000
Basic earnings per share computation
Weighted average common shares outstanding			4,797,716				4,796,000				4,797,642				4,795,596
Earnings per share - basic		$	1.76			$	1.10			$	3.35			$	2.56
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share			4,797,716				4,796,000				4,797,642				4,795,596
Add: Dilutive effects of restricted stock			2,668				4,770				3,220				5,395
Weighted average common shares outstanding for dilutive earnings per share			4,800,384				4,800,770				4,800,862				4,800,991
Earnings per share - diluted		$	1.76			$	1.10			$	3.35			$	2.56

For the three months ended June 30, 2025 and 2024, there were 2,668 and 4,230 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $61.98-$83.38 for the three month period ended June 30, 2025 and per share prices ranging from $60.16-$83.38 for the three month period ended June 30, 2024. For the six months ended June 30, 2025 and 2024, 3,219 and 4,230 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $61.98-$83.38 for the six month period ended June 30, 2025 and prices ranging from $60.16-$83.38 for the six month period ended June 30, 2024.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at June 30, 2025 and December 31, 2024 were as follows (in thousands):

June 30, 2025		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
Available-for-sale securities:
U.S. agency securities		$	58,632			$	11			$	(3,984	)		$	-			$	54,659
U.S. treasury securities			105,391				142				(3,794	)			-				101,739
Obligations of state and political subdivisions			103,339				5				(9,651	)			-				93,693
Corporate obligations			11,255				252				(599	)			-				10,908
Mortgage-backed securities in government sponsored entities			182,286				305				(11,941	)			-				170,650
Total available-for-sale securities		$	460,903			$	715			$	(29,969	)		$	-			$	431,649

December 31, 2024
Available-for-sale securities:
U.S. agency securities		$	58,594			$	6			$	(5,113	)		$	-			$	53,487
U.S. treasury securities			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

7

Index

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at June 30, 2025 and December 31, 2024 (in thousands). As of June 30, 2025, the Company owned 294 securities whose fair value was less than their cost basis.

June 30, 2025		Less than Twelve Months								Twelve Months or Greater								Total
		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
U.S. agency securities		$	-			$	-			$	50,003			$	(3,984	)		$	50,003			$	(3,984	)
U.S. treasury securities			-				-				92,018				(3,794	)			92,018				(3,794	)
Obligations of state and political subdivisions			5,614				(262	)			80,155				(9,389	)			85,769				(9,651	)
Corporate obligations			385				(1	)			6,404				(598	)			6,789				(599	)
Mortgage-backed securities in government sponsored entities			46,891				(787	)			79,342				(11,154	)			126,233				(11,941	)
Total securities		$	52,890			$	(1,050	)		$	307,922			$	(28,919	)		$	360,812			$	(29,969	)

December 31, 2024
U.S. agency securities		$	-			$	-			$	51,470			$	(5,113	)		$	51,470			$	(5,113	)
U.S. treasury securities			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	)

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available-for-sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis, which may be a maturity. 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 available-for-sale debt securities 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, the Company 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 evaluation 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, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. The Company obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario, and utilizes a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within Investment securities available-for-sale on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met. There was no allowance for credit losses for available for sale securities as of June 30, 2025 and December 31, 2024.

8

Index

Accrued interest receivable on available-for-sale debt securities totaled $2,198,000 and $2,135,000 at June 30, 2025 and December 31, 2024 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.

There were no sales of available for sale securities during the three and six months ended June 30, 2025 and 2024.

The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during the three and six month periods ended June 30, 2025 and  2024, and the portion of unrealized gains for the period that relates to equity investments held at June 30, 2025 and 2024 (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
Equity Securities		2025				2024				2025				2024
Net gains (losses) recognized in equity securities during the period		$	32			$	(87	)		$	21			$	(32	)
Less: Net losses realized on the sale of equity securities during the period			-				-				-				(4	)
Net unrealized gains (losses)		$	32			$	(87	)		$	21			$	(28	)

Investment securities with an approximate carrying value of $368.2 million and $340.4 million at June 30, 2025 and December 31, 2024, respectively, were pledged to secure public funds, certain other deposits and borrowing lines.

Actual maturities may 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 June 30, 2025, by contractual maturity, are shown below (in thousands):

		Amortized Cost				Fair Value
Available-for-sale debt securities:
Due in one year or less		$	44,674			$	43,964
Due after one year through five years			124,116				118,614
Due after five years through ten years			88,060				80,790
Due after ten years			204,053				188,281
Total		$	460,903			$	431,649

9

Index

Note 5 – Loans

The Company originates commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout north central, central and south central Pennsylvania, southern New York, and Wilmington and Dover, Delaware. The HVBC acquisition expanded our lending market further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey. Although the Company had a diversified loan portfolio at June 30, 2025 and December 31, 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 and how those segments are analyzed within the allowance for credit losses - loans as of June 30, 2025 and December 31, 2024 (in thousands):

		June 30, 2025				December 31, 2024
Real estate loans:
Residential		$	341,671			$	351,398
Commercial			1,151,585				1,121,435
Agricultural			331,995				327,722
Construction			138,307				164,326
Consumer			46,933				133,207
Other commercial loans			150,171				131,310
Other agricultural loans			28,366				29,662
State and political subdivision loans			52,727				54,182
Total			2,241,755				2,313,242
Allowance for credit losses - loans			22,109				21,699
Net loans		$	2,219,646			$	2,291,543

Allowance for Credit Losses - Loans

The allowance for credit losses related to loans consists of loans evaluated collectively and individually for expected credit losses. It represents an estimate of credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. Loans individually evaluated for impairment consist of non-accrual commercial loans and recently modified loans that were experiencing financial difficulty at the time of the modification. The allowance for credit losses for off-balance sheet credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other off-balance sheet credit exposures. The total allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the allowance for credit losses as of June 30, 2025 and December 31, 2024 (in thousands):

		June 30, 2025				December 31, 2024
Allowance for Credit Losses - Loans		$	22,109			$	21,699
Allowance for Credit Losses - Off-Balance Sheet credit Exposure			914				676
Total allowance for credit losses		$	23,023			$	22,375

The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2025 and 2024 (in thousands):

		Allowance for Credit Losses - Loans				Allowance for Credit Losses - Off-Balance Sheet credit Exposure				Total
Balance at March 31, 2025		$	22,081			$	763			$	22,844
Loans charge-off			(596	)			-				(596	)
Recoveries of loans previously charged-off			25				-				25
Net loans charged-off			(571	)			-				(571	)
Provision for credit losses			599				151				750
Balance at June 30, 2025		$	22,109			$	914			$	23,023

Balance at December 31, 2024		$	21,699			$	676			$	22,375
Loans charge-off			(781	)			-				(781	)
Recoveries of loans previously charged-off			54				-				54
Net loans charged-off			(727	)			-				(727	)
Provision for credit losses			1,137				238				1,375
Balance at June 30, 2025		$	22,109			$	914			$	23,023

10

Index

		Allowance for Credit Losses - Loans				Allowance for Credit Losses - Off-Balance Sheet credit Exposure				Total
Balance at March 31, 2024		$	21,598			$	938			$	22,536
Loans charge-off			(682	)			-				(682	)
Recoveries of loans previously charged-off			7				-				7
Net loans charged-off			(675	)			-				(675	)
Provision for credit losses			1,874				128				2,002
Balance at June 30, 2024		$	22,797			$	1,066			$	23,863

Balance at December 31, 2023		$	21,153			$	1,265			$	22,418
Loans charge-off			(1,356	)			-				(1,356	)
Recoveries of loans previously charged-off			14				-				14
Net loans charged-off			(1,342	)			-				(1,342	)
Provision for credit losses			2,986				(199	)			2,787
Balance at June 30, 2024		$	22,797			$	1,066			$	23,863

The following tables present the activity in the allowance for credit losses – loans, by portfolio segment, for the three and six months ended June 30, 2025 and 2024 (in thousands):

		For the three months ended June 30, 2025
		Balance at March 31, 2025				Charge-offs				Recoveries				Provision				Balance at June 30, 2025
Real estate loans:
Residential		$	3,213			$	-			$	-			$	(151	)		$	3,062
Commercial			9,237				-				-				661				9,898
Agricultural			4,350				-				-				192				4,542
Construction			1,552				-				-				(279	)			1,273
Consumer			1,418				(275	)			7				37				1,187
Other commercial loans			2,032				(321	)			18				196				1,925
Other agricultural loans			137				-				-				(5	)			132
State and political subdivision loans			57				-				-				(1	)			56
Unallocated			85				-				-				(51	)			34
Total		$	22,081			$	(596	)		$	25			$	599			$	22,109

		For the six months ended June 30, 2025
		Balance at December 31, 2024				Charge-offs				Recoveries				Provision				Balance at June 30, 2025
Real estate loans:
Residential		$	1,940			$	-			$	-			$	1,122			$	3,062
Commercial			9,174				(40	)			-				764				9,898
Agricultural			3,529				-				-				1,013				4,542
Construction			1,402				-				-				(129	)			1,273
Consumer			1,405				(297	)			33				46				1,187
Other commercial loans			3,699				(444	)			21				(1,351	)			1,925
Other agricultural loans			133				-				-				(1	)			132
State and political subdivision loans			61				-				-				(5	)			56
Unallocated			356				-				-				(322	)			34
Total		$	21,699			$	(781	)		$	54			$	1,137			$	22,109

11

Index

		For the three months ended June 30, 2024
		Balance at March 31, 2024				Charge-offs				Recoveries				Provision				Balance at June 30, 2024
Real estate loans:
Residential		$	2,347			$	-			$	-			$	8			$	2,355
Commercial			9,741				-				-				542				10,283
Agricultural			3,672				-				-				98				3,770
Construction			1,595				-				-				32				1,627
Consumer			1,266				(7	)			5				(53	)			1,211
Other commercial loans			2,680				(675	)			2				1,249				3,256
Other agricultural loans			174				-				-				32				206
State and political subdivision loans			65				-				-				(2	)			63
Unallocated			58				-				-				(32	)			26
Total		$	21,598			$	(682	)		$	7			$	1,874			$	22,797

		For the six months ended June 30, 2024
		Balance at December 31, 2023				Charge-offs				Recoveries				Provision				Balance at June 30, 2024
Real estate loans:
Residential		$	2,354			$	-			$	-			$	1			$	2,355
Commercial			9,178				-				-				1,105				10,283
Agricultural			3,264				-				-				506				3,770
Construction			1,950				-				-				(323	)			1,627
Consumer			1,496				(37	)			10				(258	)			1,211
Other commercial loans			2,229				(1,319	)			4				2,342				3,256
Other agricultural loans			270				-				-				(64	)			206
State and political subdivision loans			45				-				-				18				63
Unallocated			367				-				-				(341	)			26
Total		$	21,153			$	(1,356	)		$	14			$	2,986			$	22,797

The provision for the first six months of 2025 was driven by an increase in the amount of past due loans and the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed year of 2024. For residential loans, the historical loss rate increased, while the prepayment speed slowed resulting in an increased provision. For other commercial loans, the historical loss rate decreased in the annual update resulting in a decrease in the provision for 2025.

The provision for the first half of 2024 was driven by the annual update of the loss driver analysis and recording specific reserves for certain other commercial loans. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed year of 2023.

12

Index

The following table presents the allowance for credit losses – loans and amortized cost basis of loans under the CECL methodology as of June 30, 2025 and December 31, 2024 (in thousands):

		Allowance for Credit Losses - Loans												Loans
June 30, 2025		Collectively evaluated				Individually evaluated				Total Allowance for Credit Losses - Loans				Collectively evaluated				Individually evaluated				Total Loans
Real estate loans:
Residential		$	3,034			$	28			$	3,062			$	339,623			$	2,048			$	341,671
Commercial			9,815				83				9,898				1,138,715				12,870				1,151,585
Agricultural			4,542				-				4,542				328,805				3,190				331,995
Construction			1,273				-				1,273				136,978				1,329				138,307
Consumer			187				1,000				1,187				45,860				1,073				46,933
Other commercial loans			1,560				365				1,925				147,850				2,321				150,171
Other agricultural loans			132				-				132				27,963				403				28,366
State and political subdivision loans			56				-				56				52,727				-				52,727
Unallocated			34				-				34				-				-				-
Total		$	20,633			$	1,476			$	22,109			$	2,218,521			$	23,234			$	2,241,755

December 31, 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			391				1,014				1,405				132,180				1,027				133,207
Other commercial loans			2,952				747				3,699				128,728				2,582				131,310
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 those loans that are considered nonaccrual, 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.

13

Index

The following table reflects the non-performing loan receivables, as well as those on non-accrual status as of June 30, 2025 and December 31, 2024, respectively. The balances are presented by class of loan receivable (in thousands):

		June 30, 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		$	156			$	3,467			$	-			$	3,623			$	165			$	2,541			$	-			$	2,706
Home Equity			-				68				-				68				-				165				-				165
Commercial			2,084				10,786				333				13,203				2,099				12,265				-				14,364
Agricultural			-				3,190				-				3,190				-				4,062				269				4,331
Construction			-				1,329				-				1,329				-				283				-				283
Consumer			782				-				14				796				1,002				-				7				1,009
Other commercial loans			435				1,895				-				2,330				2,382				200				-				2,582
Other agricultural loans			-				403				-				403				-				537				-				537
		$	3,457			$	21,138			$	347			$	24,942			$	5,648			$	20,053			$	276			$	25,977

As of June 30, 2025, there were $21.1 million 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 June 30, 2025 and December 31, 2024 (in thousands):

June 30, 2025		Real Estate				Business Assets				None				Total
Real estate loans:
Mortgages		$	3,623			$	-			$	-			$	3,623
Home Equity			68				-				-				68
Commercial			12,870				-				-				12,870
Agricultural			3,190				-				-				3,190
Construction			1,329				-				-				1,329
Consumer			-				-				782				782
Other commercial loans			-				2,330				-				2,330
Other agricultural loans			-				403				-				403
		$	21,080			$	2,733			$	782			$	24,595

December 31, 2024		Real Estate				Business Assets				None				Total
Real estate loans:
Mortgages		$	2,706			$	-			$	-			$	2,706
Home Equity			165				-				-				165
Commercial			14,364				-				-				14,364
Agricultural			4,062				-				-				4,062
Construction			283				-				-				283
Consumer			-				-				1,002				1,002
Other commercial loans			-				2,582				-				2,582
Other agricultural loans			-				537				-				537
		$	21,580			$	3,119			$	1,002			$	25,701

14

Index

Credit Quality Information

For commercial real estate loans, agricultural real estate loans, construction loans, other commercial loans, other agricultural loans, and state and political subdivision loans, management uses a ten grade internal risk rating system to monitor and assess credit quality. The first six grades under the revised system are considered not criticized and are aggregated as “Pass” rated. 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.

• 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 are 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.

15

Index

The following tables represent credit exposures by internally assigned grades, by origination year, as of June 30, 2025 and December 31, 2024 (in thousands):

																										Revolving				Revolving
		Term Loans Amortized Cost Basis by Origination Year																								Loans				Loans
																										Amortized				Converted
June 30, 2025		2025				2024				2023				2022				2021				Prior				Cost Basis				to Term				Total
Commercial real estate
Risk Rating
Pass		$	44,305			$	66,047			$	99,690			$	347,623			$	179,312			$	319,454			$	31,039			$	1,721			$	1,089,191
Special Mention			-				-				804				5,882				4,987				8,173				737				-				20,583
Substandard			-				84				1,051				23,641				5,023				11,507				154				351				41,811
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	44,305			$	66,131			$	101,545			$	377,146			$	189,322			$	339,134			$	31,930			$	2,072			$	1,151,585
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	40			$	-			$	-			$	40
Agricultural real estate
Risk Rating
Pass		$	22,323			$	32,274			$	19,660			$	51,040			$	23,346			$	146,880			$	16,135			$	204			$	311,862
Special Mention			672				586				4,177				594				360				3,543				860				-				10,792
Substandard			495				678				-				2,057				692				4,700				639				80				9,341
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	23,490			$	33,538			$	23,837			$	53,691			$	24,398			$	155,123			$	17,634			$	284			$	331,995
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Construction
Risk Rating
Pass		$	10,321			$	34,188			$	44,946			$	34,451			$	-			$	-			$	4,836			$	-			$	128,742
Special Mention			-				-				-				4,501				2,946				-				-				-				7,447
Substandard			-				-				789				1,046				283				-				-				-				2,118
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	10,321			$	34,188			$	45,735			$	39,998			$	3,229			$	-			$	4,836			$	-			$	138,307
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Other commercial loans
Risk Rating
Pass		$	18,500			$	31,372			$	19,367			$	5,779			$	6,531			$	4,903			$	54,392			$	68			$	140,912
Special Mention			-				161				-				1,798				9				-				4,150				31				6,149
Substandard			-				-				-				-				39				739				366				1,846				2,990
Doubtful			-				-				-				-				-				-				111				9				120
Total		$	18,500			$	31,533			$	19,367			$	7,577			$	6,579			$	5,642			$	59,019			$	1,954			$	150,171
Current period gross charge-offs		$	-			$	48			$	-			$	-			$	-			$	54			$	342			$	-			$	444
Other agricultural loans
Risk Rating
Pass		$	4,824			$	3,600			$	1,701			$	692			$	2,655			$	423			$	11,453			$	-			$	25,348
Special Mention			-				1,645				20				-				-				-				315				-				1,980
Substandard			-				-				300				448				-				57				231				2				1,038
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	4,824			$	5,245			$	2,021			$	1,140			$	2,655			$	480			$	11,999			$	2			$	28,366
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
State and political subdivision loans
Risk Rating
Pass		$	59			$	30			$	1,392			$	13,387			$	10,222			$	27,496			$	141			$	-			$	52,727
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total		$	59			$	30			$	1,392			$	13,387			$	10,222			$	27,496			$	141			$	-			$	52,727
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total
Risk Rating
Pass		$	100,332			$	167,511			$	186,756			$	452,972			$	222,066			$	499,156			$	117,996			$	1,993			$	1,748,782
Special Mention			672				2,392				5,001				12,775				8,302				11,716				6,062				31				46,951
Substandard			495				762				2,140				27,192				6,037				17,003				1,390				2,279				57,298
Doubtful			-				-				-				-				-				-				111				9				120
Total		$	101,499			$	170,665			$	193,897			$	492,939			$	236,405			$	527,875			$	125,559			$	4,312			$	1,853,151

16

Index

																										Revolving				Revolving
		Term Loans Amortized Cost Basis by Origination Year																								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			$	44,871			$	75			$	120,894
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			$	50,181			$	1,784			$	131,310
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			$	103,567			$	1,976			$	1,708,457
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			$	113,702			$	4,210			$	1,828,637

17

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 tables present the recorded investment in those loan classes based on payment activity, by origination year, as of June 30, 2025 and December 31, 2024 (in thousands):

																										Revolving				Revolving
		Term Loans Amortized Cost Basis by Origination Year																								Loans				Loans
																										Amortized				Converted
June 30, 2025		2025				2024				2023				2022				2021				Prior				Cost Basis				to Term				Total
Residential real estate
Payment Performance
Performing		$	3,581			$	11,942			$	24,191			$	84,870			$	43,625			$	119,017			$	-			$	-			$	287,226
Nonperforming			-				-				-				1,240				725				1,658				-				-				3,623
Total		$	3,581			$	11,942			$	24,191			$	86,110			$	44,350			$	120,675			$	-			$	-			$	290,849
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Home equity
Payment Performance
Performing		$	2,076			$	2,969			$	2,849			$	2,144			$	1,268			$	8,123			$	31,000			$	325			$	50,754
Nonperforming			-				-				-				-				-				68				-				-				68
Total		$	2,076			$	2,969			$	2,849			$	2,144			$	1,268			$	8,191			$	31,000			$	325			$	50,822
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer
Payment Performance
Performing		$	1,072			$	1,342			$	616			$	436			$	446			$	2,720			$	39,504			$	1			$	46,137
Nonperforming			-				-				2				1				11				782				-				-				796
Total		$	1,072			$	1,342			$	618			$	437			$	457			$	3,502			$	39,504			$	1			$	46,933
Current period gross charge-offs		$	-			$	-			$	7			$	-			$	-			$	273			$	17			$	-			$	297
Total
Payment Performance
Performing		$	6,729			$	16,253			$	27,656			$	87,450			$	45,339			$	129,861			$	70,504			$	326			$	384,118
Nonperforming			-				-				2				1,241				736				2,507				-				-				4,486
Total		$	6,729			$	16,253			$	27,658			$	88,691			$	46,075			$	132,368			$	70,504			$	326			$	388,604

18

Index

																										Revolving				Revolving
		Term Loans Amortized Cost Basis by Origination Year																								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			$	125,272			$	1			$	132,198
Nonperforming			-				7				-				-				6				996				-				-				1,009
Total		$	2,076			$	887			$	589			$	543			$	323			$	3,516			$	125,272			$	1			$	133,207
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			$	154,574			$	420			$	480,725
Nonperforming			-				7				382				751				552				2,188				-				-				3,880
Total		$	16,550			$	28,213			$	91,970			$	48,479			$	29,931			$	114,468			$	154,574			$	420			$	484,605

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 June 30, 2025 and December 31, 2024 (in thousands):

June 30, 2025		30-59 Days Past Due				60-89 Days Past Due				90 Days Or Greater				Total Past Due				Current				Total Loans Receivables
Real estate loans:
Mortgages		$	683			$	2,232			$	1,840			$	4,755			$	286,094			$	290,849
Home Equity			130				110				45				285				50,537				50,822
Commercial			888				14,918				9,144				24,950				1,126,635				1,151,585
Agricultural			965				74				1,919				2,958				329,037				331,995
Construction			-				-				283				283				138,024				138,307
Consumer			242				307				796				1,345				45,588				46,933
Other commercial loans			-				327				2,025				2,352				147,819				150,171
Other agricultural loans			312				-				403				715				27,651				28,366
State and political subdivision loans			-				-				-				-				52,727				52,727
Total		$	3,220			$	17,968			$	16,455			$	37,643			$	2,204,112			$	2,241,755
Loans considered non-accrual		$	2,167			$	467			$	16,108			$	18,742			$	5,853			$	24,595
Loans still accruing			1,053				17,501				347				18,901				2,198,259				2,217,160
Total		$	3,220			$	17,968			$	16,455			$	37,643			$	2,204,112			$	2,241,755

19

Index

December 31, 2024		30-59 Days Past Due				60-89 Days Past Due				90 Days Or Greater				Total Past Due				Current				Total Loans Receivables
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				131,886				133,207
Other commercial loans			478				282				2,336				3,096				128,214				131,310
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.

The following table shows the amortized cost basis by class of loans receivable, information regarding nonaccrual modified loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025 (dollars in thousands):

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
		Three months ended June 30, 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			$	109				0.04	%
Total			1			$	109
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			3			$	1,059				0.09	%
Total			3			$	1,059

20

Index

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
		Six months ended June 30, 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			$	109				0.04	%
Total			1			$	109
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			3			$	1,059				0.09	%
Other commercial loans			1				185				0.12	%
Total			4			$	1,244

The following table shows, by class of loans receivable, information regarding the financial effect on nonaccrual modified loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025:

Three months ended June 30, 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
Total			1
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			3		Extended the loan maturity 5 years with a 30 year amortization
Total			3

Six months ended June 30, 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
Total			1
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial			3		Extended the loan maturity 5 years with a 30 year amortization
Other commercial loans			1		Extended the loan maturity 10 years as termed out or line of credit
Total			4

There were no accrual or nonaccrual modified loans to borrowers experiencing financial difficulty for which there were payment defaults after the modification date for the three and six months ended June 30, 2025.

21

Index

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 June 30, 2025 (in thousands):

		June 30, 2025
						30-89 Days				90 Days
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty		Current				Past Due				Or Greater				Total
Real estate loans:
Mortgages		$	109			$	-			$	-			$	109
Commercial			1,059				-				-				1,059
Other commercial loans			185				-				-				185
Total		$	1,353			$	-			$	-			$	1,353

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 June 30, 2025 and December 31, 2024, included within other assets are $2,434,000 and $2,635,000, respectively, of foreclosed assets. As of June 30, 2025, included within the foreclosed assets are $76,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu of foreclosure transaction prior to the period end. As of June 30, 2025, the Company had initiated formal foreclosure proceedings on $767,000 of residential mortgage loans, the collateral properties of which have not yet been transferred into foreclosed assets.

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of June 30, 2025 and December 31, 2024 (in thousands):

		June 30, 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		$	2,482			$	(1,829	)		$	653			$	2,478			$	(1,717	)		$	761
Core deposit intangibles			4,713				(2,836	)			1,877				4,713				(2,582	)			2,131
Total amortized intangible assets		$	7,195			$	(4,665	)		$	2,530			$	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 amortized intangible assets for the next five years (in thousands). The Company based its projections of amortization expense shown below on existing asset balances at June 30, 2025. Future amortization expense may vary from these projections:

		MSRs				Core deposit intangibles				Total
Three months ended June 30, 2025 (actual)		$	64			$	127			$	191
Six months ended June 30, 2025 (actual)			134				254				388
Three months ended June 30, 2024 (actual)			74				147				221
Six months ended June 30, 2024 (actual)			154				296				450
Estimate for year ending December 31,
Remaining 2025			119				225				344
2026			198				395				593
2027			143				339				482
2028			96				284				380
2029			59				230				289
Thereafter			38				404				442
Total		$	653			$	1,877			$	2,530

22

Index

Note 7 – Employee Benefit Plans

For additional detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 11 of the Company’s Audited Consolidated Financial Statements included in the 2024 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior to January 1, 2007. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plan’s actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain 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, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age 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 following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and six months ended June 30, 2025 and 2024, respectively (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024			Affected line item on the Consolidated Statement of Income
Service cost		$	54			$	84			$	137			$	165		Salary and Employee Benefits
Interest cost			113				106				226				211		Other Expenses
Expected return on plan assets			(196	)			(195	)			(397	)			(395	)	Other Expenses
Net amortization and deferral			-				14				-				16		Other Expenses
Net periodic benefit cost		$	(29	)		$	9			$	(34	)		$	(3	)

The Bank does not expect to contribute to the Pension Plan during 2025.

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 are subject to certain vesting requirements including 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 June 30, 2025, 101,106 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.

23

Index

The following table details the vesting, awarding and forfeiting of restricted stock during the three and six months ended June 30, 2025:

		Three months								Six months
		Unvested Shares				Weighted Average Market Price				Unvested Shares				Weighted Average Market Price
Outstanding, beginning of period			10,781			$	53.73				10,927			$	53.81
Granted			3,106				56.82				3,106				56.82
Forfeited			-				-				(119	)			(59.37	)
Vested			(4,344	)			(55.51	)			(4,371	)			(55.55	)
Outstanding, end of period			9,543			$	53.92				9,543			$	53.92

Compensation expense 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 $147,000 and $122,000 for the six months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025 and 2024, compensation expense totaled $74,000 and $57,000, respectively. At June 30, 2025, the total compensation cost related to nonvested awards that had not yet been recognized was $515,000, which is expected to be recognized over the next three years.

Note 8 – Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component, net of tax, for the three and six months ended June 30, 2025 and 2024 (in thousands):

		Unrealized gain (loss) on available for sale securities (a)				Defined Benefit Pension Items (a)				Unrealized loss on interest rate swap (a)				Total
		Three months ended June 30, 2025
Balance as of March 31, 2025		$	(22,663	)		$	(304	)		$	2,728			$	(20,239	)
Other comprehensive (loss) income before reclassifications (net of tax)			(448	)			-				55				(393	)
Amounts reclassified from accumulated other comprehensive loss (net of tax)			-				-				(394	)			(394	)
Net current period other comprehensive loss			(448	)			-				(339	)			(787	)
Balance as of June 30, 2025		$	(23,111	)		$	(304	)		$	2,389			$	(21,026	)

		Six months ended June 30, 2025
Balance as of December 31, 2024		$	(26,564	)		$	(304	)		$	3,347			$	(23,521	)
Other comprehensive income (loss) before reclassifications (net of tax)			3,453				-				(140	)			3,313
Amounts reclassified from accumulated other comprehensive loss (net of tax)			-				-				(818	)			(818	)
Net current period other comprehensive income (loss)			3,453				-				(958	)			2,495
Balance as of June 30, 2025		$	(23,111	)		$	(304	)		$	2,389			$	(21,026	)

		Three months ended June 30, 2024
Balance as of March 31, 2024		$	(30,069	)		$	(970	)		$	4,419			$	(26,620	)
Other comprehensive income before reclassifications (net of tax)			911				-				263				1,174
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)			-				11				(497	)			(486	)
Net current period other comprehensive income (loss)			911				11				(234	)			688
Balance as of June 30, 2024		$	(29,158	)		$	(959	)		$	4,185			$	(25,932	)

24

Index

		Six months ended June 30, 2024
		Unrealized gain (loss) on available for sale securities (a)				Defined Benefit Pension Items (a)				Unrealized loss on interest rate swap (a)				Total
Balance as of December 31, 2023		$	(28,238	)		$	(972	)		$	4,299			$	(24,911	)
Other comprehensive (loss) income before reclassifications (net of tax)			(920	)			-				887				(33	)
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)			-				13				(1,001	)			(988	)
Net current period other comprehensive (loss) income			(920	)			13				(114	)			(1,021	)
Balance as of June 30, 2024		$	(29,158	)		$	(959	)		$	4,185			$	(25,932	)

(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the three and six months ended June 30, 2025 and 2024 (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
		Three Months Ended June 30,
		2025				2024
Unrealized gains and losses on available for sale securities
		$	-			$	-		Available for sale securities gains, net
			-				-		Provision for income taxes
		$	-			$	-		Net of tax
Defined benefit pension items
		$	-			$	(14	)	Other expenses
			-				3		Provision for income taxes
		$	-			$	(11	)	Net of tax
Unrealized gain (loss) on interest rate swap		$	498			$	630		Interest expense
			(104	)			(133	)	Provision for income taxes
		$	394			$	497		Net of tax
Total reclassifications		$	394			$	486

25

Index

Six Months Ended June 30,
		2025				2024
Unrealized gains and losses on available for sale securities
		$	-			$	-		Available for sale securities gains, net
			-				-		Provision for income taxes
		$	-			$	-		Net of tax
Defined benefit pension items
		$	-			$	(16	)	Other expenses
			-				3		Provision for income taxes
		$	-			$	(13	)	Net of tax
Unrealized gain (loss) on interest rate swap		$	1,035			$	1,268		Interest expense
			(217	)			(267	)	Provision for income taxes
		$	818			$	1,001		Net of tax
Total reclassifications		$	818			$	988

(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

Note 9 – Fair Value Measurements

The Company has 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. The Company’s 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.

26

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 and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of June 30, 2025 and December 31, 2024 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

June 30, 2025		Level I				Level II				Level III				Total
Fair value measurements on a recurring basis:
Equity securities		$	1,768			$	-			$	-			$	1,768
Available for sale securities:
U.S. Agency securities			-				54,659				-				54,659
U.S. Treasury securities			101,739				-				-				101,739
Obligations of state and political subdivisions			-				93,693				-				93,693
Corporate obligations			-				10,908				-				10,908
Mortgage-backed securities in government sponsored entities			-				170,650				-				170,650
Loans held for sale			-				15,529				-				15,529
Derivative instruments – assets			-				7,724				548				8,272
Derivative instruments - liabilities			-				(4,701	)			-				(4,701	)

December 31, 2024		Level I				Level II				Level III				Total
Fair value measurements on a recurring basis:
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
Loans held for sale			-				9,607				-				9,607
Derivative instruments – assets			-				10,053				317				10,370
Derivative instruments - liabilities			-				(5,817	)			-				(5,817	)

27

Index

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2025 and 2024 (in thousands):

For the three months ended June 30, 2025
		IRLC- Asset
Balance: March 31, 2025		$	472
Total unrealized losses:
Included in other comprehensive loss			-
Total gains included in earnings and held at reporting date			76
Purchases, sales and settlements			-
Transfers in and/or out of Level 3			-
Ending Balance: June 30, 2025		$	548
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2025			76
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024			-

For the six months ended June 30, 2025
		IRLC- Asset
Balance: December 31, 2024		$	317
Total unrealized losses:
Included in other comprehensive loss			-
Total gains included in earnings and held at reporting date			231
Purchases, sales and settlements			-
Transfers in and/or out of Level 3			-
Ending Balance: June 30, 2025		$	548
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2025			231
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024			-

For the three months ended June 30, 2024
		IRLC- Asset
Balance: March 31, 2024		$	566
Total unrealized losses:
Included in other comprehensive loss			-
Total losses included in earnings and held at reporting date			(72	)
Purchases, sales and settlements			-
Transfers in and/or out of Level 3			-
Ending Balance: June 30, 2024		$	494
Change in unrealized (losses) for the period included in earnings for assets held as of June 30, 2024			(72	)
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2023			-

For the six months ended June 30, 2024
		IRLC- Asset
Balance: December 31, 2023		$	324
Total unrealized losses:
Included in other comprehensive loss			-
Total gains included in earnings and held at reporting date			170
Purchases, sales and settlements			-
Transfers in and/or out of Level 3			-
Ending Balance: June 30, 2024		$	494
Change in unrealized gains for the period included in earnings for assets held as of June 30, 2024			170
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2023			-

At June 30, 2025 and December 31, 2024, the Company had classified as Level 3 $548,000 and $317,000, respectively, of net derivative assets and liabilities related to IRLC. 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. The weighted average pull-through rates applied ranged from 71.98% to 96.29% at June 30, 2025.

28

Index

Significant unobservable inputs for assets measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 (dollars in thousands):

Quantitative Information about Level 3 Fair Value Measurements

June 30, 2025

Fair Value

Valuation Technique

Significant Unobservable Input

Range

Weighted Average

Measured at Fair Value on a Recurring Basis:

Net derivative asset and liability:

IRLC

$

548

Discounted cash flows

Pull-through rates

71.98%-96.29

%

83.88

%

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2024

Fair Value

Valuation Technique

Significant Unobservable Input

Range

Weighted Average

Measured at Fair Value on a Recurring Basis:

Net derivative asset and liability:

IRLC

$

317

Discounted cash flows

Pull-through rates

76.35%-100.00

%

89.65

%

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

Assets measured at fair value on a nonrecurring basis as of June 30, 2025 and December 31, 2024 are included in the table below (in thousands):

June 30, 2025		Level I				Level II				Level III				Total
Collateral-dependent loans		$	-			$	-			$	2,155			$	2,155
Other real estate owned			-				-				2,434				2,434
December 31, 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 estimated cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $187,000 and $253,000 at June 30, 2025 and December 31, 2024, respectively.

• Other Real Estate Owned (OREO) – 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.

29

Index

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 III Fair Value Measurements
June 30, 2025		Fair Value			Valuation Technique(s)		Unobservable input		Range				Weighted average
Collateral-dependent loans		$	2,155		Appraised Collateral Values		Discount for time since appraisal			0-100	%			31.52	%
							Selling costs			0%-10	%			8.67	%
							Holding period		0 - 12 months				10.88 months
Other real estate owned			2,434		Appraised Collateral Values		Discount for time since appraisal			20-31.8	%			31.52	%

December 31, 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	%

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):

June 30, 2025		Carrying Amount				Fair Value				Level I				Level II				Level III
Financial assets:
Interest bearing time deposits with other banks		$	3,820			$	3,774			$	-			$	-			$	3,774
Net loans			2,219,646				2,163,927				-				-				2,163,927
Financial liabilities:
Deposits			2,292,662				2,289,738				1,828,008				-				461,730
Borrowed funds			313,219				307,441				-				-				295,081

December 31, 2024		Carrying Amount				Fair Value				Level I				Level II				Level III
Financial assets:
Interest bearing time deposits with other banks		$	3,820			$	3,820			$	-			$	-			$	3,820
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				284,952				-				-				284,952

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

Note 10 - 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.

30

Index

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
		Three months ended								Six months ended
		June 30,								June 30,
		2025				2024				2025				2024
Total Interest and Dividend Income		$	38,749			$	37,902			$	77,763			$	75,835
Total non-interest income			3,665				3,336				7,092				8,307
Total Consolidated Revenues			42,414				41,238				84,855				84,142
Less:
Interest Expense			15,101				16,602				31,113				33,577
Segment net interest income and non-interest income			27,313				24,636				53,742				50,565
Less:
Provision for credit losses			750				2,002				1,375				2,787
Salaries and employee benefits			9,976				9,617				20,265				19,907
Occupancy			1,182				1,266				2,538				2,590
Other segment expenses			4,989				5,363				9,772				10,392
Income Taxes			1,953				1,113				3,708				2,590
Segment net income/consolidated net income		$	8,463			$	5,275			$	16,084			$	12,299

Note 11 – Recent Accounting Pronouncements

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.

31

Index

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.

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.

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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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we may incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc. or the combined Company. When we use words such as “believes,” “expects,” “anticipates,” or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements.  The Company cautions readers that the following important factors, among others, could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:

• Interest rates could change more rapidly or more significantly than we expect or the yield curve could 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 tariffs 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.

• 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.

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Index

Additional factors that may affect our results are discussed under “Part II – Item 1A – Risk Factors” in this report and in the Company’s 2024 Annual Report on Form 10-K under “Item 1.A/ Risk Factors.”  Except as required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.

Introduction

The following is management’s discussion and analysis of the Company’s consolidated financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial statements for the Company.  Our 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 preceding financial statements presented under Part I and the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.  The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results you may expect for the full year.

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 and with the MidCoast acquisition, the Cities of Wilmington and Dover, Delaware. 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 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 48 banking facilities, 38 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 Montgomeryville, PA, Huntington Valley, PA, Philadelphia, 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 Management

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, frequency and magnitude of changes in market 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 policy 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 purchase of securities from an issuer.  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.

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Index

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, including fraudulent activity outside the Company’s control. 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 and compliance risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

Competition

The banking industry in the Bank’s service areas continue to be extremely competitive for loans and deposits, both among commercial banks and with other financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities. Competition in our north central Pennsylvania market has increased as a result of other financial institutions expanding or looking to expand into new markets. With larger population centers in our central, south central and south east Pennsylvania markets, as well as in our Delaware market, we experience more competition to gather deposits and to make loans. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans, deposits and other financial services. Fintech and blockchain entities offering crypto services are also increasing competition for the Company’s financial services. 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.

Trust and Investment Services; Oil and Gas Lease Services

Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities.  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 Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Balance Sheets since such items are not assets of the Company.  Revenues and fees of the Trust Department are reflected in trust income in the Consolidated Statement of Income. As of June 30, 2025 and December 31, 2024, the Trust Department had $188.8 million and $180.7 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank’s market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.  The assets associated with these products are not included in the Consolidated Balance Sheets since such assets are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank’s Investment Representatives increased from $395.9 million at December 31, 2024 to $419.9 million at June 30, 2025. Fee income from the sale of these products is reflected in brokerage and insurance income in the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, especially in our central, south central and south eastern Pennsylvania markets.

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Index

Results of Operations

Overview of the Income Statement

The Company had net income of $16,084,000 for the first six months of 2025 compared to $12,299,000 for last year’s comparable period, an increase of $3,785,000, or 30.8%, primarily due to an increase in net interest income after the provision for credit losses of $5,804,000. Basic earnings per share for the first six months of 2025 was $3.35, compared to $2.56 for last year’s comparable period, representing a 30.9% increase.  Annualized return on assets and return on equity for the six months of 2025 were 1.07% and 10.44%, respectively, compared with 0.83% and 8.67% for last year’s comparable period.

Net income for the three months ended June 30, 2025 was $8,463,000 compared to net income of $5,275,000 in the comparable 2024 period, an increase of $3,188,000. Basic earnings per share for the three months ended June 30, 2025 were $1.76, compared to $1.10 for last year’s comparable period, representing a 60.0% increase due to the decrease in the provision for credit losses of $1,252,000 and organic growth in net interest income of $2,348,000. Annualized return on assets and return on equity for the quarter ended June 30, 2025 was 1.13% and 10.88%, respectively, compared with 0.72% and 7.40% for the same 2024 period.

Net Interest Income

Net interest income, the most significant component of the Company’s earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense paid on interest-bearing liabilities.

Net interest income for the first six months of 2025 was $46,650,000, an increase of $4,392,000, or 10.4%, compared to the same period in 2024.  For the first six months of 2025 the provision for credit losses was $1,375,000. The provision for the first six months of 2024 was $2,787,000. Consequently, net interest income after the provision for credit losses was $45,275,000 in the first six months of 2025 compared to $39,471,000 during the first six months of 2024.

For the three months ended June 30, 2025, net interest income was $23,648,000 compared to $21,300,000, an increase of $2,348,000, or 11.0%, over the comparable period in 2024. The provision for credit losses in the second quarter of 2025 was $750,000 compared to $2,002,000 in 2024. Consequently, net interest income after the provision for credit losses was $22,898,000 for the quarter ended June 30, 2025 compared to $19,298,000 in 2024.

The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and interest rate spread created for the three and six months ended June 30, 2025 and 2024 on a tax equivalent basis (dollars in thousands):

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Index

		Analysis of Average Balances and Interest Rates
		Six Months Ended
		June 30, 2025												June 30, 2024
		Average								Average				Average								Average
		Balance (1)				Interest				Rate				Balance (1)				Interest				Rate
(dollars in thousands)			$			$					%				$			$					%
ASSETS
Short-term investments:
Interest-bearing deposits at banks			24,052				216				1.81				30,119				445				2.97
Total short-term investments			24,052				216				1.81				30,119				445				2.97
Interest bearing time deposits at banks			3,820				59				3.11				3,937				60				3.06
Investment securities:
Taxable			381,886				5,574				2.92				359,142				4,078				2.27
Tax-exempt (3)			102,854				1,431				2.78				106,438				1,332				2.50
Total investment securities			484,740				7,005				2.89				465,580				5,410				2.32
Loans (2)(3)(4):
Residential mortgage loans			349,226				10,312				5.95				358,472				10,291				5.77
Construction			164,252				5,888				7.23				187,001				6,858				7.38
Commercial Loans			1,262,225				39,383				6.29				1,243,546				39,674				6.42
Agricultural Loans			357,561				9,696				5.47				345,287				8,887				5.18
Loans to state & political subdivisions			53,389				1,034				3.91				56,469				1,106				3.94
Other loans			130,147				4,674				7.24				89,472				3,599				8.09
Loans, net of discount			2,316,800				70,987				6.18				2,280,247				70,415				6.21
Total interest-earning assets			2,829,412				78,267				5.58				2,779,883				76,330				5.52
Cash and due from banks			9,643												9,511
Bank premises and equipment			21,691												21,171
Other assets			177,531												181,792
Total non-interest earning assets			208,865												212,474
Total assets			3,038,277												2,992,357
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Business Interest Checking			17,995				85				0.95				-				-				-
NOW accounts			723,673				7,796				2.17				783,055				9,999				2.57
Savings accounts			290,576				677				0.47				300,704				778				0.52
Money market accounts			432,891				6,206				2.89				381,209				5,765				3.04
Certificates of deposit			481,272				8,979				3.76				439,995				8,434				3.86
Total interest-bearing deposits			1,946,407				23,743				2.46				1,904,963				24,976				2.64
Other borrowed funds			337,737				7,370				4.40				350,354				8,601				4.94
Total interest-bearing liabilities			2,284,144				31,113				2.75				2,255,317				33,577				2.99
Demand deposits			381,048												376,632
Other liabilities			42,426												49,266
Total non-interest-bearing liabilities			423,474												425,898
Stockholders’ equity			330,659												311,142
Total liabilities & stockholders’ equity			3,038,277												2,992,357
Net interest income							47,154												42,753
Net interest spread (5)											2.83	%											2.53	%
Net interest income as a percentage of average interest-earning assets											3.36	%											3.09	%
Ratio of interest-earning assets to interest-bearing liabilities											124	%											123	%

(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%.

(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.

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Index

		Analysis of Average Balances and Interest Rates
		Three Months Ended
		June 30, 2025												June 30, 2024
		Average								Average				Average								Average
		Balance (1)				Interest				Rate				Balance (1)				Interest				Rate
(dollars in thousands)			$			$					%				$			$					%
ASSETS
Short-term investments:
Interest-bearing deposits at banks			17,879				102				2.31				18,353				232				5.11
Total short-term investments			17,879				102				2.31				18,353				232				5.11
Interest bearing time deposits at banks			3,820				30				3.18				3,820				30				3.16
Investment securities:
Taxable			381,141				2,806				2.95				355,321				2,053				2.31
Tax-exempt (3)			102,694				739				2.88				105,379				658				2.50
Total investment securities			483,835				3,545				2.93				460,700				2,711				2.35
Loans (2)(3)(4):
Residential mortgage loans			347,408				5,212				6.08				358,448				5,232				5.87
Construction			165,056				2,967				7.29				184,103				3,367				7.36
Commercial Loans			1,269,944				19,956				6.37				1,251,484				20,154				6.48
Agricultural Loans			358,245				4,970				5.63				346,107				4,482				5.21
Loans to state & political subdivisions			53,051				517				3.95				56,290				556				3.97
Other loans			95,901				1,706				7.21				68,805				1,383				8.08
Loans, net of discount			2,289,605				35,328				6.26				2,265,237				35,174				6.25
Total interest-earning assets			2,795,139				39,005				5.66				2,748,110				38,147				5.58
Cash and due from banks			9,665												9,199
Bank premises and equipment			21,836												21,053
Other assets			184,184												195,528
Total non-interest earning assets			215,685												225,780
Total assets			3,010,824												2,973,890
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Business Interest Checking			18,345				45				0.99				-				-				-
NOW accounts			707,715				3,742				2.14				766,142				4,776				2.51
Savings accounts			288,198				329				0.46				299,318				391				0.53
Money market accounts			447,711				3,181				2.88				381,377				2,972				3.13
Certificates of deposit			454,893				4,152				3.70				457,570				4,516				3.97
Total interest-bearing deposits			1,916,862				11,449				2.42				1,904,407				12,655				2.67
Other borrowed funds			329,154				3,652				4.50				324,736				3,947				4.89
Total interest-bearing liabilities			2,246,016				15,101				2.73				2,229,143				16,602				3.00
Demand deposits			390,102												382,312
Other liabilities			41,369												49,051
Total non-interest-bearing liabilities			431,471												431,363
Stockholders’ equity			333,337												313,384
Total liabilities & stockholders’ equity			3,010,824												2,973,890
Net interest income							23,904												21,545
Net interest spread (5)											2.93	%											2.58	%
Net interest income as a percentage of average interest-earning assets											3.47	%											3.15	%
Ratio of interest-earning assets to interest-bearing liabilities											124	%											123	%

(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%.

(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.

Tax exempt revenue is shown on a tax-equivalent basis (non-GAAP) for proper comparison using a federal statutory income tax rate of 21% for the three and six months ended June 30, 2025 and 2024.  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 Company’s Federal statutory rate during the corresponding period. The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the periods ended June 30, 2025 and 2024 (in thousands):

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Index

		For the Three Months								For the Six Months
		Ended June 30								Ended June 30
		2025				2024				2025				2024
Interest and dividend income from investment securities and interest bearing deposits at banks (non-tax adjusted)		$	3,522			$	2,835			$	6,980			$	5,635
Tax equivalent adjustment			155				138				300				280
Interest and dividend income from investment securities and interest bearing deposits at banks (tax equivalent basis)		$	3,677			$	2,973			$	7,280			$	5,915
Interest and fees on loans (non-tax adjusted)		$	35,227			$	35,067			$	70,783			$	70,200
Tax equivalent adjustment			101				107				204				215
Interest and fees on loans (tax equivalent basis)		$	35,328			$	35,174			$	70,987			$	70,415
Total interest income		$	38,749			$	37,902			$	77,763			$	75,835
Total interest expense			15,101				16,602				31,113				33,577
Net interest income			23,648				21,300				46,650				42,258
Total tax equivalent adjustment			256				245				504				495
Net interest income (tax equivalent basis)		$	23,904			$	21,545			$	47,154			$	42,753

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

		Three months ended June 30, 2025 vs 2024 (1)												Six months ended June 30, 2025 vs 2024 (1)
		Change in				Change				Total				Change in				Change				Total
		Volume				in Rate				Change				Volume				in Rate				Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks		$	(7	)		$	(123	)		$	(130	)		$	(79	)		$	(150	)		$	(229	)
Interest bearing time deposits at banks			-				-				-				(2	)			1				(1	)
Investment securities:
Taxable			158				595				753				271				1,225				1,496
Tax-exempt			(16	)			97				81				(43	)			142				99
Total investments			142				692				834				228				1,367				1,595
Loans:
Residential mortgage loans			(170	)			150				(20	)			(254	)			275				21
Construction			(370	)			(30	)			(400	)			(837	)			(133	)			(970	)
Commercial Loans			180				(378	)			(198	)			524				(815	)			(291	)
Agricultural Loans			122				366				488				297				512				809
Loans to state & political subdivisions			(36	)			(3	)			(39	)			(63	)			(9	)			(72	)
Other loans			449				(126	)			323				1,400				(325	)			1,075
Total loans, net of discount			175				(21	)			154				1,067				(495	)			572
Total Interest Income			310				548				858				1,214				723				1,937
Interest Expense:
Interest-bearing deposits:
Business Interest Checking			-				45				45				-				85				85
NOW accounts			(383	)			(651	)			(1,034	)			(745	)			(1,458	)			(2,203	)
Savings accounts			(17	)			(45	)			(62	)			(27	)			(74	)			(101	)
Money Market accounts			411				(202	)			209				703				(262	)			441
Certificates of deposit			(63	)			(301	)			(364	)			741				(196	)			545
Total interest-bearing deposits			(52	)			(1,154	)			(1,206	)			672				(1,905	)			(1,233	)
Other borrowed funds			20				(315	)			(295	)			(325	)			(906	)			(1,231	)
Total interest expense			(32	)			(1,469	)			(1,501	)			347				(2,811	)			(2,464	)
Net interest income		$	342			$	2,017			$	2,359			$	867			$	3,534			$	4,401

(1) The portion of the total change attributable to both volume and rate changes, which can not be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.

Tax equivalent net interest income increased from $42,753,000 for the six month period ended June 30, 2024 to $47,154,000 for the six month period ended June 30, 2025, an increase of $4,401,000. This increase was a result of an increase of $867,000 due to a change in volume as average interest-bearing assets increased $49.5 million due to organic growth primarily in our Delaware market. As a result of the lower market interest rates, the yield on average interest earning liabilities decreased 24 basis points from 2.99% to 2.75% resulting in a decrease in interest expense of $2,811,000. The tax equivalent net interest margin increased from 3.09% for the first six months of 2024 to 3.36% for the comparable period in 2025. The increase was primarily caused by the decrease in the cost of interest-bearing liabilities due to lower market interest rates in 2025 compared to 2024.

39

Index

Total tax equivalent interest income for the 2025 six month period increased $1,937,000 as compared to the 2024 six month period. This increase was a result of an increase of $1,214,000 due to a change in volume as average interest-bearing assets increased $49.5 million. The yield on interest earning assets increased from 5.52% to 5.58% resulting in an increase in interest income of $723,000.

Tax equivalent investment income for the six months ended June 30, 2025 increased $1,595,000 over the same period last year. The primary cause of the increase was due to the increase in yield on investment securities of 57 basis points to 2.89%.

• The average balance of taxable securities increased $22.7 million, which resulted in an increase in investment income of $271,000. The yield on taxable securities increased 65 basis points from 2.27% to 2.92% as a result of lower yielding securities maturing and purchases made in a higher market rate environment. This resulted in an increase in investment income of $1,225,000.

• The average balance of tax-exempt securities decreased $3.6 million, which resulted in a decrease in investment income of $43,000. The yield on taxable securities increased 28 basis points from 2.50% to 2.78%. This resulted in an increase in investment income of $142,000. For a discussion of the Company’s current investment strategy, see the “Financial Condition – Investments”.

Total loan interest income increased $572,000 for the six months ended June 30, 2025 compared to the same period last year, as a result of higher volume.

• Interest income on residential mortgage loans increased $21,000. The change due to rate was a increase of $275,000 as the average yield on residential mortgages increased from 5.77% to 5.95%. The average balance of residential mortgage loans decreased $9.2 million. This resulted in a decrease of $254,000 on total interest income due to volume.

• The average balance of construction loans decreased $22.7 million 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 $837,000 on total interest income due to volume. The change due to rate was a decrease of $133,000 as the average yield on construction loans decreased from 7.38% to 7.23% as a result of a decrease in market interest rates in the last quarter of 2024 and the first half of 2025.

• The average balance of commercial loans increased $18.7 million from a year ago. The growth was primarily attributable to completed construction projects converting to permanent financing. This had a positive impact of $524,000 on total interest income due to volume. The yield decreased 0.13% to 6.29% as a result of a decrease in market interest rates in the last quarter of 2024 and the first quarter of 2025, which decreased loan interest income $815,000.

• Interest income on agricultural loans increased $809,000 from 2024 to 2025. The yield increased 29 basis points to 5.47% as a result of lower yielding loans maturing and repricing at higher rates, which increased loan interest income $512,000. The average balance of agricultural loans increased $12.3 million from a year ago, resulting in an increase in interest income of $297,000.

• The average balance of other loans increased $40.7 million as a result of outstanding student loans. This resulted in an increase of $1,400,000 on total interest income due to volume. The average yield of other loans decreased 85 basis points to 7.24% as a result of a decrease in market interest rates in the last quarter of 2024 and the first half of 2025 resulting in a decrease in income of $325,000.

40

Index

Total interest expense decreased $2,464,000 for the six months ended June 30, 2025 compared with the comparative period last year as a result of a decrease in rate on interest-bearing liabilities. Interest expense increased $347,000 due to volume as a result of an increase in interest bearing liabilities of $28.8 million. The average rate paid on interest-bearing liabilities decreased from 2.99% to 2.75%. The decrease was driven by the Federal Reserve interest rate cuts in the second half of 2024, which caused interest expense to decrease $2,811,000.

• The average balance of interest bearing deposits increased $41.4 million from June 30, 2024 to June 30, 2025. The increase was due to organic growth across all regions of the Company’s market areas. The effect of these volume changes was an increase in interest expense of $672,000. The average rate paid on interest bearing deposits was 2.46% for the first six months of 2025 and 2.64% for the comparable period in 2024. This resulted in a decrease in interest expense of $1,905,000. The decrease was due to the Federal Reserve decreasing interest rates during the second half of 2024.

• The average balance of other borrowed funds decreased $12.6 million. This resulted in a decrease in interest expense of $325,000. There was a decrease in the average rate paid on other borrowed funds from 4.94% to 4.40% due to the interest rate decreases by the Federal Reserve in the second half of 2024 that decreased borrowings costs resulting in a decrease in interest expense of $906,000.

Tax equivalent net interest income for the three months ended June 30, 2025 was $23,904,000 which compares to $21,545,000 for the same period last year.  This represents an increase of $2,359,000, or 11.0% and was primarily caused by a decrease in the rate paid on interest-bearing liabilities due the rate cuts made by the Federal Reserve in the second half of 2024.

Total tax equivalent interest income was $39,005,000 for the three month period ended June 30, 2025, compared to $38,147,000 for the comparable period last year, an increase of $858,000. This increase was a result of an increase of $310,000 due to a change in volume as average interest-bearing assets increased $47.0 million due to organic growth. As a result of lower yielding investments and loans maturing and investment security purchases, the yield on average interest earning assets increased 8 basis points from 5.58% to 5.66% resulting in an increase in interest income of $548,000.

Tax equivalent investment income for the three months ended June 30, 2025 increased $834,000 over the same period last year. The primary cause of the increase was due to the increase in yield on investment securities of 58 basis points to 2.93%.

• The average balance of taxable securities increased $25.8 million, which resulted in an increase in investment income of $158,000. The yield on taxable securities increased 64 basis points from 2.31% to 2.95% as a result of lower yielding securities maturing and purchases made in a higher market rate environment. This resulted in an increase in investment income of $595,000.

• The average balance of tax-exempt securities decreased $2.7 million, which resulted in a decrease in investment income of $16,000. The yield on tax-exempt securities increased 38 basis points from 2.50% to 2.88%. This resulted in an increase in investment income of $97,000.

Total loan interest income increased $154,000 for the three months ended June 30, 2025 compared to the same period last year, as a result of higher volume.

• Interest income on residential mortgage loans decreased $20,000. The change due to rate was an increase of $150,000 as the average yield on residential mortgages increased from 5.87% to 6.08%. The average balance of residential mortgage loans decreased $11.0 million. This resulted in a decrease of $170,000 on total interest income due to volume.

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Index

• The average balance of construction loans decreased $19.0 million as a result of projects in our Delaware and southeast Pennsylvania markets being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $370,000 on total interest income due to volume. The change due to rate was a decrease of $30,000 as the average yield on construction loans decreased from 7.36% to 7.29% as a result of a decrease in market interest rates in the last quarter of 2024 and the first half of 2025.

• The average balance of commercial loans increased $18.5 million from a year ago. The growth was primarily attributable to construction loans being replaced with permanent financing. This had a positive impact of $180,000 on total interest income due to volume. The yield decreased 0.11% to 6.37% as a result of a decrease in market interest rates in the last quarter of 2024 and the first quarter of 2025, which decreased loan interest income $378,000.

• Interest income on agricultural loans increased $488,000 from 2024 to 2025. The yield increased 42 basis points to 5.63% as a result of lower yielding loans maturing and repricing at a higher yield, which increased loan interest income $366,000. The average balance of agricultural loans increased $12.1 million from a year ago, resulting in an increase in interest income of $122,000.

• The average balance of other loans increased $27.1 million as a result of outstanding student loans. This resulted in an increase of $449,000 on total interest income due to volume. The average yield of other loans decreased 87 basis points to 7.21% due to the lower market  rate environment in the first half of 2025, resulting in a decrease in income of $126,000.

Total interest expense decreased $1,501,000 for the three months ended June 30, 2025 compared with the comparative period last year as a result of a decrease in rate on interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased from 3.00% to 2.73%. The decrease was driven by the Federal Reserve interest rate decreases in 2024, which caused interest expense to decrease $1,469,000.

• The average balance of interest bearing deposits increased $12.5 million from June 30, 2024 to June 30, 2025. The increase was due to organic growth experienced in 2024 and 2025. The effect of these volume changes was a decrease in interest expense of $52,000 due to decreases in NOW accounts and certificates of deposits, which were offset by increases in money market accounts. The average rate paid on interest bearing deposits was 2.42% for the first  half of 2025 and 2.67% for the comparable period in 2024. This resulted in a decrease in interest expense of $1,154,000, driven by decreases in NOW accounts, money market accounts and certificates of deposits. The decreased rates were due to the Federal Reserve decreasing interest rates during the second half of 2024.

• The average balance of other borrowed funds increased $4.4 million. This resulted in an increase in interest expense of $20,000. There was a decrease in the average rate paid on other borrowed funds from 4.89% to 4.50% due to the interest rate decreases by the Federal Reserve that decreased borrowings costs resulting in a decrease in interest expense of $315,000.

Provision for Credit Losses

For the six month period ended June 30, 2025, we recorded a provision for credit losses of $1,375,000, which represents a decrease of $1,412,000 from the $2,787,000 provision recorded in the corresponding six months of last year. The decrease in the provision in 2025 compared to 2024 was due to the amount of non-performing other commercial loans that were originated by HVBC that subsequent to the acquisition deteriorated in 2024. (see “Financial Condition – Allowance for Credit Losses and Credit Quality Risk”).

For the three months ended June 30, 2025, we recorded a provision for credit losses of $750,000, which represents a decrease of $1,252,000 from the $2,002,000 provision recorded in the corresponding three months of last year. The decrease in the provision in 2025 compared to 2024 was due to the same factors impacting the six month change.

42

Index

Non-interest Income

The following table shows the breakdown of non-interest income for the three and six  months ended June 30, 2025 and 2024 (dollars in thousands):

		Three months ended June 30,								Change
		2025				2024				Amount				%
Service charges		$	1,303			$	1,385			$	(82	)			(5.9	)
Trust			183				201				(18	)			(9.0	)
Brokerage and insurance			627				563				64				11.4
Gains on loans sold			739				479				260				54.3
Equity security gains, net			33				(87	)			120				(137.9	)
Earnings on bank owned life insurance			355				328				27				8.2
Other			425				467				(42	)			(9.0	)
Total		$	3,665			$	3,336			$	329				9.9

		Six months ended June 30,								Change
		2025				2024				Amount				%
Service charges		$	2,594			$	2,757			$	(163	)			(5.9	)
Trust			407				445				(38	)			(8.5	)
Brokerage and insurance			1,310				1,228				82				6.7
Gains on loans sold			1,011				896				115				12.8
Equity security (losses) gains, net			22				(32	)			54				(168.8	)
Gain on sale of Braavo division			-				1,102				(1,102	)			(100.0	)
Earnings on bank owned life insurance			701				996				(295	)			(29.6	)
Other			1,047				915				132				14.4
Total		$	7,092			$	8,307			$	(1,215	)			(14.6	)

Non-interest income for the six months ended June 30, 2025 totaled $7,092,000, a decrease of $1,215,000 when compared to the same period in 2024. For the three months ended June 30, 2025, non-interest income increased $329,000 to $3,665,000. During the first six months of 2025, net equity security gains amounted to $22,000 as a result of market gains associated with general banking stock gains compared with a $32,000 loss in the comparable 2024 period associated with market conditions for that period. There were no sales of available for sale securities  during the first six months of 2025 or 2024.

The increase in gains on loans sold for the three and six month periods ended June 30, 2025 compared to 2024 is attributable higher market prices on the loans sold in 2025 compared to 2024. The decrease in earnings on bank owned life insurance for the six month period is due to death benefits  received upon the passing of a former employee in 2024. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVB acquisition, which included loans and accrued interest, and 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.

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and six months ended June 30, 2025 and 2024 (dollars in thousands):

43

Index

		Three months ended June 30,								Change
		2025				2024				Amount				%
Salaries and employee benefits		$	9,976			$	9,617			$	359				3.7
Occupancy			1,182				1,266				(84	)			(6.6	)
Furniture and equipment			318				295				23				7.8
Professional fees			525				698				(173	)			(24.8	)
FDIC insurance			495				509				(14	)			(2.8	)
Pennsylvania shares tax			305				330				(25	)			(7.6	)
Amortization of intangibles			127				147				(20	)			(13.6	)
Software expenses			453				494				(41	)			(8.3	)
ORE expenses			73				175				(102	)			(58.3	)
Other			2,693				2,715				(22	)			(0.8	)
Total		$	16,147			$	16,246			$	(99	)			(0.6	)

		Six months ended June 30,								Change
		2025				2024				Amount				%
Salaries and employee benefits		$	20,265			$	19,907			$	358				1.8
Occupancy			2,538				2,590				(52	)			(2.0	)
Furniture and equipment			583				531				52				9.8
Professional fees			1,042				1,401				(359	)			(25.6	)
FDIC insurance			945				1,034				(89	)			(8.6	)
Pennsylvania shares tax			624				640				(16	)			(2.5	)
Amortization of intangibles			254				296				(42	)			(14.2	)
Software expenses			885				1,008				(123	)			(12.2	)
ORE expenses			192				162				30				18.5
Other			5,247				5,320				(73	)			(1.4	)
Total		$	32,575			$	32,889			$	(314	)			(1.0	)

Non-interest expenses decreased $314,000 for the six months ended June 30, 2025 compared to the same period in 2024. Salaries and employee benefits increased $358,000 or 1.8%. Full time equivalent employees (FTE) decreased 11.4 or 2.9% when comparing 2025 to 2024. This decrease in headcount helped to offset the increase in salary and benefit expense due to merit increases, increased profit sharing, vacation expenses, healthcare and other retirement expenses.

Professional fees decreased due to various legal matters in 2024, of which $201,000 was related to the sale of then Braavo division. The decrease in FDIC insurance is due to an increase in the Bank’s leverage ratio, which provided for a lower rate in determining the expense. The increase in ORE expenses was due to the sale of an OREO property in 2024 that generated a gain of $138,000.

For the three months ended June 30, 2025, non-interest expenses decreased $99,000 when compared to the same period in 2024. The changes in salaries and employee benefits, professional FDIC insurance and ORE expenses correspond to the changes for the six month period.

Provision for Income Taxes

The provision for income taxes was $3,708,000 for the six month period ended June 30, 2025 compared to $2,590,000 for the same period in 2024. The increase is primarily attributable to the increase in income before the provision for income taxes of $4,903,000 for the comparable periods due increase in net interest income after the provision for credit losses. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 18.7% and 17.4% for the first six months of 2025 and 2024, respectively, compared to the statutory rate of 21%.

For the three months ended June 30, 2025, the provision for income taxes was $1,953,000 compared to $1,113,000 for the same period in 2024. The increase is primarily attributable to the increase in income before the provision for income taxes of $4,028,000 for the comparable periods due to the increase in net interest income. Our effective tax rate was 18.8% and 17.4% for the three months ended June 30, 2025 and 2024, respectively.

44

Index

We are invested in seven limited partnerships that have established low-income housing projects in our market areas, with our most recent investments made in the second half of 2022. We are currently recognizing credits on three projects. The remaining four partnership credits are fully utilized as of December 31, 2023. We anticipate recognizing an aggregate of $7.4 million of tax credits over the next 11 years.

Financial Condition

Total assets were $2.97 billion at June 30, 2025, a decrease of $58.5 million from $3.03 billion at December 31, 2024, due primarily to a decrease in student loans. Cash and cash equivalents increased $7.3 million to $49.5 million. Available for sale securities increased $5.7 million. Total loans decreased $71.9 million, while loans held for sale increased $5.9 million. Total deposits decreased $89.4 million to $2.29 billion since year-end 2024, while borrowed funds increased $15.5 million to $313.2 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $49.5 million at June 30, 2025 compared to $42.2 million at December 31, 2024. The increase is due to an increase in the cash held at the Federal Reserve.  Management actively measures and evaluates the Company’s liquidity position through our Asset–Liability Committee and believes the Company’s liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources including the Bank’s core deposits, 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.

Investments

The following table shows the composition of the investment portfolio (including debt and equity securities) as of June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30, 2025								December 31, 2024
		Amount				%				Amount				%
Debt securities:
U. S. Agency securities		$	54,659				12.6			$	53,487				12.5
U. S. Treasury notes			101,739				23.5				120,502				28.2
Obligations of state & political subdivisions			93,693				21.6				94,902				22.2
Corporate obligations			10,908				2.5				10,438				2.4
Mortgage-backed securities in government sponsored entities			170,650				39.4				146,583				34.3
Equity securities			1,768				0.4				1,747				0.4
Total		$	433,417				100.0			$	427,659				100.0

		June 30, 2025/
		December 31, 2024
		Change
		Amount				%
Debt securities:
U. S. Agency securities		$	1,172				2.2
U. S. Treasury notes			(18,763	)			(15.6	)
Obligations of state & political subdivisions			(1,209	)			(1.3	)
Corporate obligations			470				4.5
Mortgage-backed securities in government sponsored entities			24,067				16.4
Equity securities			21				1.2
Total		$	5,758				1.3

45

Index

Our investment portfolio increased by $5.8 million, or 1.3%, from December 31, 2024 to June 30, 2025. During 2025, we purchased $33.4 million of mortgage-backed securities in U.S government sponsored entities, $900,000 of state and political subdivision bonds and $1.0 million of corporate obligations. We experienced $11.4 million of principal repayments and $22.0 million of calls and maturities. As a result of decreases in market interest rates, the unrealized loss on available for sale investment portfolio decreased $4.4 million. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the six month period ended June 30, 2025 yielded 2.89%, compared to 2.32% in the comparable period in 2024, on a tax equivalent basis.

The investment strategy for 2025 has been to utilize cashflows from the investment portfolio to repurchase investments primarily in mortgage backed securities. We continually monitor interest rate trading ranges and seek to time investment security purchases when rates are in the top third of the trading range. 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.

Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis.  Through active balance sheet management and analysis of the investment portfolio, the Company believes it maintains sufficient liquidity to satisfy depositor withdrawal requirements and various credit needs of its customers.

Loans Held for Sale

Loans held for sale increased $5.9 million to $15.5 million as of June 30, 2025 from December 31, 2024 due to the second quarter typically having more residential real sales than the fourth quarter.

Loans

The following table shows the composition of the loan portfolio as of June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30,								December 31,
		2025								2024
		Amount				%				Amount				%
Real estate:
Residential		$	341,671				15.2			$	351,398				15.2
Commercial			1,151,585				51.4				1,121,435				48.5
Agricultural			331,995				14.8				327,722				14.2
Construction			138,307				6.2				164,326				7.1
Consumer			46,933				2.1				133,207				5.8
Other commercial loans			150,171				6.7				131,310				5.7
Other agricultural loans			28,366				1.3				29,662				1.3
State & political subdivision loans			52,727				2.3				54,182				2.2
Total loans			2,241,755				100.0				2,313,242				100.0
Less allowance for credit losses			22,109								21,699
Net loans		$	2,219,646							$	2,291,543

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Index

		June 30, 2025/
		December 31, 2024
		Change
		Amount				%
Real estate:
Residential		$	(9,727	)			(2.8	)
Commercial			30,150				2.7
Agricultural			4,273				1.3
Construction			(26,019	)			(15.8	)
Consumer			(86,274	)			(64.8	)
Other commercial loans			18,861				14.4
Other agricultural loans			(1,296	)			(4.4	)
State & political subdivision loans			(1,455	)			(2.7	)
Total loans		$	(71,487	)			(3.1	)

Lending efforts have historically been focused in north central Pennsylvania, the south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster, the central Pennsylvania counties of Clinton and Centre, and southern New York. In Delaware, our activity is centered around the cities of Wilmington and Dover, Delaware. We have a limited service branch office in Union County that is staffed by a lending team to primarily support agricultural opportunities in central Pennsylvania and a loan production office in Georgetown, Delaware to also support our agricultural initiative. 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. In the fourth quarter of 2023, we opened an office in Williamsport, Pennsylvania, to further our efforts in central Pennsylvania. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our lending teams have with their customers and our lenders expertise in certain areas, 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.  All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors.

Loan activity remained steady in the first half of 2025 with growth experienced across most markets even after some large pay-offs primarily in Delaware and our south east Pennsylvania market. The decrease in consumer loans is due to the seasonal nature of our student loan portfolio. This portfolio grows in the third and fourth quarter of a year as students begin their college year and the portfolio then decreases in the first two quarters of a year as we prepare for growth for the next school year.

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 June 30, 2025, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 303.6% of consolidated risk based capital. Construction, land and land development loans represented 47.3% of consolidated risk based capital as of June 30, 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. The Company continues to refine information reviewed related to commercial real estate and to implement additional monitoring and testing of commercial real estate loans. As of June 30, 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.

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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 June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30, 2025
		Owner Occupied								Non-Owner Occupied								Total
Commercial Real Estate		Amount				%				Amount				%				Amount				%
Residential Rental and Speculation		$	5,868				0.51	%		$	182,112				15.81	%		$	187,980				16.32	%
Multifamily Rental			-				0.00	%			172,549				14.98	%			172,549				14.98	%
Student Housing			-				0.00	%			49,887				4.33	%			49,887				4.33	%
Office			13,865				1.20	%			67,426				5.86	%			81,291				7.06	%
Medical office			9,701				0.84	%			7,689				0.67	%			17,390				1.51	%
Retail			43,033				3.74	%			119,955				10.42	%			162,988				14.15	%
Self Storage			-				0.00	%			11,472				1.00	%			11,472				1.00	%
Industrial/Flex/Warehouse			24,865				2.16	%			59,915				5.20	%			84,780				7.36	%
Mixed Use			15,578				1.35	%			83,302				7.23	%			98,880				8.59	%
Hotel/Motel			-				0.00	%			96,523				8.38	%			96,523				8.38	%
Healthcare/Hospitals			6,956				0.60	%			-				0.00	%			6,956				0.60	%
Schools/Higher Ed/Vocational			1,537				0.13	%			7,252				0.63	%			8,789				0.76	%
Amusement/Entertainment			20,365				1.77	%			4,697				0.41	%			25,062				2.18	%
Specialty			32,487				2.82	%			23,082				2.00	%			55,569				4.83	%
Land			2,615				0.23	%			59,725				5.19	%			62,340				5.41	%
Senior Living			-				0.00	%			6,666				0.58	%			6,666				0.58	%
Food and beverage			15,232				1.32	%			1,051				0.09	%			16,283				1.41	%
Other			2,698				0.23	%			3,482				0.30	%			6,180				0.54	%
Total		$	194,800				16.92	%		$	956,785				83.08	%		$	1,151,585				100.00	%

48

Index

		December 31, 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	%
Student Housing			-				0.00	%			47,346				4.22	%			47,346				4.22	%
Office			11,280				1.01	%			57,767				5.15	%			69,047				6.16	%
Medical office			10,549				0.94	%			7,664				0.68	%			18,213				1.62	%
Retail			57,365				5.12	%			114,620				10.22	%			171,985				15.34	%
Self Storage			1,921				0.17	%			9,769				0.87	%			11,690				1.04	%
Industrial/Flex/Warehouse			24,387				2.17	%			65,232				5.82	%			89,619				7.99	%
Mixed Use			21,051				1.88	%			69,783				6.22	%			90,834				8.10	%
Hotel/Motel			43,178				3.85	%			62,941				5.61	%			106,119				9.46	%
Healthcare/Hospitals			7,162				0.64	%			-				0.00	%			7,162				0.64	%
Schools/Higher Ed/Vocational			934				0.08	%			8,020				0.72	%			8,954				0.80	%
Amusement/Entertainment			16,896				1.51	%			5,067				0.45	%			21,963				1.96	%
Specialty			26,545				2.37	%			23,427				2.09	%			49,972				4.46	%
Land			2,800				0.25	%			49,111				4.38	%			51,911				4.63	%
Senior Living			-				0.00	%			5,978				0.53	%			5,978				0.53	%
Other			1,865				0.17	%			9,221				0.82	%			11,086				0.99	%
Total		$	233,172				20.79	%		$	888,263				79.21	%		$	1,121,435				100.00	%

The following table provides a breakdown of our construction loan portfolio by collateral type as of June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30, 2025								December 31, 2024
Construction Loans:		Amount				%				Amount				%
Residential		$	38,754				28.02	%		$	59,334				36.11	%
Multifamily			41,146				29.75	%			49,838				30.33	%
Office			4,130				2.99	%			8,456				5.15	%
Retail			59				0.04	%			2,299				1.40	%
Self Storage			12,636				9.14	%			11,986				7.29	%
Industrial/Flex/Warehouse			17,894				12.94	%			15,337				9.33	%
Mixed Use			7,096				5.13	%			7,580				4.61	%
Hotel/Motel			616				0.45	%			623				0.38	%
Schools/Higher Ed/Vocational			5,072				3.67	%			3,464				2.11	%
Agricultural and land			9,350				6.76	%			4,528				2.76	%
Food and beverage			1,554				1.12	%			-				0.00	%
Other			-				0.00	%			881				0.54	%
Total		$	138,307				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 June 30, 2025 (dollars in thousands):

LTV Range			Number of Loans				Amount				%
0%-25%				829			$	167,820				14.61	%
25.01%-50%				537				322,402				28.06	%
50.01%-60%				305				234,954				20.45	%
60.01%-70%				345				272,564				23.72	%
70.01%-75				152				110,098				9.58	%
75.01%-80%				41				31,557				2.75	%
>80%				11				12,190				0.84	%
Total				2,219			$	1,151,585				100.00	%

49

Index

While the Company lends to companies that service companies that explore for natural gas in our market area, the Company has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company are to service industry customers which include trucking companies, stone quarries and other support businesses, favoring customers that have had a relationship with the Company prior to supporting the exploration for natural gas. We also have originated loans to businesses and individuals for restaurants, hotels and apartment rentals that have been developed and expanded to meet the housing and living needs of the gas industry workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include more stringent loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

For loans sold on the secondary market, the Company recognizes fee income for servicing certain sold loans, which is included in non-interest income.

Allowance for Credit Losses - Loans

The allowance for credit losses - loans is maintained at a level which, in management’s judgment, is adequate to absorb losses in the loan portfolio. The provision for credit losses - loans 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 $22,109,000 or 0.99% of total loans as of June 30, 2025 as compared to $21,699,000 or 0.94% of loans as of December 31, 2024. The $410,000 increase is a result of a $1,137,000 provision for credit losses – loans less net charge-offs of $727,000. Net charge-offs for 2024 are driven by loans acquired as part of the HVBC acquisition due to collateral value deterioration and non-payment. 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 as of June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30,								December 31
		2025								2024
		Amount				%				Amount				%
Real estate loans:
Residential		$	3,062				15.2			$	1,940				15.2
Commercial			9,898				51.4				9,174				48.5
Agricultural			4,542				14.8				3,529				14.2
Construction			1,273				6.2				1,402				7.1
Consumer			1,187				2.1				1,405				5.8
Other commercial loans			1,925				6.7				3,699				5.7
Other agricultural loans			132				1.3				133				1.3
State & political subdivision loans			56				2.3				61				2.2
Unallocated			34				N/A				356				N/A
Total allowance for credit losses		$	22,109				100.0			$	21,699				100.0

The following table provides information related to credit loss experience and loan quality for the six months ended June 30, 2025 and the year ended December 31, 2024 (dollars in thousands).

50

Index

June 30, 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		$	1,122			$	-			$	349,226				0.00	%			0.90	%			1.08	%			82.96	%
Commercial			764				(40	)			1,124,312				0.00	%			0.86	%			1.12	%			76.91	%
Agricultural			1,013				-				328,275				0.00	%			1.37	%			0.96	%			142.38	%
Construction			(129	)			-				164,252				0.00	%			0.92	%			0.96	%			95.79	%
Consumer			46				(264	)			130,147				(0.20	%)			2.53	%			1.67	%			151.79	%
Other commercial loans			(1,351	)			(423	)			137,913				(0.31	%)			1.28	%			1.55	%			82.62	%
Other agricultural loans			(1	)			-				29,286				0.00	%			0.47	%			1.42	%			32.75	%
State & political subdivision loans			(5	)			-				53,389				0.00	%			0.11	%			0.00	%		NA
Unallocated			(322	)			-				-			NA				NA				NA				NA
Total		$	1,137			$	(727	)		$	2,316,800				(0.03	%)			0.99	%			1.10	%			89.89	%
December 31, 2024
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			(6	)			(85	)			107,656				(0.08	%)			1.05	%			0.75	%			140.22	%
Other commercial loans			4,010				(2,540	)			133,107				(1.91	%)			2.82	%			1.97	%			143.26	%
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	%

The credit loss expense for the first half of 2025 was driven by an increase in past due loans and the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed year of 2024. For residential loans, the historical loss rate increased, while the prepayment speed slowed resulting in an increased provision. For other commercial loans the historical loss rate decreased in the annual update resulting in a decrease in the provision for 2025. These changes in credit loss expense drove the change in the allowance to total loans by segment when compared to December 31, 2024 as net-charge offs for these segments were minimal for 2025.

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 credit 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 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.

Management believes it uses the best information available to make such determinations and that the allowance for credit losses - loans is adequate as of June 30, 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.  The banking agencies could require the recognition of additions to the allowance for credit losses - loans based upon their judgment of information available to them at the time of their examination.

51

Index

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.

The following table is a summary of our non-performing assets as of June 30, 2025 and December 31, 2024.

		June 30,				December 31,
(dollars in thousands)		2025				2024
Non-performing loans:
Non-accruing loans		$	24,595			$	25,701
Accrual loans - 90 days or more past due			347				276
Total non-performing loans			24,942				25,977
Foreclosed assets held for sale			2,434				2,635
Total non-performing assets		$	27,376			$	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 June 30, 2025 in non-performing loans (in thousands).  Non-performing loans include  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.

		June 30, 2025																December 31, 2024
						Non-Performing Loans																Non-Performing Loans
		30 - 89 Days																30 - 89 Days
		Past Due				90 Days Past				Non-				Total Non-				Past Due				90 Days Past				Non-				Total Non-
(in thousands)		Accruing				Due Accruing				accrual				Performing				Accruing				Due Accruing				accrual				Performing
Real estate:
Residential		$	2,184			$	-			$	3,691			$	3,691			$	1,527			$	-			$	2,871			$	2,871
Commercial			15,222				333				12,870				13,203				3,915				-				14,364				14,364
Agricultural			-				-				3,190				3,190				383				269				4,062				4,331
Construction			-				-				1,329				1,329				1,119				-				283				283
Consumer			549				14				782				796				312				7				1,002				1,009
Other commercial loans			287				-				2,330				2,330				760				-				2,582				2,582
Other agricultural loans			312				-				403				403				-				-				537				537
Total nonperforming loans		$	18,554			$	347			$	24,595			$	24,942			$	8,016			$	276			$	25,701			$	25,977

52

Index

		Change in Non-Performing Loans
		June 30, 2025 /December 31, 2024
(in thousands)		Amount				%
Real estate:
Residential		$	820				28.6
Commercial			(1,161	)			(8.1	)
Agricultural			(1,141	)			(26.3	)
Construction			1,046				369.6
Consumer			(213	)			(21.1	)
Other commercial loans			(252	)			(9.8	)
Other agricultural loans			(134	)			(25.0	)
Total nonperforming loans		$	(1,035	)			(4.0	)

Nonperforming loans decreased $1.0 million during the first six months of 2025. During the first six months of 2025, one construction loan relationship was placed on non-accrual status and one commercial relationship and one agricultural relationship were removed from non-accrual status, which accounts for the majority of the change in non-performing loans since year-end. All non-performing commercial agricultural and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter end. 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 June 30, 2025 was $477,000. In addition, the Bank policy is to reserve 100% of all non-performing student loans. The reserve for these loans was $782,000 as of June 30, 2025.

Management believes that the allowance for credit losses - loans June 30, 2025 was adequate at that date, which was based on the following factors:

• Specific reserves for non-performing loans total $1,259,000.

• The Company has a history of low charge-offs, which were 0.06% of average loans on an annualized basis for 2025 and 0.11% for 2024, which included the numerous charge-offs related to the Braavo loans.

Bank Owned Life Insurance

The Company owns bank owned life insurance policies to offset 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 June 30, 2025, and December 31, 2024, the cash surrender value of the life insurance was $50.8 million and $50.3 million, 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 $701,000 and $996,000 for the six month periods ended June 30, 2025 and 2024, respectively. During the six months of 2025 and 2024, the Company received proceeds of $272,000 and $1,147,000, respectively, which included death benefits of $326,000 during 2024 on a former employee of the Company. 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.

The Company policies that were purchased directly from insurance companies and acquired as part of the HVBC acquisition are structured 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 these agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds.  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 split-dollar benefit for the beneficiary’s estate, which is dependent on several factors including whether the covered individual was a former Director of First National Bank of Fredericksburg (“FNB”) or a former employee of FNB and their salary level. As of June 30, 2025 and December 31, 2024, included in other liabilities on the Consolidated Balance Sheet was a liability of $521,000 and $514,000, respectively, for the obligation under the split-dollar benefit agreements.

53

Index

Premises and Equipment

Premises and equipment increased $381,000 to $21.8 million as of June 30, 2025 from December 31, 2024 as a result of purchases of equipment.

Other assets

Other assets decreased $2.9 million to $51.8 million as of June 30, 2025 from December 31, 2024. The primary driver of the decrease was the receipt of payment related to a loan participation.

Deposits

The following table shows the composition of deposits as of June 30, 2025 and December 31, 2024 (dollars in thousands):

		June 30,								December 31,
		2025								2024
		Amount				%				Amount				%
Non-interest-bearing deposits		$	499,252				21.8			$	532,776				22.4
Interest bearing demand deposits			17,063				0.7				18,004				0.8
NOW accounts			598,621				26.1				581,673				24.4
Savings deposits			287,727				12.6				292,918				12.3
Money market deposit accounts			442,408				19.3				434,856				18.3
Certificates of deposit			447,591				19.5				521,801				21.8
Total		$	2,292,662				100.0			$	2,382,028				100.0

		June 30, 2025/
		December 31, 2024
		Change
		Amount				%
Non-interest-bearing deposits		$	(33,524	)			(6.3	)
Interest bearing demand deposits			(941	)			(5.2	)
NOW accounts			16,948				2.9
Savings deposits			(5,191	)			(1.8	)
Money market deposit accounts			7,552				1.7
Certificates of deposit			(74,210	)			(14.2	)
Total		$	(89,366	)			(3.8	)

Deposits decreased $89.4 million since December 31, 2024. The decrease in deposits was driven by decreases in state and political organizations and timing of their tax receipts and a decrease in brokered deposits of $33.1 million. We continue to see customer funds being transferred to higher-yielding investment alternatives. Brokered deposits totaled $60.0 million and $93.1 million as of June 30, 2025 and December 31, 2024, respectively. At June 30, 2025, the Bank estimates that balances held by customers in excess of the FDIC insurance limit ($250,000 per insured account) totaled $1.053 billion, or 45.7% of the Bank’s total deposits. Included in this balance are balances held through Intrafi, which provides customers with additional FDIC insurance, as well as deposits collateralized by securities  or letters of credit (almost exclusively municipal deposits). The total of these items was $521.7 million, or 22.5% of the Bank’s total deposits, as of June 30, 2025.

Borrowed Funds

Borrowed funds were $313.2 million and $297.7 million as of June 30, 2025 and December 31, 2024, respectively. The increase in borrowed funds was due to the increase in investments and the seasonal decrease in deposits.

54

Index

The Company’s current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a declining market interest rate environment. The Company’s daily cash requirements or short-term investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.

Stockholders’ Equity

We evaluate stockholders’ equity in relation to total assets and the risks associated with those assets.  The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb unforeseen losses.  For these reasons, capital adequacy has been, and will continue to be, of paramount importance to the Company. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.

Total stockholders’ equity was $313.7 million at June 30, 2025 compared to $299.7 million at December 31, 2024, an increase of $13,919,000, or 4.6%.  Excluding accumulated other comprehensive loss, stockholders’ equity increased $11.4 million, or 3.5%. The accumulated comprehensive loss decreased $2.5 million, which was primarily the result of the increase in fair value of the Company’s available for sale investment portfolio caused by the decrease in longer term market interest rates. For the first half of 2025, the Company had net income of $16.1 million and declared cash dividends of $4.7 million, or $0.980 per share, representing a cash dividend payout ratio of 29.5%.

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 due to changes in market interest rates. As a result of decreases in longer term market interest rates, accumulated other comprehensive loss decreased approximately $2.5 million from December 31, 2024.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). 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%. There is a two quarter grace period for a qualifying community bank to return to 9% as long as the CBLR is 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 June 30, 2025, the Bank leverage ratio under the CBLR framework was 9.22%, which meets the 9.0% requirement to be considered “well-capitalized”  under the CBLR. The Bank leverage ratio as of December 31, 2024 was 8.99%, which did not meet the ratio to be considered “well-capitalized”  under the CBLR as of December 31, 2024. As such, the following table provides the Bank’s computed risk‑based capital ratios as of December 31, 2024, which reflects the Bank being well capitalized at that date (dollars in thousands):

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		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	%

Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs but are not recorded on the Company’s balance sheet.  The contractual amount of financial instruments with off-balance sheet risk was as follows at June 30, 2025 and December 31, 2024 (in thousands):

		June 30, 2025				December 31, 2024
Commitments to extend credit		$	505,972			$	432,123
Standby letters of credit			11,109				9,799
		$	517,081			$	441,922
Allowance for Credit Losses - Off-Balance Sheet credit Exposure		$	914			$	676

We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one-time point of sale (non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at June 30, 2025 and December 31, 2024 was $12,762,000 and $13,006,000, respectively. The Company reserves the right to discontinue this service without prior notice.

Liquidity

Liquidity is a measure of the Company’s ability to efficiently meet normal cash flow requirements of both borrowers and depositors.  To maintain proper liquidity, we use funds management policies, which include liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders.  Liquidity is needed to meet depositors’ withdrawal demands, extend credit to meet borrowers’ needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company’s historical activity in this area can be seen in the Consolidated Statement of Cash Flows.  The most important source of funds is core deposits.  Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management.  Other sources of funding include brokered certificates of deposit and the sale of loans or investments, if needed.

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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 presented.  Other uses of funds include purchasing stock from the Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures.  Capital expenditures (including software purchases), during the first six months of 2025 were $1,081,000 compared to $226,000 during the same time period in 2024.

Short-term debt from the FHLB supplements the Bank’s availability of funds.  The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB.  The Bank had a maximum borrowing capacity at the FHLB of approximately $1.06 billion, of which $421.4 million was outstanding, at June 30, 2025. The Bank also has two federal funds line with third party providers for $34.0 million as of June 30, 2025, which are unsecured and were undrawn upon as of June 30, 2025. The Company also has a borrower in custody line with the Federal Reserve Bank of approximately $14.1 million, which also was not drawn upon as of June 30, 2025. The Company has a $15.0 million line of credit with a New York community bank, which also was not drawn upon as of June 30, 2025. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.

Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, Citizens Financial Services, Inc. is responsible for paying any dividends declared to its shareholders.  Citizens Financial also has repurchased shares of its common stock.  Citizens Financial Services, Inc.’s primary source of income is dividends received from the Bank.  Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, 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.  The Federal Reserve Board 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 June 30, 2025, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of approximately $3.6 million.

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, because we have no trading portfolio, we are not subject to trading risk. At June 30, 2025, the Company has equity securities that represent only 0.06% of its total assets and, therefore, equity risk is not significant.

The primary components of interest-sensitive assets include adjustable-rate 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 and short-term borrowings.  Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive (except for the top-tier money market investor accounts, typically help by local governments, which are paid current market interest rates).

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 our Company’s net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive 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 Company 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 Company’s risk exposure.  In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds on mortgage loans and mortgage securities.   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 June 30, 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		$	106,941			$	9,948				10.26
-300 Shock			102,423				5,430				5.60
-200 Shock			100,929				3,936				4.06
-100 Shock			99,347				2,354				2.43
Base			96,993				-				-
+100 Shock			94,194				(2,799	)			(2.89	)
+200 Shock			91,079				(5,914	)			(6.10	)
+300 Shock			88,292				(8,701	)			(8.97	)
+400 Shock			85,818				(11,175	)			(11.52	)

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 changes in net interest income disclosed in the above table are in line with Company policy for interest rate risk.

Item 3-Quantitative and Qualitative Disclosure about Market Risk

In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary.  Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q.  Management and a committee of the Board of Directors manage interest rate risk (see also “Interest Rate and Market Risk Management”).

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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(b) Changes to Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1 ‑ Legal Proceedings

Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company.  Any pending proceedings are ordinary, routine litigation incidental to the business of the Company and its subsidiaries.  In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiaries by government authorities.

Item 1A – Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1.A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition or future results. At June 30, 2025, the risk factors of the Company have not changed materially from those reported in our 2024 Annual Report on Form 10-K.  However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2 – Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

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)
4/1/25 through 4/30/25			-			$	0.00				-				145,239
5/1/25 through 5/31/25			-			$	0.00				-				145,239
6/1/25 through 6/30/25			821			$	60.25				821				144,418
Total			821			$	58.15				821				144,418

(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 June 30, 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.

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

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Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 ‑ Other Information

During the three months ended June 30, 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 6 ‑ Exhibits

(a)  The following documents are filed 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. (5)
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 and Chief Financial Officer
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended  June 30, 2025, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows (unaudited) and (vi) related notes (unaudited).
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company’s 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.

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Signatures

Pursuant to the requirements 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)
August 7, 2025	/s/ Randall E. Black
	By: Randall E. Black
	President and Chief Executive Officer
	(Principal Executive Officer)
August 7, 2025	/s/ Stephen J. Guillaume
	By: Stephen J. Guillaume
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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