Fidelity D & D Bancorp Q3 2026 profit rises to $8.92M

At September 30, 2026, FDBC reported $3.028419 billion in assets and $2.610272 billion in deposits.

Available on EDGAR 11/06/2026 - 04:03 PM EST Accepted by SEC EDGAR 11/06/2026 - 04:02 PM EST Learn about SEC filing dates

Rhea-AI Filing Summary

Fidelity D & D Bancorp, Inc. (FDBC) reported third-quarter 2026 net income of $8.918 million, compared with $7.346 million a year earlier; diluted earnings per share were $1.53 versus $1.27. Net interest income was $21.812 million, compared with $18.429 million, while the provision for credit losses on loans was $1.109 million versus $0.200 million.

For the first nine months, net income was $24.227 million versus $20.258 million, and net cash provided by operating activities was $41.722 million versus $32.684 million. At September 30, 2026, total assets were $3.028419 billion, net loans and leases were $2.152661 billion, and deposits were $2.610272 billion. Total comprehensive results were a $3.716 million loss for the quarter, versus $13.462 million income in 2025, with other comprehensive loss of $12.634 million.

The company early adopted government-grant guidance in 2026, applying the cost accumulation method to $9.0 million of Redevelopment Assistance Capital Program grants; this reduced the carrying amount of related premises and equipment when the applicable recognition criteria were satisfied.

2 points · 0 major

PositiveiHow this balance works

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It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.

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0 major · 1 point

How the balance works

Positive

• Moderate pointThird-quarter net income was $8.918 million, versus $7.346 million.
• Moderate pointNine-month operating cash flow was $41.722 million, versus $32.684 million.

Negative

• Moderate pointQ3 total comprehensive results: $3.716 million loss, versus $13.462 million income.

Filing Explained

At September 30, 2026, short-term borrowings stood at $132,708 thousand, versus $20 thousand at December 31, 2025.

In this unaudited Form 10-Q, Fidelity D & D Bancorp reports 5,808,508 shares outstanding at September 30, 2026, versus 5,771,110 at December 31, 2025.

The equity statement lists common-share issuances through the employee stock purchase and dividend reinvestment plans, SSAR exercises, and vested restricted-share grants. Under the filing's dilution definition, these additional shares increase the total share count and reduce existing holders' percentage ownership absent offsetting changes.

Short-term borrowings were $132,708 thousand at September 30, 2026, compared with $20 thousand at December 31, 2025; the balance sheet reports this line separately from deposits.

Non-accrual loans totaled $2,566 thousand at September 30, 2026, compared with $1,892 thousand at December 31, 2025.

Key Figures

Net income: $8.918 million Diluted net income per share: $1.53 Net interest income: $21.812 million +5 more

8 metrics

Net income $8.918 million Three months ended September 30, 2026; $7.346 million in 2025

Diluted net income per share $1.53 Three months ended September 30, 2026; $1.27 in 2025

Net interest income $21.812 million Three months ended September 30, 2026; $18.429 million in 2025

Total assets $3.028419 billion As of September 30, 2026; $2.748058 billion as of December 31, 2025

Loans and leases, net $2.152661 billion As of September 30, 2026; $1.890983 billion as of December 31, 2025

Total deposits $2.610272 billion As of September 30, 2026; $2.467353 billion as of December 31, 2025

Net cash provided by operating activities $41.722 million Nine months ended September 30, 2026; $32.684 million in 2025

Total comprehensive income (loss), net of tax $3.716 million loss Three months ended September 30, 2026; $13.462 million income in 2025

Key Terms

allowance for credit losses, collateral-dependent asset, cost accumulation method, held-to-maturity securities, +1 more

5 terms

allowance for credit losses financial

"determination of the allowance for credit losses"

Allowance for credit losses is a reserve set aside by a financial institution to cover potential losses from borrowers who may not repay their loans. It acts like a safety net, helping the institution prepare for loans that might turn sour. For investors, it signals how cautious the institution is about the quality of its loans and potential risks to its financial health.

collateral-dependent asset financial

"defines a collateral-dependent asset as a financial asset"

cost accumulation method financial

"applied the cost accumulation method to account for the $9.0 million"

held-to-maturity securities financial

"Total held-to-maturity securities"

Held-to-maturity securities are debt investments—like bonds—that a company or investor intends and is able to keep until they mature and repay their face value. Think of them as money you lock in like a fixed-term certificate: they matter to investors because their value is recorded at amortized cost rather than market price, so they provide predictable interest income and reduce balance-sheet volatility but limit flexibility to sell.

available-for-sale debt securities financial

"unrealized holding (loss) gain on available-for-sale debt securities"

A type of debt investment—like bonds or loans a company buys—that the company intends to hold for a while but may sell before it matures. Think of it as lending money with the option to sell the IOU; changes in its market value alter the company’s reported net worth now but usually don’t affect reported profit until the investment is actually sold, so investors watch these holdings for balance-sheet risk and potential future gains or losses.

FAQ

AI-generated questions and answers. How Rhea-AI works. Not financial advice.

How much did FDBC earn in the third quarter of 2026?

FDBC reported third-quarter net income of $8.918 million, compared with $7.346 million in the third quarter of 2025. Diluted earnings per share were $1.53, compared with $1.27.

How did FDBC account for its RACP grants?

FDBC early adopted ASU 2025-10 in 2026 and used the cost accumulation method for $9.0 million of Redevelopment Assistance Capital Program grants, reducing the carrying amount of related premises and equipment when the applicable recognition criteria were satisfied.

What was FDBC's loan-loss provision in Q3 2026?

FDBC recorded a $1.109 million provision for credit losses on loans in Q3 2026, compared with $0.200 million in Q3 2025.

AI-generated analysis. How Rhea-AI works. Not financial advice.

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2026

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________________

Commission file number: 001-38229

FIDELITY D & D BANCORP, INC.

STATE OF INCORPORATION:	IRS EMPLOYER IDENTIFICATION NO:
Pennsylvania	23-3017653

Address of principal executive offices:

507 Linden Street

Scranton, Pennsylvania 18503

TELEPHONE: 570-342-8281

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, without par value	FDBC	The NASDAQ Stock Market, LLC

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

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

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

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on October 31, 2026, the latest practicable date, was 5,808,508 shares.

Table of Contents

FIDELITY D & D BANCORP, INC.

Critical accounting estimates

Form 10-Q September 30, 2026

Index

Part I. Financial Information		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2026 and 2025	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2026 and 2025	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2026 and 2025	6
	Consolidated Statements of Cash Flows for the nine months ended September 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	42
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	71
Item 4.	Controls and Procedures	74
Part II. Other Information
Item 1.	Legal Proceedings	75
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	76
Signatures		78

2

Table of Contents

PART I – Financial Information

Item 1: Financial Statements

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets                

(Unaudited)
(dollars in thousands)		September 30, 2026				December 31, 2025
Assets:
Cash and due from banks		$	25,288			$	25,465
Interest-bearing deposits with financial institutions			148,318				122,595
Total cash and cash equivalents			173,606				148,060
Available-for-sale securities (amortized cost of $335,250 in 2026; $333,012 in 2025)			284,726				296,607
Held-to-maturity securities (fair value of $188,723 in 2026; $203,137 in 2025)			228,544				227,339
Restricted investments in bank stock			7,729				4,373
Loans and leases, net (allowance for credit losses of $22,391 in 2026; $20,168 in 2025)			2,152,661				1,890,983
Loans held-for-sale (fair value $366 in 2026; $588 in 2025)			360				573
Foreclosed assets held-for-sale			-				326
Bank premises and equipment, net			48,122				48,950
Leased property under finance leases, net			601				757
Right-of-use assets			8,814				9,061
Cash surrender value of bank owned life insurance			60,593				59,396
Accrued interest receivable			10,592				9,673
Goodwill			19,628				19,628
Core deposit intangible, net			448				614
Other assets			31,995				31,718
Total assets		$	3,028,419			$	2,748,058
Liabilities:
Deposits:
Interest-bearing		$	2,017,002			$	1,914,772
Non-interest-bearing			593,270				552,581
Total deposits			2,610,272				2,467,353
Allowance for credit losses on off-balance sheet credit exposures			1,679				1,299
Finance lease obligation			635				793
Operating lease liabilities			9,860				10,059
Short-term borrowings			132,708				20
Secured borrowings			4,709				5,995
Accrued interest payable and other liabilities			21,572				23,679
Total liabilities			2,781,435				2,509,198
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: 5,808,508 at September 30, 2026 and 5,771,110 at December 31, 2025)			121,920				120,749
Retained earnings			175,464				158,807
Accumulated other comprehensive loss			(50,400	)			(40,696	)
Treasury stock, at cost (10 shares at September 30, 2026 and 180 shares at December 31, 2025)			-				-
Total shareholders' equity			246,984				238,860
Total liabilities and shareholders' equity		$	3,028,419			$	2,748,058

See notes to unaudited consolidated financial statements

3

Table of Contents

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

(Unaudited)		Three months ended								Nine months ended
(dollars in thousands except per share data)		September 30, 2026				September 30, 2025				September 30, 2026				September 30, 2025
Interest income:
Loans and leases:
Taxable		$	28,832			$	25,277			$	81,048			$	72,579
Nontaxable			1,439				1,382				4,316				4,004
Interest-bearing deposits with financial institutions			342				1,063				2,488				3,347
Restricted investments in bank stock			101				98				283				242
Investment securities:
U.S. government agency and corporations			1,200				1,508				3,544				4,488
States and political subdivisions (nontaxable)			798				946				2,422				2,836
States and political subdivisions (taxable)			395				408				1,183				1,259
Total interest income			33,107				30,682				95,284				88,755
Interest expense:
Deposits			11,219				12,158				33,087				35,083
Secured borrowings			60				95				193				281
Short-term borrowings			16				-				29				-
Total interest expense			11,295				12,253				33,309				35,364
Net interest income			21,812				18,429				61,975				53,391
Provision for credit losses on loans			1,109				200				2,384				955
Provision (benefit) for credit losses on unfunded loan commitments			(50	)			110				380				45
Net interest income after provision for credit losses			20,753				18,119				59,211				52,391
Other income:
Service charges on deposit accounts			1,080				1,081				3,179				3,099
Interchange fees			1,376				1,305				4,065				3,945
Service charges on loans			533				265				1,442				1,028
Fees from trust fiduciary activities			1,271				1,052				3,648				3,066
Fees from financial services			420				284				1,275				823
Fees and other revenue			442				508				1,659				1,549
Earnings on bank-owned life insurance			403				399				1,196				1,179
Gain (loss) on write-down, sale or disposal of:
Loans			295				209				627				1,270
Available-for-sale debt securities			-				3				(577	)			(819	)
Premises and equipment			304				(1	)			282				297
Total other income			6,124				5,105				16,796				15,437
Other expenses:
Salaries and employee benefits			8,414				7,765				24,998				23,161
Premises and equipment			2,772				2,395				7,827				7,238
Data processing and communication			685				740				2,265				2,200
Advertising and marketing			594				413				2,276				2,058
Professional services			1,095				1,019				3,342				2,947
Automated transaction processing			523				472				1,495				1,410
Office supplies and postage			154				160				546				564
PA shares tax benefit			510				420				687				662
Loan collection, net			(10	)			86				32				187
Other real estate owned, net			-				10				(71	)			(47	)
FDIC assessment			327				313				974				920
Other			1,044				839				2,920				2,596
Total other expenses			16,108				14,632				47,291				43,896
Income before income taxes			10,769				8,592				28,716				23,932
Provision for income taxes			1,851				1,246				4,489				3,674
Net income		$	8,918			$	7,346			$	24,227			$	20,258
Per share data:
Net income - basic		$	1.54			$	1.27			$	4.18			$	3.51
Net income - diluted		$	1.53			$	1.27			$	4.16			$	3.50
Dividends		$	0.43			$	0.40			$	1.29			$	1.20

See notes to unaudited consolidated financial statements

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Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income
(Unaudited)		Three months ended September 30,								Nine months ended September 30,
(dollars in thousands)		2026				2025				2026				2025
Net income		$	8,918			$	7,346			$	24,227			$	20,258
Other comprehensive income (loss), before tax:
Unrealized holding (loss) gain on available-for-sale debt securities			(16,608	)			7,139				(14,696	)			11,295
Reclassification adjustment for net losses (gains) realized in income			-				(3	)			577				819
Amortization of unrealized loss on held-to-maturity securities			615				605				1,836				1,798
Net unrealized (loss) gain			(15,993	)			7,741				(12,283	)			13,912
Tax effect			3,359				(1,625	)			2,579				(2,921	)
Unrealized (loss) gain, net of tax			(12,634	)			6,116				(9,704	)			10,991
Other comprehensive (loss) income, net of tax			(12,634	)			6,116				(9,704	)			10,991
Total comprehensive (loss) income, net of tax		$	(3,716	)		$	13,462			$	14,523			$	31,249

See notes to unaudited consolidated financial statements

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Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

For the nine months ended September 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			5,736,252			$	119,430			$	140,113			$	(55,574	)		$	-			$	203,969
Net income			-				-				20,258				-				-				20,258
Other comprehensive income			-				-				-				10,991				-				10,991
Issuance of common stock through Employee Stock Purchase Plan			5,406				248				-				-				-				248
Forfeited restricted dividend reinvestment shares			(261	)			-				-				-				-				-
Issuance of common stock from vested restricted share grants through stock compensation plans			27,859				-				-				-				-				-
Stock-based compensation expense			-				864				-				-				-				864
Repurchase of shares to cover withholdings			(1,968	)			-				-				-				(87	)			(87	)
Cash dividends declared			-				-				(6,996	)			-				-				(6,996	)
Balance, September 30, 2025			5,767,288			$	120,542			$	153,375			$	(44,583	)		$	(87	)		$	229,247
Balance, December 31, 2025			5,771,110			$	120,749			$	158,807			$	(40,696	)		$	-			$	238,860
Net income			-				-				24,227				-				-				24,227
Other comprehensive loss			-				-				-				(9,704	)			-				(9,704	)
Issuance of common stock through Employee Stock Purchase Plan			5,669				236				-				-				-				236
Re-issuance of common stock through Dividend Reinvestment Plan			1,771				14				-				-				72				86
Issuance of common stock through exercise of SSARs			3,212				-				-				-				-				-
Forfeited restricted dividend reinvestment shares			(22	)			-				-				-				-				-
Issuance of common stock from vested restricted share grants through stock compensation plans			28,347				-				-				-				-				-
Stock-based compensation expense			-				992				-				-				-				992
Repurchase of shares to cover withholdings			(1,579	)			(71	)			-				-				(72	)			(143	)
Cash dividends declared			-				-				(7,570	)			-				-				(7,570	)
Balance, September 30, 2026			5,808,508			$	121,920			$	175,464			$	(50,400	)		$	-			$	246,984

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Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

For the three months ended September 30, 2026 and 2025
(Unaudited)														Accumulated
														other
		Capital stock								Retained				comprehensive				Treasury
(dollars in thousands)		Shares				Amount				earnings				income (loss)				Stock				Total
Balance, June 30, 2025			5,767,490			$	120,333			$	148,365			$	(50,699	)		$	(87	)		$	217,912
Net income			-				-				7,346				-				-				7,346
Other comprehensive income			-				-				-				6,116				-				6,116
Forfeited restricted dividend reinvestment shares			(202	)			-				-				-				-				-
Stock-based compensation expense			-				209				-				-				-				209
Cash dividends declared			-				-				(2,336	)			-				-				(2,336	)
Balance, September 30, 2025			5,767,288			$	120,542			$	153,375			$	(44,583	)		$	(87	)		$	229,247
Balance, June 30, 2026			5,808,518			$	121,596			$	169,075			$	(37,766	)		$	-			$	252,905
Net income			-				-				8,918				-				-				8,918
Other comprehensive loss			-				-				-				(12,634	)			-				(12,634	)
Forfeited restricted dividend reinvestment shares			(10	)			-				-				-				-				-
Stock-based compensation expense			-				324				-				-				-				324
Cash dividends declared			-				-				(2,529	)			-				-				(2,529	)
Balance, September 30, 2026			5,808,508			$	121,920			$	175,464			$	(50,400	)		$	-			$	246,984

See notes to unaudited consolidated financial statements

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Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)		Nine months ended September 30,
(dollars in thousands)		2026				2025
Cash flows from operating activities:
Net income		$	24,227			$	20,258
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion			4,400				4,197
Provision for credit losses on loans			2,384				955
Provision for credit losses on unfunded loan commitments			380				45
Deferred income tax benefit			(1,470	)			(1,375	)
Stock-based compensation expense			992				864
Excess tax benefit from exercise of SSARs			37				-
Proceeds from sale of loans held-for-sale			39,009				49,503
Originations of loans held-for-sale			(35,733	)			(41,307	)
Earnings from bank-owned life insurance			(1,196	)			(1,179	)
Gain from bank-owned life insurance claim			-				(166	)
Net gain from sales of loans			(627	)			(1,270	)
Net loss from sales of investment securities			577				819
Net gain from sale and write-down of foreclosed assets held-for-sale			(78	)			(76	)
Net gain from write-down and disposal of bank premises and equipment			(282	)			(297	)
Operating lease payments			48				52
Change in:
Accrued interest receivable			(919	)			(543	)
Other assets			11,217				1,542
Accrued interest payable and other liabilities			(1,244	)			662
Net cash provided by operating activities			41,722				32,684
Cash flows from investing activities:
Available-for-sale securities:
Proceeds from sales			5,224				39,169
Proceeds from maturities, calls and principal pay-downs			23,102				19,612
Purchases			(33,841	)			(20,192	)
Increase in restricted investments in bank stock			(3,356	)			(340	)
Net increase in loans and leases			(268,083	)			(123,902	)
Principal portion of lease payments received under direct finance leases			1,877				2,577
Purchases of bank premises and equipment			(10,756	)			(12,092	)
Proceeds from death benefits received on bank-owned life insurance			-				419
Proceeds from sale of bank premises and equipment			2,444				623
Proceeds from sale of foreclosed assets held-for-sale			441				533
Net cash used in investing activities			(282,948	)			(93,593	)
Cash flows from financing activities:
Net increase in deposits			142,919				126,901
Net increase (decrease) in borrowings			131,402				(184	)
Repayment of finance lease obligation			(158	)			(165	)
Proceeds from employee stock purchase plan participants			236				248
Repurchase of shares to cover withholdings			(143	)			(87	)
Dividends paid, net of dividends reinvested			(7,484	)			(6,996	)
Net cash provided by financing activities			266,772				119,717
Net increase in cash and cash equivalents			25,546				58,808
Cash and cash equivalents, beginning			148,060				83,353
Cash and cash equivalents, ending		$	173,606			$	142,161

See notes to unaudited consolidated financial statements

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Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (continued)

(Unaudited)		Nine months ended September 30,
(dollars in thousands)		2026				2025
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest		$	35,200			$	34,464
Income tax
Federal taxes			3,525				4,515
State taxes			50				55
Supplemental Disclosures of Non-cash Investing Activities:
Net change in unrealized losses on available-for-sale securities			(14,696	)			11,295
Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity			1,836				1,798
Transfers from loans to foreclosed assets held-for-sale			38				448
Transfers from loans to loans held-for-sale, net			2,834				4,884
Net change in right-of-use asset			-				601
Net change in lease liability			-				601
Grant receivable			9,000				-

See notes to unaudited consolidated financial statements

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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 Fidelity 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 Corporate Center located in Scranton 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  September 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 nine months ended September 30, 2026 and 2025 and consolidated statements of cash flows for the nine months ended September 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  September 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.

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Critical accounting estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those 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  September 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.

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. 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. Credit 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 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.

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● 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 for uncertainties affecting management's estimate of expected credit losses that are not otherwise captured within the quantitative or qualitative components of the ACL methodology. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.

Subsequent Events

Management evaluated subsequent events through the issuance date and determined no events required recognition or additional disclosure.

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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 evaluating the impact of adoption and does not currently expect the guidance to have a material effect on its consolidated financial position, results of operations or cash flows. The guidance is expected to result in 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. Consistent with the Company's adoption of ASU 2025-10, the Company applied the cost accumulation method to account for the $9.0 million of Redevelopment Assistance Capital Program (RACP) grants, reducing the carrying amount of the related premises and equipment costs when the applicable recognition criteria were satisfied.

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 ASU 2026-02 and does not currently expect a material effect on its financial position, results of operations, or cash flows.

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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 September 30, 2026
		Unrealized gains
		(losses) on				Securities
		available-for-sale				transferred to
(dollars in thousands)		debt securities				held-to-maturity				Total
Beginning balance		$	(26,796	)		$	(10,970	)		$	(37,766	)
Other comprehensive loss before reclassifications, net of tax			(13,120	)			-				(13,120	)
Amounts reclassified from accumulated other comprehensive income, net of tax			-				486				486
Net current-period other comprehensive (loss) income			(13,120	)			486				(12,634	)
Ending balance		$	(39,916	)		$	(10,484	)		$	(50,400	)

As of and for the nine months ended September 30, 2026
		Unrealized gains
		(losses) on				Securities
		available-for-sale				transferred to
(dollars in thousands)		debt securities				held-to-maturity				Total
Beginning balance		$	(28,761	)		$	(11,935	)		$	(40,696	)
Other comprehensive loss before reclassifications, net of tax			(11,610	)			-				(11,610	)
Amounts reclassified from accumulated other comprehensive income, net of tax			455				1,451				1,906
Net current-period other comprehensive (loss) income			(11,155	)			1,451				(9,704	)
Ending balance		$	(39,916	)		$	(10,484	)		$	(50,400	)

As of and for the three months ended September 30, 2025
		Unrealized gains
		(losses) on				Securities
		available-for-sale				transferred to
(dollars in thousands)		debt securities				held-to-maturity				Total
Beginning balance		$	(37,799	)		$	(12,900	)		$	(50,699	)
Other comprehensive income before reclassifications, net of tax			5,640				-				5,640
Amounts reclassified from accumulated other comprehensive income (loss), net of tax			(2	)			478				476
Net current-period other comprehensive income			5,638				478				6,116
Ending balance		$	(32,161	)		$	(12,422	)		$	(44,583	)

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As of and for the nine months ended September 30, 2025
		Unrealized gains
		(losses) on				Securities
		available-for-sale				transferred to
(dollars in thousands)		securities				held-to-maturity				Total
Beginning balance		$	(41,731	)		$	(13,843	)		$	(55,574	)
Other comprehensive income before reclassifications, net of tax			8,923				-				8,923
Amounts reclassified from accumulated other comprehensive income, net of tax			647				1,421				2,068
Net current-period other comprehensive income			9,570				1,421				10,991
Ending balance		$	(32,161	)		$	(12,422	)		$	(44,583	)

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 September 30,								For the nine months ended September 30,
(dollars in thousands)		2026				2025				2026				2025
Realized gains (losses) on AFS debt securities		$	-			$	3			$	(577	)		$	(819	)	Loss on sale of available-for-sale debt securities
Amortization of unrealized loss on held-to-maturity securities			(615	)			(605	)			(1,836	)			(1,798	)	Interest income on investment securities
Total reclassifications for the period			(615	)			(602	)			(2,413	)			(2,617	)	Income before income taxes
Income tax effect			129				126				507				549		Provision for income taxes
Total reclassifications for the period		$	(486	)		$	(476	)		$	(1,906	)		$	(2,068	)	Net income

4. Investment securities

Agency – Government-sponsored enterprise (GSE) and Residential mortgage-backed securities (RMBS) - GSE

Agency – GSE and RMBS – GSE 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.

Commercial mortgage-backed securities (CMBS) - GSE

CMBS – GSE consist of securities collateralized by pools of commercial real estate mortgages, including loans secured by office, retail, industrial, multifamily, hospitality, and other commercial properties. These securities may have fixed or variable interest rates and varying maturity dates. Principal and interest payments are derived from the cash flows generated by the underlying commercial mortgage loans and are subject to the credit performance of the underlying borrowers and the structural credit enhancements of the securitization. The securities are guaranteed by the U.S. government or its agencies.

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.

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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 September 30, 2026 and December 31, 2025, accrued interest receivable for investment securities totaled $2.8 million and $3.2 million, respectively, and is included in the accrued interest receivable line in the consolidated balance sheets. The amortized cost and fair value of investment securities at  September 30, 2026 and  December 31, 2025 are summarized as follows:

						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(dollars in thousands)		cost				gains				losses				value
September 30, 2026
Held-to-maturity securities:
Agency - GSE		$	84,486			$	-			$	(6,964	)		$	77,522
Obligations of states and political subdivisions			144,058				-				(32,857	)			111,201
Total held-to-maturity securities		$	228,544			$	-			$	(39,821	)		$	188,723
Available-for-sale debt securities:
Agency - GSE		$	19,689			$	-			$	(1,914	)		$	17,775
Obligations of states and political subdivisions			107,402				-				(19,979	)			87,423
Commercial MBS - GSE			23,682				-				(262	)			23,420
Residential MBS - GSE			182,477				-				(28,369	)			154,108
Corporate debt			2,000				-				-				2,000
Total available-for-sale debt securities		$	335,250			$	-			$	(50,524	)		$	284,726

						Gross				Gross
		Amortized				unrealized				unrealized				Fair
(dollars in thousands)		cost				gains				losses				value
December 31, 2025
Held-to-maturity securities:
Agency - GSE		$	83,620			$	-			$	(4,148	)		$	79,472
Obligations of states and political subdivisions			143,719				-				(20,054	)			123,665
Total held-to-maturity securities		$	227,339			$	-			$	(24,202	)		$	203,137
Available-for-sale debt securities:
Agency - GSE		$	26,356			$	-			$	(1,734	)		$	24,622
Obligations of states and political subdivisions			114,782				43				(12,005	)			102,820
Residential MBS - GSE			191,874				12				(22,721	)			169,165
Total available-for-sale debt securities		$	333,012			$	55			$	(36,460	)		$	296,607

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The amortized cost and fair value of debt securities at  September 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		$	4,953			$	4,884
Due after one year through five years			60,087				55,873
Due after five years through ten years			68,018				57,735
Due after ten years			95,486				70,231
Total held-to-maturity securities		$	228,544			$	188,723
Available-for-sale securities:
Debt securities:
Due in one year or less		$	3,191			$	3,116
Due after one year through five years			32,836				29,559
Due after five years through ten years			4,255				3,940
Due after ten years			88,809				70,583
Commercial and residential MBS - GSE			206,159				177,528
Total available-for-sale debt securities		$	335,250			$	284,726

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, municipal securities, and corporate debt are included based on their original stated maturity. Commercial and residential MBS – GSE, 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  September 30, 2026 had a carrying amount of $425.8 million and were pledged to secure public deposits, trust client deposits, borrowings and derivative instruments.

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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  September 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
September 30, 2026
Agency - GSE		$	-			$	-			$	95,297			$	(8,878	)		$	95,297			$	(8,878	)
Obligations of states and political subdivisions			4,314				(476	)			194,310				(52,360	)			198,624				(52,836	)
Commercial MBS - GSE			23,420				(262	)			-				-				23,420				(262	)
Residential MBS - GSE			14,759				(944	)			139,349				(27,425	)			154,108				(28,369	)
Total		$	42,493			$	(1,682	)		$	428,956			$	(88,663	)		$	471,449			$	(90,345	)
Number of securities			26								378								404
December 31, 2025
Agency - GSE		$	-			$	-			$	104,094			$	(5,882	)		$	104,094			$	(5,882	)
Obligations of states and political subdivisions			-				-				223,894				(31,627	)			223,894				(31,627	)
Residential MBS - GSE			7,641				(74	)			159,047				(22,214	)			166,688				(22,288	)
Total		$	7,641			$	(74	)		$	487,035			$	(59,723	)		$	494,676			$	(59,797	)
Number of securities			5								388								393

There was a $0.8 million increase to the carrying value of AFS securities resulting from the interest rate swap that increased the unrealized loss position at December 31, 2025, that was not included in the table above. The interest rate swap matured in the third quarter of 2026; therefore, there was no effect as of September 30, 2026.

The Company had 404 debt securities in an unrealized loss position at  September 30, 2026, including 42 agency-GSE securities, 10 CMBS – GSE securities, 147 RMBS – GSE securities and 205 municipal securities. The severity of these unrealized losses based on their underlying cost basis was as follows at  September 30, 2026: 8.52% for agency – GSE; 1.11% for total CMBS – GSE; 15.55% for total RMBS – GSE; and 21.01% for municipals. Management has no intent to sell any securities in an unrealized loss position as of September 30, 2026.

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 $245.5 million from available-for-sale to held-to-maturity. The securities were transferred at their fair value. The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, is being accreted into interest income from other comprehensive income over the life of the bonds. The allowance for credit losses on these securities was evaluated under the accounting policy for HTM debt securities.

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. Management determined that it does not intend to sell the securities in an unrealized loss position and that it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases. Management also evaluated the securities for credit losses and based on its assessment of the issuers' credit quality, contractual cash flows, payment history and other relevant factors, concluded that no allowance for credit losses was required at September 30, 2026. 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.

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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  September 30, 2026 and  December 31, 2025 are summarized as follows:

(dollars in thousands)		September 30, 2026				December 31, 2025
Commercial and industrial:
Commercial		$	250,256			$	220,526
Municipal			126,544				120,604
Commercial real estate:
Non-owner occupied			598,154				416,521
Owner occupied			399,273				340,808
Construction			63,451				56,684
Consumer:
Home equity installment			52,949				53,973
Home equity line of credit			70,243				70,195
Auto loans - Recourse			9,231				10,139
Auto loans - Non-recourse			26,204				43,852
Direct finance leases			14,777				19,666
Other			26,055				28,463
Residential:
Real estate			520,401				515,489
Construction			18,603				15,685
Total			2,176,141				1,912,605
Less:
Allowance for credit losses on loans			(22,391	)			(20,168	)
Unearned lease revenue			(1,089	)			(1,454	)
Loans and leases, net		$	2,152,661			$	1,890,983

Total unamortized net costs and premiums included in loan totals were as follows:

(dollars in thousands)		September 30, 2026				December 31, 2025
Net unamortized fair value mark discount on acquired loans		$	(2,811	)		$	(3,532	)
Net unamortized deferred loan origination costs			4,158				4,798
Total		$	1,347			$	1,266

The Company excludes accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of September 30, 2026 and December 31, 2025, accrued interest receivable for loans totaled $7.8 million and $6.5 million, respectively, and is included in the accrued interest receivable line in the consolidated balance sheets and is excluded from the estimate of credit losses.

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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 $514.2 million as of  September 30, 2026 and $513.6 million as of December 31, 2025. Mortgage servicing rights amounted to $1.0 million and $1.1 million as of  September 30, 2026 and December 31, 2025, respectively, and are included in other assets in the consolidated balance sheets.

Non-accrual loans

Non-accrual loans and loans past due over 89 days still accruing, segregated by class, at  September 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 September 30, 2026
Commercial and industrial:
Commercial		$	17			$	263			$	280			$	-
Commercial real estate:
Owner occupied			961				-				961				-
Consumer:
Home equity installment			75				614				689				-
Home equity line of credit			203				-				203				-
Auto loans - Recourse			12				-				12				-
Residential:
Real estate			421				-				421				-
Total		$	1,689			$	877			$	2,566			$	-

(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		$	49			$	-			$	49			$	-
Commercial real estate:
Non-owner occupied			591				-				591				-
Owner occupied			550				-				550				-
Consumer:
Home equity installment			130				-				130				-
Home equity line of credit			218				-				218				-
Auto loans - Non-recourse			13				49				62				-
Residential:
Real estate			292				-				292				-
Total		$	1,843			$	49			$	1,892			$	-

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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  September 30, 2026 and  September 30, 2025 that were both experiencing financial difficulty and modified during the nine months ended September 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 nine months ended:
(dollars in thousands)		September 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		$	-			$	162			$	1,357			$	-			$	-			$	-				0.38	%
Total		$	-			$	162			$	1,357			$	-			$	-			$	-					​

		Loans modified during the nine months ended:
(dollars in thousands)		September 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		$	-			$	367			$	7,656			$	-			$	-			$	-				2.35	%
Total		$	-			$	367			$	7,656			$	-			$	-			$	-

The Company has not committed to lend additional amounts to the borrowers included in the previous tables.

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The following tables represent the performance of such loans that have been modified in the last 12 months as of September 30, 2026 and 2025:

(dollars in thousands)

​

September 30, 2026

​

​

​

​

​

​

​

30 - 59 Days Past

​

​

60 - 89 Days Past

​

​

Greater Than 89

​

​

​

​

​

​

​

Current

​

​

Due

​

​

Due

​

​

Days Past Due

​

​

Total Past Due

​

Commercial real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Owner occupied

​

$

1,505

​

​

$

-

​

​

$

-

​

​

$

14

​

​

$

14

​

Total

​

$

1,505

​

​

$

-

​

​

$

-

​

​

$

14

​

​

$

14

​

(dollars in thousands)

​

September 30, 2025

​

​

​

​

​

​

​

30 - 59 Days Past

​

​

60 - 89 Days Past

​

​

Greater Than 89

​

​

​

​

​

​

​

Current

​

​

Due

​

​

Due

​

​

Days Past Due

​

​

Total Past Due

​

Commercial real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Owner occupied

​

$

2,375

​

​

$

-

​

​

$

7,175

​

​

$

-

​

​

$

7,175

​

Total

​

$

2,375

​

​

$

-

​

​

$

7,175

​

​

$

-

​

​

$

7,175

​

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2026 and 2025:

(dollars in thousands)		September 30, 2026
		Principal Forgiveness				Weighted-Average Interest Rate Reduction				Weighted-Average Term Extension (Months)
Commercial real estate:
Owner occupied		$	-				-	%			18.1
Total		$	-				-	%			18.1

(dollars in thousands)		September 30, 2025
		Principal Forgiveness				Weighted-Average Interest Rate Reduction				Weighted-Average Term Extension (Months)
Commercial real estate:
Owner occupied		$	-				-	%			6.2
Total		$	-				-	%			6.2

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The following tables provide the amortized cost basis of financing receivables that had a payment default during the nine months ended September 30, 2026 and 2025, and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty:

Loans modified within the previous twelve months that subsequently defaulted:

​

(dollars in thousands)

​

September 30, 2026

​

​

​

Principal Forgiveness

​

​

Payment Delay

​

​

Term Extension

​

​

Interest Rate Reduction

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Owner occupied

​

$

-

​

​

$

-

​

​

$

14

​

​

$

-

​

Total

​

$

-

​

​

$

-

​

​

$

14

​

​

$

-

​

Loans modified within the previous twelve months that subsequently defaulted:

​

(dollars in thousands)

​

September 30, 2025

​

​

​

Principal Forgiveness

​

​

Payment Delay

​

​

Term Extension

​

​

Interest Rate Reduction

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Owner occupied

​

$

-

​

​

$

366

​

​

$

6,809

​

​

$

-

​

Total

​

$

-

​

​

$

366

​

​

$

6,809

​

​

$

-

​

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
September 30, 2026		past due				past due				or more (1)				past due				Current				loans (3)					and accruing
Commercial and industrial:
Commercial		$	156			$	-			$	280			$	436			$	249,820			$	250,256				$	-
Municipal			-				-				-				-				126,544				126,544					-
Commercial real estate:
Non-owner occupied			164				-				-				164				597,990				598,154					-
Owner occupied			211				-				961				1,172				398,101				399,273					-
Construction			-				-				-				-				63,451				63,451					-
Consumer:
Home equity installment			-				110				689				799				52,150				52,949					-
Home equity line of credit			18				-				203				221				70,022				70,243					-
Auto loans - Recourse			43				31				12				86				9,145				9,231					-
Auto loans - Non-recourse			121				-				-				121				26,083				26,204					-
Direct finance leases			292				83				-				375				13,313				13,688		(2)			-
Other			36				9				-				45				26,010				26,055					-
Residential:
Real estate			-				376				421				797				519,604				520,401					-
Construction			-				-				-				-				18,603				18,603					-
Total		$	1,041			$	609			$	2,566			$	4,216			$	2,170,836			$	2,175,052				$	-

^{( 1)} Includes non-accrual loans. ⁽²⁾ Net of unearned lease revenue of $1.1 million. ⁽³⁾ Includes net deferred loan costs of $4.2 million and net unamortized fair value mark discount on acquired loans of $2.8 million.

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																											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		$	13			$	30			$	49			$	92			$	220,434			$	220,526				$	-
Municipal			-				-				-				-				120,604				120,604					-
Commercial real estate:
Non-owner occupied			-				-				591				591				415,930				416,521					-
Owner occupied			524				367				550				1,441				339,367				340,808					-
Construction			-				-				-				-				56,684				56,684					-
Consumer:
Home equity installment			110				-				130				240				53,733				53,973					-
Home equity line of credit			90				23				218				331				69,864				70,195					-
Auto loans - Recourse			126				58				-				184				9,955				10,139					-
Auto loans - Non-recourse			327				33				62				422				43,430				43,852					-
Direct finance leases			99				-				-				99				18,113				18,212		(2)			-
Other			110				16				-				126				28,337				28,463					-
Residential:
Real estate			-				1,100				292				1,392				514,097				515,489					-
Construction			-				-				-				-				15,685				15,685					-
Total		$	1,399			$	1,627			$	1,892			$	4,918			$	1,906,233			$	1,911,151				$	-

⁽¹⁾ Includes non-accrual loans. ⁽²⁾ Net of unearned lease revenue of $1.5 million. ⁽³⁾ Includes net deferred loan costs of $4.8 million and net unamortized fair value mark discount on acquired loans of $3.5 million.

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.

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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 $4.2 million and $4.8 million of deferred costs, and $2.8 million and $3.5 million of fair value mark discount, segregated by class and vintage, categorized into the appropriate credit quality indicator category as of  September 30, 2026 and  December 31, 2025, respectively:

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Commercial credit exposure

Credit risk profile by creditworthiness category

As of  September 30, 2026

(dollars in thousands)

September 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		$	42,698			$	50,184			$	15,826			$	15,461			$	5,141			$	18,697			$	101,303			$	-			$	249,310
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				260				19				662				5				-				946
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial and industrial		$	42,698			$	50,184			$	15,826			$	15,721			$	5,160			$	19,359			$	101,308			$	-			$	250,256
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	1			$	-			$	-			$	1
Commercial and industrial - municipal
Risk Rating
Pass		$	13,356			$	31,312			$	6,980			$	15,119			$	10,080			$	46,498			$	3,199			$	-			$	126,544
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial and industrial - municipal		$	13,356			$	31,312			$	6,980			$	15,119			$	10,080			$	46,498			$	3,199			$	-			$	126,544
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Commercial real estate - non-owner occupied
Risk Rating
Pass		$	191,258			$	43,604			$	81,760			$	45,183			$	61,755			$	158,877			$	15,717			$	-			$	598,154
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - non-owner occupied		$	191,258			$	43,604			$	81,760			$	45,183			$	61,755			$	158,877			$	15,717			$	-			$	598,154
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	45			$	-			$	-			$	45
Commercial real estate - owner occupied
Risk Rating
Pass		$	78,194			$	69,227			$	45,923			$	32,733			$	28,748			$	120,719			$	17,623			$	-			$	393,167
Special Mention			-				-				870				-				-				-				885				-				1,755
Substandard			-				17				328				-				104				3,902				-				-				4,351
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - owner occupied		$	78,194			$	69,244			$	47,121			$	32,733			$	28,852			$	124,621			$	18,508			$	-			$	399,273
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Commercial real estate - construction
Risk Rating
Pass		$	23,888			$	30,917			$	7,890			$	(1	)		$	-			$	-			$	757			$	-			$	63,451
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - construction		$	23,888			$	30,917			$	7,890			$	(1	)		$	-			$	-			$	757			$	-			$	63,451
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

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Consumer & Mortgage lending credit exposure

Credit risk profile based on payment activity

As of  September 30, 2026

(dollars in thousands)

September 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		$	7,261			$	7,788			$	5,086			$	4,428			$	11,236			$	16,461			$	-			$	-			$	52,260
Non-performing			-				614				-				-				46				29				-				-				689
Total home equity installment		$	7,261			$	8,402			$	5,086			$	4,428			$	11,282			$	16,490			$	-			$	-			$	52,949
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Home equity line of credit
Payment performance
Performing		$	-			$	-			$	-			$	-			$	-			$	-			$	60,630			$	9,410			$	70,040
Non-performing			-				-				-				-				-				-				203				-				203
Total home equity line of credit		$	-			$	-			$	-			$	-			$	-			$	-			$	60,833			$	9,410			$	70,243
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Auto loans - recourse
Payment performance
Performing		$	2,268			$	2,536			$	2,090			$	837			$	526			$	962			$	-			$	-			$	9,219
Non-performing			-				-				12				-				-				-				-				-				12
Total auto loans - recourse		$	2,268			$	2,536			$	2,102			$	837			$	526			$	962			$	-			$	-			$	9,231
Current period gross write-offs		$	-			$	-			$	-			$	-			$	3			$	-			$	-			$	-			$	3
Auto loans - non-recourse
Payment performance
Performing		$	-			$	1,067			$	2,584			$	11,495			$	9,024			$	2,034			$	-			$	-			$	26,204
Non-performing			-				-				-				-				-				-				-				-				-
Total auto loans - non-recourse		$	-			$	1,067			$	2,584			$	11,495			$	9,024			$	2,034			$	-			$	-			$	26,204
Current period gross write-offs		$	-			$	-			$	-			$	48			$	22			$	5			$	-			$	-			$	75
Direct finance leases (1)
Payment performance
Performing		$	142			$	3,516			$	4,166			$	3,919			$	1,876			$	69			$	-			$	-			$	13,688
Non-performing			-				-				-				-				-				-				-				-				-
Total direct finance leases		$	142			$	3,516			$	4,166			$	3,919			$	1,876			$	69			$	-			$	-			$	13,688
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Consumer - other
Payment performance
Performing		$	5,263			$	8,485			$	4,952			$	3,044			$	655			$	1,244			$	2,412			$	-			$	26,055
Non-performing			-				-				-				-				-				-				-				-				-
Total consumer - other		$	5,263			$	8,485			$	4,952			$	3,044			$	655			$	1,244			$	2,412			$	-			$	26,055
Current period gross write-offs		$	7			$	31			$	22			$	19			$	8			$	36			$	-			$	-			$	123
Residential real estate
Payment performance
Performing		$	31,912			$	37,713			$	49,490			$	50,863			$	78,130			$	271,872			$	-			$	-			$	519,980
Non-performing			-				-				106				-				-				315				-				-				421
Total residential real estate		$	31,912			$	37,713			$	49,596			$	50,863			$	78,130			$	272,187			$	-			$	-			$	520,401
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Residential - construction
Payment performance
Performing		$	9,789			$	8,814			$	-			$	-			$	-			$	-			$	-			$	-			$	18,603
Non-performing			-				-				-				-				-				-				-				-				-
Total residential - construction		$	9,789			$	8,814			$	-			$	-			$	-			$	-			$	-			$	-			$	18,603
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

⁽¹⁾ Net of unearned lease revenue of $1.1 million.

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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		$	60,440			$	21,499			$	18,728			$	7,861			$	9,148			$	14,074			$	86,091			$	-			$	217,841
Special Mention			-				-				-				-				-				-				1,866				-				1,866
Substandard			-				-				26				54				23				711				5				-				819
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial and industrial		$	60,440			$	21,499			$	18,754			$	7,915			$	9,171			$	14,785			$	87,962			$	-			$	220,526
Current period gross write-offs		$	-			$	-			$	-			$	4			$	285			$	87			$	-			$	-			$	376
Commercial and industrial - municipal
Risk Rating
Pass		$	35,460			$	7,358			$	16,254			$	12,309			$	23,133			$	25,315			$	775			$	-			$	120,604
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial and industrial - municipal		$	35,460			$	7,358			$	16,254			$	12,309			$	23,133			$	25,315			$	775			$	-			$	120,604
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Commercial real estate - non-owner occupied
Risk Rating
Pass		$	46,440			$	72,796			$	38,770			$	63,975			$	60,663			$	117,713			$	12,692			$	-			$	413,049
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				11				413				3,048				-				-				3,472
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - non-owner occupied		$	46,440			$	72,796			$	38,770			$	63,986			$	61,076			$	120,761			$	12,692			$	-			$	416,521
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Commercial real estate - owner occupied
Risk Rating
Pass		$	57,365			$	55,330			$	34,577			$	30,738			$	38,610			$	96,631			$	17,008			$	-			$	330,259
Special Mention			-				885				-				-				-				867				885				-				2,637
Substandard			-				329				-				93				454				7,036				-				-				7,912
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - owner occupied		$	57,365			$	56,544			$	34,577			$	30,831			$	39,064			$	104,534			$	17,893			$	-			$	340,808
Current period gross write-offs		$	-			$	-			$	-			$	-			$	56			$	-			$	-			$	-			$	56
Commercial real estate - construction
Risk Rating
Pass		$	24,353			$	20,344			$	10,095			$	-			$	-			$	-			$	1,892			$	-			$	56,684
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Doubtful			-				-				-				-				-				-				-				-				-
Total commercial real estate - construction		$	24,353			$	20,344			$	10,095			$	-			$	-			$	-			$	1,892			$	-			$	56,684
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

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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		$	9,132			$	6,090			$	5,823			$	12,992			$	6,821			$	12,985			$	-			$	-			$	53,843
Non-performing			-				-				-				-				-				130				-				-				130
Total home equity installment		$	9,132			$	6,090			$	5,823			$	12,992			$	6,821			$	13,115			$	-			$	-			$	53,973
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Home equity line of credit
Payment performance
Performing		$	-			$	-			$	-			$	-			$	-			$	-			$	60,872			$	9,105			$	69,977
Non-performing			-				-				-				-				-				-				218				-				218
Total home equity line of credit		$	-			$	-			$	-			$	-			$	-			$	-			$	61,090			$	9,105			$	70,195
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	5			$	-			$	5
Auto loans - recourse
Payment performance
Performing		$	3,227			$	3,077			$	1,349			$	814			$	914			$	758			$	-			$	-			$	10,139
Non-performing			-				-				-				-				-				-				-				-				-
Total auto loans - recourse		$	3,227			$	3,077			$	1,349			$	814			$	914			$	758			$	-			$	-			$	10,139
Current period gross write-offs		$	-			$	-			$	7			$	-			$	-			$	-			$	-			$	-			$	7
Auto loans - non-recourse
Payment performance
Performing		$	1,478			$	3,486			$	17,561			$	15,849			$	4,448			$	968			$	-			$	-			$	43,790
Non-performing			-				-				34				15				11				2				-				-				62
Total auto loans - non-recourse		$	1,478			$	3,486			$	17,595			$	15,864			$	4,459			$	970			$	-			$	-			$	43,852
Current period gross write-offs		$	8			$	30			$	47			$	15			$	69			$	31			$	-			$	-			$	200
Direct finance leases (2)
Payment performance
Performing		$	6,441			$	5,724			$	4,976			$	988			$	83			$	-			$	-			$	-			$	18,212
Non-performing			-				-				-				-				-				-				-				-				-
Total direct finance leases		$	6,441			$	5,724			$	4,976			$	988			$	83			$	-			$	-			$	-			$	18,212
Current period gross write-offs		$	-			$	-			$	3			$	2			$	3			$	-			$	-			$	-			$	8
Consumer - other
Payment performance
Performing		$	12,662			$	6,677			$	4,078			$	975			$	576			$	1,809			$	1,686			$	-			$	28,463
Non-performing			-				-				-				-				-				-				-				-				-
Total consumer - other		$	12,662			$	6,677			$	4,078			$	975			$	576			$	1,809			$	1,686			$	-			$	28,463
Current period gross write-offs		$	25			$	30			$	63			$	27			$	7			$	51			$	-			$	-			$	203
Residential real estate
Payment performance
Performing		$	29,907			$	49,337			$	59,281			$	84,411			$	131,618			$	160,643			$	-			$	-			$	515,197
Non-performing			-				-				-				-				-				292				-				-				292
Total residential real estate		$	29,907			$	49,337			$	59,281			$	84,411			$	131,618			$	160,935			$	-			$	-			$	515,489
Current period gross write-offs		$	-			$	-			$	56			$	-			$	-			$	17			$	-			$	-			$	73
Residential - construction
Payment performance
Performing		$	10,937			$	4,748			$	-			$	-			$	-			$	-			$	-			$	-			$	15,685
Non-performing			-				-				-				-				-				-				-				-				-
Total residential - construction		$	10,937			$	4,748			$	-			$	-			$	-			$	-			$	-			$	-			$	15,685
Current period gross write-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

⁽²⁾ Net of unearned lease revenue of $1.5 million.

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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 September 30, 2026 and December 31, 2025:

(dollars in thousands)		Real Estate				Other				Total Collateral-Dependent Loans
At September 30, 2026
Commercial and industrial:
Commercial		$	-			$	280			$	280
Commercial real estate:
Owner occupied			961				-				961
Consumer:
Home equity installment			689				-				689
Home equity line of credit			203				-				203
Auto loans - Recourse			-				12				12
Residential:
Real estate			421				-				421
Total		$	2,274			$	292			$	2,566

(dollars in thousands)		Real Estate				Other				Total Collateral-Dependent Loans
At December 31, 2025
Commercial and industrial:
Commercial		$	-			$	49			$	49
Commercial real estate:
Non-owner occupied			591				-				591
Owner occupied			550				-				550
Consumer:
Home equity installment			130				-				130
Home equity line of credit			218				-				218
Auto loans - Non-recourse			-				62				62
Residential:
Real estate			292				-				292
Total		$	1,781			$	111			$	1,892

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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 nine months ended September 30, 2026
		Commercial &				Commercial								Residential
(dollars in thousands)		industrial				real estate				Consumer				real estate				Unallocated				Total
Allowance for Credit Losses:
Beginning balance		$	2,731			$	8,806			$	2,173			$	6,404			$	54			$	20,168
Charge-offs			(1	)			(45	)			(201	)			-				-				(247	)
Recoveries			7				2				77				-				-				86
Provision (benefit) for credit losses			286				1,459				189				483				(33	)			2,384
Ending balance		$	3,023			$	10,222			$	2,238			$	6,887			$	21			$	22,391

As of and for the three months ended September 30, 2026
		Commercial &				Commercial								Residential
(dollars in thousands)		industrial				real estate				Consumer				real estate				Unallocated				Total
Allowance for Credit Losses:
Beginning balance		$	3,066			$	10,041			$	1,977			$	6,210			$	20			$	21,314
Charge-offs			(1	)			-				(53	)			-				-				(54	)
Recoveries			2				-				20				-				-				22
Provision (benefit) for credit losses			(44	)			181				294				677				1				1,109
Ending balance		$	3,023			$	10,222			$	2,238			$	6,887			$	21			$	22,391

As of and for the nine months ended September 30, 2025
		Commercial &				Commercial								Residential
(dollars in thousands)		industrial				real estate				Consumer				real estate				Unallocated				Total
Allowance for Credit Losses:
Beginning balance		$	2,345			$	8,943			$	2,377			$	5,989			$	12			$	19,666
Charge-offs			(353	)			-				(321	)			(74	)			-				(748	)
Recoveries			153				65				109				18				-				345
Provision (benefit) for credit losses			345				131				(91	)			538				32				955
Ending balance		$	2,490			$	9,139			$	2,074			$	6,471			$	44			$	20,218

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As of and for the three months ended September 30, 2025
		Commercial &				Commercial								Residential
(dollars in thousands)		industrial				real estate				Consumer				real estate				Unallocated				Total
Allowance for Credit Losses:
Beginning balance		$	2,093			$	9,522			$	2,053			$	6,268			$	40			$	19,976
Charge-offs			-				-				(103	)			(56	)			-				(159	)
Recoveries			141				43				17				-				-				201
Provision (benefit) for credit losses			256				(426	)			107				259				4				200
Ending balance		$	2,490			$	9,139			$	2,074			$	6,471			$	44			$	20,218

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 Nine Months Ended September 30, 2026				For the Nine Months Ended September 30, 2025
Beginning balance		$	1,299			$	1,084
Provision (benefit) for credit losses			380				45
Ending balance		$	1,679			$	1,129

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 $3.2 million and $3.4 million as of  September 30, 2026 and  December 31, 2025, respectively. The residual value of the direct finance leases is fully guaranteed by the dealerships. Residual values amounted to $10.4 million and $14.5 million at  September 30, 2026 and  December 31, 2025, respectively, and are included in the amortized cost of direct finance leases. As of September 30, 2026, there was also $103 thousand in deferred lease expense included in the carrying value of direct finance leases that is not included in the table below.

The undiscounted cash flows to be received on an annual basis for the direct finance leases are as follows:

(dollars in thousands)		Amount
2026		$	2,013
2027			6,078
2028			3,658
2029			2,324
2030			492
2031 and thereafter			109
Total future minimum lease payments receivable			14,674
Less: Unearned income			(1,089	)
Cash flows to be received, net of unearned income		$	13,585

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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 nine months ended September 30, 2026, there were 3,777 and 2,678 potentially dilutive shares related to issued and unexercised SSARs compared to 8,147 and 7,953 for the same 2025 periods, respectively. The calculation did not include 7,189 and 34,502 weighted average unexercised SSARs that could potentially dilute earnings per share because their effect was antidilutive for the three and nine months ended  September 30, 2026. For restricted stock, dilution would occur from the Company’s previously granted but unvested shares. There were 31,572 and 25,557 potentially dilutive shares related to unvested restricted share grants for the three and nine months ended September 30, 2026 compared to 24,952 and 22,674 for the same 2025 period, respectively. 

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 September 30,								Nine months ended September 30,
		2026				2025				2026				2025
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders		$	8,918			$	7,346			$	24,227			$	20,258
Weighted-average common shares outstanding			5,808,509				5,767,338				5,801,471				5,762,975
Basic EPS		$	1.54			$	1.27			$	4.18			$	3.51
Diluted EPS:
Net income available to common shareholders		$	8,918			$	7,346			$	24,227			$	20,258
Weighted-average common shares outstanding			5,808,509				5,767,338				5,801,471				5,762,975
Potentially dilutive common shares			35,349				33,099				28,235				30,627
Weighted-average common and potentially dilutive shares outstanding			5,843,858				5,800,437				5,829,706				5,793,602
Diluted EPS		$	1.53			$	1.27			$	4.16			$	3.50

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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 500,000 shares of its no-par common stock for future issuance. The Company recognizes share-based compensation expense over the requisite service or vesting period. Since 2019, the Company has approved a Long-Term Incentive Plan (LTIP) each year that awarded restricted stock and/or stock-settled stock appreciation rights (SSARs) to senior officers and managers based on the attainment of performance goals. The SSAR awards have a ten-year term from the date of each grant.

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 2,000 shares of restricted stock to two new employees.

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  September 30, 2026 and 2025 under the 2022 stock incentive plan:

		September 30, 2026								September 30, 2025
						Weighted-								Weighted-
		Shares				average grant				Shares				average grant
		granted				date fair value				granted				date fair value
Omnibus plan			18,500	(2)		$	45.11				15,200	(2)		$	45.09
Omnibus plan			1,000	(3)			43.64				1,588	(2)			45.09
Omnibus plan			1,574	(2)			45.11				-				-
Omnibus plan			15,660	(3)			45.11				17,065	(3)			45.09
Omnibus plan			50	(1)			45.11				50	(1)			45.09
Total			36,784			$	45.07				33,903			$	45.09

⁽¹⁾ Vest after 1 year ⁽²⁾ Vest after 3 years – 33% each year ⁽³⁾ Vest fully after 3 years

The fair value of the shares granted in 2026 and 2025 was calculated using the grant date closing stock price.

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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			65,378			$	46.71
Granted			36,784				45.07
Forfeited			(532	)			45.74
Vested			(28,347	)			48.05
Non-vested balance at September 30, 2026			73,283			$	45.37

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			53,038			$	11.87				1.9
Granted			-				-
Exercised			(9,958	)			4.34
Forfeited			(6,664	)			14.41
Outstanding September 30, 2026			36,416			$	13.47				1.4

During the nine months ended September 30, 2026, there were 9,958 SSARs exercised. The intrinsic value recorded for these SSARs was $43,255. The tax deduction realized from the exercise of these SSARs was $175,596 resulting in a tax benefit of $36,875. There were no SSARs exercised during the nine months ended September 30, 2025.

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 nine months ended September 30, 2026 and 2025 and the unrecognized stock-based compensation expense as of  September 30, 2026:

		Three months ended September 30,								Nine months ended September 30,
(dollars in thousands)		2026				2025				2026				2025
Stock-based compensation expense:
2012 Director stock incentive plan		$	-			$	-			$	-			$	30
2012 Omnibus stock incentive plan			-				-				-				19
2022 Omnibus stock incentive plan			324				209				966				788
Employee stock purchase plan			-				-				26				27
Total stock-based compensation expense		$	324			$	209			$	992			$	864

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		As of
(dollars in thousands)		September 30, 2026
Unrecognized stock-based compensation expense:
2022 Omnibus stock incentive plan		$	2,069

The unrecognized stock-based compensation expense as of  September 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 165,000 shares of its un-issued capital stock for issuance under the plan. The ESPP was designed to promote broad-based employee ownership of the Company’s stock and to motivate employees to improve job performance and enhance the financial results of the Company. Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company’s capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined. As of  September 30, 2026, 119,665 shares have been issued under the ESPP. The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance. The Company recognizes compensation expense on its ESPP on the date the shares are purchased, and it is included as a component of salaries and employee benefits in the consolidated statements of income.

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.

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The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:

September 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		$	173,606			$	173,606			$	173,606			$	-			$	-
Held-to-maturity securities			228,544				188,723				-				188,723				-
Available-for-sale debt securities			284,726				284,726				-				284,726				-
Restricted investments in bank stock			7,729				7,729				-				7,729				-
Loans and leases, net			2,152,661				2,053,446				-				-				2,053,446
Loans held-for-sale			360				366				-				366				-
Accrued interest receivable			10,592				10,592				-				10,592				-
Interest rate swaps			217				217				-				217				-
Financial liabilities:
Deposits with no stated maturities			2,277,713				2,277,713				-				2,277,713				-
Time deposits			332,559				330,416				-				330,416				-
Short-term borrowings			132,708				132,708				-				132,708				-
Secured borrowings			4,709				4,830				-				-				4,830
Accrued interest payable			3,816				3,816				-				3,816				-
Interest rate swaps			217				217				-				217				-

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		$	148,060			$	148,060			$	148,060			$	-			$	-
Held-to-maturity securities			227,339				203,137				-				203,137				-
Available-for-sale debt securities			296,607				296,607				-				296,607				-
Restricted investments in bank stock			4,373				4,373				-				4,373				-
Loans and leases, net			1,890,983				1,798,610				-				-				1,798,610
Loans held-for-sale			573				588				-				588				-
Accrued interest receivable			9,673				9,673				-				9,673				-
Interest rate swaps			147				147				-				147				-
Financial liabilities:
Deposits with no stated maturities			2,114,377				2,114,377				-				2,114,377				-
Time deposits			352,976				351,984				-				351,984				-
Short-term borrowings			20				20				-				20				-
Secured borrowings			5,995				5,738				-				-				5,738
Accrued interest payable			5,707				5,707				-				5,707				-
Interest rate swaps			1,011				1,011				-				1,011				-

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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)		September 30, 2026				(Level 1)				(Level 2)				(Level 3)
Assets:
Available-for-sale securities:
Agency - GSE		$	17,775			$	-			$	17,775			$	-
Obligations of states and political subdivisions			87,423				-				87,423				-
Commercial MBS - GSE			23,420				-				23,420				-
Residential MBS - GSE			154,108				-				154,108				-
Corporate debt			2,000				-				2,000				-
Total available-for-sale debt securities		$	284,726			$	-			$	284,726			$	-
Interest rate swaps			217				-				217				-
Total assets		$	284,943			$	-			$	284,943			$	-
Liabilities:
Interest rate swaps		$	217			$	-			$	217			$	-
Total liabilities		$	217			$	-			$	217			$	-

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		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		$	24,622			$	-			$	24,622			$	-
Obligations of states and political subdivisions			102,820				-				102,820				-
Residential MBS - GSE			169,165				-				169,165				-
Total available-for-sale debt securities		$	296,607			$	-			$	296,607			$	-
Interest rate swaps			147				-				147				-
Total assets		$	296,754			$	-			$	296,754			$	-
Liabilities:
Interest rate swaps		$	1,011			$	-			$	1,011			$	-
Total liabilities		$	1,011			$	-			$	1,011			$	-

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 no Level 3 financial instruments measured at fair value on a recurring basis as of and for the periods ending  September 30, 2026 and  December 31, 2025, respectively.

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 September 30, 2026				(Level 1)				(Level 2)				(Level 3)
					​				​				​				​
Individually evaluated loans	Fair value of collateral appraised value		$	585			$	-			$	-			$	585
Total			$	585			$	-			$	-			$	585

							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		$	40			$	-			$	-			$	40
Other real estate owned	Fair value of asset less selling costs			324				-				-				324
Other repossessed assets	Fair value of asset less selling costs			2				-				-				2
Total			$	366			$	-			$	-			$	366

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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 September 30, 2026, all individually evaluated collateral dependent loans were discounted based off non-real estate or real estate with a junior lien. At December 31, 2025, all individually evaluated collateral dependent loans were discounted based off non-real estate. 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 September 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 September 30, 2026, there were no other repossessed assets.  At December 31, 2025, there was one other repossessed asset totaling $2 thousand. The Company refers to the National Automobile Dealers Association (NADA) guide to determine a vehicle’s fair value.

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 $60.6 million and $59.4 million, respectively, as of  September 30, 2026 and  December 31, 2025 and is reflected as an asset on the consolidated balance sheets. For the nine months ended September 30, 2026 and 2025, the Company has recorded income of $1.2 million and $1.2 million, respectively, due to a slight increase in cash surrender values. During the first nine months of 2025, the Company recorded $0.2 million in additional income from a BOLI death claim. This was recorded in fees and other revenue on the consolidated statements of income.

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  September 30, 2026, the policies had total death benefits of $60.6 million of which $8.0 million would be paid to the officer’s beneficiaries and the remaining $52.6 million would be paid to the Bank. In addition, three executive officers have the opportunity to retain a split dollar benefit equal to two times their highest base salary after separation from service if the vesting requirements are met. As of  September 30, 2026 and  December 31, 2025, the Company had a balance in accrued expenses of $536 thousand and $420 thousand, respectively, for the split dollar benefit.

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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  September 30, 2026 and  December 31, 2025, the Company had a balance in accrued expenses of $5.7 million and $5.4 million in connection with these SERPs. 

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

September 30, 2026

Classified in Other assets:

Customer interest rate swaps

$

1,596

11.16

30 Day SOFR + Margin

Fixed

$

217

Classified in Accrued interest payable and other liabilities:

Third party interest rate swaps

$

1,596

11.16

Fixed

30 Day SOFR + Margin

$

217

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 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 nine months ended September 30, 2026, there was a $366 thousand reduction in interest income investment securities - U.S. government agencies and corporations and a $366 thousand reduction in interest income investment securities - state and political subdivisions (nontaxable). For the nine months ended September 30, 2025, there was a $108 thousand reduction in interest income investment securities - U.S. government agencies and corporations and a $108 thousand reduction in interest income investment securities - state and political subdivisions (nontaxable). A qualitative assessment of hedge effectiveness was applied at inception of the hedge. The fair value hedge matured during the third quarter of 2026.

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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 September 30, 2026 compared to December 31, 2025 and a comparison of the results of operations for the three and nine months ended September 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.

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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 Fidelity Bank. The Company is headquartered in Scranton, 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 September 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) decreased. The local unemployment rates at September 30, 2026 were 3.8% in market area north and 3.5% in market area south, respectively, a decrease of 0.5 percentage points and 0.4 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 2.3% 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 2.6% and 2.6%, 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 nine months ended September 30, 2026, net income was $24.2 million, or $4.18 basic earnings per share and $4.16 diluted earnings per share, a 20% increase, compared to $20.3 million, or $3.51 basic earnings per share and $3.50 diluted earnings per share, for the nine months ended September 30, 2025. 

As of September 30, 2026 and September 30, 2025, book value per share was $42.52 and $39.75, and tangible common book value per share (non-GAAP) was $39.06 and $36.23 ⁽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.

(1) See Non-GAAP Financial Measures beginning on page 44.

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Table of Contents

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 September 30, 2026 and 2025.

The following table reconciles the non-GAAP financial measures of FTE net interest income:

		Three months ended								Nine months ended
(dollars in thousands)		September 30, 2026				September 30, 2025				September 30, 2026				September 30, 2025
Interest income (GAAP)		$	33,107			$	30,682			$	95,284			$	88,755
Adjustment to FTE			774				785				2,335				2,316
Interest income adjusted to FTE (non-GAAP)			33,881				31,467				97,619				91,071
Interest expense (GAAP)			11,295				12,253				33,309				35,364
Net interest income adjusted to FTE (non-GAAP)		$	22,586			$	19,214			$	64,310			$	55,707

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								Nine months ended
(dollars in thousands)			September 30, 2026				September 30, 2025				September 30, 2026				September 30, 2025
Efficiency Ratio (non-GAAP)				​				​				​				​
Non-interest expenses (GAAP)		$	16,108			$	14,632			$	47,291			$	43,896
				​				​				​				​
Net interest income (GAAP)			21,812				18,429				61,975				53,391
Plus: taxable equivalent adjustment			774				785				2,335				2,316
Non-interest income (GAAP)			6,124				5,105				16,796				15,437
Plus: (Gain) loss on sales of securities			-				(3	)			577				819
Net interest income (FTE) plus adjusted non-interest income (non-GAAP)		$	28,710			$	24,316			$	81,683			$	71,963
Efficiency ratio (non-GAAP)			56.11	%			60.17	%			57.90	%			61.00	%

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

​

​

Nine months ended

​

(dollars in thousands)

September 30, 2026

September 30, 2025

September 30, 2026

September 30, 2025

Expense Ratio (non-GAAP)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Non-interest expenses (GAAP)

​

$

16,108

​

​

$

14,632

​

​

$

47,291

​

​

$

43,896

​

Less: Non-interest income (GAAP)

​

​

6,124

​

​

​

5,105

​

​

​

16,796

​

​

​

15,437

​

Less: (Gain) loss on sales of securities

​

​

-

​

​

​

(3

)

​

​

577

​

​

​

819

​

Non-interest expense (GAAP)

​

​

9,984

​

​

​

9,530

​

​

​

29,918

​

​

​

27,640

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Average assets

​

$

2,858,101

​

​

$

2,708,126

​

​

$

2,832,550

​

​

$

2,666,723

​

Expense ratio (Non-GAAP)

​

​

1.38

%

​

​

1.39

%

​

​

1.41

%

​

​

1.39

%

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Table of Contents

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)			September 30, 2026				September 30, 2025
Tangible Book Value per Share (non-GAAP)				​				​
Total assets (GAAP)		$	3,028,419			$	2,736,750
Less: Intangible assets			(20,076	)			(20,303	)
Tangible assets			3,008,343				2,716,447
Total shareholders' equity (GAAP)			246,984				229,247
Less: Intangible assets			(20,076	)			(20,303	)
Tangible common equity		$	226,908			$	208,944
				​				​
Common shares outstanding, end of period			5,808,508				5,767,288
Tangible Common Book Value per Share (non-GAAP)		$	39.06			$	36.23
Tangible Common Equity Ratio (non-GAAP)			7.54	%			7.69	%
Unrealized losses on held-to-maturity securities, net of tax		$	(31,459	)		$	(20,767	)
Adjusted tangible common equity ratio (non-GAAP)			6.50	%			6.93	%

The following table provides a reconciliation of pre-provision net revenue (PPNR) to average assets (non-GAAP):

​

​

Three months ended

​

​

Nine months ended

​

(dollars in thousands)

​

September 30, 2026

​

​

September 30, 2025

​

​

September 30, 2026

​

​

September 30, 2025

​

Pre-Provision Net Revenue to Average Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income before taxes (GAAP)

​

$

10,769

​

​

$

8,592

​

​

$

28,716

​

​

$

23,932

​

Plus: Provision for credit losses

​

​

1,059

​

​

​

310

​

​

​

2,764

​

​

​

1,000

​

Total pre-provision net revenue (non-GAAP)

​

$

11,828

​

​

$

8,902

​

​

$

31,480

​

​

$

24,932

​

Total (annualized) (non-GAAP)

​

$

46,925

​

​

$

35,316

​

​

$

42,088

​

​

$

33,334

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Average assets

​

$

2,858,101

​

​

$

2,708,126

​

​

$

2,832,550

​

​

$

2,666,723

​

Pre-Provision Net Revenue to Average Assets (non-GAAP)

​

​

1.64

%

​

​

1.30

%

​

​

1.49

%

​

​

1.25

%

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.

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Comparison of the results of operations

three and nine months ended September 30, 2026 and 2025

Overview

Net income for the quarter ended September 30, 2026 was $8.9 million, or $1.53 per diluted share, compared to $7.3 million, or $1.27 per diluted share, for the quarter ended September 30, 2025. The $1.6 million, or 21%, increase in net income resulted primarily from a $3.4 million increase in net interest income coupled with a $1.0 million increase in non-interest income. This was partially offset by a $1.5 million increase in non-interest expense and a $0.9 million increase in the provision for credit losses on loans due to the growth of loans. For the nine months ended September 30, 2026, net income was $24.2 million, or $4.16 diluted earnings per share, compared to $20.3 million, or $3.50 diluted earnings per share, for the nine months ended September 30, 2025.  The $3.9 million, or 20%, increase in net income stemmed from the $8.6 million increase in net interest income and $1.4 million increase in non-interest income. This was partially offset by a $3.4 million increase in non-interest expense and a $1.8 million increase in the net provision for credit losses on loans and unfunded commitments.

Return on average assets (ROA) was 1.24% and 1.08% for the third quarters of 2026 and 2025, respectively, and 1.14% and 1.02% for the nine months ended September 30, 2026 and 2025, respectively. The increase in ROA was primarily the result of an increase in net income during the third quarter of 2026 and year-to-date 2026, compared to the same periods of 2025. Return on average shareholders’ equity (ROE) was 13.96% and 13.25% for the third quarters of 2026 and 2025, respectively, and 13.03% and 12.67% for the nine months ended September 30, 2026 and 2025, respectively. The increase in ROE during the third quarter of 2026 and year-to-date 2026 was primarily the result of an increase in net income, compared to the same 2025 periods. Pre-provision net revenue to average assets (non-GAAP) was 1.64% and 1.30% ⁽¹⁾ for the three months ended September 30, 2026 and 2025, respectively, and 1.49% and 1.25% ⁽¹⁾ for the nine months ended September 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 increased $3.4 million, or 18%, compared with the third quarter of 2025, driven by higher average loan balances, improved loan yields and lower funding costs. Average loans increased $237.3 million, while the fully-taxable equivalent ("FTE") (non-GAAP measurement) yield on loans increased 4 basis points, resulting in higher interest income. Funding costs also benefited from a 29 basis point decline in the average rate paid on interest-bearing deposits, which more than offset the impact of a $76.4 million increase in average interest-bearing deposit balances. Collectively, these factors contributed to a 35 basis point increase in FTE net interest margin to 3.30%.

The FTE yield on interest-earning assets was 4.95% for the third quarter of 2026, an increase of 12 basis points from 4.83% for the third quarter of 2025. The overall cost of interest-bearing liabilities was 2.26% for the third quarter of 2026, a decrease of 29 basis points from the 2.55% for the third quarter of 2025. The cost of funds decreased 23 basis points from 1.98% to 1.75% for the third quarters of 2025 and 2026, respectively. The Company’s FTE net interest spread was 2.69% for the third quarter of 2026, an increase of 41 basis points from 2.28% recorded for the third quarter of 2025. 

Net interest income was $62.0 million for the nine months ended September 30, 2026 compared to $53.4 million for the nine months ended September 30, 2025. The $8.6 million increase in net interest income resulted from the increase of $6.5 million in interest income primarily due to a $134.6 million increase in the average balance of interest-earning assets and an 8 basis point increase in FTE yield. The largest contributor to interest income growth was the loan portfolio which produced an additional $8.8 million in interest income from an increase of 5 basis points in FTE loan yields on $193.1 million in higher average balances. The increase in interest income was partially offset by a decrease of $1.5 million in interest earned on the investment portfolio due to decreases of 17 basis points in yield and $49.8 million in average balances. Additionally, the Company experienced a decrease of $2.0 million in interest expense on deposits due to a 26 basis point decrease in rates paid on interest-bearing deposits which more than offset the increase from $98.6 million in higher average balances during the nine months ended September 30, 2026.

(1) See Non-GAAP Financial Measures beginning on page 44.

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The overall cost of interest-bearing liabilities was 2.26% for the nine months ended September 30, 2026 compared to 2.52% for the nine months ended September 30, 2025. The cost of funds decreased 21 basis points to 1.75% for the nine months ended September 30, 2026 from 1.96% for the same period of 2025. The FTE yield on interest earning assets was 4.86% for the nine months ended September 30, 2026, an increase of 8 basis points from the 4.78% year-to-date September 30, 2025. The Company’s FTE net interest spread was 2.60% for the nine months ended September 30, 2026, an increase of 34 basis points from the 2.26% recorded for the same period of 2025. FTE net interest margin increased by 28 basis points to 3.20% for the nine months ended September 30, 2026 from 2.92% for the same 2025 period, primarily reflecting lower rates paid on interest-bearing deposits and higher yields earned on loans and leases.

For the remainder of 2026, the Company expects to operate in an evolving interest rate environment characterized by continued uncertainty regarding the direction, timing and magnitude of future monetary policy actions. Management’s outlook is informed by published statements and economic projections of the Federal Open Market Committee (“FOMC”), as well as broader economic conditions. Future changes in short-term rates remain dependent on incoming economic data, inflation trends, labor market conditions and the overall economic outlook. In this environment, the Company expects loan demand to remain supported by its current pipeline and anticipates continued growth in the loan portfolio. Strong loan demand during the third quarter absorbed the Company’s remaining excess cash balances. The Company supplemented liquidity through borrowings at quarter-end and expects to utilize additional wholesale borrowings to the extent deposit growth is insufficient to fund additional loan growth. Changes in market interest rates will continue to affect the Company’s net interest margin (“NIM”), with the impact dependent on the timing and magnitude of repricing across earning assets and interest-bearing liabilities. Rising rates may increase yields on variable-rate loans and newly originated earning assets, while also increasing funding costs. Declining rates may reduce asset yields, with the effect on NIM dependent in part on the Company’s ability to reduce funding costs. Competition for deposits and other funding sources may limit that flexibility. The effect on NIM will also depend on deposit mix, customer behavior and competitive market conditions, including the extent to which customers move balances from noninterest-bearing accounts to interest-bearing products or other investment alternatives. Management will address these risks through active asset-liability management, disciplined loan and deposit pricing, and prudent balance sheet positioning. Management remains focused on supporting long-term profitability through disciplined loan pricing, proactive management of funding costs, and optimization of the mix of earning assets and funding sources.

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 are 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 September 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 third quarters of 2026 and 2025, respectively, and $0.6 million and $0.7 million during the nine months ended September 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 September 30, 2026 and 2025. Purchase accounting adjustments of $0.7 million and $0.9 million are included in interest income from loans and $3 thousand and $4 thousand reduced interest expense on deposits and borrowings for the nine months ended September 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.

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Table of Contents

		Nine months ended
(dollars in thousands)		September 30, 2026												September 30, 2025
		Average								Yield /				Average								Yield /
Assets		balance				Interest				rate				balance				Interest				rate
Interest-earning assets
Interest-bearing deposits		$	90,079			$	2,488				3.69	%		$	99,472			$	3,347				4.50	%
Restricted investments in bank stock			4,775				283				7.96				4,137				242				7.82
Investments:
Agency - GSE			109,628				1,154				1.41				112,815				1,218				1.44
Commercial and residential MBS - GSE			185,494				2,390				1.72				216,089				3,270				2.02
State and municipal (nontaxable)			176,756				3,611				2.73				188,030				4,090				2.91
State and municipal (taxable)			77,136				1,184				2.05				81,885				1,259				2.06
Corporate debt			7				-				7.60				-				-				-
Total investments			549,021				8,339				2.03				598,819				9,837				2.20
Loans and leases:
C&I and CRE (taxable)			1,160,294				53,596				6.18				952,972				45,027				6.32
C&I and CRE (nontaxable)			135,231				5,461				5.40				128,447				5,066				5.27
Consumer			138,358				6,099				5.89				174,457				7,129				5.46
Residential real estate			605,430				21,353				4.72				590,295				20,423				4.63
Total loans and leases			2,039,313				86,509				5.67				1,846,171				77,645				5.62
Total interest-earning assets			2,683,188				97,619				4.86	%			2,548,599				91,071				4.78	%
Non-interest earning assets			149,362												118,124
Total assets		$	2,832,550											$	2,666,723
Liabilities and shareholders' equity
Interest-bearing liabilities
Deposits:
Interest-bearing checking		$	674,222			$	9,632				1.91	%		$	685,497			$	10,810				2.11	%
Savings and clubs			194,336				565				0.39				191,669				420				0.29
MMDA			759,240				14,206				2.50				643,361				13,507				2.81
Certificates of deposit			339,988				8,684				3.42				348,635				10,346				3.97
Total interest-bearing deposits			1,967,786				33,087				2.25				1,869,162				35,083				2.51
Secured borrowings			5,027				193				5.13				6,160				281				6.10
Short-term borrowings			964				29				4.02				16				-				2.01
Total interest-bearing liabilities			1,973,777				33,309				2.26	%			1,875,338				35,364				2.52	%
Non-interest bearing deposits			574,072												541,733
Non-interest bearing liabilities			36,165												35,805
Total liabilities			2,584,014												2,452,876
Shareholders' equity			248,536												213,847
Total liabilities and shareholders' equity		$	2,832,550											$	2,666,723
Net interest income - FTE						$	64,310											$	55,707
Net interest spread											2.60	%											2.26	%
Net interest margin											3.20	%											2.92	%
Cost of funds											1.75	%											1.96	%

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		Three months ended
(dollars in thousands)		September 30, 2026												September 30, 2025
		Average								Yield /				Average								Yield /
Assets		balance				Interest				rate				balance				Interest				rate
Interest-earning assets
Interest-bearing deposits		$	36,507			$	342				3.71	%		$	94,801			$	1,063				4.45	%
Restricted investments in bank stock			5,255				101				7.67				4,277				98				9.10
Investments:
Agency - GSE			108,423				382				1.40				112,489				405				1.43
Commercial and residential MBS - GSE			183,103				817				1.77				213,255				1,103				2.05
State and municipal (nontaxable)			174,398				1,190				2.71				187,164				1,364				2.89
State and municipal (taxable)			77,196				395				2.03				79,913				408				2.02
Corporate debt			22				-				7.60				-				-				-
Total investments			543,142				2,784				2.03				592,821				3,280				2.19
Loans and leases:
C&I and CRE (taxable)			1,256,950				19,584				6.18				1,000,727				16,134				6.40
C&I and CRE (nontaxable)			132,314				1,821				5.46				132,875				1,749				5.22
Consumer			130,578				1,971				5.99				165,567				2,277				5.46
Residential real estate			609,923				7,278				4.73				593,271				6,866				4.59
Total loans and leases			2,129,765				30,654				5.71				1,892,440				27,026				5.67
Total interest-earning assets			2,714,669				33,881				4.95	%			2,584,339				31,467				4.83	%
Non-interest earning assets			143,432												123,787
Total assets		$	2,858,101											$	2,708,126
Liabilities and shareholders' equity
Interest-bearing liabilities
Deposits:
Interest-bearing checking		$	668,399			$	3,268				1.94	%		$	687,748			$	3,811				2.20	%
Savings and clubs			195,409				203				0.41				190,825				148				0.31
MMDA			779,940				4,943				2.51				668,553				4,772				2.83
Certificates of deposit			333,837				2,805				3.33				354,040				3,427				3.84
Total interest-bearing deposits			1,977,585				11,219				2.25				1,901,166				12,158				2.54
Secured borrowings			4,738				60				5.05				6,093				95				6.20
Short-term borrowings			1,517				16				4.12				16				-				0.52
Total interest-bearing liabilities			1,983,840				11,295				2.26	%			1,907,275				12,253				2.55	%
Non-interest bearing deposits			583,802												544,511
Non-interest bearing liabilities			37,050												36,415
Total liabilities			2,604,692												2,488,201
Shareholders' equity			253,409												219,925
Total liabilities and shareholders' equity		$	2,858,101											$	2,708,126
Net interest income - FTE						$	22,586											$	19,214
Net interest spread											2.69	%											2.28	%
Net interest margin											3.30	%											2.95	%
Cost of funds											1.75	%											1.98	%

49

Table of Contents

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:

		Nine months ended September 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		$	(297	)		$	(562	)		$	(859	)		$	2,519			$	(204	)		$	2,315
Restricted investments in bank stock			37				4				41				10				(12	)			(2	)
Investments:
Agency - GSE			(34	)			(30	)			(64	)			(2	)			(3	)			(5	)
Commercial and residential MBS - GSE			(429	)			(451	)			(880	)			(25	)			145				120
State and municipal			(236	)			(254	)			(490	)			(153	)			(381	)			(534	)
Total investments			(699	)			(735	)			(1,434	)			(180	)			(239	)			(419	)
Loans and leases:
Residential real estate			529				401				930				809				806				1,615
C&I and CRE			9,580				(699	)			8,881				6,213				872				7,085
Consumer			(1,559	)			529				(1,030	)			(1,537	)			735				(802	)
Total loans and leases			8,550				231				8,781				5,485				2,413				7,898
Total interest income			7,591				(1,062	)			6,529				7,834				1,958				9,792
Interest expense:
Deposits:
Interest-bearing checking			(175	)			(1,002	)			(1,177	)			449				(1,056	)			(607	)
Savings and clubs			6				139				145				(14	)			(24	)			(38	)
Money market			2,268				(1,569	)			699				2,037				(359	)			1,678
Certificates of deposit			(252	)			(1,411	)			(1,663	)			2,310				43				2,353
Total deposits			1,847				(3,843	)			(1,996	)			4,782				(1,396	)			3,386
Secured borrowings			(47	)			(41	)			(88	)			(40	)			(21	)			(61	)
Short-term borrowings			29				-				29				(907	)			(526	)			(1,433	)
Total interest expense			1,829				(3,884	)			(2,055	)			3,835				(1,943	)			1,892
Net interest income		$	5,762			$	2,822			$	8,584			$	3,999			$	3,901			$	7,900

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.

50

Table of Contents

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 September 30, 2026, the provision for credit losses on loans was $1.1 million and a $50 thousand benefit for credit losses on unfunded commitments, compared to a $200 thousand provision for credit losses on loans and a $110 thousand provision for credit losses on unfunded commitments for the three months ended September 30, 2025. 

For the three months ended September 30, 2026, the increase in the provision for credit losses on loans compared to the prior year period primarily reflected the growth of the loan portfolio. For the three months ended September 30, 2026, the decrease in the provision for credit losses on unfunded commitments compared to the prior-year period was primarily due to a reduction in unfunded construction commitments. 

For the nine months ended September 30, 2026, the provision for credit losses on loans was $2.4 million and the provision for credit losses on unfunded commitments was $380 thousand compared to a $955 thousand provision for credit losses on loans and a $45 thousand provision for credit losses on unfunded commitments for the nine months ended September 30, 2025. 

For the nine months ended September 30, 2026, the increase in the provision for credit losses on loans compared to the prior year period was primarily due to higher loan growth during the period. For the nine months ended September 30, 2026, the increase in the provision for unfunded commitments compared to the prior-year 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 nine months ended September 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 $1.0 million, or 20%, to $6.1 million for the third quarter of 2026 compared to $5.1 million for the third quarter of 2025. The increase included $0.4 million of higher wealth management revenue and a $0.3 million gain on the sale of bank property. Commercial loan fee income also increased $0.2 million, primarily attributable to a prepayment penalty recognized during the quarter.

Total non-interest income for the nine months ended September 30, 2026 was $16.8 million, an increase of $1.4 million, or 9%, from $15.4 million for the nine months ended September 30, 2025. The increase was primarily due to $1.0 million growth in wealth management revenue. Additionally, the Company saw increases of $0.3 million in fees from commercial loans with interest rate hedges and $0.4 million in service charges on commercial loans during the nine months ended September 30, 2026 compared to the same 2025 period. Partially offsetting the increase in non-interest income was a decrease of $0.6 million in gains from sold loans primarily due to a $0.5 million gain on the sale of a commercial loan during the nine months ended September 30, 2025.

Operating expenses

Non-interest expenses increased $1.5 million, or 10%, for the third quarter of 2026 to $16.1 million from $14.6 million for the same quarter of 2025. The increase in non-interest expenses was attributed to added salaries and benefits expense of $0.6 million, primarily reflecting higher staffing levels to support business growth and strategic initiatives. Additionally, the Company experienced increases of $0.4 million in premises and equipment expenses primarily due to costs for software and subscriptions and depreciation. Donations expense increased $0.3 million in the third quarter of 2026 compared to the same period in the prior year, primarily reflecting a one-time charitable contribution. Despite the increase in non-interest expense, the efficiency ratio improved to 56.11% from 60.17% in the prior-year period, reflecting improved operating leverage.

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Non-interest expenses increased to $47.3 million for the nine months ended September 30, 2026, an increase of $3.4 million, or 8%, from $43.9 million for the nine months ended September 30, 2025. Salaries and benefits expense increased $1.8 million due to an increase in the number of bankers in the nine months ended September 30, 2026, compared to the same period in 2025. Additionally, the Company experienced an increase of $0.6 million in premises and equipment expenses primarily due to new technology and higher software costs. Donations expense increased $0.5 million compared to the prior-year period, primarily due to a $0.3 million contribution made to the Fidelity D & D Charitable Foundation. Professional services expense increased $0.4 million primarily attributable to improvement initiatives throughout the bank and relocation-related costs incurred in connection with the transition of bankers to the Company's new corporate headquarters, which was completed in the third quarter of 2026.

The expense ratios (non-GAAP) were 1.38% and 1.39% ⁽¹⁾ for the three months ended September 30, 2026 and 2025, respectively, and 1.41% and 1.39% ⁽¹⁾ for the nine months ended September 30, 2026 and 2025, respectively. The decrease in the expense ratio during the third quarter of 2026, compared to the third quarter of 2025, was due to stronger growth in non-interest income and average total assets which more than absorbed the increase in non-interest expense. For the nine months ended September 30, 2026 compared to the same 2025 period, the increase in the expense ratio was primarily a result of a higher pace of growth of non-interest expense. The efficiency ratios (non-GAAP) decreased from 60.17% to 56.11% ⁽¹⁾ for the three months ended September 30, 2025 and 2026, respectively, and 61.00% to 57.90% ⁽¹⁾  for the nine months ended September 30, 2025 and 2026, respectively. The decrease in the efficiency ratio for both the third 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 $0.6 million during the three months ended September 30, 2026 compared to the same period in 2025 primarily due to a $2.2 million increase in income before taxes. The provision for income taxes increased $0.8 million during the nine months ended September 30, 2026 compared to the same period in 2025 primarily due to a $4.8 million increase in income before taxes. Partially offsetting the increase in income tax expense was approximately $0.5 million of benefit associated with purchased renewable energy tax credits. The Company's effective tax rate was 15.6% at September 30, 2026 compared to 15.4% at September 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 nine months of 2026 along with the effect of tax-exempt income in relation to the level of pre-tax income.

During the fourth quarter of 2026, the Company anticipates recognizing approximately $0.8 million of federal historic tax credits, which are expected to partially offset the increase in the income tax provision. In addition, the Company is actively pursuing opportunities to purchase discounted Section 45X advanced manufacturing production tax credits prior to year-end for utilization up to 75% of 2026 federal income tax.

(1) See Non-GAAP Financial Measures beginning on page 44.

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Comparison of financial condition at

 September 30, 2026 and December 31, 2025

Overview

The Company’s total assets had a balance of approximately $3.0 billion as of September 30, 2026, an increase of $280.3 million from December 31, 2025. The increase resulted from $261.7 million of net growth in the loans and leases portfolio as of September 30, 2026 compared to December 31, 2025. Cash and cash equivalents increased $25.5 million over the same period. Asset growth was partially offset by a decrease of $10.7 million in the investment portfolio. Deposit growth of $142.9 million and short-term borrowings of $132.7 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.

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 nine months ended September 30, 2026, AOCI decreased by $9.7 million primarily due to the change in fair value of the Company's investment securities.

As of September 30, 2026, the carrying value of held-to-maturity securities was $228.5 million, net of $10.5 million in remaining transferred discount.

As of September 30, 2026, the carrying value of investment securities amounted to $513.3 million, or 17% of total assets, compared to $523.9 million, or 19% of total assets, as of December 31, 2025. On September 30, 2026, 30% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise (GSE) residential mortgage-backed securities (RMBS) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The residential mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA). On September 30, 2026, 5% of the carrying value of the investment portfolio was comprised of GSE commercial mortgage-backed securities (CMBS). These securities are collateralized by loans secured by income-producing commercial real estate and provide periodic cash flows that may be used by the Company for reinvestment, funding loan demand, managing unexpected deposit outflows, facility expansion or operations.

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The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $179.5 million ($155.8 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $81.6 million ($75.7 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 September 30, 2026, the carrying value of total investments decreased $10.7 million, or 2%, compared to December 31, 2025. The decline was primarily due to negative changes in fair value coupled with $16.4 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 September 30, 2026 and December 31, 2025 is as follows:

		September 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		$	83,654				16.3	%			2.1	%			18.1			$	83,606				16.1	%			2.1	%			18.8
Obligations of states & political subdivisions - taxable			60,404				11.8				2.1				8.6				60,113				11.4				2.1				9.3
Agency - GSE			84,486				16.5				1.4				3.7				83,620				15.9				1.4				4.4
Total HTM securities		$	228,544				44.5	%			1.8	%			10.3			$	227,339				43.4	%			1.8	%			11.1
AFS debt securities:				​				​				​				​				​				​				​				​
Commercial MBS - GSE (fixed)		$	20,620				4.0	%			5.1	%			4.3			$	-				-	%			-	%			-
Commercial MBS - GSE (float)			2,800				0.5				4.3				0.1				-				-				-				-
Residential MBS - GSE			154,108				30.0				2.1				5.5				169,165				32.3				2.0				5.4
Obligations of states & political subdivisions - tax exempt			72,110				14.1				2.4				17.6				87,116				16.6				2.4				17.0
Obligations of states & political subdivisions - taxable			15,313				3.0				1.5				2.9				15,704				3.0				1.4				3.6
Agency - GSE			17,775				3.5				1.1				2.7				24,622				4.7				1.1				2.8
Corporate debt			2,000				0.4				7.3				5.3				-				-					​				​
Total AFS debt securities		$	284,726				55.5	%			2.4	%			8.4			$	296,607				56.6	%			2.0	%			8.5
Total securities		$	513,270				100.0	%			2.1	%			9.2			$	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. 

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The AFS securities had a net unrealized loss of $50.5 million and $36.4 million as of September 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 September 30, 2026, the Company had $401.8 million in public deposits, or 15% 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 September 30, 2026, the balance of pledged securities required was $380.4 million, or 74% 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 nine months ended September 30, 2026, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

During the first nine months 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.

During the first nine months of 2026, the Company purchased fifteen available-for-sale securities with an aggregate carrying value of $31.8 million, consisting of residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). The purchases were made as part of the Company’s ongoing investment portfolio management strategy to replace lower-yielding securities with higher-yielding investments, enhance net interest margin, and increase collateral availability to secure public fund deposits. During the same period, the Company also purchased a $2.0 million corporate subordinated note with a ten-year maturity.

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 $7.7 million and $4.3 million as of September 30, 2026 and December 31, 2025, respectively. The dividends received from the FHLB totaled $276 thousand and $235 thousand for the nine months ended September 30, 2026 and 2025, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of September 30, 2026 and December 31, 2025.

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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 September 30, 2026 and December 31, 2025, loans HFS consisted of residential mortgages with carrying amounts of $0.4 million and $0.6 million, respectively, which approximated their fair values. During the nine months ended September 30, 2026, residential mortgage loans with principal balances of $38.8 million were sold into the secondary market and the Company recognized net gains of $0.6 million, compared to $47.4 million and $0.7 million, respectively, during the nine months ended September 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 September 30, 2026 and December 31, 2025, the servicing portfolio balance of sold residential mortgage loans was $514.2 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 September 30, 2026, the Company had gross loans and leases totaling $2.2 billion, an increase of $263.7 million, or 14%, compared to $1.9 billion at December 31, 2025.

During the nine months ended September 30, 2026, the growth in the portfolio was attributed primarily to a $282.5 million increase in the commercial portfolio and a $7.8 million increase in the residential portfolio, which was partially offset by the $26.8 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.

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The composition of the loan portfolio at September 30, 2026 and December 31, 2025 is summarized as follows:

		September 30, 2026								December 31, 2025
(dollars in thousands)		Amount				%				Amount				%
Commercial and industrial:
Commercial		$	250,256				11.5	%		$	220,526				11.5	%
Municipal			126,544				5.8				120,604				6.3
Commercial real estate:
Non-owner occupied			598,154				27.6				416,521				21.8
Owner occupied			399,273				18.3				340,808				17.8
Construction			63,451				2.9				56,684				3.0
Consumer:
Home equity installment			52,949				2.4				53,973				2.8
Home equity line of credit			70,243				3.2				70,195				3.7
Auto loans - Recourse			9,231				0.4				10,139				0.5
Auto loans - Non-recourse			26,204				1.2				43,852				2.3
Direct finance leases			14,777				0.7				19,666				1.0
Other			26,055				1.2				28,463				1.5
Residential:
Real estate			520,401				23.9				515,489				27.0
Construction			18,603				0.9				15,685				0.8
Gross loans			2,176,141				100.0	%			1,912,605				100.0	%
Less:
Allowance for credit losses			(22,391	)							(20,168	)
Unearned lease revenue			(1,089	)							(1,454	)
Net loans		$	2,152,661							$	1,890,983
Loans held-for-sale		$	360							$	573

Commercial & industrial (C&I) and commercial real estate (CRE)

As of September 30, 2026, the commercial portfolio increased by $282.5 million, or 24%, to $1.4 billion compared to the December 31, 2025 balance of $1.2 billion. The increase was due to growth of $246.9 million in commercial real estate loans and $35.6 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 nine months ended September 30, 2026, commercial and industrial (non-municipal) loans increased $29.7 million, or 13%, from $220.5 million at December 31, 2025 to $250.2 million at September 30, 2026, which was primarily due to a single origination totaling $12.4 million and two originations to a single borrower totaling $5.1 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.

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For the nine months ended September 30, 2026, municipal loans increased $5.9 million, or 5%, from $120.6 million at December 31, 2025, to $126.5 million at September 30, 2026, which was attributed to two loans to a single municipal borrower totaling $2.9 million during the second quarter, a single origination to a municipal borrower totaling $3.0 million during the third quarter, and standard portfolio growth offset by payments and curtailments.

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). Management continues to monitor the increased growth in commercial real estate lending relative to capital, including non-owner occupied CRE, through Board-approved policy limits, stress testing, risk-rating migration, debt-service coverage and loan-to-value monitoring. Asset quality within the portfolio remained strong at September 30, 2026. At September 30, 2026, the commercial real estate portfolio was 49% of total loans outstanding compared to 43% at December 31, 2025.  

For the nine months ended September 30, 2026, owner occupied commercial real estate loans increased $58.5 million, or 17%, from $340.8 million on December 31, 2025, to $399.3 million at September 30, 2026, due to three originations to three separate commercial real estate owner occupied borrowers totaling $11.1 million during the first quarter, a single origination totaling $6.6 million during the second quarter, a $7.9 million construction loan that stabilized during the second quarter, and was converted to owner occupied commercial real estate, three originations to three separate commercial real estate owner occupied borrowers totaling $21.1 million during the third quarter, 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 September 30, 2026 compared to December 31, 2025:

		September 30, 2026								December 31, 2025
(dollars in thousands)		Amount				%				Amount				%
Commercial real estate non-owner occupied:
1-4 Family		$	53,081				8.87	%		$	46,379				11.13	%
Multifamily			95,606				15.98	%			50,533				12.13	%
Industrial			74,441				12.45	%			47,873				11.49	%
Mixed Use			73,053				12.21	%			60,430				14.52	%
Retail			114,546				19.16	%			67,498				16.21	%
Land			28,435				4.75	%			25,532				6.13	%
Special Purpose			58,620				9.80	%			41,731				10.02	%
Hotel			29,152				4.87	%			28,885				6.93	%
Office			71,220				11.91	%			47,660				11.44	%
Total		$	598,154				100.00	%		$	416,521				100.00	%

For the nine months ended September 30, 2026, non-owner occupied commercial real estate loans increased $181.7 million, or 44%, from $416.5 million on December 31, 2025, to $598.2 million on September 30, 2026. The increase was 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, $23.0 million in construction loans that stabilized and were converted to non-owner occupied commercial real estate, six originations to six separate commercial real estate non owner occupied borrowers totaling $61.3 million during the third quarter, and standard portfolio growth.

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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 $71.2 million and special purpose comprised $58.6 million in outstanding amounts as of September 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. Most construction loans are lent to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of September 30, 2026, the commercial real estate construction portfolio had a balance of $63.5 million and consisted of $43.0 million, or 68%, of non-owner-occupied loans and $20.4 million, or 32%, of owner-occupied loans.

For the nine months ended September 30, 2026, commercial real estate construction loans increased $6.8 million, or 12%, from $56.7 million on December 31, 2025 to $63.5 million at September 30, 2026. This increase was attributed to $23.9 million in commercial construction commitments originated during the year and $19.2 million increase in commitments booked prior to September 30, 2026. This increase was partially offset by $34.2 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the nine months ended September 30, 2026 and $2.1 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.

The consumer loan portfolio decreased by $26.8 million, or 12%, from $226.3 million at December 31, 2025 to $199.5 million at September 30, 2026, primarily due to a management strategic determination to reduce the indirect auto portfolio based on payoffs with minimal originations, resulting in a $23.4 million reduction coupled with a $2.4 million reduction in the consumer other portfolio and a $1.0 million reduction in the home equity installment portfolio. For the remainder of 2026, the Company expects maturities of approximately $5.4 million in the dealer portfolio with minimal originations.

Residential

For the nine months ended September 30, 2026, the residential loan portfolio increased by $7.8 million from $531.2 million at December 31, 2025 to $539.0 million at September 30, 2026 due to general portfolio growth.

The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $419 million in fixed-rate and $101 million in adjustable-rate mortgages as of September 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.

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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.

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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 nine months ended September 30, 2026				As of and for the twelve months ended December 31, 2025				As of and for the nine months ended September 30, 2025
Balance at beginning of period		$	20,168			$	19,666			$	19,666
Charge-offs:
Commercial and industrial			(1	)			(376	)			(353	)
Commercial real estate			(45	)			(56	)			-
Consumer			(201	)			(423	)			(321	)
Residential			-				(73	)			(74	)
Total			(247	)			(928	)			(748	)
Recoveries:
Commercial and industrial			7				156				153
Commercial real estate			2				65				65
Consumer			77				136				109
Residential			-				18				18
Total			86				375				345
Net charge-offs			(161	)			(553	)			(403	)
Provision for credit losses on loans			2,384				1,055				955
Balance at end of period		$	22,391			$	20,168			$	20,218
Allowance for credit losses to total loans			1.03	%			1.06	%			1.06	%
Net charge-offs to average total loans outstanding			0.01	%			0.03	%			0.03	%
Average total loans		$	2,039,312			$	1,866,637			$	1,846,171
Loans 30 - 89 days past due and accruing		$	1,650			$	3,026			$	8,775
Loans 90 days or more past due and accruing		$	-			$	-			$	-
Non-accrual loans		$	2,566			$	1,892			$	2,600
Allowance for credit losses to non-accrual loans			8.72	x			10.66	x			7.78	x
Allowance for credit losses to non-performing loans			8.72	x			10.66	x			7.78	x

For the nine months ended September 30, 2026, the allowance increased $2.2 million, or 11%, from $20.2 million at December 31, 2025 to $22.4 million at September 30, 2026. The increase in the allowance was based on the provisioning of $2.4 million as a result of current year loan growth partially offset by net charge-offs of $161 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.

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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 September 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 September 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.

Net charge-offs, among major categories of loans, are as follows for the periods indicated:

(dollars in thousands)		For the nine months ended September 30, 2026				% of Total Net Charge-offs				For the nine months ended September 30, 2025				% of Total Net Charge-offs
Net charge-offs
Commercial and industrial		$	6				(4	)%		$	(200	)			50	%
Commercial real estate			(43	)			27				65				(16	)
Consumer			(124	)			77				(212	)			53
Residential			-				-				(56	)			13
Total net charge-offs		$	(161	)			100	%		$	(403	)			100	%

For the nine months ended September 30, 2026, net charge-offs against the allowance totaled $161 thousand compared with net charge-offs of $403 thousand for the nine months ended September 30, 2025, representing a $242 thousand decrease. Net charge-offs were 2 basis points lower as a percentage of the total loan portfolio at 0.01% for the nine months ended September 30, 2026 compared to 0.03% 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.

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 indication of future charge-off trends. When present, the portion of the allowance designated as unallocated is within the Company’s guidelines:

		September 30, 2026												December 31, 2025												September 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		$	10,222				46	%			49	%		$	8,806				44	%			43	%		$	9,139				45	%			43	%
Commercial and industrial			3,023				14				17				2,731				14				18				2,490				12				17
Consumer			2,238				10				9				2,173				10				11				2,074				11				12
Residential real estate			6,887				30				25				6,404				32				28				6,471				32				28
Unallocated			21				-				-				54				-				-				44				-				-
Total		$	22,391				100	%			100	%		$	20,168				100	%			100	%		$	20,218				100	%			100	%

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As of September 30, 2026, the commercial real estate loan portfolio comprised 46% of the total allowance for credit losses, up 2 percentage points from December 31, 2025. As of September 30, 2026, the commercial real estate loan portfolio was 49% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration.

As of September 30, 2026, the commercial and industrial portfolio comprised 14% of the total allowance for credit losses, unchanged from December 31, 2025. As of September 30, 2026, the commercial and industrial portfolio was 17% 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 September 30, 2026, the consumer portfolio comprised 10% of the total allowance for credit losses, unchanged from December 31, 2025. As of September 30, 2026, the consumer portfolio is 9% of the total loan and lease portfolio which is attributed to higher relative risk, specifically from the consumer other portfolio. 

As of September 30, 2026, the residential portfolio comprised 30% of the total allowance for credit losses, down 2 percentage points from December 31, 2025. As of September 30, 2026, the residential portfolio is 25% 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 September 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)		September 30, 2026				December 31, 2025				September 30, 2025
Loans past due 90 days or more and accruing		$	-			$	-			$	-
Non-accrual loans			2,566				1,892				2,600
Total non-performing loans			2,566				1,892				2,600
Other real estate owned and repossessed assets			-				326				420
Total non-performing assets		$	2,566			$	2,218			$	3,020
Total loans, including loans held-for-sale		$	2,175,412			$	1,911,724			$	1,914,893
Total assets		$	3,028,419			$	2,748,058			$	2,736,750
Non-accrual loans to total loans			0.12	%			0.10	%			0.14	%
Non-performing loans to total loans			0.12	%			0.10	%			0.14	%
Non-performing assets to total assets			0.08	%			0.08	%			0.11	%

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.

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Non-performing assets represented 0.08% of total assets at September 30, 2026 compared with 0.08% at December 31, 2025. The $348 thousand, or 16%, increase in non-performing assets was due to an increase of $674 thousand in nonaccrual loans partially offset by a $326 thousand decrease in other real estate owned.

As of September 30, 2026, there were a total of 28 non-accrual loans to 20 unrelated borrowers with balances that ranged from less than $1 thousand to $0.6 million, or $2.6 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 September 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 September 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		$	250,256			$	-			$	280			$	280				0.11	%
Municipal			126,544				-				-				-				-
Commercial real estate:
Non-owner occupied			598,154				-				-				-				-
Owner occupied			399,273				-				961				961				0.24	%
Construction			63,451				-				-				-				-
Consumer:
Home equity installment			52,949				-				689				689				1.30	%
Home equity line of credit			70,243				-				203				203				0.29	%
Auto loans-Recourse			9,231				-				12				12				0.13	%
Auto loans-Non Recourse			26,204				-				-				-				-
Direct finance leases *			13,688				-				-				-				-
Other			26,055				-				-				-				-
Residential:
Real estate			520,401				-				421				421				0.08	%
Construction			18,603				-				-				-				-
Loans held-for-sale			360				-				-				-				-
Total		$	2,175,412			$	-			$	2,566			$	2,566				0.12	%

*Net of unearned lease revenue of $1.1 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 September 30, 2026 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $106 thousand.

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Foreclosed assets held-for-sale

From December 31, 2025 to September 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:

		September 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 September 30, 2026, the Company had no properties in ORE.

As of September 30, 2026, the Company had no other repossessed assets. 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 $0.8 million during the first nine months of 2026 primarily due to a $9.0 million grant recorded that reduced construction in process. This decrease was coupled with $1.8 million in depreciation expense for the nine months ending September 30, 2026. Partially offsetting these decreases, the Company purchased $11.0 million in premises and equipment during the first nine months of 2026 primarily related to the new corporate center in downtown Scranton.

The Company has substantially completed the renovation of the new corporate headquarters located in downtown Scranton. 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 first nine months of 2026 which offset the total construction costs of the renovation and rehabilitation of the historic Scranton Electric Building. As of September 30, 2026, the Company incurred $29.9 million in costs for the corporate headquarters building which included: $25.0 million in construction related costs; $3.3 million in furniture, equipment, and signage costs; and $1.6 million in parking lot costs. The Company currently expects $1.9 million in remaining costs which is primarily construction. The historic nature of this building has qualified the Company for an estimated $4.3 million in state and federal historic tax credits. 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. The Company expects this project to be completed by the first quarter of 2027 and has incurred costs of $1.2 million for this construction through September 30, 2026.

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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:

		September 30, 2026								December 31, 2025
(dollars in thousands)		Amount				%				Amount				%
Interest-bearing checking		$	718,631				27.5	%		$	674,412				27.3	%
Savings and clubs			193,572				7.4				188,449				7.6
Money market			772,240				29.7				698,935				28.4
Certificates of deposit			332,559				12.7				352,976				14.3
Total interest-bearing			2,017,002				77.3				1,914,772				77.6
Non-interest bearing			593,270				22.7				552,581				22.4
Total deposits		$	2,610,272				100.0	%		$	2,467,353				100.0	%

Total deposits increased $142.9 million, or 6%, to $2.6 billion as of September 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 $73.3 million, primarily reflecting growth in business and public account balances.

● Interest-Bearing Checking: Increased $44.2 million, primarily reflecting growth in public fund account balances.

● Savings and Club Accounts: Increased $5.1 million, supported by the expansion of personal relationship-based savings products.

● Non-Interest-Bearing Checking: Increased $40.7 million, led by business checking account growth.

These increases were partially offset by a decrease of $20.4 million in time deposits largely attributable to business accounts outflows to other various products.

Public deposit balances are expected to continue exhibiting seasonal variability, which may periodically moderate overall deposit growth. As of September 30, 2026, public fund deposit growth contributed $135.6 million to the increase in total deposits, reflecting one large new relationship and an increase in existing customers balances. The Company expects the public fund deposit growth to continue in the fourth quarter of 2026.

The Company utilizes the Certificate of Deposit Account Registry Service (CDARS) reciprocal program, ICS reciprocal program, and ModernFi 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 September 30, 2026 and December 31, 2025, respectively. As of September 30, 2026 and December 31, 2025, ICS reciprocal deposits represented $119.2 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. During the third quarter of 2026, the Company began offering ModernFi reciprocal deposits representing $58.3 million which are included in interest-bearing checking accounts in the table above.

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As of September 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 September 30, 2026, the ratio of uninsured and non-collateralized deposits to total deposits was $732.2 million, or 28%. Collateralized deposits totaled $380.4 million, or 15%, of total deposits as of September 30, 2026.

The maturity distribution of certificates of deposit that meet or exceed the FDIC limit, by account, at September 30, 2026 is as follows:

(dollars in thousands)
Three months or less		$	49,872
More than three months to six months			75,152
More than six months to twelve months			23,950
More than twelve months			2,785
Total		$	151,759

Approximately 35% of the CDs, with a weighted-average interest rate of 3.40%, are scheduled to mature in 2026 and an additional 62%, with a weighted-average interest rate of 3.36%, are scheduled to mature in 2027. Given our relatively low reliance on CDs as a percentage of total deposits, the Company's strategy is to remain disciplined rather than interest rate led. The Company will utilize competitive CD offerings where they support funding and relationship objectives, while avoiding broad-based pricing that unnecessarily increases our cost of deposits. As rates evolve, management will continue to use targeted terms, relationship pricing, and selective retention offers to manage maturities and liquidity while protecting net interest margin. 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 nine months ended September 30, 2026, 88% 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 need to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of September 30, 2026, the Company utilized $132.7 million in short-term borrowings. The increase in short-term borrowings at September 30, 2026 primarily supported the Company's liquidity position, including funding associated with strong commercial loan growth and collateral requirements related to growth in public deposits. Management expects utilization of wholesale funding to fluctuate based on loan funding requirements, deposit flows and available on-balance-sheet liquidity. As of September 30, 2026, the Company had the ability to borrow $55.1 million from the Federal Reserve borrower-in-custody program, availability of $82.0 million in borrowings with the FHLB open-repo line of credit and $25.0 million from lines of credit with correspondent banks.

Secured borrowings

As of September 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 September 30, 2026 and December 31, 2025. As of September 30, 2026, the Company had the ability to borrow up to $870.2 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances during 2026.

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Liquidity

Liquidity management ensures that adequate funds will be available to meet customers’ needs for borrowings, deposit withdrawals and maturities, facility expansion and normal operating expenses. Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits, utilization of borrowing capacities from the FHLB, correspondent banks, IntraFi's ICS and One-Way Buy program, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB), Atlantic Community Bankers Bank (ACBB) and proceeds from the issuance of capital stock. Though regularly scheduled investment and loan payments are dependable sources of daily liquidity, sales of both loans HFS and investments AFS, deposit activity and investment and loan prepayments are significantly influenced by general economic conditions including the interest rate environment. During low and declining interest rate environments, prepayments from interest-sensitive assets tend to accelerate and provide significant liquidity that can be used to invest in other interest-earning assets but at lower market rates. Conversely, in periods of high or rising interest rates, prepayments from interest-sensitive assets tend to decelerate causing prepayment cash flows from mortgage loans and mortgage-backed securities to decrease. Rising interest rates may also cause deposit inflow but priced at higher market interest rates or could also cause deposit outflow due to higher rates offered by the Company’s competition for similar products. The Company closely monitors activity in the capital markets and takes appropriate action to ensure that the liquidity levels are adequate for funding, investing and operating activities.

The Company’s contingency funding plan (CFP) sets a framework for handling liquidity issues in the event circumstances arise which the Company deems to be less than normal. The Company established guidelines for identifying, measuring, monitoring and managing the resolution of potentially serious liquidity crises. The CFP outlines required monitoring tools, acceptable alternative funding sources and required actions during various liquidity scenarios. Thus, the Company has implemented a proactive means for the measurement and resolution for handling potentially significant adverse liquidity conditions. At least quarterly, the CFP monitoring tools, current liquidity position and monthly projected liquidity sources and uses are presented and reviewed by the Company’s Asset/Liability Committee. As of September 30, 2026, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.

During the nine months ended September 30, 2026, the Company grew cash and cash equivalents by $25.5 million. During the same period, the Company’s operations provided $41.7 million mostly from $61.1 million of net cash inflow from the components of net interest income and a $7.4 million tax refund partially offset by net non-interest expense/income related payments of $26.4 million. Cash inflow from interest-earning assets, deposit growth and loan payments were used to fund the loan portfolio, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past few years. The seasonal nature of deposits from municipalities and other public funding sources requires the Company to be prepared for the inherent volatility and the unpredictable timing of cash outflow from this customer base, including maintaining the requirements to pledge investment securities. Accordingly, the use of short-term overnight borrowings could be used to fulfill funding gap needs. As of September 30, 2026, the Company had $92.5 million in unpledged securities. 

During 2021 and 2022, the Company also experienced deposit inflow resulting from businesses and municipalities that received relief from the CARES Act, American Rescue Plan Act ("ARPA") and other government stimulus. As of September 30, 2026, the Company has approximately $11.8 million in remaining ARPA balances, a decrease of $4.6 million, or 28%, from $16.4 million at the end of 2025. The Company expects that the funds will be depleted by year end, as the expenditure deadline is December 31, 2026.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers and in connection with the overall interest rate management strategy. These instruments involve, to a varying degree, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments.

Lending commitments include commitments to originate loans and commitments to fund unused lines of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Unfunded commitments of existing loan facilities totaled $620.7 million, standby letters of credit totaled $39.4 million and the level of uninsured and non-collateralized deposits was $732.2 million at September 30, 2026. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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As of September 30, 2026, the Company maintained $173.6 million in cash and cash equivalents and $285.1 million of investments AFS and loans HFS. Also, as of September 30, 2026, the Company had approximately $870.2 million available borrowing capacity from the FHLB, $25.0 million from correspondent banks, $55.1 million from the FRB, and $445.7 million from the IntraFi Network One-Way Buy program. The combined total of $1.9 billion represented 61% of total assets at September 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.

Capital

As of September 30, 2026, total shareholders' equity increased $8.1 million, or 3%, from December 31, 2025 due principally to net income of $24.2 million and $1.2 million associated with common stock issuance and restricted stock. This activity was partially offset by $7.6 million of cash dividends and a $9.7 million after-tax reduction in accumulated other comprehensive income. The Company’s dividend payout ratio, defined as the rate at which current earnings are paid to shareholders, was 31.25% as of September 30, 2026. The balance of earnings is retained to further strengthen the Company’s capital position.

As of September 30, 2026, available-for-sale securities had gross unrealized losses of $50.5 million, compared with gross unrealized losses of $36.5 million at December 31, 2025. The increase in unrealized losses primarily reflected changes in market interest rates and the fair value of the available-for-sale securities portfolio. 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.

Generally, when U.S. Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline. During the period of declining rates, the Company expects pricing in the bond portfolio to improve. There is no assurance that future realized and unrealized losses will not be recognized from the Company’s portfolio of investment securities.

The tangible common equity (TCE) ratio (non-GAAP) was 7.54% and 7.69% for the nine months ended September 30, 2026 and 2025, respectively. At September 30, 2026 and 2025, the held-to-maturity securities portfolio had $31.5 million and $20.8 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 6.50% and 6.93% ⁽¹⁾ at September 30, 2026 and 2025, respectively.

To help maintain a healthy capital position, the Company can issue stock to participants in the DRP and ESPP plans. The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. Both the DRP and the ESPP plans have been a consistent source of capital from the Company’s loyal employees and shareholders and their participation in these plans will continue to help strengthen the Company’s balance sheet.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Although the Company qualifies as a small bank holding company and is not subject to consolidated regulatory capital requirements, consolidated capital ratios are presented for informational purposes. The Bank remains subject to the regulatory capital and prompt corrective action requirements presented below.

Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets. The guidelines require covered banking organizations to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%. A capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements of 2.50%. As of September 30, 2026 and December 31, 2025, the Bank exceeded all capital adequacy requirements to which it was subject.

(1) See Non-GAAP Financial Measures beginning on page 44.

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The following table depicts the actual and required capital and related capital ratios of the Company, on a consolidated basis, and the Bank as of September 30, 2026 and December 31, 2025. No amounts were deducted from capital for interest-rate risk in either 2026 or 2025.
 

																				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 September 30, 2026
Total capital (to risk-weighted assets)
Consolidated		$	301,379				14.1	%	≥		$	171,040				8.0	%	≥		$	224,490				10.5	%				N/A				N/A
Bank		$	301,229				14.1	%	≥		$	171,033				8.0	%	≥		$	224,481				10.5	%	≥		$	213,791				10.0	%
Tier 1 common equity (to risk-weighted assets)
Consolidated		$	277,308				13.0	%	≥		$	96,210				4.5	%	≥		$	149,660				7.0	%				N/A				N/A
Bank		$	277,158				13.0	%	≥		$	96,206				4.5	%	≥		$	149,654				7.0	%	≥		$	138,964				6.5	%
Tier I capital (to risk-weighted assets)
Consolidated		$	277,308				13.0	%	≥		$	128,280				6.0	%	≥		$	181,730				8.5	%				N/A				N/A
Bank		$	277,158				13.0	%	≥		$	128,275				6.0	%	≥		$	181,723				8.5	%	≥		$	171,033				8.0	%
Tier I capital (to average assets)
Consolidated		$	277,308				9.6	%	≥		$	115,030				4.0	%	≥		$	115,030				4.0	%				N/A				N/A
Bank		$	277,158				9.6	%	≥		$	115,029				4.0	%	≥		$	115,029				4.0	%	≥		$	143,786				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	%

The Company advises readers to refer to the Supervision and Regulation section of Management’s Discussion and Analysis of Financial Condition and Results of Operation, of its 2025 Form 10-K for a discussion on the regulatory environment and recent legislation and rulemaking.

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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 September 30, 2026, the Company maintained a one-year cumulative gap of negative (liability sensitive) $47.5 million, or -1.6%, of total assets. The effect of this negative gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of rising interest rates. Conversely, in a decreasing interest rate environment, net interest income could be positively impacted because more liabilities than assets will re-price downward during the one-year period.

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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 September 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		$	148,318			$	-			$	-			$	25,288			$	173,606
Investment securities (1)(2)			5,515				24,664				91,853				398,967				520,999
Loans and leases (2)			778,974				241,156				456,148				676,743				2,153,021
Fixed and other assets			-				-				-				180,793				180,793
Total assets		$	932,807			$	265,820			$	548,001			$	1,281,791			$	3,028,419
Total cumulative assets		$	932,807			$	1,198,627			$	1,746,628			$	3,028,419
Non-interest-bearing transaction deposits (3)		$	11,179			$	33,537			$	89,434			$	459,120			$	593,270
Interest-bearing transaction deposits (3)			695,049				54,528				141,483				793,383				1,684,443
Certificates of deposit			115,538				203,581				10,919				2,521				332,559
Secured borrowings			34				-				-				4,675				4,709
Short-term borrowings			132,708				-				-				-				132,708
Other liabilities			-				-				-				33,746				33,746
Total liabilities		$	954,508			$	291,646			$	241,836			$	1,293,445			$	2,781,435
Total cumulative liabilities		$	954,508			$	1,246,154			$	1,487,990			$	2,781,435
Interest sensitivity gap		$	(21,701	)		$	(25,826	)		$	306,165			$	(11,654	)
Cumulative gap		$	(21,701	)		$	(47,527	)		$	258,638			$	246,984
Cumulative gap to total assets			(0.7	)%			(1.6	)%			8.5	%			8.2	%

(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.

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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 September 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 September 30, 2026 levels:

		% change
		Rates +200				Rates -200
Earnings at risk:
Net interest income			(2.4	)%			(2.0	)%
Net income			(4.3	)			(4.8	)
Economic value at risk:
Economic value of equity			(2.8	)			(4.5	)
Economic value of equity as a percent of total assets			(0.5	)			(0.8	)

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 September 30, 2026, the Company’s risk-based capital ratio was 14.10%.

Although modeled interest rate risk exposures remain within Board-approved policy limits, management continues to evaluate balance sheet positioning and potential hedging strategies, with assistance from an independent third-party derivatives advisor, as part of its ongoing interest rate risk management process. 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.

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The table below summarizes estimated changes in net interest income over a twelve-month period beginning October 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		$	93,552			$	(3,862	)			(4.0	)%
+200 basis points			95,065				(2,349	)			(2.4	)%
+100 basis points			95,980				(1,434	)			(1.5	)%
Flat rate			97,414				-				-	%
-100 basis points			94,773				(2,641	)			(2.7	)%
-200 basis points			95,420				(1,994	)			(2.0	)%
-300 basis points			96,782				(632	)			(0.6	)%

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. Commercial and residential MBS – GSE 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 September 30, 2026.

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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 September 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.

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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., Fidelity 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, Fidelity 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., Fidelity 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., Fidelity 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.

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*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., Fidelity 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 September 30, 2026, is formatted in Inline XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025; Consolidated Statements of Income for the three and nine months ended September 30, 2026 and 2025; Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2026 and 2025; Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2026 and 2025; Consolidated Statements of Cash Flows for the nine months ended September 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.

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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: November 6, 2026	/s/ Daniel J. Santaniello
	Daniel J. Santaniello,      President and Chief Executive Officer
	Fidelity D & D Bancorp, Inc.
Date: November 6, 2026	/s/ Salvatore R. DeFrancesco, Jr.
	Salvatore R. DeFrancesco, Jr.,      Treasurer and Chief Financial Officer

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