Fidelity D & D Bancorp (NASDAQ: FDBC) lifts H1 2026 earnings
Fidelity D & D Bancorp, Inc. reported higher profitability for the three and six months ended June 30, 2026. Net income was $7,849 thousand for the quarter and $15,309 thousand year-to-date, up from $6,921 thousand and $12,912 thousand a year earlier. Basic EPS was $1.34 for the quarter and $2.64 for six months, versus $1.20 and $2.24.
Total assets were $2,971,224 thousand, with loans and leases, net, of $2,065,943 thousand and deposits of $2,558,652 thousand. Net interest income for the first half was $40,163 thousand. The allowance for credit losses on loans was $21,314 thousand, plus $1,729 thousand for off-balance sheet exposures; non-accrual loans totaled $1,742 thousand and loans 30 days or more past due were $4,526 thousand. Accumulated other comprehensive loss improved to $(37,766) thousand, reflecting unrealized gains on securities. Net cash provided by operating activities was $28,093 thousand, investing activities used $173,379 thousand, and financing activities provided $204,886 thousand, lifting cash and cash equivalents to $207,660 thousand.
Positive
- None.
Negative
- None.
Filing Explained
At June 30, 2026, gross loans were $2,088,454 thousand and short-term borrowings were $119,802 thousand, showing a changed funding mix.
Fidelity D & D Bancorp filed an unaudited interim report for the quarter ended
Gross loans were
The filing’s credit grades describe “pass” loans as having an acceptable level of risk, “special mention” loans as potentially weak, and “substandard” loans as having a defined weakness that may jeopardize collectability. Within owner-occupied commercial real estate, the filing reports
A future disclosure item is the company’s evaluation of ASU 2024-03 and ASU 2025-11; the filing says it expects additional disclosures when the applicable guidance is adopted.
Key Figures
Key Terms
allowance for credit losses financial
held-to-maturity securities financial
non-accrual loans financial
government grants financial
environmental credits financial
direct finance leases financial
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to______________________
Commission file number:
FIDELITY D & D BANCORP, INC.
| STATE OF INCORPORATION: | IRS EMPLOYER IDENTIFICATION NO: |
Address of principal executive offices:
TELEPHONE:
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days. ☒
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). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ | 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).
The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on July 31, 2026, the latest practicable date, was
FIDELITY D & D BANCORP, INC.
Form 10-Q June 30, 2026
Index
| Part I. Financial Information |
Page |
|
| Item 1. |
Financial Statements (unaudited): |
|
| Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025 |
3 |
|
| Consolidated Statements of Income for the three and six months ended June 30, 2026 and 2025 |
4 |
|
| Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2026 and 2025 |
5 |
|
| Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2026 and 2025 |
6 |
|
| Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 |
8 |
|
| Notes to Consolidated Financial Statements (Unaudited) |
10 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
| Item 3. |
Quantitative and Qualitative Disclosure about Market Risk |
52 |
| Item 4. |
Controls and Procedures |
55 |
| Part II. Other Information |
||
| Item 1. |
Legal Proceedings |
55 |
| Item 1A. |
Risk Factors |
55 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
55 |
| Item 3. |
Defaults upon Senior Securities |
55 |
| Item 4. |
Mine Safety Disclosures |
55 |
| Item 5. |
Other Information |
55 |
| Item 6. |
Exhibits |
56 |
| Signatures |
58 |
PART I – Financial Information
Item 1: Financial Statements
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
| (Unaudited) | ||||||||
| (dollars in thousands) | June 30, 2026 | December 31, 2025 | ||||||
| Assets: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits with financial institutions | ||||||||
| Total cash and cash equivalents | ||||||||
| Available-for-sale securities (amortized cost of $314,809 in 2026; $333,012 in 2025) | ||||||||
| Held-to-maturity securities (fair value of $203,984 in 2026; $203,137 in 2025) | ||||||||
| Restricted investments in bank stock | ||||||||
| Loans and leases, net (allowance for credit losses of $21,314 in 2026; $20,168 in 2025) | ||||||||
| Loans held-for-sale (fair value $1,670 in 2026; $588 in 2025) | ||||||||
| Foreclosed assets held-for-sale | ||||||||
| Bank premises and equipment, net | ||||||||
| Leased property under finance leases, net | ||||||||
| Right-of-use assets | ||||||||
| Cash surrender value of bank owned life insurance | ||||||||
| Accrued interest receivable | ||||||||
| Goodwill | ||||||||
| Core deposit intangible, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Deposits: | ||||||||
| Interest-bearing | $ | $ | ||||||
| Non-interest-bearing | ||||||||
| Total deposits | ||||||||
| Allowance for credit losses on off-balance sheet credit exposures | ||||||||
| Finance lease obligation | ||||||||
| Operating lease liabilities | ||||||||
| Short-term borrowings | ||||||||
| Secured borrowings | ||||||||
| Accrued interest payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders' equity: | ||||||||
| Preferred stock authorized 5,000,000 shares with no par value; none issued | ||||||||
| Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding: 5,808,518 at June 30, 2026 and 5,771,110 at December 31, 2025) | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost (0 shares at June 30, 2026 and 180 shares at December 31, 2025) | ||||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
See notes to unaudited consolidated financial statements
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
| (Unaudited) |
Three months ended |
Six months ended |
||||||||||||||
| (dollars in thousands except per share data) |
June 30, 2026 |
June 30, 2025 |
June 30, 2026 |
June 30, 2025 |
||||||||||||
| Interest income: |
||||||||||||||||
| Loans and leases: |
||||||||||||||||
| Taxable |
$ | $ | $ | $ | ||||||||||||
| Nontaxable |
||||||||||||||||
| Interest-bearing deposits with financial institutions |
||||||||||||||||
| Restricted investments in bank stock |
||||||||||||||||
| Investment securities: |
||||||||||||||||
| U.S. government agency and corporations |
||||||||||||||||
| States and political subdivisions (nontaxable) |
||||||||||||||||
| States and political subdivisions (taxable) |
||||||||||||||||
| Total interest income |
||||||||||||||||
| Interest expense: |
||||||||||||||||
| Deposits |
||||||||||||||||
| Secured borrowings |
||||||||||||||||
| Short-term borrowings |
||||||||||||||||
| Total interest expense |
||||||||||||||||
| Net interest income |
||||||||||||||||
| Provision for credit losses on loans |
||||||||||||||||
| Provision (benefit) for credit losses on unfunded loan commitments |
( |
) | ||||||||||||||
| Net interest income after provision for credit losses |
||||||||||||||||
| Other income: |
||||||||||||||||
| Service charges on deposit accounts |
||||||||||||||||
| Interchange fees |
||||||||||||||||
| Service charges on loans |
||||||||||||||||
| Fees from trust fiduciary activities |
||||||||||||||||
| Fees from financial services |
||||||||||||||||
| Fees and other revenue |
||||||||||||||||
| Earnings on bank-owned life insurance |
||||||||||||||||
| Gain (loss) on write-down, sale or disposal of: |
||||||||||||||||
| Loans |
||||||||||||||||
| Available-for-sale debt securities |
( |
) | ( |
) | ||||||||||||
| Premises and equipment |
( |
) | ( |
) | ( |
) | ||||||||||
| Total other income |
||||||||||||||||
| Other expenses: |
||||||||||||||||
| Salaries and employee benefits |
||||||||||||||||
| Premises and equipment |
||||||||||||||||
| Data processing and communication |
||||||||||||||||
| Advertising and marketing |
||||||||||||||||
| Professional services |
||||||||||||||||
| Automated transaction processing |
||||||||||||||||
| Office supplies and postage |
||||||||||||||||
| PA shares tax benefit |
||||||||||||||||
| Loan collection |
||||||||||||||||
| Other real estate owned, net |
( |
) | ( |
) | ||||||||||||
| FDIC assessment |
||||||||||||||||
| Other |
||||||||||||||||
| Total other expenses |
||||||||||||||||
| Income before income taxes |
||||||||||||||||
| Provision for income taxes |
||||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Per share data: |
||||||||||||||||
| Net income - basic |
$ | $ | $ | $ | ||||||||||||
| Net income - diluted |
$ | $ | $ | $ | ||||||||||||
| Dividends |
$ | $ | $ | $ | ||||||||||||
See notes to unaudited consolidated financial statements
Fidelity D & D Bancorp, Inc. and Subsidiary
| Consolidated Statements of Comprehensive Income |
||||||||||||||||
| (Unaudited) |
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
| (dollars in thousands) |
2026 |
2025 |
2026 |
2025 |
||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), before tax: |
||||||||||||||||
| Unrealized holding gain on available-for-sale debt securities |
||||||||||||||||
| Reclassification adjustment for net losses realized in income |
||||||||||||||||
| Amortization of unrealized loss on held-to-maturity securities |
||||||||||||||||
| Net unrealized gain |
||||||||||||||||
| Tax effect |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Unrealized gain, net of tax |
||||||||||||||||
| Other comprehensive income, net of tax |
||||||||||||||||
| Total comprehensive income, net of tax |
$ | $ | $ | $ | ||||||||||||
See notes to unaudited consolidated financial statements
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
| For the six months ended June 30, 2026 and 2025 |
||||||||||||||||||||||||
| (Unaudited) |
Accumulated |
|||||||||||||||||||||||
| other |
||||||||||||||||||||||||
| Capital stock |
Retained |
comprehensive |
Treasury |
|||||||||||||||||||||
| (dollars in thousands) |
Shares |
Amount |
earnings |
income (loss) |
Stock |
Total |
||||||||||||||||||
| Balance, December 31, 2024 |
$ | $ | $ | ( |
) | $ | - | $ | ||||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||
| Other comprehensive income |
- | - | - | - | ||||||||||||||||||||
| Issuance of common stock through Employee Stock Purchase Plan |
- | - | - | |||||||||||||||||||||
| Forfeited restricted dividend reinvestment shares |
( |
) | ||||||||||||||||||||||
| Issuance of common stock from vested restricted share grants through stock compensation plans |
- | - | - | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | - | - | ||||||||||||||||||||
| Repurchase of shares to cover withholdings |
( |
) | - | - | - | ( |
) | ( |
) | |||||||||||||||
| Cash dividends declared |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||
| Balance, June 30, 2025 |
$ | $ | $ | ( |
) | $ | (87 | ) | $ | |||||||||||||||
| Balance, December 31, 2025 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||
| Issuance of common stock through Employee Stock Purchase Plan |
- | - | - | |||||||||||||||||||||
| Re-issuance of common stock through Dividend Reinvestment Plan |
||||||||||||||||||||||||
| Issuance of common stock through exercise of SSARs |
||||||||||||||||||||||||
| Forfeited restricted dividend reinvestment shares |
( |
) | ||||||||||||||||||||||
| Issuance of common stock from vested restricted share grants through stock compensation plans |
- | - | - | - | ||||||||||||||||||||
| Stock-based compensation expense |
- | - | - | - | ||||||||||||||||||||
| Repurchase of shares to cover withholdings |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Cash dividends declared |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||
| Balance, June 30, 2026 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
| For the three months ended June 30, 2026 and 2025 |
||||||||||||||||||||||||
| (Unaudited) |
Accumulated |
|||||||||||||||||||||||
| other |
||||||||||||||||||||||||
| Capital stock |
Retained |
comprehensive |
Treasury |
|||||||||||||||||||||
| (dollars in thousands) |
Shares |
Amount |
earnings |
income (loss) |
Stock |
Total |
||||||||||||||||||
| Balance, March 31, 2025 |
$ | $ | $ | ( |
) | $ | (87 | ) | $ | |||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||
| Other comprehensive income |
- | - | - | - | ||||||||||||||||||||
| Forfeited restricted dividend reinvestment shares |
( |
) | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | - | - | ||||||||||||||||||||
| Cash dividends declared |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||
| Balance, June 30, 2025 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Balance, March 31, 2026 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||
| Re-issuance of common stock through Dividend Reinvestment Plan |
||||||||||||||||||||||||
| Issuance of common stock from vested restricted share grants through stock compensation plans |
- | - | - | |||||||||||||||||||||
| Issuance of common stock through exercise of SSARs |
||||||||||||||||||||||||
| Stock-based compensation expense |
- | - | - | - | ||||||||||||||||||||
| Repurchase of shares to cover withholdings |
(16 | ) | - | - | ( |
) | ||||||||||||||||||
| Cash dividends declared |
- | - | ( |
) | - | - | ( |
) | ||||||||||||||||
| Balance, June 30, 2026 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
See notes to unaudited consolidated financial statements
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| (Unaudited) |
Six months ended June 30, |
|||||||
| (dollars in thousands) |
2026 |
2025 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, amortization and accretion |
||||||||
| Provision for credit losses on loans |
||||||||
| Provision (benefit) for credit losses on unfunded loan commitments |
( |
) | ||||||
| Deferred income tax benefit |
( |
) | ( |
) | ||||
| Stock-based compensation expense |
||||||||
| Excess tax benefit from exercise of SSARs |
||||||||
| Proceeds from sale of loans held-for-sale |
||||||||
| Originations of loans held-for-sale |
( |
) | ( |
) | ||||
| Earnings from bank-owned life insurance |
( |
) | ( |
) | ||||
| Gain from bank-owned life insurance claim |
( |
) | ||||||
| Net gain from sales of loans |
( |
) | ( |
) | ||||
| Net loss from sales of investment securities |
||||||||
| Net gain from sale and write-down of foreclosed assets held-for-sale |
( |
) | ( |
) | ||||
| Net loss (gain) from write-down and disposal of bank premises and equipment |
( |
) | ||||||
| Operating lease payments |
||||||||
| Change in: |
||||||||
| Accrued interest receivable |
( |
) | ( |
) | ||||
| Other assets |
||||||||
| Accrued interest payable and other liabilities |
( |
) | ||||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Available-for-sale securities: |
||||||||
| Proceeds from sales |
||||||||
| Proceeds from maturities, calls and principal pay-downs |
||||||||
| Purchases |
( |
) | ||||||
| Increase in restricted investments in bank stock |
( |
) | ( |
) | ||||
| Net increase in loans and leases |
( |
) | ( |
) | ||||
| Principal portion of lease payments received under direct finance leases |
||||||||
| Purchases of bank premises and equipment |
( |
) | ( |
) | ||||
| Proceeds from sale of bank premises and equipment |
||||||||
| Proceeds from sale of foreclosed assets held-for-sale |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Net increase in deposits |
||||||||
| Net increase (decrease) in borrowings |
( |
) | ||||||
| Repayment of finance lease obligation |
( |
) | ( |
) | ||||
| Proceeds from employee stock purchase plan participants |
||||||||
| Repurchase of shares to cover withholdings |
( |
) | ( |
) | ||||
| Dividends paid, net of dividends reinvested |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
||||||||
| Net increase in cash and cash equivalents |
||||||||
| Cash and cash equivalents, beginning |
||||||||
| Cash and cash equivalents, ending |
$ | $ | ||||||
See notes to unaudited consolidated financial statements
Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (continued)
| (Unaudited). |
Six months ended June 30, | |||||||
| (dollars in thousands) |
2026 |
2025 |
||||||
| Supplemental Disclosures of Cash Flow Information |
||||||||
| Cash payments for: |
||||||||
| Interest |
$ | $ | ||||||
| Income tax |
||||||||
| Federal taxes |
||||||||
| State taxes |
||||||||
| Supplemental Disclosures of Non-cash Investing Activities: |
||||||||
| Net change in unrealized losses on available-for-sale securities |
||||||||
| Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity |
||||||||
| Transfers from loans to foreclosed assets held-for-sale |
||||||||
| Transfers from loans to loans held-for-sale, net |
||||||||
| Security settlement pending |
||||||||
| Net change in right-of-use asset |
||||||||
| Net change in lease liability |
||||||||
| Grant receivable |
||||||||
See notes to unaudited consolidated financial statements
FIDELITY D & D BANCORP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of operations and critical accounting policies
Nature of operations
Fidelity D & D Bancorp, Inc. (the Company) is a bank holding company and the parent of The Fidelity Deposit and Discount Bank (the Bank). The Bank is a commercial bank and trust company chartered under the laws of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of the Company. Having commenced operations in 1903, the Bank is committed to providing superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna, Northampton and Luzerne Counties and Wealth Management offices in Schuylkill and Lebanon Counties.
Principles of consolidation
The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included. All significant inter-company balances and transactions have been eliminated in consolidation.
For additional information and disclosures required under U.S. GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report. Management prepared the unaudited financial statements in accordance with U.S. GAAP. In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls. These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.
In the opinion of management, the consolidated balance sheets as of June 30, 2026 and December 31, 2025 and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity for the three and six months ended June 30, 2026 and 2025 and consolidated statements of cash flows for the six months ended June 30, 2026 and 2025 present fairly the financial condition and results of operations of the Company. All material adjustments required for a fair presentation have been made. These adjustments are of a normal recurring nature.
In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after June 30, 2026 through the date these consolidated financial statements were issued.
This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2025, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.
Critical accounting estimates
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for credit losses. Management believes that the allowance for credit losses at June 30, 2026 is adequate and reasonable to cover expected losses. Given the subjective nature of identifying and estimating loan losses, it is reasonably possible that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount. While management uses available information to recognize losses on loans, changes in current economic conditions and reasonable and supportable forecasts may necessitate revisions in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.
The methodology to analyze the adequacy of the ACL is based on seven primary components:
| ● | Data: The quality of the Company’s data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls. |
| ● | Segmentation: Financial assets are segmented based on similar risk characteristics. |
| ● | Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool’s estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets. |
| ● | Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per measurement of credit losses on loans and leases (ASC Topic 326). The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the Commercial & Industrial, Commercial Real Estate Non-Owner Occupied, Commercial Real Estate Owner Occupied, Commercial Construction, Home Equity Installment Loan, Home Equity Line of Credit, Residential Real Estate, and Residential Construction pools. The weighted average remaining maturity (WARM) method is used for the Municipal, Non-Recourse Auto, Recourse Auto, Direct Finance Lease, and Consumer Other pools. |
| ● | Reasonable and supportable forecasts: ASC Topic 326 requires Management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company’s forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when Management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and Unemployment Rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12 month (4 quarter) reasonable and supportable forecast period. |
| ● | Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire estimated life of financial assets. Management may apply reversion techniques for the estimated life remaining after considering the reasonable and supportable forecast period, which allows Management to apply a historical loss rate to latter periods of the financial asset’s life. The Company currently uses a 12 month (4 quarter) straight-line reversion period. | |
| ● | Qualitative factor adjustments: The Company’s ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors: |
| o | levels of and trends in delinquencies and non-accrual loans; | |
| o | levels of and trends in charge-offs and recoveries; | |
| o | trends in volume and terms of loans; | |
| o | changes in risk selection and underwriting standards; | |
| o | changes in lending policies and legal and regulatory requirements; | |
| o | experience, ability and depth of lending management; | |
| o | national and local economic trends and conditions; | |
| o | changes in credit concentrations; and | |
| o | changes in underlying collateral. |
Assets are evaluated on a collective (or pool) basis or individually, as applicable consistent with ASC Topic 326. In accordance with ASC Topic 326, the Company will evaluate individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. In contrast to legacy accounting standards, this criterion is broader than the “impairment” concept as management may evaluate assets individually even when no specific expectation of collectability is in place. Instruments will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope.
For individually evaluated assets, an ACL is determined separately for each financial asset. As of the reporting date, the Company is using the collateral and cash flow methods.
ASC Topic 326 defines a collateral-dependent asset as a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on Management’s assessment, is experiencing financial difficulty. The ACL for a collateral-dependent loan is measured using the fair value of collateral, regardless of whether foreclosure is probable. The fair value of collateral must be adjusted for estimated costs to sell if repayment or satisfaction of the asset depends on the sale of the collateral. If repayment is dependent only on the operation of the collateral, and not on the sale of the collateral, the fair value of the collateral would not be adjusted for estimated costs to sell. If the fair value of the collateral, adjusted for costs to sell if applicable, is less than the amortized cost basis of the collateral-dependent asset, the difference is recorded as an ACL.
The Company’s policy is to charge-off unsecured consumer loans when they become 90 days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.
If the individually evaluated asset is determined to not be collateral dependent, the ACL is measured based on the expected cash flows. This measurement is based on the amount and timing of cash flows; the effective interest rate (EIR) is used to discount the cash flows; and the basis for the determination of cash flows, including consideration of past events, current conditions, and reasonable and supportable forecasts about the future. These cash flows are discounted back by the EIR and compared to the amortized cost basis of the asset. If the present value of cash flows is less than the amortized cost, an ACL is recorded. When the present value of cash flows is equal to or greater than the amortized cost, no ACL is recorded.
An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.
2. Recent accounting pronouncements
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures but expects additional disclosures upon adoption.
In December 2025, the FASB issued ASU 2025‑10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes authoritative U.S. GAAP for the recognition, measurement, and presentation of government grants received by business entities. The new guidance defines what constitutes a government grant, prescribes a recognition threshold that requires it to be probable the entity will both comply with the grant’s conditions and receive the grant, and outlines presentation principles for grants related to assets and income. The amendments exclude certain transactions from scope, including income‑tax‑related items, below‑market loans, government guarantees, intangible assets, and contributions from nongovernmental sources. The guidance is effective for public business entities for annual periods beginning after December 15, 2028, and one year later for all other entities, with early adoption permitted. The Company early adopted this update in 2026 using the cost accumulation method.
In December 2025, the FASB issued ASU 2025‑11, Interim Reporting (Topic 270): Narrow‑Scope Improvements, which clarifies the applicability of interim reporting guidance and enhances the organization and navigability of interim disclosure requirements. The amendments introduce a disclosure principle requiring entities to disclose events occurring after the end of the most recent annual reporting period that have a material impact on the entity, and they compile a comprehensive list of interim disclosures within Topic 270. The guidance does not change the fundamental nature of interim reporting but provides clearer direction on the form, content, and required disclosures for interim financial statements. ASU 2025‑11 is effective for public business entities for interim reporting periods within fiscal years beginning after December 15, 2027, and for all other entities for interim reporting periods within fiscal years beginning after December 15, 2028, with early adoption permitted. The amendments may be applied prospectively or retrospectively. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures and expects additional disclosures upon adoption.
In May 2026, the FASB issued ASU 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818), which provides accounting guidance for the recognition, measurement, presentation, and disclosure of environmental credits and environmental credit obligations. The amendments apply to entities that buy, receive, generate, transfer, or use environmental credits, or that have enforceable regulatory compliance obligations that may be settled with environmental credits, including obligations arising from programs such as cap-and-trade, renewable portfolio standards, and renewable fuel standards. The guidance excludes income tax credits that may be used to settle income tax liabilities, obligations within the scope of ASC 410-30, and voluntary emissions-reduction programs that do not arise from enforceable regulatory compliance obligations. For public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2027, including interim reporting periods within those annual periods. Early adoption is permitted in an interim or annual reporting period for which financial statements have not yet been issued or made available for issuance. The amendments are required to be applied retrospectively through a cumulative-effect adjustment to the opening balance of retained earnings, or other appropriate component of equity, as of the beginning of the annual reporting period of adoption. The Company is currently evaluating the effect of adopting of ASU 2026-02 and does not currently expect a material effect on its financial position, results of operations, or cash flows.
3. Accumulated other comprehensive income/loss
The following tables illustrate the changes in accumulated other comprehensive income/loss by component and the details about the components of accumulated other comprehensive income/loss as of and for the periods indicated:
| As of and for the three months ended June 30, 2026 | ||||||||||||
| Unrealized gains | ||||||||||||
| (losses) on | Securities | |||||||||||
| available-for-sale | transferred to | |||||||||||
| (dollars in thousands) | debt securities | held-to-maturity | Total | |||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income before reclassifications, net of tax | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | ||||||||||||
| Net current-period other comprehensive income | ||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| As of and for the six months ended June 30, 2026 | ||||||||||||
| Unrealized gains | ||||||||||||
| (losses) on | Securities | |||||||||||
| available-for-sale | transferred to | |||||||||||
| (dollars in thousands) | debt securities | held-to-maturity | Total | |||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income before reclassifications, net of tax | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | ||||||||||||
| Net current-period other comprehensive income | ||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| As of and for the three months ended June 30, 2025 | ||||||||||||
| Unrealized gains | ||||||||||||
| (losses) on | Securities | |||||||||||
| available-for-sale | transferred to | |||||||||||
| (dollars in thousands) | debt securities | held-to-maturity | Total | |||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income before reclassifications, net of tax | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | ||||||||||||
| Net current-period other comprehensive income | ||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| As of and for the six months ended June 30, 2025 | ||||||||||||
| Unrealized gains | ||||||||||||
| (losses) on | Securities | |||||||||||
| available-for-sale | transferred to | |||||||||||
| (dollars in thousands) | securities | held-to-maturity | Total | |||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income before reclassifications, net of tax | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | ||||||||||||
| Net current-period other comprehensive income | ||||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Details about accumulated other | Amount reclassified from accumulated | Affected line item in the statement | |||||||||||||||
| comprehensive income components | other comprehensive income | where net income is presented | |||||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Realized losses on AFS debt securities | $ | $ | $ | ( | ) | $ | ( | ) | Loss on sale of available-for-sale debt securities | ||||||||
| Amortization of unrealized loss on held-to-maturity securities | ( | ) | ( | ) | ( | ) | ( | ) | Interest income on investment securities | ||||||||
| Total reclassifications for the period | ( | ) | ( | ) | ( | ) | ( | ) | Income before income taxes | ||||||||
| Income tax effect | Provision for income taxes | ||||||||||||||||
| Total reclassifications for the period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | Net income | ||||
4. Investment securities
Agency – Government-sponsored enterprise (GSE) and Mortgage-backed securities (MBS) - GSE residential
Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan Bank of Pittsburgh (FHLB) and Government National Mortgage Association (GNMA). These securities have interest rates that are fixed, have varying short to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.
Obligations of states and political subdivisions (municipal)
The municipal securities are general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities. Fair values of these securities are highly driven by interest rates. Management performs ongoing credit quality reviews on these issues.
The Company did not record any allowance for credit losses on its available-for-sale or held-to-maturity securities. The Company excludes accrued interest receivable from the amortized cost basis of investment securities disclosed throughout this footnote. As of June 30, 2026 and December 31, 2025, accrued interest receivable for investment securities totaled $
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Fair | |||||||||||||
| (dollars in thousands) | cost | gains | losses | value | ||||||||||||
| June 30, 2026 | ||||||||||||||||
| Held-to-maturity securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| MBS - GSE residential | ( | ) | ||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Fair | |||||||||||||
| (dollars in thousands) | cost | gains | losses | value | ||||||||||||
| December 31, 2025 | ||||||||||||||||
| Held-to-maturity securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale debt securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| MBS - GSE residential | ( | ) | ||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | ( | ) | $ | ||||||||||
The amortized cost and fair value of debt securities at June 30, 2026 by contractual maturity are summarized below:
| Amortized | Fair | |||||||
| (dollars in thousands) | cost | value | ||||||
| Held-to-maturity securities: | ||||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Total held-to-maturity securities | $ | $ | ||||||
| Available-for-sale securities: | ||||||||
| Debt securities: | ||||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| MBS - GSE residential | ||||||||
| Total available-for-sale debt securities | $ | $ | ||||||
There was a $
Actual maturities will differ from contractual maturities because issuers and borrowers may have the right to call or repay obligations with or without call or prepayment penalty. Agency – GSE and municipal securities are included based on their original stated maturity. MBS – GSE residential, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total. Most of the securities have fixed rates or have predetermined scheduled rate changes and many have call features that allow the issuer to call the security at par before its stated maturity without penalty.
Some of the Company’s debt securities are pledged to secure trust funds, public deposits, short-term borrowings, FHLB advances, Federal Reserve Bank of Philadelphia Discount Window borrowings and certain other deposits as required by law. Securities pledged at June 30, 2026 had a carrying amount of $
The following table presents the fair value and gross unrealized losses of debt securities aggregated by investment type, the length of time and the number of securities that have been in a continuous unrealized loss position as of June 30, 2026 and December 31, 2025:
| Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| (dollars in thousands) | value | losses | value | losses | value | losses | ||||||||||||||||||
| June 30, 2026 | ||||||||||||||||||||||||
| Agency - GSE | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| MBS - GSE residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Number of securities | ||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||
| Agency - GSE | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ||||||||||||||||||||
| MBS - GSE residential | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Number of securities | ||||||||||||||||||||||||
There was a $
The Company had
The Company reassessed classification of certain investments and effective April 1, 2022, the Company transferred agency and municipal investment securities with a book value of $
Unrealized losses on available-for-sale securities have not been recognized into income because management believes the cause of the unrealized losses is related to changes in interest rates and is not directly related to credit quality. Quarterly, management conducts a formal review of investment securities to assess whether the fair value of a debt security is less than its amortized cost as of the balance sheet date. An allowance for credit losses has not been recognized on these securities in an unrealized loss position because: (1) the entity does not intend to sell the security; (2) more likely than not the entity will not be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is sufficient to recover the entire amortized cost. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.
The Company has U.S. agency bonds and municipal securities classified as held-to-maturity. Management estimated no credit loss reserve will be necessary for agency bonds HTM given the strong credit history of GSE and other U.S. agency issued bonds and the involvement of the U.S. government. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of credit loss reserve calculated using this model was immaterial to the Company's financial statements, therefore no reserve was recorded, but the Company will continue to evaluate these securities on a quarterly basis.
5. Loans and leases
The classifications of loans and leases at June 30, 2026 and December 31, 2025 are summarized as follows:
| (dollars in thousands) | June 30, 2026 | December 31, 2025 | ||||||
| Commercial and industrial: | ||||||||
| Commercial | $ | $ | ||||||
| Municipal | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | ||||||||
| Owner occupied | ||||||||
| Construction | ||||||||
| Consumer: | ||||||||
| Home equity installment | ||||||||
| Home equity line of credit | ||||||||
| Auto loans - Recourse | ||||||||
| Auto loans - Non-recourse | ||||||||
| Direct finance leases | ||||||||
| Other | ||||||||
| Residential: | ||||||||
| Real estate | ||||||||
| Construction | ||||||||
| Total | ||||||||
| Less: | ||||||||
| Allowance for credit losses on loans | ( | ) | ( | ) | ||||
| Unearned lease revenue | ( | ) | ( | ) | ||||
| Loans and leases, net | $ | $ | ||||||
Total unamortized net costs and premiums included in loan totals were as follows:
| (dollars in thousands) | June 30, 2026 | December 31, 2025 | ||||||
| Net unamortized fair value mark discount on acquired loans | $ | ( | ) | $ | ( | ) | ||
| Net unamortized deferred loan origination costs | ||||||||
| Total | $ | $ | ||||||
The Company excludes accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2026 and December 31, 2025, accrued interest receivable for loans totaled $
Direct finance leases include the lease receivable and the guaranteed lease residual. Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease. Unearned revenue is accrued over the life of the lease using the effective interest method.
The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgages serviced for others amounted to $
Non-accrual loans
Non-accrual loans and loans past due over 89 days still accruing, segregated by class, at June 30, 2026 and December 31, 2025, were as follows:
| (dollars in thousands) | Non-accrual With No Allowance for Credit Loss | Non-accrual With an Allowance for Credit Loss | Total Non-accrual | Loans Past Due Over 89 Days Still Accruing | ||||||||||||
| At June 30, 2026 | ||||||||||||||||
| Commercial and industrial: | ||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate: | ||||||||||||||||
| Owner occupied | ||||||||||||||||
| Consumer: | ||||||||||||||||
| Home equity installment | ||||||||||||||||
| Home equity line of credit | ||||||||||||||||
| Auto loans - Recourse | ||||||||||||||||
| Auto loans - Non-recourse | ||||||||||||||||
| Residential: | ||||||||||||||||
| Real estate | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (dollars in thousands) | Non-accrual With No Allowance for Credit Loss | Non-accrual With an Allowance for Credit Loss | Total Non-accrual | Loans Past Due Over 89 Days Still Accruing | ||||||||||||
| At December 31, 2025 | ||||||||||||||||
| Commercial and industrial: | ||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate: | ||||||||||||||||
| Non-owner occupied | ||||||||||||||||
| Owner occupied | ||||||||||||||||
| Consumer: | ||||||||||||||||
| Home equity installment | ||||||||||||||||
| Home equity line of credit | ||||||||||||||||
| Auto loans - Non-recourse | ||||||||||||||||
| Residential: | ||||||||||||||||
| Real estate | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan. C&I and CRE loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 90 days past due as to principal and interest and unsecured consumer loans are charged-off when the loan is 90 days or more past due as to principal and interest.
Loan modifications to borrowers experiencing financial difficulty
Occasionally, the Company modifies loans to borrowers in financial distress by providing interest rates below the market rate, temporary interest-only payment periods, term extensions at interest rates lower than the current market rate for new debt with similar risk and/or converting revolving credit lines to term loans. The Company typically does not forgive principal when modifying loans.
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 lowering the interest rate, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period.
The following tables present the amortized cost basis of loans at June 30, 2026 and June 30, 2025 that were both experiencing financial difficulty and modified during the six months ended June 30, 2026 and 2025, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:
| Loans modified during the six months ended: | ||||||||||||||||||||||||||||
| (dollars in thousands) | June 30, 2026 | |||||||||||||||||||||||||||
| Principal Forgiveness | Payment Delay | Term Extension | Interest Rate Reduction | Combination Term Extension and Principal Forgiveness | Combination Term Extension Interest Rate Reduction | Total Class of Financing Receivable | ||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | $ | % | |||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Loans modified during the six months ended: | ||||||||||||||||||||||||||||
| (dollars in thousands) | June 30, 2025 | |||||||||||||||||||||||||||
| Principal Forgiveness | Payment Delay | Term Extension | Interest Rate Reduction | Combination Term Extension and Principal Forgiveness | Combination Term Extension Interest Rate Reduction | Total Class of Financing Receivable | ||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | $ | % | |||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
The Company has not committed to lend additional amounts to the borrowers included in the previous tables.
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the six months ended June 30, 2026 and 2025:
| (dollars in thousands) | June 30, 2026 | |||||||||||
| Principal Forgiveness | Weighted-Average Interest Rate Reduction | Weighted-Average Term Extension (Months) | ||||||||||
| Commercial real estate: | ||||||||||||
| Owner occupied | $ | % | ||||||||||
| Total | $ | % | ||||||||||
| (dollars in thousands) | June 30, 2025 | |||||||||||
| Principal Forgiveness | Weighted-Average Interest Rate Reduction | Weighted-Average Term Extension (Months) | ||||||||||
| Commercial real estate: | ||||||||||||
| Owner occupied | $ | % | ||||||||||
| Total | $ | % | ||||||||||
There were
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. The allowance for credit losses (ACL) may be increased, adjustments may be made in the allocation of the ACL or partial charge-offs may be taken to further write-down the carrying value of the loan.
Past due loans
Loans are considered past due when the contractual principal and/or interest is not received by the due date. For loans reported 30-59 days past due, certain categories of loans are reported past due as and when the loan is in arrears for two payments or billing cycles. An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands):
| Recorded | |||||||||||||||||||||||||||||
| Past due | investment past | ||||||||||||||||||||||||||||
| 30 - 59 Days | 60 - 89 Days | 90 days | Total | Total | due ≥ 90 days | ||||||||||||||||||||||||
| June 30, 2026 | past due | past due | or more (1) | past due | Current | loans (3) | and accruing | ||||||||||||||||||||||
| Commercial and industrial: | |||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | - | |||||||||||||||||||||
| Municipal | - | ||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||
| Non-owner occupied | - | ||||||||||||||||||||||||||||
| Owner occupied | - | ||||||||||||||||||||||||||||
| Construction | - | ||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||
| Home equity installment | - | ||||||||||||||||||||||||||||
| Home equity line of credit | - | ||||||||||||||||||||||||||||
| Auto loans - Recourse | - | ||||||||||||||||||||||||||||
| Auto loans - Non-recourse | - | ||||||||||||||||||||||||||||
| Direct finance leases | (2) | ||||||||||||||||||||||||||||
| Other | - | ||||||||||||||||||||||||||||
| Residential: | |||||||||||||||||||||||||||||
| Real estate | - | ||||||||||||||||||||||||||||
| Construction | - | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Includes non-accrual loans. (2) Net of unearned lease revenue of $
| Recorded | |||||||||||||||||||||||||||||
| Past due | investment past | ||||||||||||||||||||||||||||
| 30 - 59 Days | 60 - 89 Days | 90 days | Total | Total | due ≥ 90 days | ||||||||||||||||||||||||
| December 31, 2025 | past due | past due | or more (1) | past due | Current | loans (3) | and accruing | ||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | - | |||||||||||||||||||||
| Municipal | - | ||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||
| Non-owner occupied | - | ||||||||||||||||||||||||||||
| Owner occupied | - | ||||||||||||||||||||||||||||
| Construction | - | ||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||
| Home equity installment | - | ||||||||||||||||||||||||||||
| Home equity line of credit | - | ||||||||||||||||||||||||||||
| Auto loans - Recourse | - | ||||||||||||||||||||||||||||
| Auto loans - Non-recourse | - | ||||||||||||||||||||||||||||
| Direct finance leases | (2) | - | |||||||||||||||||||||||||||
| Other | - | ||||||||||||||||||||||||||||
| Residential: | |||||||||||||||||||||||||||||
| Real estate | - | ||||||||||||||||||||||||||||
| Construction | - | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | - | |||||||||||||||||||||
(1) Includes non-accrual loans. (2) Net of unearned lease revenue of $
Credit Quality Indicators
Management is responsible for conducting the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans. Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information, and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the Board of Directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Commercial and industrial and commercial real estate
The Company utilizes a loan grading system and assigns a credit risk grade to its loans in the C&I and CRE portfolios. The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio. The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the C&I and CRE portfolios.
These loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade is warranted.
The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE loans:
Pass
Loans in this category have an acceptable level of risk and are graded in a range of one to five. Secured loans generally have good collateral coverage. Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends. Management is competent, and a reasonable succession plan is evident. Payment experience on the loans has been good with minor or no delinquency experience. Loans with a grade of one are of the highest quality in the range. Those graded five are of marginally acceptable quality.
Special Mention
Loans in this category are graded a six and may be protected but are potentially weak. They constitute a credit risk to the Company but have not yet reached the point of adverse classification. Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions. Cash flow may not be sufficient to support total debt service requirements.
Substandard
Loans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt. The collateral pledged may be lacking in quality or quantity. Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth. The payment history indicates chronic delinquency problems. Management is weak. There is a distinct possibility that the Company may sustain a loss. All loans on non-accrual are rated substandard. Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due. Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as modifications experiencing financial difficulty can be graded substandard.
Doubtful
Loans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term. Many of the weaknesses present in a substandard loan exist. Liquidation of collateral, if any, is likely. Any loan graded higher than an eight is considered to be uncollectible and charged-off.
Consumer and residential
The consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated. For these portfolios, the Company utilizes payment activity and history in assessing performance. Non-performing loans are comprised of non-accrual loans and loans past due 90 days or more and accruing. All loans not classified as non-performing are considered performing.
The following table presents loans including $
Commercial credit exposure
Credit risk profile by creditworthiness category
As of June 30, 2026
(dollars in thousands)
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial and industrial - municipal | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial - municipal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - non-owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - construction | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - construction | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Consumer & Mortgage lending credit exposure
Credit risk profile based on payment activity
As of June 30, 2026
(dollars in thousands)
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||
| Home equity installment | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total home equity installment | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Home equity line of credit | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total home equity line of credit | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Auto loans - recourse | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total auto loans - recourse | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Auto loans - non-recourse | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total auto loans - non-recourse | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Direct finance leases (1) | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total direct finance leases | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer - other | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total consumer - other | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential - construction | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total residential - construction | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1) Net of unearned lease revenue of $
Commercial credit exposure
Credit risk profile by creditworthiness category
As of December 31, 2025
(dollars in thousands)
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial and industrial - municipal | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial - municipal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - non-owner occupied | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - non-owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - construction | ||||||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate - construction | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Consumer & Mortgage lending credit exposure
Credit risk profile based on payment activity
As of December 31, 2025
(dollars in thousands)
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | |||||||||||||||||||||||||||
| Home equity installment | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total home equity installment | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Home equity line of credit | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total home equity line of credit | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Auto loans - recourse | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total auto loans - recourse | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Auto loans - non-recourse | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total auto loans - non-recourse | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Direct finance leases (2) | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total direct finance leases | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer - other | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total consumer - other | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total residential real estate | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential - construction | ||||||||||||||||||||||||||||||||||||
| Payment performance | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total residential - construction | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(2) Net of unearned lease revenue of $
Collateral dependent loans
Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. The following table presents the individually evaluated, collateral dependent loans as of June 30, 2026 and December 31, 2025:
| (dollars in thousands) | Real Estate | Other | Total Collateral-Dependent Loans | |||||||||
| At June 30, 2026 | ||||||||||||
| Commercial and industrial: | ||||||||||||
| Commercial | $ | $ | $ | |||||||||
| Commercial real estate: | ||||||||||||
| Owner occupied | ||||||||||||
| Consumer: | ||||||||||||
| Home equity installment | ||||||||||||
| Home equity line of credit | ||||||||||||
| Auto loans - Recourse | ||||||||||||
| Auto loans - Non-recourse | ||||||||||||
| Residential: | ||||||||||||
| Real estate | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (dollars in thousands) | Real Estate | Other | Total Collateral-Dependent Loans | |||||||||
| At December 31, 2025 | ||||||||||||
| Commercial and industrial: | ||||||||||||
| Commercial | $ | $ | $ | |||||||||
| Commercial real estate: | ||||||||||||
| Non-owner occupied | ||||||||||||
| Owner occupied | ||||||||||||
| Consumer: | ||||||||||||
| Home equity installment | ||||||||||||
| Home equity line of credit | ||||||||||||
| Auto loans - Non-recourse | ||||||||||||
| Residential: | ||||||||||||
| Real estate | ||||||||||||
| Total | $ | $ | $ | |||||||||
Allowance for credit losses
Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.
Information related to the change in the allowance for credit losses on loans and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows
| As of and for the six months ended June 30, 2026 | ||||||||||||||||||||||||
| Commercial & | Commercial | Residential | ||||||||||||||||||||||
| (dollars in thousands) | industrial | real estate | Consumer | real estate | Unallocated | Total | ||||||||||||||||||
| Allowance for Credit Losses: | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (benefit) for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of and for the three months ended June 30, 2026 | ||||||||||||||||||||||||
| Commercial & | Commercial | Residential | ||||||||||||||||||||||
| (dollars in thousands) | industrial | real estate | Consumer | real estate | Unallocated | Total | ||||||||||||||||||
| Allowance for Credit Losses: | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (benefit) for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of and for the six months ended June 30, 2025 | ||||||||||||||||||||||||
| Commercial & | Commercial | Residential | ||||||||||||||||||||||
| (dollars in thousands) | industrial | real estate | Consumer | real estate | Unallocated | Total | ||||||||||||||||||
| Allowance for Credit Losses: | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (benefit) for credit losses | ( | ) | ||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of and for the three months ended June 30, 2025 | ||||||||||||||||||||||||
| Commercial & | Commercial | Residential | ||||||||||||||||||||||
| (dollars in thousands) | industrial | real estate | Consumer | real estate | Unallocated | Total | ||||||||||||||||||
| Allowance for Credit Losses: | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (benefit) for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Unfunded commitments
The Company's allowance for credit losses on unfunded commitments is recognized as a liability on the consolidated balance sheets, with adjustments to the reserve recognized in the provision for credit losses on unfunded commitments on the consolidated statements of income. The Company's activity in the allowance for credit losses on unfunded commitments for the period was as follows:
| (dollars in thousands) | For the Six Months Ended June 30, 2026 | For the Six Months Ended June 30, 2025 | ||||||
| Beginning balance | $ | $ | ||||||
| Provision (benefit) for credit losses | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
Direct finance leases
The Company originates direct finance leases through three automobile dealerships. The amortized cost of the Company’s lease receivables, net of unearned income, was $
The undiscounted cash flows to be received on an annual basis for the direct finance leases are as follows:
| (dollars in thousands) | Amount | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and thereafter | ||||
| Total future minimum lease payments receivable | ||||
| Less: Unearned income | ( | ) | ||
| Cash flows to be received, net of unearned income | $ | |||
6. Earnings per share
Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards. The Company maintains one active share-based compensation plan that may generate additional potentially dilutive common shares. For granted and unexercised stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued SSARs were exercised and converted into common stock. As of the three and six months ended June 30, 2026, there were
In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised SSARs and unvested restricted stock. Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock. Proceeds include amounts received from the exercise of outstanding stock options and compensation cost for future service that the Company has not yet recognized in earnings. The Company does not consider awards from share-based grants in the computation of basic EPS.
The following table illustrates the data used in computing basic and diluted EPS for the periods indicated:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (dollars in thousands except per share data) | ||||||||||||||||
| Basic EPS: | ||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Basic EPS | $ | $ | $ | $ | ||||||||||||
| Diluted EPS: | ||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Potentially dilutive common shares | ||||||||||||||||
| Weighted-average common and potentially dilutive shares outstanding | ||||||||||||||||
| Diluted EPS | $ | $ | $ | $ | ||||||||||||
7. Stock plans
The Company has one active stock-based compensation plan (the stock compensation plan) from which it can grant stock-based compensation awards and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance. The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. The Company’s stock compensation plan was shareholder-approved and permits the grant of share-based compensation awards to its employees and directors. The Company believes that the stock-based compensation plan will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock. In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders. In the stock compensation plan, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock.
At the 2022 annual shareholders' meeting, the Company's shareholders approved and the Company adopted the 2022 Omnibus Stock Incentive Plan which replaced the 2012 Omnibus Stock Incentive Plan and the 2012 Director Stock Incentive Plan (collectively, the 2012 stock incentive plans). The 2012 stock incentive plans expired in 2022. Unless terminated by the Company’s Board of Directors, the 2022 Omnibus Stock Incentive Plan will expire on, and no stock-based awards shall be granted after the year 2032.
In the 2022 Omnibus Stock Incentive Plan, the Company has reserved
During the first quarter of 2026, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February 2026 based on 2025 performance. During the first quarter of 2026, the Company also awarded
During the first quarter of 2025, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February 2025 based on 2024 performance.
The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended June 30, 2026 and 2025 under the 2022 stock incentive plan:
| June 30, 2026 | June 30, 2025 | |||||||||||||||
| Weighted- | Weighted- | |||||||||||||||
| Shares | average grant | Shares | average grant | |||||||||||||
| granted | date fair value | granted | date fair value | |||||||||||||
| Omnibus plan | (2) | $ | (2) | $ | ||||||||||||
| Omnibus plan | (3) | (2) | ||||||||||||||
| Omnibus plan | (2) | |||||||||||||||
| Omnibus plan | (3) | (3) | ||||||||||||||
| Omnibus plan | (1) | (1) | ||||||||||||||
| Total | $ | $ | ||||||||||||||
(1) Vest after
The fair value of the shares granted in 2026 and 2025 was calculated using the grant date closing stock price.
A summary of the status of the Company’s non-vested restricted stock as of and changes during the period indicated are presented in the following table:
| Omnibus | Weighted- average grant date fair value | |||||||
| Non-vested balance at December 31, 2025 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Non-vested balance at June 30, 2026 | $ | |||||||
A summary of the status of the Company’s SSARs as of and changes during the period indicated are presented in the following table:
| Awards | Weighted-average grant date fair value | Weighted-average remaining contractual term (years) | ||||||||||
| Outstanding December 31, 2025 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding June 30, 2026 | $ | |||||||||||
During the six months ended June 30, 2026, there were
Share-based compensation expense is included as a component of salaries and employee benefits in the consolidated statements of income. The following tables illustrate stock-based compensation expense recognized on non-vested equity awards during the three and six months ended June 30, 2026 and 2025 and the unrecognized stock-based compensation expense as of June 30, 2026:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (dollars in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Stock-based compensation expense: | ||||||||||||||||
| 2012 Director stock incentive plan | $ | $ | $ | $ | ||||||||||||
| 2012 Omnibus stock incentive plan | ||||||||||||||||
| 2022 Omnibus stock incentive plan | ||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| As of | ||||
| (dollars in thousands) | June 30, 2026 | |||
| Unrecognized stock-based compensation expense: | ||||
| 2022 Omnibus stock incentive plan | $ | |||
The unrecognized stock-based compensation expense as of June 30, 2026 will be recognized ratably over the period ended March 2029 for the 2022 Omnibus Stock Incentive Plan.
In addition to the 2022 stock incentive plan, the Company established the 2002 Employee Stock Purchase Plan (the ESPP) and reserved
8. Fair value measurements
The accounting guidelines establish a framework for measuring and disclosing information about fair value measurements. The guidelines of fair value reporting instituted a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;
Level 3 - inputs are unobservable and are based on the Company’s own assumptions to measure assets and liabilities at fair value. Level 3 pricing for securities may also include unobservable inputs based upon broker-traded transactions.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company uses fair value to measure certain assets and, if necessary, liabilities on a recurring basis when fair value is the primary measure for accounting. Thus, the Company uses fair value for AFS securities. Fair value is used on a non-recurring basis to measure certain assets when adjusting carrying values to market values, such as collateral dependent individually evaluated loans, other real estate owned (ORE) and other repossessed assets.
The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:
| June 30, 2026 | ||||||||||||||||||||
| Quoted prices | Significant | Significant | ||||||||||||||||||
| in active | other | other | ||||||||||||||||||
| Carrying | Estimated | markets | observable inputs | unobservable inputs | ||||||||||||||||
| (dollars in thousands) | amount | fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||
| Restricted investments in bank stock | ||||||||||||||||||||
| Loans and leases, net | ||||||||||||||||||||
| Loans held-for-sale | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits with no stated maturities | ||||||||||||||||||||
| Time deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Secured borrowings | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||
| Quoted prices | Significant | Significant | ||||||||||||||||||
| in active | other | other | ||||||||||||||||||
| Carrying | Estimated | markets | observable inputs | unobservable inputs | ||||||||||||||||
| (dollars in thousands) | amount | fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||
| Restricted investments in bank stock | ||||||||||||||||||||
| Loans and leases, net | ||||||||||||||||||||
| Loans held-for-sale | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits with no stated maturities | ||||||||||||||||||||
| Time deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Secured borrowings | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||
The carrying value of short-term financial instruments, as listed below, approximates their fair value. These instruments generally have limited credit exposure, no stated or short-term maturities, carry interest rates that approximate market and generally are recorded at amounts that are payable on demand:
| ● | Cash and cash equivalents; | |
| ● | Non-interest bearing deposit accounts; | |
| ● | Savings, interest-bearing checking and money market accounts | |
| ● | Short-term borrowings and | |
| ● | Accrued interest. |
Securities: Fair values on investment securities are determined by prices provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.
Accruing loans and leases: The fair value of accruing loans is estimated by calculating the net present value of the future expected cash flows discounted at current offering rates for similar loans. Current offering rates consider, among other things, credit risk.
The carrying value that fair value is compared to is net of the allowance for credit losses and since there is significant judgment included in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.
Non-accrual loans: Loans which the Company has measured as non-accruing are generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. These loans are classified within Level 3 of the fair value hierarchy. The fair value consists of loan balances less the valuation allowance.
Loans held-for-sale: The fair value of loans held-for-sale is estimated using rates currently offered for similar loans and is typically obtained from the FNMA or FHLB.
Interest rate swaps: Fair values on derivative instruments are determined by valuations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.
Time deposits: The fair value of time deposits is based on discounted cash flows using rates which approximate market rates for deposits of similar maturities.
Secured borrowings: The fair value for these obligations uses an income approach based on expected cash flows on a pooled basis.
The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:
| Total carrying value | Quoted prices in active markets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||
| (dollars in thousands) | June 30, 2026 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | $ | ||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| MBS - GSE residential | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| Total carrying value | Quoted prices in active markets | Significant other observable inputs | Significant other unobservable inputs | |||||||||||||
| (dollars in thousands) | December 31, 2025 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Agency - GSE | $ | $ | $ | $ | ||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| MBS - GSE residential | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
Debt securities in the AFS portfolio are measured at fair value using market quotations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Assets classified as Level 2 use valuation techniques that are common to bond valuations. That is, in active markets whereby bonds of similar characteristics frequently trade, quotes for similar assets are obtained.
There were
From time-to-time, the Company may be required to record at fair value financial instruments on a non-recurring basis, such as individually evaluated loans, ORE and other repossessed assets. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting on write downs of individual assets. The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:
| Quoted prices in | Significant other | Significant other | |||||||||||||||
| Total carrying value | active markets | observable inputs | unobservable inputs | ||||||||||||||
| (dollars in thousands) | Valuation techniques | at June 30, 2026 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Other repossessed assets | Fair value of asset less selling costs | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||
| Quoted prices in | Significant other | Significant other | |||||||||||||||
| Total carrying value | active markets | observable inputs | unobservable inputs | ||||||||||||||
| (dollars in thousands) | Valuation techniques | at December 31, 2025 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Individually evaluated loans | Fair value of collateral appraised value | $ | $ | $ | $ | ||||||||||||
| Other real estate owned | Fair value of asset less selling costs | ||||||||||||||||
| Other repossessed assets | Fair value of asset less selling costs | ||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||
The following describes valuation methodologies used for financial instruments measured at fair value on a non-recurring basis. Individually evaluated loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for credit losses, and as such are carried at the lower of net recorded investment or the estimated fair value. Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.
Valuation techniques for individually evaluated, collateral dependent loans are typically determined through independent appraisals of the underlying collateral or may be determined through present value of discounted cash flows. Both techniques include various Level 3 inputs which are not identifiable. The valuation technique may be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions. If real estate is not the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates and other factors may be utilized to determine fair value.
At June 30, 2026 and December 31, 2025, the net realizable values of all individually evaluated, collateral dependent loans were higher than the amortized costs, therefore, there were no observable discounts. Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used to determine fair value, the Company recognizes that valuations could differ across a wide spectrum of techniques employed. Accordingly, fair value estimates for individually evaluated, collateral dependent loans are classified as Level 3.
For ORE, fair value is generally determined through independent appraisals of the underlying properties which generally include various Level 3 inputs which are not identifiable. Appraisals form the basis for determining the net realizable value from these properties. Net realizable value is the result of the appraised value less certain costs or discounts associated with liquidation which occurs in the normal course of business. Management’s assumptions may include consideration of the location and occupancy of the property, along with current economic conditions. Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through incremental subsequent write-downs. These write-downs usually reflect decreases in estimated values resulting from sales price observations as well as changing economic and market conditions. At June 30, 2026, there were no properties in ORE. At December 31, 2025, the net realizable values of properties in ORE were higher than the carrying value.
At June 30, 2026, there was one other repossessed asset totaling $
9. Employee Benefits
Bank-Owned Life Insurance (BOLI)
The Company has purchased single premium BOLI policies on certain officers. The policies are recorded at their cash surrender values. Increases in cash surrender values are included in non-interest income in the consolidated statements of income. The policies’ cash surrender value totaled $
Officer Life Insurance
The Bank enters into separate split dollar life insurance arrangements (Split Dollar Agreements) with certain officers which provide each officer a specified death benefit should the officer die while in the Bank’s employ. The Bank owns the policies and all cash values thereunder. Upon death of the covered employee, the agreed-upon amount of death proceeds from the policies will be paid directly to the insured’s beneficiary. As of June 30, 2026, the policies had total death benefits of $
Supplemental Executive Retirement plan (SERP)
The Bank entered into separate supplemental executive retirement agreements (individually the “SERP Agreement”) with certain officers, pursuant to which the Bank will credit an amount to a SERP account established on each participant’s behalf while they are actively employed by the Bank for each calendar month until normal retirement. As of June 30, 2026 and December 31, 2025, the Company had a balance in accrued expenses of $
10. Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations and economic conditions. The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates and to assist customers with their risk management objectives. All derivative instruments are recognized as either assets or liabilities at fair value in the statement of financial position.
Interest rate derivative - no hedge designation
The Company is a party to interest rate derivatives that are not designated as hedging instruments. The Company enters into interest rate swaps that allow certain commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company minimizes its net interest rate risk exposure resulting from such transactions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities). As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit-quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented.
| Weighted | ||||||||||||||||
| Notional | Average Maturity | Interest Rate | Interest Rate | |||||||||||||
| (dollars in thousands) | Amount | (Years) | Paid | Received | Fair Value | |||||||||||
| June 30, 2026 | ||||||||||||||||
| Classified in Other assets: | ||||||||||||||||
| Customer interest rate swaps | $ | 30 Day SOFR + Margin | Fixed | $ | ||||||||||||
| Classified in Accrued interest payable and other liabilities: | ||||||||||||||||
| Third party interest rate swaps | $ | Fixed | 30 Day SOFR + Margin | $ | ||||||||||||
Interest rate derivative - fair value hedge designation
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. This interest rate swap is designated as a fair value hedge and limits the risk to the investment portfolio of rising interest rates. The Company entered into an interest rate swap with a third-party financial institution to convert fixed rate investment securities to an adjustable rate to produce a more asset sensitive profile. The Company recorded the fair value of the fair value hedge in other assets and accrued interest payable and other liabilities on the consolidated balance sheet. The hedged items (fixed rate securities available-for-sale) are also recorded at fair value which offsets the adjustment to the fair value hedge. The related gains and losses are reported in interest income investment securities - U.S. government agencies and corporations and interest income investment securities - state and political subdivisions (nontaxable) in the consolidated statements of income. For the six months ended June 30, 2026, there was an $
| Weighted | ||||||||||||
| Notional | Average Maturity | |||||||||||
| (dollars in thousands) | Amount | (Years) | Fair Value | |||||||||
| June 30, 2026 | ||||||||||||
| Pay-fixed interest rate swap agreements - securities AFS | $ | $ | ( | ) | ||||||||
The Company had investment securities with a book value of $
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of June 30, 2026 compared to December 31, 2025 and a comparison of the results of operations for the three and six months ended June 30, 2026 and 2025. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2025 Annual Report filed on Form 10-K.
Forward-looking statements
Certain of the matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.
The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:
| ■ | local, regional and national economic conditions and changes thereto; | |
| ■ |
the short-term and long-term effects of inflation, and rising costs to the Company, its customers and on the economy; | |
| ■ | the risks of changes and volatility of interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks; | |
| ■ | securities markets and monetary fluctuations and volatility; | |
| ■ | disruption of credit and equity markets; | |
| ■ |
impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules; | |
| ■ | governmental monetary and fiscal policies, as well as legislative and regulatory changes; | |
| ■ | effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions; | |
| ■ |
the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; | |
| ■ |
the impact of new or changes in existing laws and regulations, including laws and regulations concerning taxes, banking, securities and insurance and their application with which the Company and its subsidiaries must comply; | |
| ■ |
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; | |
| ■ |
the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; | |
| ■ | the effects of economic conditions of any pandemic, epidemic or other health-related crisis such as COVID-19 and responses thereto on current customers and the operations of the Company, specifically the effect of the economy on loan customers’ ability to repay loans; | |
| ■ | the effects of bank failures, banking system instability, deposit fluctuations, loan and securities value changes; | |
| ■ |
technological changes; |
|
| ■ |
the interruption or breach in security of our information systems, continually evolving cybersecurity and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses; | |
| ■ |
acquisitions and integration of acquired businesses; |
|
| ■ |
the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities; | |
| ■ |
acts of war, terrorism, or armed conflict; and |
|
| ■ |
the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful. |
The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document. The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.
Readers should review the risk factors described in other documents that we file or furnish, from time to time, with the Securities and Exchange Commission, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K and other current reports filed or furnished on Form 8-K.
Executive Summary
The Company is a Pennsylvania corporation and a bank holding company, whose wholly-owned state chartered commercial bank and trust subsidiary is The Fidelity Deposit and Discount Bank. The Company is headquartered in Dunmore, Pennsylvania. We consider Lackawanna, Northampton and Luzerne Counties of Pennsylvania our primary marketplace, the "market area".
As a leading Northeastern and Eastern Pennsylvania community bank, our goals are to enhance shareholder value while we continue to operate a full-service community bank. We focus on growing our core business of retail and business lending and deposit gathering while maintaining strong asset quality and controlling operating expenses. We continue to implement management strategies to diversify earning assets (see “Funds Deployed” section of this management’s discussion and analysis) and to increase the amount of relationship core deposits (see “Funds Provided” section of this management’s discussion and analysis). These strategies include a focus on commercial lending and the ancillary business products and services supporting our commercial customers’ needs as well as residential lending strategies and an array of consumer products. We focus on developing a full banking relationship with existing, as well as new business prospects. The Bank has a personal and corporate trust department and also provides alternative financial and insurance products with asset management services. In addition, we explore opportunities to selectively expand and optimize our franchise footprint, consisting presently of our 21-branch network.
We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for June 2026 was 4.2%, down 0.2 percentage points compared to December 2025. The local market unemployment rates in the Scranton – Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at June 30, 2026 were 4.7% in market area north and 4.1% in market area south, respectively, an increase of 0.4 percentage points and 0.2 percentage points from the 4.3% and 3.9%, respectively, at December 31, 2025. The median home values in the Scranton – Wilkes-Barre – Hazleton metro and Allentown – Bethlehem – Easton metro each increased 1.4% and 3.2% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 1.8% and 1.9%, respectively, in the next year. In light of these expectations, we continue to monitor housing market conditions, including home price trends and interest rate expectations. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.
For the six months ended June 30, 2026, net income was $15.3 million, or $2.64 basic earnings per share and $2.63 diluted earnings per share, a 19% increase, compared to $12.9 million, or $2.24 basic earnings per share and $2.23 diluted earnings per share, for the six months ended June 30, 2025.
As of June 30, 2026 and June 30, 2025, book value per share was $43.54 and $37.78, and tangible common book value per share (non-GAAP) was $40.08 and $34.25 (1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.
Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients. We understand our markets, offer products and services along with financial advice that is appropriate for our community, clients and prospects. The Company continues to focus on the trusted financial advisor model by utilizing the team approach of experienced bankers that are fully engaged and dedicated towards maintaining and growing profitable relationships.
In addition to the challenging and competitive economic environment in which we operate, the regulatory and oversight of our business has changed significantly in recent years. As described more fully in Part II, Item 1A, “Risk Factors” below, as well as Part I, Item 1A, “Risk Factors,” and in the “Supervision and Regulation” section of management’s discussion and analysis of financial condition and results of operations in our 2025 Annual Report filed on Form 10-K, certain aspects of the Dodd-Frank Wall Street Reform Act (Dodd-Frank Act) continue to have a significant impact on us.
Non-GAAP Financial Measures
The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at June 30, 2026 and 2025.
The following table reconciles the non-GAAP financial measures of FTE net interest income:
| Three months ended |
Six months ended |
|||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
June 30, 2026 |
June 30, 2025 |
||||||||||||
| Interest income (GAAP) |
$ | 31,717 | $ | 29,765 | $ | 62,177 | $ | 58,073 | ||||||||
| Adjustment to FTE |
777 | 760 | 1,561 | 1,531 | ||||||||||||
| Interest income adjusted to FTE (non-GAAP) |
32,494 | 30,525 | 63,738 | 59,604 | ||||||||||||
| Interest expense (GAAP) |
10,960 | 11,836 | 22,014 | 23,111 | ||||||||||||
| Net interest income adjusted to FTE (non-GAAP) |
$ | 21,534 | $ | 18,689 | $ | 41,724 | $ | 36,493 | ||||||||
The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income less gain/(loss) on sales of securities. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:
| Three months ended |
Six months ended |
|||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
June 30, 2026 |
June 30, 2025 |
||||||||||||
| Efficiency Ratio (non-GAAP) |
||||||||||||||||
| Non-interest expenses (GAAP) |
$ | 15,992 | $ | 14,710 | $ | 31,183 | $ | 29,264 | ||||||||
| Net interest income (GAAP) |
20,757 | 17,929 | 40,163 | 34,962 | ||||||||||||
| Plus: taxable equivalent adjustment |
777 | 760 | 1,561 | 1,531 | ||||||||||||
| Non-interest income (GAAP) |
5,483 | 5,359 | 10,672 | 10,332 | ||||||||||||
| Plus: Loss on sales of securities |
- | - | 577 | 822 | ||||||||||||
| Net interest income (FTE) plus adjusted non-interest income (non-GAAP) |
$ | 27,017 | $ | 24,048 | $ | 52,973 | $ | 47,647 | ||||||||
| Efficiency ratio (non-GAAP) |
59.19 | % | 61.17 | % | 58.87 | % | 61.42 | % | ||||||||
The ratios of non-interest expense less non-interest income less (gain)/loss on sales of securities to average assets, is known as the expense ratio. The following table reconciles the non-GAAP financial measures of the expense ratio to GAAP:
| Three months ended |
Six months ended |
|||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
June 30, 2026 |
June 30, 2025 |
||||||||||||
| Expense Ratio (non-GAAP) |
||||||||||||||||
| Non-interest expenses (GAAP) |
$ | 15,992 | $ | 14,710 | $ | 31,183 | $ | 29,264 | ||||||||
| Less: Non-interest income (GAAP) |
5,483 | 5,359 | 10,672 | 10,332 | ||||||||||||
| Less: Loss on sales of securities |
- | - | 577 | 822 | ||||||||||||
| Non-interest expense (GAAP) |
10,509 | 9,351 | 19,934 | 18,110 | ||||||||||||
| Average assets |
$ | 2,829,501 | $ | 2,681,194 | $ | 2,819,562 | $ | 2,645,679 | ||||||||
| Expense ratio (Non-GAAP) |
1.49 | % | 1.40 | % | 1.43 | % | 1.38 | % | ||||||||
(1) See non-GAAP financial measurements reconciliation on page 34.
The following table provides a reconciliation of tangible common equity (non-GAAP) and the calculations of tangible book value per share and tangible common equity ratio:
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
||||||
| Tangible Book Value per Share (non-GAAP) |
||||||||
| Total assets (GAAP) |
$ | 2,971,224 | $ | 2,698,575 | ||||
| Less: Intangible assets |
(20,126 | ) | (20,364 | ) | ||||
| Tangible assets |
2,951,098 | 2,678,211 | ||||||
| Total shareholders' equity (GAAP) |
252,905 | 217,912 | ||||||
| Less: Intangible assets |
(20,126 | ) | (20,364 | ) | ||||
| Tangible common equity |
$ | 232,779 | $ | 197,548 | ||||
| Common shares outstanding, end of period |
5,808,518 | 5,767,490 | ||||||
| Tangible Common Book Value per Share (non-GAAP) |
$ | 40.08 | $ | 34.25 | ||||
| Tangible Common Equity Ratio (non-GAAP) |
7.89 | % | 7.38 | % | ||||
| Unrealized losses on held-to-maturity securities, net of tax |
$ | (19,083 | ) | $ | (24,602 | ) | ||
| Adjusted tangible common equity ratio (non-GAAP) |
7.24 | % | 6.46 | % | ||||
The following table provides a reconciliation of pre-provision net revenue (PPNR) to average assets (non-GAAP):
| Three months ended |
Six months ended |
|||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
June 30, 2026 |
June 30, 2025 |
||||||||||||
| Pre-Provision Net Revenue to Average Assets |
||||||||||||||||
| Income before taxes (GAAP) |
$ | 9,508 | $ | 8,258 | $ | 17,947 | $ | 15,340 | ||||||||
| Plus: Provision for credit losses |
740 | 320 | 1,705 | 690 | ||||||||||||
| Total pre-provision net revenue (non-GAAP) |
$ | 10,248 | $ | 8,578 | $ | 19,652 | $ | 16,030 | ||||||||
| Total (annualized) (non-GAAP) |
$ | 41,103 | $ | 34,404 | $ | 39,630 | $ | 32,326 | ||||||||
| Average assets |
$ | 2,829,501 | $ | 2,681,194 | $ | 2,819,562 | $ | 2,645,679 | ||||||||
| Pre-Provision Net Revenue to Average Assets (non-GAAP) |
1.45 | % | 1.28 | % | 1.41 | % | 1.22 | % | ||||||||
General
The Company’s earnings depend primarily on net interest income. Net interest income is the difference between interest income and interest expense. Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities. Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings. Net interest income is determined by the Company’s interest rate spread (the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Interest rate spread is significantly impacted by: changes in interest rates and market yield curves and their related impact on cash flows; the composition and characteristics of interest-earning assets and interest-bearing liabilities; differences in the maturity and re-pricing characteristics of assets compared to the maturity and re-pricing characteristics of the liabilities that fund them and by the competition in the marketplace.
The Company’s earnings are also affected by the level of its non-interest income and expenses and by the provisions for credit losses and income taxes. Non-interest income mainly consists of: service charges on the Company’s loan and deposit products; interchange fees; trust and asset management service fees; increases in the cash surrender value of the bank owned life insurance and from net gains or losses from sales of loans and securities. Non-interest expense consists of: compensation and related employee benefit costs; occupancy; equipment; data processing; advertising and marketing; FDIC insurance premiums; professional fees; loan collection; net other real estate owned (ORE) expenses; supplies and other operating overhead.
Net interest income, net interest rate margin, net interest rate spread and the efficiency ratio are presented in the Management's Discussion & Analysis on an FTE basis. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.
Comparison of the results of operations
three and six months ended June 30, 2026 and 2025
Overview
Net income for the quarter ended June 30, 2026 was $7.8 million, or $1.34 earnings per share and $1.33 per diluted share, compared to $6.9 million, or $1.20 earnings per share and $1.20 per diluted share, for the quarter ended June 30, 2025. The $0.9 million, or 13%, increase in net income resulted primarily from a $2.9 million increase in net interest income coupled with a $0.1 million increase in non-interest income. This was partially offset by a $1.3 million increase in non-interest expense and a $0.4 million increase in the provision for credit losses due to the growth of loans and unfunded commitments. For the six months ended June 30, 2026, net income was $15.3 million, or $2.64 earnings per share and $2.63 diluted earnings per share, compared to $12.9 million, or $2.24 earnings per share and $2.23 diluted earnings per share, for the six months ended June 30, 2025. The $2.4 million, or 19%, increase in net income stemmed from the $5.2 million increase in net interest income and $0.4 million increase in non-interest income. This was partially offset by a $1.9 million increase in non-interest expense and a $1.0 million increase in the provision for credit losses on loans and unfunded commitments.
Return on average assets (ROA) were 1.11% and 1.04% for the second quarters of 2026 and 2025, respectively, and 1.09% and 0.98% for the six months ended June 30, 2026 and 2025, respectively. The increase in ROA was primarily the result of an increase in net income during the second quarter of 2026 and year-to-date 2026, compared to the same periods of 2025. Return on average shareholders’ equity (ROE) was 12.68% and 13.02% for the second quarters of 2026 and 2025, respectively, and 12.55% and 12.35% for the six months ended June 30, 2026 and 2025, respectively. The increase ROE year-to-date 2026 was primarily the result of an increase in net income, compared to year-to-date 2025. The decrease in ROE during the second quarter of 2026, compared to the same 2025 quarter, was primarily due to a 17% increase in average total equity compared to a 13% increase in net income. Pre-provision net revenue to average assets (non-GAAP) was 1.45% and 1.28% for the three months ended June 30, 2026 and 2025, respectively, and 1.41% and 1.22% for the six months ended June 30, 2026 and 2025, respectively. The increases were due to an increase in income before taxes quarter-over-quarter and year-over-year.
Net interest income and interest sensitive assets / liabilities
Net interest income was $20.8 million for the second quarter of 2026, representing a 16% increase over the $17.9 million earned for the second quarter of 2025. The $2.9 million increase in net interest income resulted from the increase of $1.9 million in interest income primarily due to a $113.1 million increase in the average balance of interest-earning assets and a 9 basis points increase in fully-taxable equivalent ("FTE") (non-GAAP measurement) yields. The loan portfolio had the most significant impact, producing a $3.2 million increase in FTE interest income from $208.2 million in higher quarterly average balances and an increase of 5 basis points in FTE loan yields. The increase in interest income was coupled with a $0.9 million decrease in interest expense on deposits due to a 28 basis points decrease in rates paid on interest-bearing deposits which more than offset the increase from $82.1 million in higher average balances compared to the second quarter of 2025.
The FTE yield on interest-earning assets was 4.86% for the second quarter of 2026, an increase of 9 basis points from 4.77% for the second quarter of 2025. The overall cost of interest-bearing liabilities was 2.24% for the second quarter of 2026, a decrease of 28 basis points from the 2.52% for the second quarter of 2025. The cost of funds decreased 22 basis points from 1.95% to 1.73% for the second quarters of 2025 and 2026, respectively. The Company’s FTE net interest spread was 2.62% for the second quarter of 2026, an increase of 37 basis points from 2.25% recorded for the second quarter of 2025. FTE net interest margin increased to 3.22% for the three months ended June 30, 2026 from 2.92% for the same period of 2025. Future margin performance will continue to be influenced by competitive deposit pricing, market interest rate changes, loan growth, funding mix, and overall balance sheet management strategies.
Net interest income was $40.2 million for the six months ended June 30, 2026 compared to $35.0 million for the six months ended June 30, 2025. The $5.2 million increase in net interest income resulted from the increase of $4.1 million in interest income primarily due to a $136.8 million increase in the average balance of interest-earning assets and a 7 basis points increase in FTE yield. The largest contributor to interest income growth was the loan portfolio which produced $5.2 million in interest income from an increase of 5 basis points in FTE loan yields on $170.7 million in higher average balances. The increase in interest income was partially offset by a decrease of $1.0 million in interest earned on the investment portfolio due to decreases of 17 basis points in yield and $49.9 million in average balances. Additionally, the Company experienced a decrease of $1.1 million in interest expense on deposits due to a 25 basis points decrease in rates paid on interest-bearing deposits which more than offset the increase from $109.9 million in higher average balances during the first half of 2026.
The overall cost of interest-bearing liabilities was 2.25% for the six months ended June 30, 2026 compared to 2.51% for the six months ended June 30, 2025. The cost of funds decreased 19 basis points to 1.75% for the six months ended June 30, 2026 from 1.94% for the same period of 2025. The FTE yield on earning assets was 4.82% for the six months ended June 30, 2026, an increase of 7 basis points from the 4.75% year-to-date June 30, 2025. The Company’s FTE net interest spread was 2.57% for the six months ended June 30, 2026, an increase of 33 basis points from the 2.24% recorded for the same period of 2025. FTE net interest margin increased by 24 basis points to 3.15% for the six months ended June 30, 2026 from 2.91% for the same 2025 period primarily due to the decrease on rates paid on interest-bearing deposits coupled with a slight increase on yields earned from loans and leases.
For the remainder of 2026, the Company currently expects to operate in an uncertain interest rate environment with little change in short-term rates. Management’s outlook is informed primarily by the Federal Open Market Committee’s (FOMC) published statements and economic projections. Future changes in short-term rates remain uncertain and dependent on incoming economic information and an evolving outlook. In this environment, the Company expects loan demand to remain supported by its current pipeline and anticipates continued growth in the loan portfolio, initially funded through available excess cash holdings. If excess cash is depleted and deposit growth is insufficient to fund planned loan growth, the Company expects to utilize wholesale borrowings. Overall changes in market interest rates are expected to impact the Company’s net interest margin (“NIM”) based on the timing and magnitude of repricing across earning assets and interest-bearing liabilities. Changes in market interest rates, whether upward or downward, may cause earning asset yields and funding costs to reprice at different speeds and magnitudes, which could positively or negatively affect NIM. Management expects that the effects of rate movements on NIM may be moderated through active pricing and balance sheet management across both earning assets and funding sources. The Company’s actual deposit beta and the resulting effect on NIM will depend on competitive dynamics, changes in deposit mix, and customer behaviors, including the extent to which customers shift balances among non-interest-bearing and interest-bearing accounts or into higher-rate products. Management’s focus remains on enhancing and protecting NIM by reallocating cash flows toward higher-yielding assets, maintaining disciplined and proactive loan pricing (including floors where appropriate), and actively managing deposit costs and product mix to preserve an appropriate spread.
The Company’s Asset Liability Management (ALM) team meets regularly to discuss among other things, interest rate risk and when deemed necessary adjusts interest rates. ALM and the Pricing Committee is actively addressing the Company's sensitivity to a changing rate environment to ensure interest rate risks are contained within acceptable levels. ALM also discusses revenue enhancing strategies to help combat the potential for a decline in net interest income. The Company’s Marketing department, together with ALM, and the Pricing Committee, continue to develop prudent strategies that will grow the loan portfolio and accumulate relationship driven deposits at costs lower than borrowing costs to improve net interest income performance.
The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for June 30, 2026 and 2025 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the second quarters of 2026 and 2025, respectively, and $0.4 million and $0.4 million during the six months ended June 30, 2026 and 2025, respectively, are included in interest income from loans. Purchase accounting adjustments of $0.2 million and $0.3 million are included in interest income from loans and $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended June 30, 2026 and 2025. Purchase accounting adjustments of $0.5 million and $0.6 million are included in interest income from loans and $2 thousand and $2 thousand reduced interest expense on deposits and borrowings for the six months ended June 30, 2026 and 2025. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.
| Six months ended |
||||||||||||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||
| Average |
Yield / |
Average |
Yield / |
|||||||||||||||||||||
| Assets |
balance |
Interest |
rate |
balance |
Interest |
rate |
||||||||||||||||||
| Interest-earning assets |
||||||||||||||||||||||||
| Interest-bearing deposits |
$ | 117,309 | $ | 2,146 | 3.69 | % | $ | 101,846 | $ | 2,284 | 4.52 | % | ||||||||||||
| Restricted investments in bank stock |
4,531 | 182 | 8.13 | 4,066 | 144 | 7.14 | ||||||||||||||||||
| Investments: |
||||||||||||||||||||||||
| Agency - GSE |
110,240 | 772 | 1.41 | 112,980 | 812 | 1.45 | ||||||||||||||||||
| MBS - GSE residential |
186,709 | 1,573 | 1.70 | 217,529 | 2,168 | 2.01 | ||||||||||||||||||
| State and municipal (nontaxable) |
177,954 | 2,422 | 2.74 | 188,470 | 2,727 | 2.92 | ||||||||||||||||||
| State and municipal (taxable) |
77,105 | 788 | 2.06 | 82,888 | 851 | 2.07 | ||||||||||||||||||
| Total investments |
552,008 | 5,555 | 2.03 | 601,867 | 6,558 | 2.20 | ||||||||||||||||||
| Loans and leases: |
||||||||||||||||||||||||
| C&I and CRE (taxable) |
1,111,164 | 34,013 | 6.17 | 928,699 | 28,894 | 6.27 | ||||||||||||||||||
| C&I and CRE (nontaxable) |
136,713 | 3,640 | 5.37 | 126,197 | 3,316 | 5.30 | ||||||||||||||||||
| Consumer |
142,312 | 4,128 | 5.85 | 178,976 | 4,852 | 5.47 | ||||||||||||||||||
| Residential real estate |
603,147 | 14,075 | 4.71 | 588,782 | 13,556 | 4.64 | ||||||||||||||||||
| Total loans and leases |
1,993,336 | 55,855 | 5.65 | 1,822,654 | 50,618 | 5.60 | ||||||||||||||||||
| Total interest-earning assets |
2,667,184 | 63,738 | 4.82 | % | 2,530,433 | 59,604 | 4.75 | % | ||||||||||||||||
| Non-interest earning assets |
152,378 | 115,246 | ||||||||||||||||||||||
| Total assets |
$ | 2,819,562 | $ | 2,645,679 | ||||||||||||||||||||
| Liabilities and shareholders' equity |
||||||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Deposits: |
||||||||||||||||||||||||
| Interest-bearing checking |
$ | 677,181 | $ | 6,365 | 1.90 | % | $ | 684,353 | $ | 6,999 | 2.06 | % | ||||||||||||
| Savings and clubs |
193,790 | 362 | 0.38 | 192,099 | 272 | 0.29 | ||||||||||||||||||
| MMDA |
748,719 | 9,262 | 2.49 | 630,556 | 8,734 | 2.79 | ||||||||||||||||||
| Certificates of deposit |
343,115 | 5,879 | 3.46 | 345,887 | 6,920 | 4.03 | ||||||||||||||||||
| Total interest-bearing deposits |
1,962,805 | 21,868 | 2.25 | 1,852,895 | 22,925 | 2.50 | ||||||||||||||||||
| Secured borrowings |
5,174 | 133 | 5.17 | 6,194 | 186 | 6.05 | ||||||||||||||||||
| Short-term borrowings |
683 | 13 | 3.90 | 16 | - | 2.77 | ||||||||||||||||||
| Total interest-bearing liabilities |
1,968,662 | 22,014 | 2.25 | % | 1,859,105 | 23,111 | 2.51 | % | ||||||||||||||||
| Non-interest bearing deposits |
569,127 | 540,321 | ||||||||||||||||||||||
| Non-interest bearing liabilities |
35,714 | 35,496 | ||||||||||||||||||||||
| Total liabilities |
2,573,503 | 2,434,922 | ||||||||||||||||||||||
| Shareholders' equity |
246,059 | 210,757 | ||||||||||||||||||||||
| Total liabilities and shareholders' equity |
$ | 2,819,562 | $ | 2,645,679 | ||||||||||||||||||||
| Net interest income - FTE |
$ | 41,724 | $ | 36,493 | ||||||||||||||||||||
| Net interest spread |
2.57 | % | 2.24 | % | ||||||||||||||||||||
| Net interest margin |
3.15 | % | 2.91 | % | ||||||||||||||||||||
| Cost of funds |
1.75 | % | 1.94 | % | ||||||||||||||||||||
| Three months ended |
||||||||||||||||||||||||
| (dollars in thousands) |
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||
| Average |
Yield / |
Average |
Yield / |
|||||||||||||||||||||
| Assets |
balance |
Interest |
rate |
balance |
Interest |
rate |
||||||||||||||||||
| Interest-earning assets |
||||||||||||||||||||||||
| Interest-bearing deposits |
$ | 88,054 | $ | 799 | 3.64 | % | $ | 133,763 | $ | 1,513 | 4.54 | % | ||||||||||||
| Restricted investments in bank stock |
4,633 | 93 | 8.13 | 4,158 | 70 | 6.77 | ||||||||||||||||||
| Investments: |
||||||||||||||||||||||||
| Agency - GSE |
110,389 | 386 | 1.40 | 112,183 | 404 | 1.44 | ||||||||||||||||||
| MBS - GSE residential |
183,978 | 773 | 1.69 | 218,684 | 1,117 | 2.05 | ||||||||||||||||||
| State and municipal (nontaxable) |
174,853 | 1,189 | 2.73 | 185,356 | 1,336 | 2.89 | ||||||||||||||||||
| State and municipal (taxable) |
77,136 | 395 | 2.05 | 79,902 | 408 | 2.05 | ||||||||||||||||||
| Total investments |
546,356 | 2,743 | 2.01 | 596,125 | 3,265 | 2.20 | ||||||||||||||||||
| Loans and leases: |
||||||||||||||||||||||||
| C&I and CRE (taxable) |
1,163,508 | 17,945 | 6.19 | 941,849 | 14,771 | 6.29 | ||||||||||||||||||
| C&I and CRE (nontaxable) |
135,766 | 1,836 | 5.43 | 124,177 | 1,668 | 5.39 | ||||||||||||||||||
| Consumer |
137,768 | 2,032 | 5.92 | 174,311 | 2,400 | 5.52 | ||||||||||||||||||
| Residential real estate |
603,272 | 7,046 | 4.68 | 591,824 | 6,838 | 4.63 | ||||||||||||||||||
| Total loans and leases |
2,040,314 | 28,859 | 5.67 | 1,832,161 | 25,677 | 5.62 | ||||||||||||||||||
| Total interest-earning assets |
2,679,356 | 32,494 | 4.86 | % | 2,566,207 | 30,525 | 4.77 | % | ||||||||||||||||
| Non-interest earning assets |
150,144 | 114,987 | ||||||||||||||||||||||
| Total assets |
$ | 2,829,501 | $ | 2,681,194 | ||||||||||||||||||||
| Liabilities and shareholders' equity |
||||||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Deposits: |
||||||||||||||||||||||||
| Interest-bearing checking |
$ | 668,190 | $ | 3,121 | 1.87 | % | $ | 705,255 | $ | 3,715 | 2.11 | % | ||||||||||||
| Savings and clubs |
196,062 | 200 | 0.41 | 192,166 | 138 | 0.29 | ||||||||||||||||||
| MMDA |
757,329 | 4,707 | 2.49 | 629,145 | 4,382 | 2.79 | ||||||||||||||||||
| Certificates of deposit |
339,081 | 2,859 | 3.38 | 351,982 | 3,503 | 3.99 | ||||||||||||||||||
| Total interest-bearing deposits |
1,960,662 | 10,887 | 2.23 | 1,878,548 | 11,738 | 2.51 | ||||||||||||||||||
| Secured borrowings |
4,796 | 60 | 5.02 | 6,162 | 98 | 6.39 | ||||||||||||||||||
| Short-term borrowings |
1,343 | 13 | 3.95 | 11 | - | - | ||||||||||||||||||
| Total interest-bearing liabilities |
1,966,801 | 10,960 | 2.24 | % | 1,884,721 | 11,836 | 2.52 | % | ||||||||||||||||
| Non-interest bearing deposits |
579,871 | 547,278 | ||||||||||||||||||||||
| Non-interest bearing liabilities |
34,509 | 36,049 | ||||||||||||||||||||||
| Total liabilities |
2,581,181 | 2,468,048 | ||||||||||||||||||||||
| Shareholders' equity |
248,320 | 213,146 | ||||||||||||||||||||||
| Total liabilities and shareholders' equity |
$ | 2,829,501 | $ | 2,681,194 | ||||||||||||||||||||
| Net interest income - FTE |
$ | 21,534 | $ | 18,689 | ||||||||||||||||||||
| Net interest spread |
2.62 | % | 2.25 | % | ||||||||||||||||||||
| Net interest margin |
3.22 | % | 2.92 | % | ||||||||||||||||||||
| Cost of funds |
1.73 | % | 1.95 | % | ||||||||||||||||||||
Changes in net interest income are a function of both changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which changes in interest rates and changes in volumes of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by the prior period rate), (2) the changes attributable to changes in interest rates (changes in rates multiplied by prior period volume) and (3) the net change. The combined effect of changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate. Tax-exempt income was not converted to a tax-equivalent basis on the rate/volume analysis:
| Six months ended June 30, |
||||||||||||||||||||||||
| (dollars in thousands) |
2026 compared to 2025 |
2025 compared to 2024 |
||||||||||||||||||||||
| Increase (decrease) due to |
||||||||||||||||||||||||
| Volume |
Rate |
Total |
Volume |
Rate |
Total |
|||||||||||||||||||
| Interest income: |
||||||||||||||||||||||||
| Interest-bearing deposits |
$ | 318 | $ | (456 | ) | $ | (138 | ) | $ | 1,626 | $ | (158 | ) | $ | 1,468 | |||||||||
| Restricted investments in bank stock |
17 | 21 | 38 | 4 | (16 | ) | (12 | ) | ||||||||||||||||
| Investments: |
||||||||||||||||||||||||
| Agency - GSE |
(19 | ) | (21 | ) | (40 | ) | - | (2 | ) | (2 | ) | |||||||||||||
| MBS - GSE residential |
(284 | ) | (311 | ) | (595 | ) | (33 | ) | 66 | 33 | ||||||||||||||
| State and municipal |
(160 | ) | (170 | ) | (330 | ) | (93 | ) | (261 | ) | (354 | ) | ||||||||||||
| Total investments |
(463 | ) | (502 | ) | (965 | ) | (126 | ) | (197 | ) | (323 | ) | ||||||||||||
| Loans and leases: |
||||||||||||||||||||||||
| Residential real estate |
334 | 184 | 518 | 615 | 609 | 1,224 | ||||||||||||||||||
| C&I and CRE |
5,708 | (333 | ) | 5,375 | 3,832 | 626 | 4,458 | |||||||||||||||||
| Consumer |
(1,046 | ) | 322 | (724 | ) | (1,004 | ) | 597 | (407 | ) | ||||||||||||||
| Total loans and leases |
4,996 | 173 | 5,169 | 3,443 | 1,832 | 5,275 | ||||||||||||||||||
| Total interest income |
4,868 | (764 | ) | 4,104 | 4,947 | 1,461 | 6,408 | |||||||||||||||||
| Interest expense: |
||||||||||||||||||||||||
| Deposits: |
||||||||||||||||||||||||
| Interest-bearing checking |
(73 | ) | (561 | ) | (634 | ) | 247 | (807 | ) | (560 | ) | |||||||||||||
| Savings and clubs |
3 | 88 | 91 | (13 | ) | (24 | ) | (37 | ) | |||||||||||||||
| Money market |
1,525 | (998 | ) | 527 | 1,297 | (74 | ) | 1,223 | ||||||||||||||||
| Certificates of deposit |
(55 | ) | (986 | ) | (1,041 | ) | 1,667 | 232 | 1,899 | |||||||||||||||
| Total deposits |
1,400 | (2,457 | ) | (1,057 | ) | 3,198 | (673 | ) | 2,525 | |||||||||||||||
| Secured borrowings |
(28 | ) | (25 | ) | (53 | ) | (35 | ) | (20 | ) | (55 | ) | ||||||||||||
| Short-term borrowings |
13 | - | 13 | (684 | ) | (279 | ) | (963 | ) | |||||||||||||||
| Total interest expense |
1,385 | (2,482 | ) | (1,097 | ) | 2,479 | (972 | ) | 1,507 | |||||||||||||||
| Net interest income |
$ | 3,483 | $ | 1,718 | $ | 5,201 | $ | 2,468 | $ | 2,433 | $ | 4,901 | ||||||||||||
Provision for credit losses
The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to adjust the allowance for credit losses to a level that represents management’s best estimate of expected credit losses in the Company’s loan portfolio. Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans. The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.
Management continuously reviews the risks inherent in the loan portfolio. The determination of the amounts of the allowance for credit losses and the provision for credit losses is based on management’s current judgments about the credit quality of the Company’s financial assets and known and expected relevant internal and external factors that significantly affect collectability such as historical loss information, current conditions, and reasonable and supportable forecasts, including significant qualitative factors.
For the three months ended June 30, 2026, the provision for credit losses on loans was $400 thousand and the provision for credit losses on unfunded commitments was $340 thousand, compared to a $300 thousand provision for credit losses on loans and a $20 thousand provision for credit losses on unfunded loan commitments for the three months ended June 30, 2025.
For the three months ended June 30, 2026, the increase in the provision for credit losses on loans compared to the prior year period was due to more funded loan growth. For the three months ended June 30, 2026, the increase in the provision for credit losses on unfunded commitments compared to the prior period was primarily due to higher commercial construction commitments and loan originations within the portfolio.
For the six months ended June 30, 2026, the provision for credit losses on loans was $1.3 million and the provision for credit losses on unfunded commitments was $430 thousand compared to a $755 thousand provision for credit losses on loans and a $65 thousand benefit for credit losses on unfunded commitments for the six months ended June 30, 2025.
For the six months ended June 30, 2026, the increase in the provision for credit losses on loans compared to the prior year period was due to higher loan growth. For the six months ended June 30, 2026, the increase in the provision for unfunded commitments compared to the prior period was due to growth in originations within the portfolio, specifically in commercial construction commitments.
The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for six months ended June 30, 2026 to maintain an allowance level that management deemed adequate.
For a discussion on the allowance for credit losses, see “Allowance for credit losses”, located in the comparison of financial condition section of management’s discussion and analysis contained herein.
Other income
Total non-interest income increased $0.1 million, or 2%, to $5.5 million for the second quarter of 2026 compared to $5.4 million for the second quarter of 2025. The increase in non-interest income was primarily attributed to an increase of $0.4 million in wealth management revenue driven by new client acquisition, expanded business with existing wealth management clients, and strong client retention coupled with investment in new wealth advisors and market performance. This increase was partially offset by a $0.2 million BOLI death benefit recognized during the second quarter of 2025.
Total non-interest income for the six months ended June 30, 2026 was $10.7 million, an increase of $0.4 million, or 3%, from $10.3 million for the six months ended June 30, 2025. The increase was primarily due to $0.7 million growth in wealth management revenue. Additionally, the Company saw increases of $0.4 million in fees from commercial loans with interest rate hedges and $0.2 million in commercial loan late fees due to two substandard loans that were paid off during the first half of 2026. Partially offsetting the increase in non-interest income was a decrease of $0.7 million in gains from sold loans primarily due to a $0.5 million gain on the sale of a commercial loan during the first half of 2025.
Operating expenses
Non-interest expenses increased $1.3 million, or 9%, for the second quarter of 2026 to $16.0 million from $14.7 million for the same quarter of 2025. The increase in non-interest expenses was primarily attributed to added salaries and benefits expense of $0.8 million mostly due to an increase in the number of bankers quarter-over-quarter. Additionally, the Company experienced an increase of $0.2 million in professional services expenses and $0.1 million in premises and equipment expenses primarily due to costs for software and subscriptions. These increases were partially offset by a decrease of $0.2 million in advertising costs primarily due to less spending on promotions.
Non-interest expenses increased to $31.2 million for the six months ended June 30, 2026, an increase of $1.9 million, or 7%, from $29.3 million for the six months ended June 30, 2025. Salaries and benefits expense increased $1.2 million due to a management initiative to increase the number of bankers in the first half of 2026, compared to the same period in 2025. Additionally, the Company experienced an increase of $0.3 million in professional services expense. Premises and equipment expense increased $0.2 million primarily due to new technology and higher software costs primarily due to less spending on promotions.
Upon occupancy of the new corporate headquarters, the Company does expect the relocation to have an impact on operating costs. Incremental costs associated with operating the new headquarters are expected to be partially offset by efficiencies from the consolidation of certain departments into the corporate center and the closure or disposition of other owned and leased properties, including the sale of our Financial Center building. The Company also expects such costs to be partially offset by available historic tax credit benefits.
The expense ratios (non-GAAP) were 1.49% and 1.40%(1) for the three months ended June 30, 2026 and 2025, respectively, and 1.43% and 1.38%(1) for the six months ended June 30, 2026 and 2025, respectively. The increase in the expense ratio was primarily a result of a higher percentage increase in the net of adjusted non-interest income compared to average total assets during the second quarter of 2026 and year-to-date 2026, compared to the same 2025 periods. The efficiency ratios (non-GAAP) decreased from 61.17% to 59.19%(1) for the three months ended June 30, 2025 and 2026, respectively, and 61.42% to 58.87%(1) for the six months ended June 30, 2025 and 2026, respectively. The decrease in the efficiency ratio for both the second quarter of 2026 and year-to-date 2026, compared to the same 2025 periods, were due to net interest income increasing faster than non-interest expenses.
Provision for income taxes
The provision for income taxes increased $0.3 million during the three months ended June 30, 2026 compared to the same period in 2025 primarily due to a $1.3 million increase in income before taxes. The provision for income taxes increased $0.2 million during the six months ended June 30, 2026 compared to the same period in 2025 primarily due to a $2.6 million increase in income before taxes. Partially offsetting the increase in the provision for income taxes was a $0.5 million discount recognized in the provision from utilizing/applying purchased renewable energy tax credits. The Company's effective tax rate was 14.7% at June 30, 2026 compared to 15.8% at June 30, 2025. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the recognition of this $0.5 million discount in the first half of 2026 along with the effect of tax-exempt income in ration to the level of pre-tax income.
Comparison of financial condition at
June 30, 2026 and December 31, 2025
Overview
The Company’s total assets had a balance of approximately $3.0 billion as of June 30, 2026, an increase of $223.1 million from December 31, 2025. The increase resulted from $174.9 million of net growth in the loans and leases portfolio as of June 30, 2026 compared to December 31, 2025. Cash and cash equivalents increased $59.6 million over the same period. Asset growth was offset by a decrease of $14.9 million in the investment portfolio. Deposit growth of $91.3 million and short-term borrowings of $119.8 million were utilized to fund loan growth.
Funds Deployed:
Investment securities
The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels. In establishing investment strategies, the Company considers its business, growth strategies or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities in its portfolio, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations. The Company’s policy prescribes permissible investment categories that meet the policy standards and management is responsible for structuring and executing the specific investment purchases within these policy parameters. Management buys and sells investment securities periodically depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies. Investment security purchases provide a way to quickly invest excess liquidity in order to generate additional earnings. The Company generally earns a positive interest spread by assuming interest rate risk using deposits or borrowings to purchase securities with longer maturities.
(1) See non-GAAP financial measurements reconciliation on page 33.
At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the six months ended June 30, 2026, AOCI improved by $2.9 million primarily due to the change in fair value of the Company's investment securities along with the amortization of the discount recognized on the transfer of HTM securities.
As of June 30, 2026, the carrying value of held-to-maturity securities was $228.1 million, net of $11.0 million in remaining transferred discount.
The Company utilized a fair value hedge to designate and swap a portion of the fixed rate AFS portfolio. The Company has an approved Derivative Policy that requires Board pre-approval on such balance sheet hedging activities as well as ongoing reporting to its ALCO Committee. The Board has approved up to $200 million in notional amount of pay-fixed interest rate swap and the Company has executed on $100 million to date.
During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of June 30, 2026, the Company recorded the fair value of the swap of $0.2 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $0.2 million increase to the carrying value of designated investment securities.
As of June 30, 2026, the carrying value of investment securities amounted to $509.0 million, or 17% of total assets, compared to $523.9 million, or 19% of total assets, as of December 31, 2025. On June 30, 2026, 31% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).
The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $180.1 million ($166.4 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $81.7 million ($75.9 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 36% AAA, 62% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.
As of June 30, 2026, the carrying value of total investments decreased $14.9 million, or 3%. The decline was primarily due to $10.5 million in paydowns and the sale of $5.8 million in available-for-sale securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.
A comparison of investment securities at June 30, 2026 and December 31, 2025 is as follows:
| June 30, 2026 |
December 31, 2025 |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
Amount |
% |
Book yield |
Reprice term (years) |
Amount |
% |
Book yield |
Reprice term (years) |
||||||||||||||||||||||||
| HTM securities: |
||||||||||||||||||||||||||||||||
| Obligations of states & political subdivisions - tax exempt |
$ | 83,638 | 16.4 | % | 2.1 | % | 18.3 | $ | 83,606 | 16.1 | % | 2.06 | % | 18.8 | ||||||||||||||||||
| Obligations of states & political subdivisions - taxable |
60,306 | 11.8 | 2.1 | 8.8 | 60,113 | 11.4 | 2.06 | 9.3 | ||||||||||||||||||||||||
| Agency - GSE |
84,195 | 16.6 | 1.4 | 3.9 | 83,620 | 15.9 | 1.43 | 4.4 | ||||||||||||||||||||||||
| Total HTM securities |
$ | 228,139 | 44.8 | % | 1.8 | % | 10.5 | $ | 227,339 | 43.4 | % | 1.83 | % | 11.1 | ||||||||||||||||||
| AFS debt securities: |
||||||||||||||||||||||||||||||||
| MBS - GSE residential |
$ | 157,863 | 31.0 | % |
2.0 | % |
5.4 | $ | 169,165 | 32.3 | % |
2.0 | % |
5.4 | ||||||||||||||||||
| Obligations of states & political subdivisions - tax exempt |
82,763 | 16.3 | 2.4 | 8.7 | 87,116 | 16.6 | 2.4 | 17.0 | ||||||||||||||||||||||||
| Obligations of states & political subdivisions - taxable |
15,588 | 3.1 | 1.4 | 3.1 | 15,704 | 3.0 | 1.4 | 3.6 | ||||||||||||||||||||||||
| Agency - GSE |
24,679 | 4.8 | 1.1 | 2.3 | 24,622 | 4.7 | 1.1 | 2.8 | ||||||||||||||||||||||||
| Total AFS debt securities |
$ | 280,893 | 55.2 | % | 2.0 | % | 6.0 | $ | 296,607 | 56.6 | % | 2.0 | % | 8.5 | ||||||||||||||||||
| Total securities |
$ | 509,032 | 100.0 | % |
1.9 | % |
8.0 | $ | 523,946 | 100.0 | % |
1.9 | % |
9.6 | ||||||||||||||||||
The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities. The portfolio had no adjustable-rate instruments as of June 30, 2026 and December 31, 2025.
The AFS securities were recorded with a net unrealized loss of $33.9 million and $36.4 million as of June 30, 2026 and December 31, 2025, respectively. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.
As of June 30, 2026, the Company had $365.3 million in public deposits, or 14% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of June 30, 2026, the balance of pledged securities required was $383.5 million, or 75% of total securities.
Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the six months ended June 30, 2026, the Company did not incur any credit losses on debt securities from its investment securities portfolio.
During the first half of 2026, the Company sold five available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.6 million as the amortized cost was $5.8 million compared to the sales proceeds of $5.2 million. These sales were undertaken as part of the ongoing management strategy of improving margin and focusing on more effective interest earning assets.
Restricted investments in bank stock
Investment in FHLB stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $9.4 million and $4.3 million as of June 30, 2026 and December 31, 2025, respectively. The dividends received from the FHLB totaled $165 thousand and $152 thousand for the six months ended June 30, 2026 and 2025, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of June 30, 2026 and December 31, 2025.
Loans held-for-sale (HFS)
Upon origination, most residential mortgages and certain Small Business Administration (SBA) guaranteed loans may be classified as held-for-sale (HFS). In the event of market rate increases, fixed-rate loans and loans not immediately scheduled to re-price would no longer produce yields consistent with the current market. In declining interest rate environments, the Company would be exposed to prepayment risk as rates on fixed-rate loans decrease, and customers look to refinance loans. Consideration is given to the Company’s current liquidity position and projected future liquidity needs. To better manage prepayment and interest rate risk, loans that meet these conditions may be classified as HFS. Occasionally, residential mortgage and/or business loans may be transferred from the loan portfolio to HFS. The carrying value of loans HFS is based on the lower of cost or estimated fair value. If the fair values of these loans decline below their original cost, the difference is written down and charged to current earnings. Subsequent appreciation in the portfolio is credited to current earnings but only to the extent of previous write-downs.
As of June 30, 2026 and December 31, 2025, loans HFS consisted of residential mortgages with carrying amounts of $1.6 million and $0.6 million, respectively, which approximated their fair values. During the six months ended June 30, 2026, residential mortgage loans with principal balances of $21.9 million were sold into the secondary market and the Company recognized net gains of $0.3 million, compared to $32.0 million and $0.5 million, respectively, during the six months ended June 30, 2025.
The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships and opportunities with those customers. At June 30, 2026 and December 31, 2025, the servicing portfolio balance of sold residential mortgage loans was $508.1 million and $513.6 million, respectively, with mortgage servicing rights of $1.0 million and $1.1 million for the same periods, respectively.
Loans and leases
As of June 30, 2026, the Company had gross loans and leases totaling $2.1 billion, an increase of $175.8 million, or 9%, compared to $1.9 billion at December 31, 2025.
During the six months ended June 30, 2026, the growth in the portfolio was attributed primarily to a $190.2 million increase in the commercial portfolio and a $5.2 million increase in the residential portfolio, which was partially offset by the $19.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.
As management continues to identify ways to optimize the Company’s balance sheet, the focus is to lend in areas that provide better risk-adjusted returns and improved opportunities to deepen relationships with our customers. This could result in a change in the composition of the loan portfolio in future periods.
The composition of the loan portfolio at June 30, 2026 and December 31, 2025 is summarized as follows:
| June 30, 2026 |
December 31, 2025 |
|||||||||||||||
| (dollars in thousands) |
Amount |
% |
Amount |
% |
||||||||||||
| Commercial and industrial: |
||||||||||||||||
| Commercial |
$ | 252,717 | 12.1 | % |
$ | 220,526 | 11.5 | % |
||||||||
| Municipal |
129,656 | 6.2 | 120,604 | 6.3 | ||||||||||||
| Commercial real estate: |
||||||||||||||||
| Non-owner occupied |
527,855 | 25.3 | 416,521 | 21.8 | ||||||||||||
| Owner occupied |
377,758 | 18.1 | 340,808 | 17.8 | ||||||||||||
| Construction |
57,317 | 2.7 | 56,684 | 3.0 | ||||||||||||
| Consumer: |
||||||||||||||||
| Home equity installment |
53,608 | 2.6 | 53,973 | 2.8 | ||||||||||||
| Home equity line of credit |
71,139 | 3.4 | 70,195 | 3.7 | ||||||||||||
| Auto loans - Recourse |
9,308 | 0.4 | 10,139 | 0.5 | ||||||||||||
| Auto loans - Non-recourse |
31,522 | 1.5 | 43,852 | 2.3 | ||||||||||||
| Direct finance leases |
16,275 | 0.8 | 19,666 | 1.0 | ||||||||||||
| Other |
24,872 | 1.2 | 28,463 | 1.5 | ||||||||||||
| Residential: |
||||||||||||||||
| Real estate |
519,374 | 24.9 | 515,489 | 27.0 | ||||||||||||
| Construction |
17,053 | 0.8 | 15,685 | 0.8 | ||||||||||||
| Gross loans |
2,088,454 | 100.0 | % |
1,912,605 | 100.0 | % |
||||||||||
| Less: |
||||||||||||||||
| Allowance for credit losses |
(21,314 | ) | (20,168 | ) | ||||||||||||
| Unearned lease revenue |
(1,197 | ) | (1,454 | ) | ||||||||||||
| Net loans |
$ | 2,065,943 | $ | 1,890,983 | ||||||||||||
| Loans held-for-sale |
$ | 1,636 | $ | 573 | ||||||||||||
Commercial & industrial (C&I) and commercial real estate (CRE)
As of June 30, 2026, the commercial portfolio increased by $190.2 million, or 16%, to $1.3 billion compared to the December 31, 2025 balance of $1.2 billion. The increase was due to growth of $148.9 million in commercial real estate loans and $41.3 million in commercial and industrial loans. The increased origination growth in the commercial portfolio was attributed to management's balance sheet optimization strategy to grow this segment of the loan and lease portfolio.
Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, independent collateral appraisals, etc.
For the six months ended June 30, 2026, commercial and industrial (non-municipal) loans increased $32.2 million, or 15%, from $220.5 million at December 31, 2025 to $252.7 million at June 30, 2026, which was due to a single origination totaling $12.4 million and two originations to a single borrower totaling $5.2 million during the first quarter, a single origination totaling $4.0 million during the second quarter, and standard originations and advances outpacing scheduled payments and curtailments.
Municipal loans are secured by the full faith and credit of respective local government units located in the Commonwealth of Pennsylvania authorized in accordance with the Local Government Unit Debt Act. These loans have a long history of performance within contractual terms with minimal defaults noted.
For the six months ended June 30, 2026, municipal loans increased $9.1 million, or 8%, from $120.6 million at December 31, 2025, to $129.7 million at June 30, 2026, which was attributed to a single origination to a municipal borrower totaling $2.3 million during the first quarter, two loans to a single municipal borrower totaling $2.9 million during the second quarter, and standard portfolio growth.
Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral whose values tend to move inversely with interest rates. These loans are secured with mortgages, or commercial real estate mortgages (CREM) against the subject property. In underwriting commercial real estate construction loans, the Company performs a robust analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers consistent with Uniform Standards of Professional Appraisal Practice (USPAP) standards and compliant with Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). At June 30, 2026, the commercial real estate portfolio was 46% of total loans outstanding compared to 43% at December 31, 2025.
For the six months ended June 30, 2026, owner occupied commercial real estate loans increased $37.0 million, or 11%, from $340.8 million on December 31, 2025, to $377.8 million at June 30, 2026, due to three originations to three separate commercial real estate owner occupied borrowers totaling $11.2 million during the first quarter, a single origination totaling $6.6 million during the second quarter, a $8.0 million construction loan that stabilized during the second quarter, and was converted to owner occupied commercial real estate, and general portfolio growth.
Owner occupied commercial real estate loans rely on income generated from the respective owners’ businesses. Therefore, underwriting on owner occupied CRE loans emphasizes the owner’s cash flow and financial conditions while the real estate typically represents the owners' primary business location. Since cash flows from operations are the primary source of repayment for owner-occupied commercial real estate loans, this segment has a different risk profile than non-owner occupied lending.
The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at June 30, 2026 compared to December 31, 2025:
| June 30, 2026 |
December 31, 2025 |
|||||||||||||||
| (dollars in thousands) |
Amount |
% |
Amount |
% |
||||||||||||
| Commercial real estate non-owner occupied: |
||||||||||||||||
| 1-4 Family |
$ | 54,498 | 10.32 | % | $ | 46,379 | 11.13 | % | ||||||||
| Multifamily |
73,211 | 13.87 | % | 50,533 | 12.13 | % | ||||||||||
| Industrial |
65,585 | 12.42 | % | 47,873 | 11.49 | % | ||||||||||
| Mixed Use |
68,852 | 13.04 | % | 60,430 | 14.52 | % | ||||||||||
| Retail |
91,445 | 17.33 | % | 67,498 | 16.21 | % | ||||||||||
| Land |
29,778 | 5.64 | % | 25,532 | 6.13 | % | ||||||||||
| Special Purpose |
54,745 | 10.38 | % | 41,731 | 10.02 | % | ||||||||||
| Hotel |
29,328 | 5.56 | % | 28,885 | 6.93 | % | ||||||||||
| Office |
60,413 | 11.44 | % | 47,660 | 11.44 | % | ||||||||||
| Total |
$ | 527,855 | 100.00 | % | $ | 416,521 | 100.00 | % | ||||||||
For the six months ended June 30, 2026, non-owner occupied commercial real estate loans increased $111.3 million, or 27%, from $416.5 million on December 31, 2025, to $527.8 million on June 30, 2026. The increase is primarily driven by the origination of a $37 million loan in the first quarter, of which $15 million was sold to a participating bank in the second quarter, a $19.6 million loan to a single borrower in the first quarter, six originations to six separate commercial real estate non owner occupied borrowers totaling $36.8 million during the second quarter, $17.5 million in construction loans that stabilized and were converted to non-owner occupied commercial real estate, and standard portfolio growth.
Non-owner occupied CRE loans are commercial loans not occupied by their owners and thus rely on income from third parties, including multi-family residential tenants and commercial tenants representing various industries. Underwriting on non-owner occupied CRE loans evaluates cash flow derived from the respective tenants and the industries they occupy. As such, management considers non-owner occupied CRE loans as having a higher risk profile than owner occupied CRE loans. In keeping with its risk appetite and relationship management strategy, the Company avoids speculative commercial office space and prefers loans for projects with the following characteristics: sufficient equity, or loan to value, and have either S&P rated tenants with long term leases, loans structured with personal guarantees of owners whose personal financial strength provides meaningful cash flow support to supplement rental income volatility, residential projects with stable rents in desirable locations, or projects with sufficient diversity and industries proven to provide lower risk over the long term. Management continues to monitor commercial real estate concentrations through established concentration limits and reporting processes. Loan growth reflects disciplined underwriting standards and relationship-based lending opportunities within the Company's marketplace.
In the table above, office space comprised $60.4 million and special purpose comprised $54.7 million in outstanding amounts as of June 30, 2026, respectively. The office segment mainly has suburban medical and suburban professional third-party tenants. The special purpose segment includes self-storage facilities, assisted living facilities, nursing homes, and parking garages.
Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of June 30, 2026, the commercial real estate construction portfolio had a balance of $57.3 million and consisted of $36.6 million, or 64%, of non-owner-occupied loans and $20.7 million, or 36%, of owner-occupied loans.
For the six months ended June 30, 2026, commercial real estate construction loans increased $0.6 million, or 1%, from $56.7 million on December 31, 2025 to $57.3 million at June 30, 2026. This increase was attributed to $10.8 million in commercial construction commitments originated during the year and $15.4 million increase in commitments booked prior to June 30, 2026. This increase was partially offset by $24.0 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the six months ended June 30, 2026 and $1.6 million in principal paydowns on commitments booked prior to December 31, 2025.
Consumer
The consumer loan portfolio consisted of home equity installment, home equity line of credit, non-recourse auto loans, recourse auto loans, direct finance leases and other consumer loans.
For the six months ended June 30, 2026, the total consumer loan portfolio decreased by $19.6 million, or 9%, from $226.3 million at December 31, 2025 to $206.7 million at June 30, 2026, primarily due to a management strategic determination to reduce the indirect auto portfolio based on payoffs with minimal originations, resulting in a $13.2 million reduction coupled with a $3.6 million reduction in the consumer other portfolio and a $0.4 million reduction in the home equity installment portfolio. Offsetting these reductions was growth of $0.9 million in the HELOC portfolio. For the remainder of 2026, the Company expects maturities of approximately $11.5 million in the dealer portfolio with minimal originations.
Residential
For the six months ended June 30, 2026, the residential loan portfolio increased by $5.3 million from $531.2 million at December 31, 2025 to $536.4 million at June 30, 2026 due to general portfolio growth.
The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $415 million in fixed-rate and $104 million in adjustable-rate mortgages as of June 30, 2026.
The Company considers its portfolio segmentation, including the real estate secured portfolio, to be reasonably diversified. The banking industry is affected by general economic conditions including, among other things, the effects of real estate values. The Company ensures that its mortgage lending adheres to standards of secondary market compliance. Furthermore, the Company’s credit function strives to mitigate the negative impact of economic conditions by maintaining strict underwriting principles for all loan types.
Allowance for credit losses
Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of expected credit losses in the loan portfolio. When estimating the net amount expected to be collected, management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the Company’s financial assets. Those estimates may be susceptible to significant change. Loan losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.
The methodology to analyze the adequacy of the ACL is based on seven primary components:
| ● |
Data: The quality of the Company’s data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls. |
| ● |
Segmentation: Financial assets are segmented based on similar risk characteristics. |
| ● |
Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool’s estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets. |
| ● |
Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per Accounting Standards Codification (ASC) Topic 326. The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the commercial & industrial, commercial real estate non-owner occupied, commercial real estate owner occupied, commercial construction, home equity installment loan, home equity line of credit, residential real estate, and residential construction pools. The weighted average remaining maturity (WARM) method is used for the municipal, non-recourse auto, recourse auto, direct finance lease, and consumer other pools. |
| ● |
Reasonable and supportable forecasts: ASC Topic 326 requires management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company’s forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12-month (4 quarter) reasonable and supportable forecast period. |
| ● |
Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire contractual life of financial assets. Management may apply reversion techniques for the contractual life remaining after considering the reasonable and supportable forecast period, which allows management to apply a historical loss rate to latter periods of the financial asset’s life. The Company currently uses a 12 month (4 quarter) straight-line reversion period. |
| ● |
Qualitative factor adjustments: The Company’s ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors: |
| o |
levels of and trends in delinquencies and non-accrual loans; |
| o |
levels of and trends in charge-offs and recoveries; |
| o |
trends in volume and terms of loans; |
| o |
changes in risk selection and underwriting standards; |
| o |
changes in lending policies and legal and regulatory requirements; |
| o |
experience, ability and depth of lending management; |
| o |
national and local economic trends and conditions; |
| o |
changes in credit concentrations; and |
| o |
changes in underlying collateral. |
A key control related to the allowance is the Company’s Special Assets Committee. This committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance. The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment. The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating.
The following tables set forth the activity in the allowance for credit losses on loans and certain key ratios for the period indicated:
| (dollars in thousands) |
As of and for the six months ended June 30, 2026 | As of and for the twelve months ended December 31, 2025 | As of and for the six months ended June 30, 2025 | |||||||||
| Balance at beginning of period |
$ | 20,168 | $ | 19,666 | $ | 19,666 | ||||||
| Charge-offs: |
||||||||||||
| Commercial and industrial |
- | (376 | ) | (353 | ) | |||||||
| Commercial real estate |
(45 | ) | (56 | ) | - | |||||||
| Consumer |
(148 | ) | (423 | ) | (218 | ) | ||||||
| Residential |
- | (73 | ) | (18 | ) | |||||||
| Total |
(193 | ) | (928 | ) | (589 | ) | ||||||
| Recoveries: |
||||||||||||
| Commercial and industrial |
5 | 156 | 13 | |||||||||
| Commercial real estate |
2 | 65 | 21 | |||||||||
| Consumer |
57 | 136 | 92 | |||||||||
| Residential |
- | 18 | 18 | |||||||||
| Total |
64 | 375 | 144 | |||||||||
| Net charge-offs |
(129 | ) | (553 | ) | (445 | ) | ||||||
| Provision for credit losses on loans |
1,275 | 1,055 | 755 | |||||||||
| Balance at end of period |
$ | 21,314 | $ | 20,168 | $ | 19,976 | ||||||
| Allowance for credit losses to total loans |
1.02 | % |
1.06 | % |
1.09 | % |
||||||
| Net charge-offs to average total loans outstanding |
0.01 | % |
0.03 | % |
0.05 | % |
||||||
| Average total loans |
$ | 1,993,336 | $ | 1,866,637 | $ | 1,822,654 | ||||||
| Loans 30 - 89 days past due and accruing |
$ | 2,784 | $ | 3,026 | $ | 4,538 | ||||||
| Loans 90 days or more past due and accruing |
$ | - | $ | - | $ | - | ||||||
| Non-accrual loans |
$ | 1,742 | $ | 1,892 | $ | 3,074 | ||||||
| Allowance for credit losses to non-accrual loans |
12.23 | x |
10.66 | x |
6.50 | x |
||||||
| Allowance for credit losses to non-performing loans |
12.23 | x |
10.66 | x |
6.50 | x |
||||||
For the six months ended June 30, 2026, the allowance increased $1.1 million, or 5%, from $20.2 million at December 31, 2025 to $21.3 million at June 30, 2026. The increase in the allowance was based on the provisioning of $1.3 million as a result of current year loan growth partially offset by net charge-offs of $129 thousand.
Management believes that the current balance in the allowance for credit losses is adequate to meet the identified potential credit quality issues that may arise and other issues unidentified but inherent to the portfolio. Management has not identified evidence of broad-based deterioration within any material lending portfolio and continues to monitor economic conditions and portfolio performance closely. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.
Key loss driver assumptions used in the allowance estimate included the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts, the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prepayment and curtailment rates, and estimated remaining loan lives. Although key loss driver assumptions used in the ACL estimate remained largely stable from the estimate as of December 31, 2025 to the estimate as of June 30, 2026, the ACL on absolute terms increased based on growth in the loan and lease portfolio, changes in the composition of the portfolio, slower prepayment and curtailment rates, and less favorable economic forecasts.
Qualitative factors for the ACL estimate as of June 30, 2026 saw a general decrease compared to December 31, 2025 based on reduction in the qualitative factor for the improvement in the levels of and trends in delinquencies and non-accrual loans, specifically in the residential portfolio.
The allocation of net charge-offs among major categories of loans are as follows for the periods indicated:
| (dollars in thousands) |
For the six months ended June 30, 2026 |
% of Total Net Charge-offs |
For the six months ended June 30, 2025 |
% of Total Net Charge-offs |
||||||||||||
| Net charge-offs |
||||||||||||||||
| Commercial and industrial |
$ | 5 | (4 | )% | $ | (340 | ) | 77 | % | |||||||
| Commercial real estate |
(43 | ) | 33 | 21 | (5 | ) | ||||||||||
| Consumer |
(91 | ) | 71 | (126 | ) | 28 | ||||||||||
| Residential |
- | - | - | - | ||||||||||||
| Total net charge-offs |
$ | (129 | ) | 100 | % | $ | (445 | ) | 100 | % | ||||||
For the six months ended June 30, 2026, net charge-offs against the allowance totaled $129 thousand compared with net charge-offs of $445 thousand for the six months ended June 30, 2025, representing a $316 thousand decrease. Net charge-offs were 4 basis points lower as a percentage of the total loan portfolio at 0.01% for the six months ended June 30, 2026 compared to 0.05% for the same 2025 period.
For a discussion on the provision for credit losses, see the “Provision for credit losses”, located in the results of operations section of management’s discussion and analysis contained herein.
The allowance for credit losses can generally absorb losses throughout the loan portfolio. However, in some instances an allocation is made for specific loans or groups of loans. Allocation of the allowance for credit losses for different categories of loans is based on the methodology used by the Company, as previously explained. The changes in the allocations from period-to-period are based upon quarter-end reviews of the loan portfolio.
Allocation of the allowance among major categories of loans for the periods indicated, as well as the percentage of loans in each category to total loans, is summarized in the following table. This table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. When present, the portion of the allowance designated as unallocated is within the Company’s guidelines:
| June 30, 2026 |
December 31, 2025 |
June 30, 2025 |
||||||||||||||||||||||||||||||||||
| % of |
Category |
% of |
Category |
% of |
Category |
|||||||||||||||||||||||||||||||
| Total |
% of |
Total |
% of |
Total |
% of |
|||||||||||||||||||||||||||||||
| (dollars in thousands) |
Allowance |
Allowance |
Loans |
Allowance |
Allowance |
Loans |
Allowance |
Allowance |
Loans |
|||||||||||||||||||||||||||
| Category |
||||||||||||||||||||||||||||||||||||
| Commercial real estate |
$ | 10,041 | 48 | % | 46 | % | $ | 8,806 | 44 | % | 43 | % | $ | 9,522 | 48 | % | 44 | % | ||||||||||||||||||
| Commercial and industrial |
3,066 | 14 | 18 | 2,731 | 14 | 18 | 2,093 | 10 | 15 | |||||||||||||||||||||||||||
| Consumer |
1,977 | 9 | 10 | 2,173 | 10 | 11 | 2,053 | 11 | 12 | |||||||||||||||||||||||||||
| Residential real estate |
6,210 | 29 | 26 | 6,404 | 32 | 28 | 6,268 | 31 | 29 | |||||||||||||||||||||||||||
| Unallocated |
20 | - | - | 54 | - | - | 40 | - | - | |||||||||||||||||||||||||||
| Total |
$ | 21,314 | 100 | % | 100 | % | $ | 20,168 | 100 | % | 100 | % | $ | 19,976 | 100 | % | 100 | % | ||||||||||||||||||
As of June 30, 2026, the commercial real estate loan portfolio comprised 48% of the total allowance for credit losses, up 4 percentage points from December 31, 2025. As of June 30, 2026, the commercial real estate loan portfolio was 46% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.
As of June 30, 2026, the commercial and industrial portfolio comprised 14% of the total allowance for credit losses, unchanged from December 31, 2025. As of June 30, 2026, the commercial and industrial portfolio was 18% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the municipal portfolio.
As of June 30, 2026, the consumer portfolio comprised 9% of the total allowance for credit losses, down 1 percentage point from December 31, 2025. As of June 30, 2026, the consumer portfolio is 10% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the indirect recourse and direct finance lease portfolios.
As of June 30, 2026, the residential portfolio comprised 29% of the total allowance for credit losses, down 3 percentage points from December 31, 2025. As of June 30, 2026, the residential portfolio is 26% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.
As of June 30, 2026, the unallocated reserve, representing the portion of the allowance not specifically identified with a loan or groups of loans, was less than 1% of the total allowance for credit losses, unchanged from December 31, 2025.
Non-performing assets
The Company defines non-performing assets as accruing loans past due 90 days or more, non-accrual loans, other real estate owned (ORE) and repossessed assets.
The following table sets forth non-performing assets data as of the period indicated:
| (dollars in thousands) |
June 30, 2026 |
December 31, 2025 |
June 30, 2025 |
|||||||||
| Loans past due 90 days or more and accruing |
$ | - | $ | - | $ | - | ||||||
| Non-accrual loans |
1,742 | 1,892 | 3,074 | |||||||||
| Total non-performing loans |
1,742 | 1,892 | 3,074 | |||||||||
| Other real estate owned and repossessed assets |
28 | 326 | 414 | |||||||||
| Total non-performing assets |
$ | 1,770 | $ | 2,218 | $ | 3,488 | ||||||
| Total loans, including loans held-for-sale |
$ | 2,088,893 | $ | 1,911,724 | $ | 1,837,477 | ||||||
| Total assets |
$ | 2,971,224 | $ | 2,748,058 | $ | 2,698,575 | ||||||
| Non-accrual loans to total loans |
0.08 | % | 0.10 | % | 0.17 | % | ||||||
| Non-performing loans to total loans |
0.08 | % | 0.10 | % | 0.17 | % | ||||||
| Non-performing assets to total assets |
0.06 | % | 0.08 | % | 0.13 | % | ||||||
Management continually monitors the loan portfolio to identify loans that are either delinquent or are otherwise deemed by management unable to repay in accordance with contractual terms. Generally, loans of all types are placed on non-accrual status if a loan of any type is past due 90 or more days or if collection of principal and interest is in doubt. Further, unsecured consumer loans are charged-off when the principal and/or interest is 90 days or more past due. Uncollected interest income accrued on all loans placed on non-accrual is reversed and charged to interest income.
Non-performing assets represented 0.06% of total assets at June 30, 2026 compared with 0.08% at December 31, 2025. The decrease resulted from a $448 thousand, or 20%, decrease in non-performing assets due to a reduction of $298 thousand in other real estate owned and repossessed assets coupled with a decline of $150 thousand in non-accrual loans.
As of June 30, 2026, there were a total of 26 non-accrual loans to 23 unrelated borrowers with balances that ranged from less than $1 thousand to $0.5 million, or $1.7 million in the aggregate. On December 31, 2025, there were a total of 24 non-accrual loans to 21 unrelated borrowers with balances that ranged from less than $1 thousand to $0.4 million, or $1.9 million in the aggregate.
There were no loans past due 90 days or more and accruing as of June 30, 2026 and December 31, 2025.
The Company seeks payments from all past due customers through an aggressive customer communication process. Unless well-secured and in the process of collection, past due loans will be placed on non-accrual at the 90-day point when it is deemed that a customer is non-responsive and uncooperative to collection efforts.
The composition of non-performing loans as of June 30, 2026 is as follows:
| Past due |
||||||||||||||||||||
| Gross |
90 days or |
Non- |
Total non- |
% of |
||||||||||||||||
| loan |
more and |
accrual |
performing |
gross |
||||||||||||||||
| (dollars in thousands) |
balances |
still accruing |
loans |
loans |
loans |
|||||||||||||||
| Commercial and industrial: |
||||||||||||||||||||
| Commercial |
$ | 252,717 | $ | - | $ | 42 | $ | 42 | 0.02 | % | ||||||||||
| Municipal |
129,656 | - | - | - | - | |||||||||||||||
| Commercial real estate: |
||||||||||||||||||||
| Non-owner occupied |
527,855 | - | - | - | - | |||||||||||||||
| Owner occupied |
377,758 | - | 870 | 870 | 0.23 | % | ||||||||||||||
| Construction |
57,317 | - | - | - | - | |||||||||||||||
| Consumer: |
||||||||||||||||||||
| Home equity installment |
53,608 | - | 126 | 126 | 0.24 | % | ||||||||||||||
| Home equity line of credit |
71,139 | - | 203 | 203 | 0.29 | % | ||||||||||||||
| Auto loans-Recourse |
9,308 | - | 27 | 27 | 0.29 | % | ||||||||||||||
| Auto loans-Non Recourse |
31,522 | - | 1 | 1 | - | |||||||||||||||
| Direct finance leases * |
15,078 | - | - | - | - | |||||||||||||||
| Other |
24,872 | - | - | - | - | |||||||||||||||
| Residential: |
||||||||||||||||||||
| Real estate |
519,374 | - | 473 | 473 | 0.09 | % | ||||||||||||||
| Construction |
17,053 | - | - | - | - | |||||||||||||||
| Loans held-for-sale |
1,636 | - | - | - | - | |||||||||||||||
| Total |
$ | 2,088,893 | $ | - | $ | 1,742 | $ | 1,742 | 0.08 | % | ||||||||||
*Net of unearned lease revenue of $1.2 million.
Payments received from non-accrual loans are recognized on a cost recovery method. Payments are first applied to the outstanding principal balance, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of interest income. If the non-accrual loans that were outstanding as of June 30, 2026 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $68 thousand.
Foreclosed assets held-for-sale
From December 31, 2025 to June 30, 2026, other real estate owned (ORE) decreased from $324 thousand to zero which was attributed to the sale of one residential property totaling $324 thousand.
The following table sets forth the activity in the ORE component of foreclosed assets held-for-sale:
| June 30, 2026 |
December 31, 2025 |
|||||||||||||||
| (dollars in thousands) |
Amount |
# |
Amount |
# |
||||||||||||
| Balance at beginning of period |
$ | 324 | 1 | $ | 429 | 3 | ||||||||||
| Additions |
- | - | 442 | 3 | ||||||||||||
| Pay downs |
- | - | (2 | ) | - | |||||||||||
| Write downs |
- | - | - | - | ||||||||||||
| Transfers |
- | - | - | - | ||||||||||||
| Sales |
(324 | ) | (1 | ) | (545 | ) | (5 | ) | ||||||||
| Balance at end of period |
$ | - | - | $ | 324 | 1 | ||||||||||
As of June 30, 2026, the Company had no properties in ORE.
As of June 30, 2026, the Company had one other repossessed asset totaling $28 thousand which was a vehicle. As of December 31, 2025, the Company had one other repossessed asset totaling $2 thousand which was a vehicle.
Cash surrender value of bank owned life insurance
The Company maintains bank owned life insurance (BOLI) for a chosen group of employees at the time of purchase, namely its officers, where the Company is the owner and sole beneficiary of the policies. BOLI is classified as a non-interest earning asset. Increases or decreases in the cash surrender value are recorded as components of non-interest income. The BOLI is profitable from the appreciation of the cash surrender values of the pool of insurance and its tax-free advantage to the Company. This profitability is used to offset a portion of current and future employee benefit costs. The BOLI cash surrender value build-up can be liquidated if necessary, with associated tax costs. However, the Company intends to hold this pool of insurance, because it provides income that supports employee benefit cost increases which enhances the Company’s capital position. Therefore, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value.
Premises and equipment
Net of depreciation, premises and equipment decreased $3.0 million during the first half of 2026 primarily due to a $9.0 million grant recorded in the first half of 2026 that reduced construction in process. This decrease was coupled with $1.1 million in depreciation expense for the six months ending June 30, 2026. Partially offsetting these decreases, the Company purchased $7.7 million in premises and equipment during the first half of 2026 primarily related to the new corporate center in downtown Scranton.
The Company is in the process of a new historically renovated corporate headquarters construction which will continue to increase construction in process. On December 23, 2020, the Commonwealth of Pennsylvania authorized the first of three Redevelopment Assistance Capital Program (RACP) grant funding in the amount of $2.0 million, a second on December 6, 2021 in the amount of $2.0 million, and the final grant award on November 1, 2024 in the amount of $5.0 million, bringing the total RACP grant award to $9.0 million. The Company recorded the $9.0 million RACP grants in the second quarter of 2026 which offset the total construction costs of the renovation and rehabilitation of the historic Scranton Electric Building. As of June 30, 2026, the Company incurred $27.6 million in costs for the corporate headquarters building in downtown Scranton which included planning, engineering, and architectural fees as well as interior demolition and construction, furniture, technology and infrastructure. It is currently expected that the remaining building costs are approximately $2.4 million. This estimated range may expand due to unknown supply chain issues, labor pricing, design changes, or upgrades required to meet current needs. The historic nature of this building has qualified the Company for an estimated $4.3 million in state and federal historic tax credits. During the second quarter of 2026, the Company relocated its former downtown Scranton branch, closed both downtown Scranton offices, and began to move employees to the new Corporate Center location. The entire project is expected to be completed in the third quarter of 2026. During 2025, the Company transferred its former downtown Scranton location to other assets held-for-sale and the sale of the former location was finalized in the third quarter of 2026.
The Company is in the process of constructing a new Palmer Township branch to continue to enhance our footprint in the Allentown – Bethlehem – Easton market area.
Funds Provided:
Deposits
The Company is a community-based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 21 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market; non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.
The following table represents the components of deposits as of the date indicated:
| June 30, 2026 |
December 31, 2025 |
|||||||||||||||
| (dollars in thousands) |
Amount |
% |
Amount |
% |
||||||||||||
| Interest-bearing checking |
$ | 671,596 | 26.2 | % |
$ | 674,412 | 27.3 | % |
||||||||
| Savings and clubs |
195,400 | 7.6 | 188,449 | 7.6 | ||||||||||||
| Money market |
776,637 | 30.4 | 698,935 | 28.4 | ||||||||||||
| Certificates of deposit |
332,099 | 13.0 | 352,976 | 14.3 | ||||||||||||
| Total interest-bearing |
1,975,732 | 77.2 | 1,914,772 | 77.6 | ||||||||||||
| Non-interest bearing |
582,920 | 22.8 | 552,581 | 22.4 | ||||||||||||
| Total deposits |
$ | 2,558,652 | 100.0 | % |
$ | 2,467,353 | 100.0 | % |
||||||||
Total deposits increased $91.3 million, or 4%, to $2.6 billion as of June 30, 2026, compared to $2.5 billion at December 31, 2025. Growth continues to be driven by expansion in primary consumer and business households and relationships, increased balances within existing relationships, and continued execution of relationship-based retention and growth strategies.
Key drivers of deposit growth include:
| ● |
Money Market Accounts: Increased $77.7 million, primarily reflecting growth in business and public account balances. |
| ● |
Savings and Club Accounts: Increased $7.0 million, supported by the expansion of personal relationship-based savings products. |
| ● |
Non-Interest-Bearing Checking: Increased $30.3 million, led by business checking account growth. |
These increases were partially offset by decreases of: $20.9 million in time deposits and $2.8 million in interest-bearing checking accounts, largely attributable to business and Insured Cash Sweep (ICS) accounts outflows offset by public funds growth.
Public deposit balances are expected to continue exhibiting seasonal variability, which may periodically moderate overall deposit growth.
The Company utilizes the Certificate of Deposit Account Registry Service (CDARS) reciprocal program and ICS reciprocal program to obtain FDIC insurance protection for clients who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $1.5 million and $48.9 million in CDARS as of June 30, 2026 and December 31, 2025, respectively. As of June 30, 2026 and December 31, 2025, ICS reciprocal deposits represented $129.5 million and $153.1 million, or 5% and 6%, respectively, of total deposits which are included in interest-bearing checking accounts in the table above.
As of June 30, 2026, total uninsured deposits were estimated to be $1.1 billion, or 43% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies into ownership categories to estimate amounts over the FDIC insurance limit. As of June 30, 2026, the ratio of uninsured and non-collateralized deposits to total deposits was $706.4 million, or 28%. Collateralized deposits totaled $383.5 million, or 15%, of total deposits as of June 30, 2026.
The maturity distribution of certificates of deposit that meet or exceed the FDIC limit, by account, at June 30, 2026 is as follows:
| (dollars in thousands) |
||||
| Three months or less |
$ | 77,929 | ||
| More than three months to six months |
48,825 | |||
| More than six months to twelve months |
20,077 | |||
| More than twelve months |
1,856 | |||
| Total |
$ | 148,687 |
Approximately 72% of the CDs, with a weighted-average interest rate of 3.47%, are scheduled to mature in 2026 and an additional 25%, with a weighted-average interest rate of 2.97%, are scheduled to mature in 2027. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the six months ended June 30, 2026, 86% of maturing CDs were retained in deposit products within the bank. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company.
Short-term borrowings
Borrowings are used as a complement to deposit generation as an alternative funding source whereby the Company will borrow under advances from the FHLB of Pittsburgh and other correspondent banks for asset growth and liquidity needs.
Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of June 30, 2026, the Company utilized $119.8 million in short-term borrowings to fund loan growth. As of June 30, 2026, the Company had the ability to borrow $131.3 million from the Federal Reserve borrower-in-custody program, full availability of $30.2 million in overnight borrowings with the FHLB open-repo line of credit and $25.0 million from lines of credit with correspondent banks.
Secured borrowings
As of June 30, 2026, the Company had 4 secured borrowing agreements with third parties with a carrying value of $4.7 million compared to 5 secured borrowing agreements with third parties with a carrying value of $6.0 million at December 31, 2025, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease through the remainder of 2026 from scheduled amortization and, when possible, early pay-offs.
FHLB advances
The Company had no FHLB advances as of June 30, 2026 and December 31, 2025. As of June 30, 2026, the Company had the ability to borrow up to $785.8 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances during 2026.
As of June 30, 2026, the Company maintained $207.7 million in cash and cash equivalents and $282.5 million of investments AFS and loans HFS. Also, as of June 30, 2026, the Company had approximately $785.8 million available borrowing capacity from the FHLB, $25.0 million from correspondent banks, $131.3 million from the FRB, and $428.9 million from the IntraFi Network One-Way Buy program. The combined total of $1.9 billion represented 63% of total assets at June 30, 2026. Management believes this level of liquidity to be strong and adequate to support current operations.
Management believes available liquidity sources are sufficient to meet anticipated funding obligations, support projected growth, and address potential customary stress scenarios.
As of June 30, 2026, total shareholders' equity increased $14.0 million, or 6%, due principally to $10.3 million higher retained earnings from net income of $15.3 million plus a $2.9 million, after tax, improvement in accumulated other comprehensive income. Capital was further enhanced by $0.9 million from the issuance of common stock under the Company’s stock plans and restricted stock activity. Partially offsetting these increases, were $5.0 million of cash dividends paid on the Company’s common stock. The Company’s dividend payout ratio, defined as the rate at which current earnings are paid to shareholders, was 32.93% as of June 30, 2026. The balance of earnings is retained to further strengthen the Company’s capital position.
As of June 30, 2026, the Company reported a net unrealized loss position of $37.8 million, net of tax, from the securities portfolio compared to a net unrealized loss of $40.7 million as of December 31, 2025. The $2.9 million improvement during the first half of 2026 was from the amortization of unrealized losses on held-to-maturity securities coupled with the $2.0 million increase in net unrealized gains on AFS securities. Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and market conditions, and not in the creditworthiness of the issuers.
The tangible common equity (TCE) ratio (non-GAAP) was 7.89% and 7.38% for the six months ended June 30, 2026 and 2025, respectively. At June 30, 2026 and 2025, the held-to-maturity securities portfolio had $19.1 million and $24.6 million in unrealized losses, net of deferred taxes. If the TCE ratio was adjusted to include the unrealized losses on held-to-maturity securities, the adjusted TCE ratio (non-GAAP) would have been 7.24% and 6.46% (1) at June 30, 2026 and 2025, respectively.
| For capital adequacy |
To be well capitalized |
||||||||||||||||||||||||||||||||||
| For capital |
purposes with capital |
under prompt corrective |
|||||||||||||||||||||||||||||||||
| Actual |
adequacy purposes |
conservation buffer |
action provisions |
||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
|||||||||||||||||||||||||||
| As of June 30, 2026 |
|||||||||||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 293,590 | 14.3 | % | ≥ |
$ | 164,357 | 8.0 | % | ≥ |
$ | 215,719 | 10.5 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 293,326 | 14.3 | % | ≥ |
$ | 164,358 | 8.0 | % | ≥ |
$ | 215,721 | 10.5 | % | ≥ |
$ | 205,448 | 10.0 | % | ||||||||||||||||
| Tier 1 common equity (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 270,546 | 13.2 | % | ≥ |
$ | 92,451 | 4.5 | % | ≥ |
$ | 143,812 | 7.0 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 270,282 | 13.2 | % | ≥ |
$ | 92,452 | 4.5 | % | ≥ |
$ | 143,814 | 7.0 | % | ≥ |
$ | 133,541 | 6.5 | % | ||||||||||||||||
| Tier I capital (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 270,546 | 13.2 | % | ≥ |
$ | 123,268 | 6.0 | % | ≥ |
$ | 174,629 | 8.5 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 270,282 | 13.2 | % | ≥ |
$ | 123,269 | 6.0 | % | ≥ |
$ | 174,631 | 8.5 | % | ≥ |
$ | 164,358 | 8.0 | % | ||||||||||||||||
| Tier I capital (to average assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 270,546 | 9.5 | % | ≥ |
$ | 113,790 | 4.0 | % | ≥ |
$ | 113,790 | 4.0 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 270,282 | 9.5 | % | ≥ |
$ | 113,790 | 4.0 | % | ≥ |
$ | 113,790 | 4.0 | % | ≥ |
$ | 142,238 | 5.0 | % | ||||||||||||||||
| For capital adequacy |
To be well capitalized |
||||||||||||||||||||||||||||||||||
| For capital |
purposes with capital |
under prompt corrective |
|||||||||||||||||||||||||||||||||
| Actual |
adequacy purposes |
conservation buffer |
action provisions |
||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
|||||||||||||||||||||||||||
| As of December 31, 2025 |
|||||||||||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 280,783 | 14.8 | % | ≥ |
$ | 151,947 | 8.0 | % | ≥ |
$ | 199,430 | 10.5 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 280,685 | 14.8 | % | ≥ |
$ | 151,932 | 8.0 | % | ≥ |
$ | 199,411 | 10.5 | % | ≥ |
$ | 189,916 | 10.0 | % | ||||||||||||||||
| Tier 1 common equity (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 259,315 | 13.7 | % | ≥ |
$ | 85,470 | 4.5 | % | ≥ |
$ | 132,954 | 7.0 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 259,218 | 13.7 | % | ≥ |
$ | 85,462 | 4.5 | % | ≥ |
$ | 132,941 | 7.0 | % | ≥ |
$ | 123,445 | 6.5 | % | ||||||||||||||||
| Tier I capital (to risk-weighted assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 259,315 | 13.7 | % | ≥ |
$ | 113,960 | 6.0 | % | ≥ |
$ | 161,444 | 8.5 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 259,218 | 13.7 | % | ≥ |
$ | 113,949 | 6.0 | % | ≥ |
$ | 161,428 | 8.5 | % | ≥ |
$ | 151,932 | 8.0 | % | ||||||||||||||||
| Tier I capital (to average assets) |
|||||||||||||||||||||||||||||||||||
| Consolidated |
$ | 259,315 | 9.3 | % | ≥ |
$ | 111,023 | 4.0 | % | ≥ |
$ | 111,023 | 4.0 | % | N/A | N/A | |||||||||||||||||||
| Bank |
$ | 259,218 | 9.3 | % | ≥ |
$ | 111,023 | 4.0 | % | ≥ |
$ | 111,023 | 4.0 | % | ≥ |
$ | 138,779 | 5.0 | % | ||||||||||||||||
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Management of interest rate risk and market risk analysis.
The adequacy and effectiveness of an institution’s interest rate risk management process and the level of its exposures are critical factors in the regulatory evaluation of an institution’s sensitivity to changes in interest rates and capital adequacy. Management believes the Company’s interest rate risk measurement framework is sound and provides an effective means to measure, monitor, analyze, identify and control interest rate risk in the balance sheet.
The Company is subject to the interest rate risks inherent in its lending, investing and financing activities. Fluctuations of interest rates will impact interest income and interest expense along with affecting market values of all interest-earning assets and interest-bearing liabilities, except for those assets or liabilities with a short-term remaining to maturity. Interest rate risk management is an integral part of the asset/liability management process. The Company has instituted certain procedures and policy guidelines to manage the interest rate risk position. Those internal policies enable the Company to react to changes in market rates to protect net interest income from significant fluctuations. The primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income along with creating an asset/liability structure that maximizes earnings.
Asset/Liability Management. One major objective of the Company when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Company’s Asset/Liability Committee (ALCO), which is comprised of senior management and members of the board of directors. ALCO meets quarterly to monitor the relationship of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of managing the Company. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of non-contractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates.
Interest Rate Risk Measurement. Interest rate risk is monitored through the use of three complementary measures: static gap analysis, earnings at risk simulation and economic value at risk simulation. While each of the interest rate risk measurements has limitations, collectively, they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company and the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to changes in certain interest rate relationships.
Static Gap. The ratio between assets and liabilities re-pricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.
To manage this interest rate sensitivity gap position, an asset/liability model commonly known as cumulative gap analysis is used to monitor the difference in the volume of the Company’s interest sensitive assets and liabilities that mature or re-price within given time intervals. A positive gap (asset sensitive) indicates that more assets will re-price during a given period compared to liabilities, while a negative gap (liability sensitive) indicates the opposite effect. The Company employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO in gauging the effects of interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread. At June 30, 2026, the Company maintained a one-year cumulative gap of positive (asset sensitive) $44.5 million, or 1.5%, of total assets. The effect of this positive gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of falling interest rates. Conversely, in an increasing interest rate environment, net interest income could be positively impacted because more assets than liabilities will re-price upward during the one-year period.
Certain shortcomings are inherent in the method of analysis discussed above and presented in the next table. Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the table amounts. The ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.
The following table reflects the re-pricing of the balance sheet or “gap” position at June 30, 2026:
| More than three |
More than |
|||||||||||||||||||
| Three months |
months to |
one year |
More than |
|||||||||||||||||
| (dollars in thousands) |
or less |
twelve months |
to three years |
three years |
Total |
|||||||||||||||
| Cash and cash equivalents |
$ | 160,277 | $ | - | $ | - | $ | 47,383 | $ | 207,660 | ||||||||||
| Investment securities (1)(2) |
12,621 | 23,676 | 86,549 | 395,650 | 518,496 | |||||||||||||||
| Loans and leases (2) |
760,583 | 249,436 | 442,975 | 614,585 | 2,067,579 | |||||||||||||||
| Fixed and other assets |
- | - | - | 177,489 | 177,489 | |||||||||||||||
| Total assets |
$ | 933,481 | $ | 273,112 | $ | 529,524 | $ | 1,235,107 | $ | 2,971,224 | ||||||||||
| Total cumulative assets |
$ | 933,481 | $ | 1,206,593 | $ | 1,736,117 | $ | 2,971,224 | ||||||||||||
| Non-interest-bearing transaction deposits (3) |
$ | 10,253 | $ | 30,759 | $ | 82,026 | $ | 459,882 | $ | 582,920 | ||||||||||
| Interest-bearing transaction deposits (3) |
618,555 | 62,043 | 164,424 | 798,611 | 1,643,633 | |||||||||||||||
| Certificates of deposit |
127,563 | 193,057 | 8,688 | 2,791 | 332,099 | |||||||||||||||
| Secured borrowings |
35 | - | - | 4,732 | 4,767 | |||||||||||||||
| Short-term borrowings |
119,802 | - | - | - | 119,802 | |||||||||||||||
| Other liabilities |
- | - | - | 35,098 | 35,098 | |||||||||||||||
| Total liabilities |
$ | 876,208 | $ | 285,859 | $ | 255,138 | $ | 1,301,114 | $ | 2,718,319 | ||||||||||
| Total cumulative liabilities |
$ | 876,208 | $ | 1,162,067 | $ | 1,417,205 | $ | 2,718,319 | ||||||||||||
| Interest sensitivity gap |
$ | 57,273 | $ | (12,747 | ) | $ | 274,386 | $ | (66,007 | ) | ||||||||||
| Cumulative gap |
$ | 57,273 | $ | 44,526 | $ | 318,912 | $ | 252,905 | ||||||||||||
| Off-balance sheet: |
||||||||||||||||||||
| Swap - portfolio hedge |
$ | - | $ | - | $ | - | $ | - | ||||||||||||
| Cumulative gap |
$ | 57,273 | $ | 44,526 | $ | 318,912 | $ | 252,905 | ||||||||||||
| Cumulative gap to total assets |
1.9 | % | 1.5 | % | 10.7 | % | 8.5 | % | ||||||||||||
| (1) |
Includes restricted investments in bank stock and the net unrealized gains/losses on available-for-sale securities. |
| (2) |
Investments and loans are included in the earlier of the period in which interest rates were next scheduled to adjust or the period in which they are due. In addition, loans were included in the periods in which they are scheduled to be repaid based on scheduled amortization. For amortizing loans and MBS – GSE residential, annual prepayment rates are assumed reflecting historical experience as well as management’s knowledge and experience of its loan products. |
| (3) |
The Company’s demand and savings accounts were generally subject to immediate withdrawal. However, management considers a certain amount of such accounts to be core accounts having significantly longer effective maturities based on the retention experiences of such deposits in changing interest rate environments. The effective maturities presented are the recommended maturity distribution limits for non-maturing deposits based on historical deposit studies. |
Earnings at Risk and Economic Value at Risk Simulations. The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet that extend beyond static re-pricing gap analysis. Although it will continue to measure its re-pricing gap position, the Company utilizes additional modeling for identifying and measuring the interest rate risk in the overall balance sheet. The ALCO is responsible for focusing on “earnings at risk” and “economic value at risk”, and how both relate to the risk-based capital position when analyzing the interest rate risk.
Earnings at Risk. An earnings at risk simulation measures the change in net interest income and net income should interest rates rise and fall. The simulation recognizes that not all assets and liabilities re-price one-for-one with market rates (e.g., savings rate). The ALCO looks at “earnings at risk” to determine income changes from a base case scenario under an increase and decrease of 200 basis points in interest rate simulation models.
Economic Value at Risk. An earnings at risk simulation measures the short-term risk in the balance sheet. Economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from the Company’s existing assets and liabilities. The ALCO examines this ratio quarterly utilizing an increase and decrease of 200 basis points in interest rate simulation models. The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.
The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity). This analysis assumed that the adjusted interest-earning asset and interest-bearing liability levels at June 30, 2026 remained constant. The impact of the rate movements was developed by simulating the effect of the rate change over a twelve-month period from the June 30, 2026 levels:
| % change |
||||||||
| Rates +200 |
Rates -200 |
|||||||
| Earnings at risk: |
||||||||
| Net interest income |
2.9 | % | (3.2 | )% | ||||
| Net income |
6.1 | (7.4 | ) | |||||
| Economic value at risk: |
||||||||
| Economic value of equity |
2.6 | (8.1 | ) | |||||
| Economic value of equity as a percent of total assets |
0.7 | (1.3 | ) | |||||
In the scenarios in the above table, the Board-approved policy has the following guidelines: net interest income within +/- 10%, net income within +/- 25%, economic value of equity within +/- 25%, economic value of equity as a percent of total assets within +/-5%.
Economic value has the most meaning when viewed within the context of risk-based capital. Therefore, the economic value may normally change beyond the Company’s policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%. At June 30, 2026, the Company’s risk-based capital ratio was 14.29%.
Given the existing economic and interest rate conditions along with the recent increase in earnings at risk exposure to rising rates, management is evaluating to pursue balance sheet hedging opportunities on both sides of balance sheet with an independent third-party vendor with derivative expertise in response to mitigate these interest rate risks on net interest income. The Company has a derivative policy in place and any balance sheet hedges require Board pre-approval along with quarterly monitoring requirements by the Company's ALCO Committee.
The table below summarizes estimated changes in net interest income over a twelve-month period beginning July 1, 2026, under alternate interest rate scenarios using the income simulation model described above:
| Net interest |
$ |
% |
||||||||||
| (dollars in thousands) |
income |
variance |
variance |
|||||||||
| Simulated change in interest rates |
||||||||||||
| +300 basis points |
$ | 93,460 | $ | 2,987 | 3.3 | % | ||||||
| +200 basis points |
93,067 | 2,594 | 2.9 | % | ||||||||
| +100 basis points |
92,520 | 2,047 | 2.3 | % | ||||||||
| Flat rate |
90,473 | - | - | % | ||||||||
| -100 basis points |
88,089 | (2,384 | ) | (2.6 | )% | |||||||
| -200 basis points |
87,533 | (2,940 | ) | (3.2 | )% | |||||||
| -300 basis points |
88,128 | (2,345 | ) | (2.6 | )% | |||||||
Simulation models require assumptions about certain categories of assets and liabilities. The models schedule existing assets and liabilities by their contractual maturity, estimated likely call date or earliest re-pricing opportunity. MBS – GSE residential securities and amortizing loans are scheduled based on their anticipated cash flow including estimated prepayments. For investment securities, the Company uses a third-party service to provide cash flow estimates in the various rate environments. Savings, money market and interest-bearing checking accounts do not have stated maturities or re-pricing terms and can be withdrawn or re-price at any time. This may impact the margin if more expensive alternative sources of deposits are required to fund loans or deposit runoff. Management projects the re-pricing characteristics of these accounts based on historical performance and assumptions that it believes reflect their rate sensitivity. The model reinvests all maturities, repayments and prepayments for each type of asset or liability into the same product for a new like term at current product interest rates. As a result, the mix of interest-earning assets and interest bearing-liabilities is held constant.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and are effective. The Company made no changes in its internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, these controls during the last fiscal quarter ended June 30, 2026.
PART II - Other Information
Item 1. Legal Proceedings
The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of the Company after consultation with legal counsel, no legal proceedings are pending, which, if determined adversely to the Company or the Bank, would have a material adverse effect on the Company’s retained earnings or financial condition, operations or the results of such operations. No legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal or regulatory actions against the Company or the Bank.
Item 1A. Risk Factors
Management of the Company does not believe there have been any material changes to the risk factors that were disclosed in the 2025 Form 10-K filed with the Securities and Exchange Commission on March 13, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
During the three months ended June 30, 2026, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
The following exhibits are filed herewith or incorporated by reference as a part of this Form 10-Q:
3(i) Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Annex B of the Proxy Statement/Prospectus included in Registrant’s Amendment 4 to its Registration Statement No. 333-90273 on Form S-4, filed with the SEC on April 6, 2000.
3(ii) Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the SEC on April 27, 2026.
2.1 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank, MNB Corporation and Merchants Bank of Bangor dated as of December 9, 2019. Incorporated by reference to Annex A of the Registrant’s Registration Statement No. 333-236453 on Form S-4, filed with the Commission on February 14, 2020. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)
2.2 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., NEPA Acquisition Subsidiary, LLC, The Fidelity Deposit and Discount Bank, Landmark Bancorp, Inc. and Landmark Community Bank dated as of February 25, 2021. Incorporated by reference to Annex A of the Registrant’s Registration No. 333-255479 on Form S-4, filed with the Commission on April 23, 2021. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)
*10.1 Registrant’s 2012 Dividend Reinvestment and Stock Repurchase Plan. Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement No. 333-183216 on Form S-3 filed with the SEC on August 10, 2012 as amended February 3, 2014.
*10.2 Registrant’s 2002 Employee Stock Purchase Plan. Incorporated by reference to Appendix A to Definitive proxy Statement filed with the SEC on March 28, 2002.
*10.3 Amended and Restated Executive Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Daniel J. Santaniello, dated March 23, 2011. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.
*10.4 2012 Omnibus Stock Incentive Plan. Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.
*10.5 2012 Director Stock Incentive Plan. Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.
*10.6 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Salvatore R. DeFrancesco, Jr. dated as of March 17, 2016. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2016.
*10.7 Form of Supplemental Executive Retirement Plan – Applicable to Daniel J. Santaniello and Salvatore R. DeFrancesco, Jr. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.
*10.8 Form of Split Dollar Life Insurance Agreement – Applicable to Daniel J. Santaniello and Salvatore R. DeFrancesco, Jr. Incorporated by reference to Exhibit 99.3 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.
*10.9 2022 Omnibus Stock Incentive Plan. Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 23, 2022.
*10.10 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Ruth Turkington dated as of April 20, 2023. Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K filed with the SEC on March 20, 2024.
*10.11 Form of Supplemental Executive Retirement Plan for Ruth Turkington. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2024.
*10.12 Form of Split Dollar Life Insurance Agreement for Ruth Turkington. Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2024.
31.1 Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.
31.2 Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101 Interactive data files: The following, from Fidelity D&D Bancorp, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended June 30, 2026, is formatted in Inline XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025; Consolidated Statements of Income for the three and six months ended June 30, 2026 and 2025; Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2026 and 2025; Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2026 and 2025; Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 and the Notes to the Consolidated Financial Statements. **
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
________________________________________________
* Management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, the interactive data files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Signatures
FIDELITY D & D BANCORP, INC.
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.
| Fidelity D & D Bancorp, Inc. |
|
| Date: August 7, 2026 |
/s/ Daniel J. Santaniello |
| Daniel J. Santaniello, President and Chief Executive Officer |
|
| Fidelity D & D Bancorp, Inc. |
|
| Date: August 7, 2026 |
/s/ Salvatore R. DeFrancesco, Jr. |
| Salvatore R. DeFrancesco, Jr., Treasurer and Chief Financial Officer |