Citizens Financial Services Inc.
03/12/2026 | Press release | Distributed by Public on 03/12/2026 04:08
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT
We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the Bank, First Citizens Insurance, Realty or the Company on a consolidated basis. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. Forward-looking statements may prove inaccurate. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements:
|
|
• |
Interest rates could change more rapidly or more significantly than we expect or remain inverted for a longer period than anticipated.
|
|
|
• |
The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.
|
|
|
• |
The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.
|
|
|
• |
It could take us longer than we anticipate implementing strategic initiatives, including expansions, designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.
|
|
|
• |
Acquisitions and dispositions of assets and companies could affect us in ways that management has not anticipated.
|
|
|
• |
We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.
|
|
|
• |
We may become subject to new and unanticipated accounting, tax, regulatory or compliance practices or requirements. Failure to comply with any one or more of these requirements could have an adverse effect on our operations.
|
|
|
• |
We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.
|
|
•
|
We could experience greater losses than expected due to the ever-increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.
|
|
|
• |
We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.
|
|
|
• |
The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products as a result of weather, government regulations, international trade agreements and consumer tastes, which could negatively impact certain of our customers.
|
|
|
• |
Loan concentrations in certain industries could negatively impact our results, if financial results or economic conditions deteriorate.
|
|
|
• |
A budget impasse in the Commonwealth of Pennsylvania and/or a Federal Government shutdown could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank, as well as individuals who receive state and federal benefits.
|
|
|
• |
Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.
|
Additional factors are discussed in this Annual Report on Form 10-K under "Item 1A. Risk Factors."These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.
Index
INTRODUCTION
The following is management's discussion and analysis of the significant changes in financial condition, the results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements for the Company. The Company's consolidated financial condition and results of operations consist almost entirely of the Bank's financial condition and results of operations. Management's discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes. Except as noted, tabular information is presented in thousands of dollars.
The Company engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Lycoming, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster and Chester counties in south central Pennsylvania and Allegany County in southern New York. In Delaware, the primary areas are the Cities of Wilmington and Dover and the surrounding area. We also have a limited branch office in Union county, Pennsylvania, which primarily serves agricultural and commercial customers in the central Pennsylvania market. With the HVBC acquisition, we have expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 47 banking facilities, 39 of which operate as bank branches. In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Ephrata, Fivepointville, State College, Kennett Square, Warrington, Williamsport, Plumsteadville, Philadelphia, two branches near the city of Lebanon and two branches in Huntington Valley. The Company has limited branch offices located in Winfield, Pennsylvania and Georgetown, Delaware. In New York, our office is in Wellsville. In Delaware, we have three branches in Wilmington and one in Dover. The mortgage centers acquired as part of the acquisition are located in Huntington Valley, PA and Mount Laurel, NJ. The business banking facility is located in Philadelphia, PA. In the fourth quarter of 2023, we opened a branch in Williamsport, Pennsylvania. During 2024, the Montgomeryville, PA mortgage office was closed and the Georgetown office was opened.
Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk.
Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company. The Company uses its asset/liability and funds management policies to control and manage interest rate risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans with customers and the purchasing of securities. The Company's primary credit risk is in the loan portfolio. The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.
Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk. These guidelines include, among other things, contingent funding alternatives.
Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information, which could include identify theft, or theft of customer information through third parties. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.
Regulatory risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company and its subsidiary. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.
Index
Readers should carefully review the risk factors described in other documents the Company files with the SEC, including the annual reports on Form 10-K, the quarterly reports on Form 10-Q and any current reports on Form 8-K filed by us.
TRUST AND INVESTMENT SERVICES; OIL AND GAS SERVICES
Our Investment and Trust Division is committed to helping our customers meet their financial goals. The Trust Division offers professional trust administration, investment management services, estate planning and administration, custody of securities and individual retirement accounts. In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management. Assets held by the Bank in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Bank. As of December 31, 2025, and 2024, assets owned and invested by customers of the Bank through the Bank's investment representatives totaled $317,895,000 and $395,869,000 million, respectively. Additionally, as summarized in the table below, the Trust Department had assets under management as of December 31, 2025 and 2024 of $194,841,000 and $180,710,000, respectively. During the year ended December 31, 2025, $3,918,000 of new trust accounts were opened, $8,312,000 of additional contributions to trust accounts were made, $15,622,000 was distributed from trust accounts, and $2,081,000 of accounts were closed. As a result of market fluctuations, the fair value of the trust accounts increased approximately $19,604,000 during the year ended December 31, 2025. The following table reflects trust accounts by investment type and structure:
|
(market values - in thousands)
|
2025
|
2024
|
||||||
|
INVESTMENTS:
|
||||||||
|
Bonds
|
$
|
19,721
|
$
|
18,432
|
||||
|
Stock
|
30,970
|
32,804
|
||||||
|
Savings and Money Market Funds
|
22,242
|
21,496
|
||||||
|
Mutual Funds
|
105,599
|
91,846
|
||||||
|
Mineral interests
|
3,760
|
3,000
|
||||||
|
Mortgages
|
718
|
738
|
||||||
|
Real Estate
|
9,807
|
9,812
|
||||||
|
Miscellaneous
|
2,024
|
2,582
|
||||||
|
TOTAL
|
$
|
194,841
|
$
|
180,710
|
||||
|
ACCOUNTS:
|
||||||||
|
Trusts
|
54,244
|
51,232
|
||||||
|
Guardianships
|
745
|
330
|
||||||
|
Employee Benefits
|
74,067
|
67,275
|
||||||
|
Investment Management
|
65,784
|
61,871
|
||||||
|
Custodial
|
1
|
2
|
||||||
|
TOTAL
|
$
|
194,841
|
$
|
180,710
|
||||
Our financial consultants offer full service brokerage and financial planning services throughout the Bank's market areas. Appointments can be made at any Bank branch. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 2025 was $36,572,000, which represents an increase of $8,754,000, or 31.5%, when compared to 2024 primarily due to an increase in net interest income after the provision for credit losses of $11,758,000.Net income for the year ended December 31, 2024 was $27,818,000, which represents an increase of $10,007,000, or 56.2%, when compared to 2023 due primarily to the absence of one-time costs associated with the HVBC acquisition that were recognized in 2023. Basic earnings per share were $7.62, $5.80 and $3.98 for 2025, 2024 and 2023, respectively, while diluted earnings per share were $7.62, $5.79 and $3.98 for 2025, 2024 and 2023, respectively.
Net income is influenced by five key components: net interest income, provision for credit losses, non-interest income, non-interest expenses, and the provision for income taxes.
Index
Net Interest Income
The most significant source of revenue is net interest income; the amount by which interest earned on interest-earning assets exceeds interest paid on interest-bearing liabilities. Factors that influence net interest income are changes in volume of interest-earning assets and interest-bearing liabilities as well as changes in the associated interest rates.
The following table sets forth the Company's average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders' equity, the related rates, net interest income and rate "spread" created.
Analysis of Average Balances and Interest Rates
|
2025
|
2024
|
2023
|
||||||||||||||||||||||||||||||||||
|
Average
Balance
(1)
|
Interest
|
Average
Rate
|
Average
Balance
(1)
|
Interest
|
Average
Rate
|
Average
Balance
(1)
|
Interest
|
Average
Rate
|
||||||||||||||||||||||||||||
|
(dollars in thousands)
|
|
$ |
$ |
|
%
|
|
$ |
$ |
|
%
|
|
$ |
$ |
|
%
|
|||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Short-term investments:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
23,767
|
384
|
1.62
|
28,264
|
730
|
2.58
|
24,470
|
572
|
2.34
|
|||||||||||||||||||||||||||
|
Total short-term investments
|
23,767
|
384
|
1.62
|
28,264
|
730
|
2.58
|
24,470
|
572
|
2.34
|
|||||||||||||||||||||||||||
|
Interest bearing time deposits at banks
|
3,820
|
118
|
3.09
|
3,878
|
121
|
3.09
|
5,255
|
164
|
3.10
|
|||||||||||||||||||||||||||
|
Investment securities:
|
||||||||||||||||||||||||||||||||||||
|
Taxable (6)
|
378,387
|
11,610
|
3.07
|
359,724
|
8,685
|
2.41
|
383,241
|
8,043
|
2.10
|
|||||||||||||||||||||||||||
|
Tax-exempt (3)
|
109,125
|
3,324
|
3.05
|
105,141
|
2,650
|
2.52
|
112,806
|
2,866
|
2.54
|
|||||||||||||||||||||||||||
|
Total investment securities
|
487,512
|
14,934
|
3.06
|
464,865
|
11,335
|
2.44
|
496,047
|
10,909
|
2.20
|
|||||||||||||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||||||||||||||
|
Residential mortgage loans
|
346,313
|
20,841
|
6.02
|
356,292
|
20,758
|
5.83
|
290,971
|
15,918
|
5.47
|
|||||||||||||||||||||||||||
|
Construction loans
|
135,920
|
9,744
|
7.17
|
182,714
|
13,607
|
7.45
|
135,315
|
9,485
|
7.01
|
|||||||||||||||||||||||||||
|
Commercial Loans
|
1,320,836
|
84,059
|
6.36
|
1,265,922
|
80,849
|
6.39
|
1,101,452
|
66,105
|
6.00
|
|||||||||||||||||||||||||||
|
Agricultural Loans
|
362,880
|
21,227
|
5.85
|
350,588
|
18,978
|
5.41
|
342,980
|
17,061
|
4.97
|
|||||||||||||||||||||||||||
|
Loans to state & political subdivisions
|
52,730
|
2,071
|
3.93
|
55,919
|
2,213
|
3.96
|
59,308
|
2,299
|
3.88
|
|||||||||||||||||||||||||||
|
Other loans
|
96,097
|
6,898
|
7.18
|
83,916
|
6,717
|
8.00
|
74,555
|
5,660
|
7.59
|
|||||||||||||||||||||||||||
|
Loans, net of discount (2)(3)(4)
|
2,314,776
|
144,840
|
6.26
|
2,295,351
|
143,122
|
6.24
|
2,004,581
|
116,528
|
5.81
|
|||||||||||||||||||||||||||
|
Total interest-earning assets
|
2,829,875
|
160,276
|
5.66
|
2,792,358
|
155,308
|
5.56
|
2,530,353
|
128,173
|
5.07
|
|||||||||||||||||||||||||||
|
Cash and due from banks
|
9,727
|
9,306
|
9,341
|
|||||||||||||||||||||||||||||||||
|
Bank premises and equipment
|
21,638
|
21,124
|
19,871
|
|||||||||||||||||||||||||||||||||
|
Other assets
|
180,011
|
183,674
|
139,474
|
|||||||||||||||||||||||||||||||||
|
Total non-interest earning assets
|
211,376
|
214,104
|
168,686
|
|||||||||||||||||||||||||||||||||
|
Total assets
|
3,041,251
|
3,006,462
|
2,699,039
|
|||||||||||||||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Business Interest Checking
|
20,148
|
179
|
0.89
|
8,756
|
88
|
1.01
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
|
NOW accounts
|
718,185
|
15,361
|
2.14
|
756,689
|
19,117
|
2.53
|
666,505
|
13,396
|
2.01
|
|||||||||||||||||||||||||||
|
Savings accounts
|
287,162
|
1,336
|
0.47
|
296,275
|
1,532
|
0.52
|
318,299
|
1,314
|
0.41
|
|||||||||||||||||||||||||||
|
Money market accounts
|
453,545
|
12,919
|
2.85
|
397,942
|
12,482
|
3.14
|
364,385
|
8,713
|
2.39
|
|||||||||||||||||||||||||||
|
Certificates of deposit
|
470,285
|
17,255
|
3.67
|
481,862
|
19,107
|
3.97
|
328,553
|
8,276
|
2.52
|
|||||||||||||||||||||||||||
|
Total interest-bearing deposits
|
1,949,325
|
47,050
|
2.41
|
1,941,524
|
52,326
|
2.70
|
1,677,742
|
31,699
|
1.89
|
|||||||||||||||||||||||||||
|
Other borrowed funds
|
326,026
|
14,117
|
4.33
|
323,409
|
15,536
|
4.80
|
326,577
|
15,159
|
4.64
|
|||||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
2,275,351
|
61,167
|
2.69
|
2,264,933
|
67,862
|
3.00
|
2,004,319
|
46,858
|
2.34
|
|||||||||||||||||||||||||||
|
Demand deposits
|
387,914
|
385,702
|
382,979
|
|||||||||||||||||||||||||||||||||
|
Other liabilities
|
40,650
|
40,593
|
38,419
|
|||||||||||||||||||||||||||||||||
|
Total non-interest-bearing liabilities
|
428,564
|
426,295
|
421,398
|
|||||||||||||||||||||||||||||||||
|
Stockholders' equity
|
337,336
|
315,234
|
273,322
|
|||||||||||||||||||||||||||||||||
|
Total liabilities & stockholders' equity
|
3,041,251
|
3,006,462
|
2,699,039
|
|||||||||||||||||||||||||||||||||
|
Net interest income
|
99,109
|
87,446
|
81,315
|
|||||||||||||||||||||||||||||||||
|
Net interest spread (5)
|
2.97
|
%
|
2.56
|
%
|
2.73
|
%
|
||||||||||||||||||||||||||||||
|
Net interest income as a percentage of average interest-earning assets
|
3.50
|
%
|
3.13
|
%
|
3.21
|
%
|
||||||||||||||||||||||||||||||
|
Ratio of interest-earning assets to interest-bearing liabilities
|
124.00
|
123.00
|
126.00
|
|||||||||||||||||||||||||||||||||
| (1) |
Averages are based on daily averages.
|
| (2) |
Includes loan origination and commitment fees.
|
| (3) |
Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21% for 2025, 2024 and 2023.
|
| (4) |
Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
| (5) |
Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
|
|
(6)
|
Included dividend income
|
Index
For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Federal statutory rate for the corresponding year. Accordingly, tax equivalent adjustments for investments and loans have been made accordingly to the previous table for the years ended December 31, 2025, 2024 and 2023, respectively (in thousands):
|
2025
|
2024
|
2023
|
||||||||||
|
Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (non-tax adjusted) (GAAP)
|
$
|
14,738
|
$
|
11,629
|
$
|
11,043
|
||||||
|
Tax equivalent adjustment
|
698
|
557
|
602
|
|||||||||
|
Interest and dividend income from investment securities, interest bearing time deposits and short-term investments (tax equivalent basis) (Non-GAAP)
|
$
|
15,436
|
$
|
12,186
|
$
|
11,645
|
||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Interest and fees on loans (non-tax adjusted) (GAAP)
|
$
|
144,430
|
$
|
142,688
|
$
|
116,075
|
||||||
|
Tax equivalent adjustment
|
410
|
434
|
453
|
|||||||||
|
Interest and fees on loans (tax equivalent basis) (Non-GAAP)
|
$
|
144,840
|
$
|
143,122
|
$
|
116,528
|
||||||
|
2025
|
2024
|
2023
|
||||||||||
|
Total interest income
|
$
|
159,168
|
$
|
154,317
|
$
|
127,118
|
||||||
|
Total interest expense
|
61,167
|
67,862
|
46,858
|
|||||||||
|
Net interest income (GAAP)
|
98,001
|
86,455
|
80,260
|
|||||||||
|
Total tax equivalent adjustment
|
1,108
|
991
|
1,055
|
|||||||||
|
Net interest income (tax equivalent basis) (Non-GAAP)
|
$
|
99,109
|
$
|
87,446
|
$
|
81,315
|
||||||
The following table shows the tax-equivalent effect of changes in volume and rates on interest income and expense (in thousands):
Analysis of Changes in Net Interest Income on a Tax-Equivalent Basis
|
2025 vs. 2024 (1)
|
2024 vs. 2023 (1)
|
|||||||||||||||||||||||
|
Change in
Volume
|
Change
in Rate
|
Total
Change
|
Change in
Volume
|
Change
in Rate
|
Total
Change
|
|||||||||||||||||||
|
Interest Income:
|
||||||||||||||||||||||||
|
Short-term investments:
|
||||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
$
|
(103
|
)
|
$
|
(243
|
)
|
$
|
(346
|
)
|
$
|
95
|
$
|
63
|
$
|
158
|
|||||||||
|
Interest bearing time deposits at banks
|
(3
|
)
|
-
|
(3
|
)
|
(43
|
)
|
-
|
(43
|
)
|
||||||||||||||
|
Investment securities:
|
||||||||||||||||||||||||
|
Taxable
|
472
|
2,453
|
2,925
|
(438
|
)
|
1,080
|
642
|
|||||||||||||||||
|
Tax-exempt
|
102
|
572
|
674
|
(194
|
)
|
(22
|
)
|
(216
|
)
|
|||||||||||||||
|
Total investment securities
|
574
|
3,025
|
3,599
|
(632
|
)
|
1,058
|
426
|
|||||||||||||||||
|
Total investment income
|
468
|
2,782
|
3,250
|
(580
|
)
|
1,121
|
541
|
|||||||||||||||||
|
Loans:
|
||||||||||||||||||||||||
|
Residential mortgage loans
|
(475
|
)
|
558
|
83
|
3,752
|
1,088
|
4,840
|
|||||||||||||||||
|
Construction loans
|
(3,372
|
)
|
(491
|
)
|
(3,863
|
)
|
3,499
|
623
|
4,122
|
|||||||||||||||
|
Commercial Loans
|
3,494
|
(284
|
)
|
3,210
|
10,314
|
4,430
|
14,744
|
|||||||||||||||||
|
Agricultural Loans
|
681
|
1,568
|
2,249
|
370
|
1,547
|
1,917
|
||||||||||||||||||
|
Loans to state & political subdivisions
|
(125
|
)
|
(17
|
)
|
(142
|
)
|
(134
|
)
|
48
|
(86
|
)
|
|||||||||||||
|
Other loans
|
626
|
(445
|
)
|
181
|
737
|
320
|
1,057
|
|||||||||||||||||
|
Total loans, net of discount
|
829
|
889
|
1,718
|
18,538
|
8,056
|
26,594
|
||||||||||||||||||
|
Total Interest Income
|
1,297
|
3,671
|
4,968
|
17,958
|
9,177
|
27,135
|
||||||||||||||||||
|
Interest Expense:
|
||||||||||||||||||||||||
|
Interest-bearing deposits:
|
||||||||||||||||||||||||
|
Business Interest Checking
|
100
|
(9
|
)
|
91
|
-
|
88
|
88
|
|||||||||||||||||
|
NOW accounts
|
(936
|
)
|
(2,820
|
)
|
(3,756
|
)
|
1,974
|
3,747
|
5,721
|
|||||||||||||||
|
Savings accounts
|
(46
|
)
|
(150
|
)
|
(196
|
)
|
(90
|
)
|
308
|
218
|
||||||||||||||
|
Money Market accounts
|
1,277
|
(840
|
)
|
437
|
854
|
2,915
|
3,769
|
|||||||||||||||||
|
Certificates of deposit
|
(452
|
)
|
(1,400
|
)
|
(1,852
|
)
|
4,861
|
5,970
|
10,831
|
|||||||||||||||
|
Total interest-bearing deposits
|
(57
|
)
|
(5,219
|
)
|
(5,276
|
)
|
7,599
|
13,028
|
20,627
|
|||||||||||||||
|
Other borrowed funds
|
126
|
(1,545
|
)
|
(1,419
|
)
|
(151
|
)
|
528
|
377
|
|||||||||||||||
|
Total interest expense
|
69
|
(6,764
|
)
|
(6,695
|
)
|
7,448
|
13,556
|
21,004
|
||||||||||||||||
|
Net interest income
|
$
|
1,228
|
$
|
10,435
|
$
|
11,663
|
$
|
10,510
|
$
|
(4,379
|
)
|
$
|
6,131
|
|||||||||||
|
(1)
|
The portion of the total change attributable to both volume and rate changes during the year has been allocated to volume and rate components based upon the absolute dollar amount of the change in each component prior to allocation.
|
Index
2025 vs. 2024
Tax equivalent net interest income for 2025 was $99,109,000 compared to $87,446,000 for 2024, an increase of $11,663,000 or 13.3%. Total interest income increased $4,968,000, as loan interest income increased $1,718,000, and total investment income increased $3,250,000. Interest expense decreased $6,695,000 from 2024.
Total tax equivalent interest income from investment securities increased $3,599,000 in 2025 from 2024. The average balance of investment securities increased $22,647,000, which had an effect of increasing interest income by $574,000 due to volume. During 2025, the Bank made purchases to replace maturing securities, as well as making purchases to increase the size of the investment portfolio for pledging purposes, as well as enhancing yield. The average tax-effected yield on our investment portfolio increased from 2.44% in 2024 to 3.06% in 2025. The increase in the tax-effected yield is attributable to purchases made during 2024 and 2025, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 62 basis points (bps) to 3.06%, interest income on investment securities increased $3,025,000, with the increase related to taxable securities. The investment strategy for 2025 used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available. As the rate cycle continues to progress, the bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise. During 2025, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries and municipal securities that provided convexity to the Bank's investment portfolio. The Company believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, including a rising rate environment, while providing sufficient cashflows to meet liquidity needs.
Loan interest income increased $1,718,000 in 2025 from 2024. The average balance of our loan portfolio increased by $19,425,000 in 2025 compared to 2024, which resulted in an increase in interest income of $829,000 due to volume. The increase in average loans for 2025 was due to an increase in the average balance of outstanding student loans and an increase in agricultural loans. The average tax-effected yield on our loan portfolio was 6.26% for 2025 compared to 6.24% for 2024 resulting in an increase in loan interest income of $889,000.
|
|
• |
Interest income on residential mortgage loans increased $83,000. The average balance of residential mortgage loans decreased $9,979,000 due to loan payments and pay-offs from individuals refinancing loans on the secondary market. This resulted in a decrease of $475,000 due to volume. The change due to rate was an increase of $558,000 as the average yield on residential mortgages increased from 5.83% in 2024 to 6.02% in 2025 as loans originated and added to the portfolio are at higher rates than the average portfolio loan rate as of December 31, 2024.
|
|
|
• |
The average balance of construction loans decreased $46,794,000 from 2024 to 2025 as a result of projects in our Delaware market and the southeast Pennsylvania market being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $3,372,000 on total interest income due to volume. The average yield on construction loans decreased from 7.45% to 7.17%, which correlated to a $491,000 decrease in interest income and is due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.
|
|
|
• |
Interest income on commercial loans increased $3,210,000 from 2024 to 2025 due to an increase in the average balance of commercial loans of $54,914,000. The growth was primarily attributable to completed construction projects converting to permanent financing. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $3,494,000. Our lenders have been able to attract and retain loan relationships in their markets by providing excellent customer service and having attractive products. We believe our lenders are adept at customizing and structuring loans to customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the Small Business Administration (SBA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area. The average yield on commercial loans decreased 3 bps to 6.36% in 2025, resulting in a decrease in interest income due to rate of $284,000. The decrease in yield on commercial loans was due to a decrease in market interest due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.
|
Index
|
|
• |
Interest income on agricultural loans increased $2,249,000 from 2024 to 2025. The increase in the average balance of agricultural loans of $12,292,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $681,000. The average yield on agricultural loans increased from 5.41% in 2024 to 5.85% in 2025 due to the increase in market rates as well as the pay-off of an agricultural relationship that was previously on non-accrual status that paid several loans off during 2025 that generated $781,000 of additional interest income. This resulted in an increase in interest income due to rate of $1,568,000. We believe our lenders are adept at customizing and understanding the needs of individual borrowers, and have the expertise to structure loans for customers that meet their needs and satisfy our commitment to credit quality. In many cases, the Bank works with the United States Department of Agriculture's (USDA) guaranteed loan programs to offset credit risk and to further promote economic growth in our market area.
|
|
|
• |
The average balance of other loans increased $12,181,000 as a result of an increase in outstanding student loans. This resulted in an increase of $626,000 on total interest income due to volume. The average tax equivalent yield on other loans decreased from 8.00% in 2024 to 7.18% in 2025, decreasing interest income by $445,000 in other loans. This decline is attributable to the decrease in market rates in 2025 due to the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025.
|
Total interest expense decreased $6,695,000 in 2025 compared to 2024. The majority of the decrease was due to a decrease in the average rate paid on interest bearing liabilities of 31 basis points to 2.69%, resulting in interest expense of $6,764,000. The decrease in rates was driven by the Federal Reserve decreasing the Fed Fund target rate in 2024 and 2025. The average rate on money markets decreased from 3.14% to 2.85%, resulting in a decrease in interest expense of $840,000. The average rate paid on savings accounts decreased 5 bps and resulted in a decrease in interest expense of $46,000. The average rate paid on NOW accounts decreased from 2.53% to 2.14% resulting in a decrease in interest expense of $2,820,000. The average rate paid on certificates of deposits decreased from 3.97% to 3.67% resulting in a decrease in interest expense of $1,400,000. The average rate paid on other borrowed funds decreased from 4.80% to 4.33% resulting in a decrease in interest expense of $1,545,000.
Average interest-bearing liabilities increased $10,418,000 million in 2025, with average interest-bearing deposits increasing $7,801,000 million and average other borrowings increasing $2,617,000. While there was an overall increase in average deposits, average NOW accounts and certificates of deposits decreased in total $50,081,000, decreasing interest expense $1,388,000, which offset the increase in interest expense of $1,277,000 from the average balance of money market accounts increasing $55,603,000. The increase in average deposits was due to organic growth across all regions of the Company and helped offset a decrease in average brokered deposits of $51,216,000. We continue to see customers exchange non-interest bearing deposits for interest bearing products that are both non-maturity and term. The average balance of other borrowed funds increased $2,617,000 which corresponds to an increase in interest expense of $126,000.
Our tax equivalent net interest margin for 2025 was 3.50% compared to 3.13% for 2024, with the change attributable to the yield of interest-earning assets increasing and the cost from interest-bearing liabilities decreasing during 2025. The yield on interest-earning assets increased primarily due to investment securities purchased during 2025 replacing investment cashflows from purchases made prior to 2023 in a much lower rate environment. Due to the Federal Reserve decreasing the Fed Fund target rate in late 2024 and in 2025. We experienced a decrease in the cost of interest-bearing deposits and borrowings. Inflation levels remain above the Fed's target but the committee believes sufficient progress has been made to bring overnight rates down to what they consider the upper band of neutral in response to some weakening in employment. The yield curve has a positive slope but flatter relative to long term averages.
2024 vs. 2023
Tax equivalent net interest income for 2024 was $87,446,000 compared to $81,315,000 for 2023, an increase of $6,131,000 or 7.5%. Total interest income increased $27,135,000, as loan interest income increased $26,594,000, and total investment income increased $541,000. Interest expense increased $21,004,000 from 2023.
Index
Total tax equivalent interest income from investment securities increased $426,000 in 2024 from 2023. The average balance of investment securities decreased $31,182,000, which had an effect of decreasing interest income by $632,000 due to volume. During 2024, the Bank had limited investment activity in the first half of the year and used investment cashflows to fund loan activity, as well as to offset seasonal deposit fluctuations. The average tax-effected yield on our investment portfolio increased from 2.20% in 2023 to 2.44% in 2024. The increase in the tax-effected yield is attributable to purchases made during 2023 and 2024, which were made in a higher market interest rate environment. As a result of the yield on investment securities increasing 24 basis points (bps) to 2.44%, interest income on investment securities increased $1,058,000, with the increase related to taxable securities. The investment strategy for 2024 was similar to 2023 in that cashflows from the investment portfolio were used to repay overnight borrowings as well as fund loan growth. The decrease in the average balance of the investment portfolio was due to investment repayments and maturities. During 2024, the investment purchases made were primarily in mortgage-backed securities that provided the widest spread to treasuries, which were primarily purchased at a discount.
In total, loan interest income increased $26,594,000 in 2024 from 2023. The average balance of our loan portfolio increased by $290,770,000 in 2024 compared to 2023, which resulted in an increase in interest income of $18,538,000 due to volume, primarily due to the HVBC acquisition completed in June 2023 being included in the Company's results for the entirety of 2024 and an increase in the average balance of student loans. The average tax-effected yield on our loan portfolio was 6.24% for 2024 compared to 5.81% for 2023 resulting in an increase in loan interest income of $8,056,000. The tax-effected yield increased during 2024 due to a rise in market interest rates.
|
|
• |
Interest income on residential mortgage loans increased $4,840,000. The average balance of residential mortgage loans increased $65,321,000 as a result of the HVBC acquisition, resulting in an increase of $3,752,000 due to volume. The change due to rate was an increase of $1,088,000 as the average yield on residential mortgages increased from 5.47% in 2023 to 5.83% in 2023 as a result of the higher rate environment in 2023 and 2024.
|
|
|
• |
The average balance of construction loans increased $47,399,000 from 2023 to 2024 as a result of projects in our south eastern Pennsylvania market acquired as part of the HVBC acquisition, and the Delaware market, which resulted in an increase of $3,499,000 in interest income. The average yield on construction loans increased from 7.01% to 7.45%, which correlated to a $623,000 increase in interest income.
|
|
|
• |
Interest income on commercial loans increased $14,744,000 from 2023 to 2024. The increase in the average balance of commercial loans of $164,470,000 is primarily attributable to the HVBC acquisition. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $10,314,000. The average yield on commercial loans increased 39 bps to 6.39% in 2024, resulting in an increase in interest income due to rate of $4,430,000. The increase in yield on commercial loans was a result of the higher rate environment in 2023 and 2024.
|
|
|
• |
Interest income on agricultural loans increased $1,917,000 from 2023 to 2024. The increase in the average balance of agricultural loans of $7,608,000 is primarily attributable to the south-central Pennsylvania market. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $370,000. The average yield on agricultural loans increased from 4.97% in 2023 to 5.41% in 2024 due to the increase in market rates, resulting in an increase in interest income due to rate of $1,547,000.
|
|
|
• |
The average balance of other loans increased $9,361,000 million as a result of an increase in outstanding student loans. This resulted in an increase of $737,000 on total interest income due to volume. The average tax equivalent yield on other loans increased from 7.59% in 2023 to 8.00% in 2024, increasing interest income by $320,000 in other loans due to the increase in market rates in 2023 and 2024.
|
Total interest expense increased $21,004,000 in 2024 compared to 2023. The majority of the increase was due to an increase in the average rate paid on interest bearing liabilities of 66 basis points to 3.00%. This increase resulted in an increase in interest expense of $13,356,000. The increase in rates was driven by the Federal Reserve's response to inflation during 2022 and 2023 by increasing interest rates, which were not offset by the rate cuts made in the second half of 2024. The average rate on money markets increased from 2.39% to 3.14% resulting in an increase in interest expense of $2,915,000. The average rate paid on savings accounts increased 11 bps and resulted in an increase in interest expense of $308,000. The average rate paid on NOW accounts increased from 2.01% to 2.53% resulting in an increase in interest expense of $3,747,000. The average rate paid on certificates of deposits increased from 2.52% to 3.97% resulting in an increase in interest expense of $5,970,000. The average rate paid on other borrowed funds increased from 4.64% to 4.80% resulting in an increase in interest expense of $528,000.
Index
Average interest-bearing liabilities increased $260,614,000 in 2024, with average interest-bearing deposits increasing $263,782,000 and average other borrowings decreasing $3,168,000. As a result of the increase in average deposits, interest expense increased $7,599,000 as a result of the change in volume. Increases in average deposits, which were primarily driven by the HVBC acquisition, included NOW accounts of $90,184,000 and money market accounts of $33,557,000. Certificates of deposits increased $153,309,000 due to the acquisition, an increase in brokered CD's and conversion of non-maturity deposits to term products. During 2024, a new business interest bearing checking account was created that had an average balance $8,756,000. The average balance of other borrowed funds decreased $3,168,000 due to the maturity of several borrowings, which corresponds to a decrease in interest expense of $151,000.
Our tax equivalent net interest margin for 2024 was 3.13% compared to 3.21% for 2023, with the change attributable to the yield of interest-earning assets increasing less than the cost from interest-bearing liabilities during 2024. Interest rates continued to increase during the first half of 2024 due to the increases in market interest rates and competitive pressure for deposits. With inflation decreasing, the Federal Reserve did start decreasing rates, but rates still remained high in relation to previous years. During 2024, inflation remained above the Federal Reserve's targets, but had decreased enough that allowed the Federal Reserve to lower rates, but not to the extent the market had forecast at the beginning of 2024. The yield curve remained inverted for the majority of 2024, but some positive slope did return to the curve during the 4th quarter of 2024 due to a decrease in short term rates as well as an increase in long term interest rates.
PROVISION FOR CREDIT LOSSES
For the year ended December 31, 2025, we recorded a provision for credit losses of $2,375,000, which represents a decrease of $212,000 from the $2,587,000 provision recorded in 2024. The provision for 2025 was driven by the current economic forecasts and specific reserves for non-accrual loans at December 31, 2025. The provision for 2024 was driven by other commercial loans that were originated by HVBC that subsequent to the acquisition deteriorated and were charged-off during 2024. The provision in 2024 was also impacted by an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also "Financial Condition - Allowance for Credit Losses - Loans and Credit Quality Risk").
For the year ended December 31, 2024, we recorded a provision for credit losses of $2,587,000, which represents a decrease of $2,941,000 from the $5,528,000 provision recorded in 2023. The provision for 2023 includes $4,591,000 associated with the HVBC acquisition and $162,000 as a provision for off-balance sheet items, which is also primarily attributable to the HVBC acquisition. Excluding these items, the provision for 2024 is $1,650,000 more than 2023 and is due to other commercial loans that were originated by HVBC that subsequent to the acquisition have deteriorated and were charged-off during 2024. The provision in 2024 is also higher due to an increase in past due and non-accrual loans, the vast majority of which were acquired as part of the HVBC acquisition, and an increase in classified loans. (see also "Financial Condition - Allowance for Credit Losses - Loans and Credit Quality Risk").
NON-INTEREST INCOME
The following table reflects non-interest income by major category for the years ended December 31 (dollars in thousands):
|
2025
|
2024
|
2023
|
||||||||||
|
Service charges
|
5,569
|
5,749
|
5,639
|
|||||||||
|
Trust
|
792
|
816
|
764
|
|||||||||
|
Brokerage and insurance
|
2,627
|
2,381
|
1,924
|
|||||||||
|
Equity security gains (losses), net
|
67
|
145
|
(144
|
)
|
||||||||
|
Available for sale security losses, net
|
-
|
-
|
(51
|
)
|
||||||||
|
Gains on loans sold
|
2,290
|
2,316
|
1,452
|
|||||||||
|
Earnings on bank owned life insurance
|
1,433
|
1,684
|
1,254
|
|||||||||
|
Gain on sale of Braavo division
|
-
|
1,102
|
-
|
|||||||||
|
Other
|
1,566
|
1,208
|
767
|
|||||||||
|
Total
|
$
|
14,344
|
$
|
15,401
|
$
|
11,605
|
||||||
Index
|
2025/2024
|
2024/2023
|
|||||||||||||||
|
Change
|
Change
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Service charges
|
$
|
(180
|
)
|
(3.1
|
)
|
$
|
110
|
2.0
|
||||||||
|
Trust
|
(24
|
)
|
(2.9
|
)
|
52
|
6.8
|
||||||||||
|
Brokerage and insurance
|
246
|
10.3
|
457
|
23.8
|
||||||||||||
|
Equity security gains (losses), net
|
(78
|
)
|
(53.8
|
)
|
289
|
(200.7
|
)
|
|||||||||
|
Available for sale security losses, net
|
-
|
NA
|
51
|
(100.0
|
)
|
|||||||||||
|
Gains on loans sold
|
(26
|
)
|
(1.1
|
)
|
864
|
59.5
|
||||||||||
|
Earnings on bank owned life insurance
|
(251
|
)
|
(14.9
|
)
|
430
|
34.3
|
||||||||||
|
Gain on sale of Braavo division
|
(1,102
|
)
|
(100.0
|
)
|
1,102
|
NA
|
||||||||||
|
Other
|
358
|
29.6
|
441
|
57.5
|
||||||||||||
|
Total
|
$
|
(1,057
|
)
|
(6.9
|
)
|
$
|
3,796
|
32.7
|
||||||||
2025 vs. 2024
Non-interest income decreased $1,057,000 in 2025 from 2024, or (6.9%). There were no sales of available for sale securities during 2025 or 2024.During 2025, net equity security gains amounted to $67,000 as a result of market conditions experienced in 2025 compared to gains of $145,000 in 2024.
Gains on loans sold decreased $26,000 compared to 2024. The decrease in gains on loans sold is attributable to a slight decrease in the amount of loans of $1,417,000, or (1.0%). The decrease in earnings on bank owned life insurance is due to death proceeds from the passing of former employees in 2024. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. The proceeds from the sale totaled approximately $7.2 million and generated a pre-tax gain of approximately $1.1 million. The increase in other income is due to derivative income earned by offering customers a product similar to a back to back swap.
2024 vs. 2023
Non-interest income increased $3,796,000 in 2024 from 2023, or 32.7%. There were no sales of available for securities during 2024. During 2023, we experienced a $51,000 net loss on available for sale securities. During 2023, we sold $10.0 million of municipal securities for a pre-tax loss of $51,000. Additionally, $76.5 million of securities obtained as part of the HVBC acquisition were sold for no gain or loss during the second quarter of 2023. During 2024, net equity security gains amounted to $145,000 as a result of market conditions experienced in 2024 compared to losses of $144,000 in 2023.
Gains on loans sold increased $864,000 compared to 2023. The increase in gains on loans sold is attributable to the HVBC acquisition and its residential lending model, which focused on originating and selling residential mortgage loans, which includes the use of interest rate locks and other derivative activities, which is included in other income and accounts for the majority of the change in other income of $441,000. The increase in earnings on bank owned life insurance is due to the HVBC acquisition as well as death proceeds from the passing of former employees in 2024 exceeding those received in 2023. During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVBC acquisition, which included loans and accrued interest, software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo.
Index
Non-interest Expenses
The following tables reflect the breakdown of non-interest expense by major category for the years ended December 31 (dollars in thousands):
|
2025
|
2024
|
2023
|
||||||||||
|
Salaries and employee benefits
|
39,402
|
39,347
|
34,990
|
|||||||||
|
Occupancy
|
5,299
|
5,013
|
4,123
|
|||||||||
|
Furniture and equipment
|
1,209
|
1,038
|
822
|
|||||||||
|
Professional fees
|
2,341
|
2,599
|
1,962
|
|||||||||
|
FDIC insurance
|
1,710
|
1,996
|
1,475
|
|||||||||
|
Pennsylvania shares tax
|
739
|
1,114
|
583
|
|||||||||
|
Amortization of intangibles
|
478
|
564
|
373
|
|||||||||
|
Merger and acquisition
|
-
|
-
|
9,269
|
|||||||||
|
ORE expenses
|
267
|
212
|
166
|
|||||||||
|
Software expenses
|
1,844
|
1,953
|
1,784
|
|||||||||
|
Other
|
11,443
|
11,550
|
9,215
|
|||||||||
|
Total
|
$
|
64,732
|
$
|
65,386
|
$
|
64,762
|
||||||
|
2025/2024
|
2024/2023
|
|||||||||||||||
|
Change
|
Change
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Salaries and employee benefits
|
$
|
55
|
0.1
|
$
|
4,357
|
12.5
|
||||||||||
|
Occupancy
|
286
|
5.7
|
890
|
21.6
|
||||||||||||
|
Furniture and equipment
|
171
|
16.5
|
216
|
26.3
|
||||||||||||
|
Professional fees
|
(258
|
)
|
(9.9
|
)
|
637
|
32.5
|
||||||||||
|
FDIC insurance
|
(286
|
)
|
(14.3
|
)
|
521
|
35.3
|
||||||||||
|
Pennsylvania shares tax
|
(375
|
)
|
(33.7
|
)
|
531
|
91.1
|
||||||||||
|
Amortization of intangibles
|
(86
|
)
|
(15.2
|
)
|
191
|
51.2
|
||||||||||
|
Merger and acquisition
|
-
|
NA |
(9,269
|
)
|
(100.0
|
)
|
||||||||||
|
ORE expenses
|
55
|
25.9
|
46
|
27.7
|
||||||||||||
|
Software expenses
|
(109
|
)
|
(5.6
|
)
|
169
|
9.5
|
||||||||||
|
Other
|
(107
|
)
|
(0.9
|
)
|
2,335
|
25.3
|
||||||||||
|
Total
|
$
|
(654
|
)
|
(1.0
|
)
|
$
|
624
|
1.0
|
||||||||
2025 vs. 2024
Non-interest expenses for 2025 totaled $64,732,000, which represents a decrease of $654,000 compared to 2024 expenses of $65,386,000.Salary and benefit costs increased $55,000, or 0.1%, due to due to additional healthcare expenses and post-employment benefits. There were 12 fewer full-time equivalent employees FTEs in 2025 compared to 2024.
The decrease in professional fees and software costs is due to the sale of the Braavo division in 2024. The decrease in FDIC insurance expense is due to an increase in the Bank's leverage ratio experienced during 2025. Pennsylvania shares tax decreased due to an increase in tax credits obtained through charitable contributions that are included in other expenses. Occupancy expenses increased due to an increase in depreciation associated with the Company's decision to relocate its branch in the City of Williamsport that is expected to occur in the first half of 2026 that shortened the useful life of the current location. The increase in furniture and fixture expense is due to depreciation associated with purchases made in 2025 and 2024.
2024 vs. 2023
Non-interest expenses for 2024 totaled $65,386,000, which represents an increase of 624,000, compared to 2023 expenses of $64,762,000. Salary and benefit costs increased $4,357,000, or 12.5%, due to an additional 34.3 full-time equivalent employees (FTE) as a result of the HVBC acquisition, merit increases for 2024, as well as an increase in health insurance costs due to additional headcount and claims.
The increases in occupancy, furniture and fixtures, software expenses and amortization expenses was due to the HVBC acquisition and additional branches acquired as part of it. FDIC insurance expense increased $521,000 due to the Company's increased size and the Bank's lower leverage capital ratio during the first half of 2024 compared to 2023. Professional fees increased due to increased legal expenses, of which $201,000 was related to the sale of certain Braavo assets. Pennsylvania shares tax increased due to the increased size of the Bank. Other expenses increased primarily due to the acquisition, with increases experienced in subscriptions, marketing and advertising, postage, printing, data communication expenses and FHLB letter of credit fees. Independent of the HVBC acquisition, other expenses increased due to insurance reimbursements received in 2023 to cover amounts previously charged-off through expense. Merger and acquisition costs for the HVBC acquisition totaled $9,269,000 in 2023 and included professional and consulting fees, printing, travel, contract termination payments and severance-related expenses.
Index
Provision for Income Taxes
The provision for income taxes was $8,666,000, $6,065,000 and $3,764,000 for 2025, 2024 and 2023, respectively. The effective tax rates for 2025, 2024 and 2023 were 19.2%, 17.9% and 17.5%, respectively.
The increase in income tax expense of $2,601,000 in 2025 compared to 2024 was due to the increase of $11,405,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,395,000 at a 21% tax rate.
The increase in income tax expense of $2,301,000 in 2024 compared to 2023 was due to the increase of $12,168,000 in income before the provision for income taxes, which accounts for an increase in tax expense of $2,555,000 at a 21% tax rate.
We are involved in seven limited partnership agreements that operate low-income housing projects in our market areas. During 2025 and 2024 we recognized credits on three of the seven projects, while in 2023 we recognized credits related to two projects. Tax credits associated with four of the partnerships were fully utilized by December 2022. We started recognizing credits on two of the partnerships during 2023 and on one partnership in 2024. We anticipate recognizing an aggregate of $6.9 million of tax credits over the next eleven years.
FINANCIAL CONDITION
The following table presents ending balances (dollars in millions), the dollar amount of change and the percentage change during the past year:
|
2025
Balance
|
Increase
|
%
Change
|
2024
Balance
|
|||||||||||||
|
Total assets
|
$
|
3,064.6
|
$
|
38.9
|
1.3
|
$
|
3,025.7
|
|||||||||
|
Total investments
|
444.7
|
18.8
|
4.4
|
425.9
|
||||||||||||
|
Total loans, net
|
2,327.8
|
36.3
|
1.6
|
2,291.5
|
||||||||||||
|
Total deposits
|
2,377.0
|
(5.0
|
)
|
(0.2
|
)
|
2,382.0
|
||||||||||
|
Total borrowings
|
309.4
|
11.7
|
3.9
|
297.7
|
||||||||||||
|
Total stockholders' equity
|
338.1
|
38.4
|
12.8
|
299.7
|
||||||||||||
Cash and Cash Equivalents
Cash and cash equivalents totaled $34,291,000 at December 31, 2025 compared to $42,202,000 at December 31, 2024. The decrease is due to a decrease in the cash held at the Federal Reserve. Management actively measures and evaluates the Company's liquidity through our Asset - Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year. Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.
Index
Investments
The following table shows the year-end composition of the investment portfolio, at fair value, for the two years ended December 31 (dollars in thousands):
|
2025
Amount
|
% of
Total
|
2024
Amount
|
% of
Total
|
|||||||||||||
|
Available-for-sale:
|
||||||||||||||||
|
U. S. Agency securities
|
$
|
49,755
|
11.1
|
$
|
53,487
|
12.5
|
||||||||||
|
U.S. Treasuries
|
82,654
|
18.5
|
120,502
|
28.2
|
||||||||||||
|
Obligations of state & political Subdivisions
|
115,886
|
26.0
|
94,902
|
22.2
|
||||||||||||
|
Corporate obligations
|
11,297
|
2.5
|
10,438
|
2.4
|
||||||||||||
|
Mortgage-backed securities
|
185,149
|
41.5
|
146,583
|
34.3
|
||||||||||||
|
Equity securities
|
1,815
|
0.4
|
1,747
|
0.4
|
||||||||||||
|
Total
|
$
|
446,556
|
100.0
|
$
|
427,659
|
100.0
|
||||||||||
The Company's investment portfolio increased during 2025 by $18,897,000. This increase was fueled by $82,406,000 of purchases made during 2025, which offset the maturities and calls that took place in 2025. During 2025, $58,301,000, $23,105,000 and $1,000,000 of mortgage backed securities, obligations of political subdivisions and corporate securities were purchased, respectively. The purchases in 2025 were offset by $25,346,000 of principal repayments and $53,460,000 of calls and maturities. The fair value of our investment portfolio increased approximately $15,847,000 in 2025 due to decreases in market interest rates during 2025. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve, the effective yield on our investment portfolio for 2025 was 3.06% compared to 2.44% for 2024 on a tax equivalent basis.
In related to activity by the Federal Reserve, there were similarities between 2024 and 2025 in that there was elevated volatility and, after a long pause, the Fed cut rates the last few months of each year. A new Presidential administration introduced tariffs as a negotiation strategy which caused big market swings in the first half of the year. As the year progressed the Fed became comfortable with the effect of tariffs and the two mandates of full employment and stable prices were sufficiently in balance to permit them to lower rates to the top end of what the FOMC considered a neutral rate. This also provided a measure of cushion in response to a weakening employment market. At the end of the year, officials became increasingly divided with each move, leading to another call for a pause after the December rate decision. The record-long government shutdown distorted and delayed many key economic reports officials use to assess the economy's trajectory. After 175 bps of easing over the cycle, policy was back within a range of neutral estimates. Importantly, economic growth remained resilient, inflation remained above target, and a run of data fostered a quippy catch phrase of low-hiring, low-firing labor conditions. These rate cuts allowed the yield curve to steepen with the 2-year to 10-year US Treasury spread increasing from 30bps at the start of the year to 69bps at the end of the year. Even so, the very short end of the yield curve remained inverted. The Bank's investment strategy used cashflow from the investment portfolio to increase convexity and improve yield as opportunities became available. As the rate cycle continues to progress, the Bank will seek investments to improve portfolio yield while monitoring interest rate risk exposure under various rate environments and providing cash flow to meet liquidity needs as they arise.
At December 31, 2025, the Company did not own any securities, other than government-sponsored and government-guaranteed mortgage-backed securities, that had an aggregate book value in excess of 10% of its consolidated stockholders' equity at that date.
The expected principal repayments at amortized cost and average weighted yields for the investment portfolio (excluding equity securities) as of December 31, 2025, are shown below (dollars in thousands). Expected principal repayments, which include prepayment speed assumptions for mortgage-backed securities, are significantly different than the contractual maturities detailed in Note 4 of the consolidated financial statements. Yields on tax-exempt securities are presented on a fully taxable equivalent basis, assuming a 21% tax rate, which was the rate in effect at December 31, 2025.
|
One Year or Less
|
After One Year
to Five years
|
After Five Years
to Ten Years
|
After Ten Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Amortized
Cost
|
Yield
%
|
Amortized
Cost
|
Yield
%
|
Amortized
Cost
|
Yield
%
|
Amortized
Cost
|
Yield
%
|
Amortized
Cost
|
Yield
%
|
|||||||||||||||||||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. agency securities
|
$
|
8,602
|
3.3
|
$
|
35,052
|
1.9
|
$
|
8,997
|
2.0
|
$
|
-
|
-
|
$
|
52,651
|
2.2
|
|||||||||||||||||||||||||
|
U.S. treasuries
|
28,953
|
1.3
|
55,598
|
1.7
|
-
|
-
|
-
|
-
|
84,551
|
1.6
|
||||||||||||||||||||||||||||||
|
Obligations of state & political subdivisions
|
16,470
|
3.5
|
38,025
|
1.9
|
36,295
|
2.9
|
29,818
|
3.3
|
120,608
|
2.8
|
||||||||||||||||||||||||||||||
|
Corporate obligations
|
9,512
|
5.4
|
1,792
|
8.5
|
-
|
-
|
-
|
-
|
11,304
|
5.9
|
||||||||||||||||||||||||||||||
|
Mortgage-backed securities
|
61,728
|
4.5
|
59,967
|
3.7
|
49,651
|
3.0
|
22,059
|
3.5
|
193,405
|
3.7
|
||||||||||||||||||||||||||||||
|
Total available-for-sale
|
$
|
125,265
|
3.6
|
$
|
190,434
|
2.5
|
$
|
94,943
|
2.9
|
$
|
51,877
|
3.4
|
$
|
462,519
|
3.0
|
|||||||||||||||||||||||||
Index
At December 31, 2025, approximately 68.3% of the amortized cost of debt securities is expected to mature, call or pre-pay within five years or less. The Company expects that earnings from operations, the levels of cash held at the Federal Reserve and other correspondent banks, the high liquidity level of the available-for-sale securities, growth of deposits and the availability of borrowings from the Federal Home Loan Bank and other third-party banks will be sufficient to meet future liquidity needs.
Loans Held for Sale
Loans held for sale decreased $214,000 to $9,393,000 as of December 31, 2025 from December 31, 2024. The rate environment for 2025 continued to place pressure on refinancing activity as well as new home purchases.
Loans
The Bank's lending efforts have historically focused on the north central Pennsylvania counties of Tioga, Bradford and Potter, south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster and Allegheny, Steuben and Tioga counties of southern New York. We have a limited branch office in Union County that is staffed by a lending team to primarily support agricultural opportunities, and offices in State College, Mill Hall and Williamsport to support commercial opportunities in central Pennsylvania, especially Centre, Clinton and Lycoming Counties. The Williamsport branch was opened in 2023. The MidCoast acquisition expanded our markets into the State of Delaware with activity centered around the cities of Wilmington and Dover, Delaware, which was further supported by branch openings in Kennett Square, Pennsylvania and Greenville, Delaware. During 2024, the Bank opened a limited production office in Georgetown, Delaware, to primarily support agricultural customers in the Delaware market. In June 2023, we completed the HVBC acquisition, which expanded our markets into south east Pennsylvania, including the counties of Montgomery, Bucks and Philadelphia. It also includes a Mortgage production office in Mount Laurel, New Jersey.
We originate loans primarily to our existing customer base, with new customers generated through the strong relationships that our lending teams have with their customers, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank's website. The Bank offers a variety of loans, although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans. As of December 31, 2025, approximately 85.1% of our loan portfolio consisted of real estate loans. All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors.
The Bank primarily offers fixed rate residential mortgage loans with terms of up to 25 years and adjustable rate mortgage loans (with amortization schedules up to 30 years) with interest rates and payments that adjust based on one, three, five and fifteen year fixed periods. Loan to value ratios are usually 80% or less with exceptions for individuals with excellent credit and low debt to income and/or high net worth. Adjustable rate mortgages are tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate. Home equity loans are written with terms of up to 15 years at fixed rates. Home equity lines of credit are variable rate loans tied to the Prime Rate generally with a ten year draw period followed by a ten year repayment period. Home equity loans are typically written with a maximum 80% loan to value.
Commercial real estate loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value ratio of 80% or less. During 2025, 2024 and 2023, the Bank offered certain customers derivative contracts that allowed the customer to obtain a fixed interest rate for a period up to 10 years. Where feasible, the Bank participates in the United States Department of Agriculture's (USDA) and Small Business Administration ("SBA") guaranteed loan programs to offset credit risk and to further promote economic growth in our market area.
Agriculture is an important industry throughout our market areas. Therefore, the Bank has not only developed an agriculture lending team with significant experience that has a thorough understanding of this industry, but also continually looks for additional employees with a thorough understanding of agriculture. We have an agricultural loan policy to assist in underwriting agricultural loans. Agricultural loans are made to a diversified customer base that include dairy, swine and poultry farmers and their support businesses. Agricultural loans focus on character, cash flow and collateral, while also considering the particular risks of the industry. Loan terms are generally 20 years or less, with one to five year adjustable interest rates. The adjustable rates are typically tied to a margin above the comparable Federal Home Loan Bank of Pittsburgh borrowing rate with a typical loan to value of less than 80%. We evaluate the financial strength of the integrators we have exposure to with our poultry and swine agricultural customers. The Bank is a preferred lender under the USDA's Farm Service Agency (FSA) and participates in the FSA guaranteed loan program.
The Bank believes that a secondary education can provide individuals with upward mobility. As such, the Bank has partnered with industry leaders to provide individuals with private student loans that can undergraduate, graduate and parent loans that can cover up to the cost of attendance of college or university. In addition, prior student loans can also be refinanced. Our partners assist in ensuring that the application, approval and servicing processes are best in class. Loans are offered with either fixed or variable rates and terms typically range from five to fifteen years, but depending on the program can be up to twenty years. Payments options include deferral until after graduation, interest only while enrolled in school, a flat payment and full principal and interest.
Index
The Bank, as part of its commitment to the communities it serves, is an active lender for projects by our local municipalities and school districts. These loans range from short term bridge financing to 20 year term loans for specific projects. These loans are typically written at rates that adjust at least every five years. Due to the size of certain municipal loans, we have developed participation lending relationships with other community banks that allow us to meet regulatory compliance issues, while meeting the needs of the customer. At December 31, 2025, the aggregate balance of our participation loans, in which a portion was sold to other lenders totaled $334,913,000, of which $149,344,000 was sold.
Activity associated with exploration for natural gas continued in 2024 in the Company's north central Pennsylvania market. Certain entities drilled new wells and created new pad sites and pipelines, while other companies only maintained their existing wells. While the Bank has loaned to companies that service the exploration activities, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company were to service industry customers which included trucking companies, stone quarries and other support businesses. We also originated loans to businesses and individuals for restaurants, hotels and apartment rentals that were developed and expanded to meet the housing and living needs of the gas workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities were originated in a prudent and cautious manner and were subject to specific policies and procedures for lending to these entities, which included lower loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.
The following table shows the year-end composition of the loan portfolio as of December 31, 2025 and 2024 (dollars in thousands):
|
2025
|
2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Real estate:
|
||||||||||||||||
|
Residential
|
$
|
340,972
|
14.5
|
$
|
351,398
|
15.2
|
||||||||||
|
Commercial
|
1,218,514
|
51.8
|
1,121,435
|
48.5
|
||||||||||||
|
Agricultural
|
347,448
|
14.8
|
327,722
|
14.2
|
||||||||||||
|
Construction
|
93,965
|
4.0
|
164,326
|
7.1
|
||||||||||||
|
Consumer
|
88,210
|
3.8
|
109,505
|
4.7
|
||||||||||||
|
Other commercial loans
|
179,166
|
7.6
|
155,012
|
6.7
|
||||||||||||
|
Other agricultural loans
|
30,247
|
1.3
|
29,662
|
1.3
|
||||||||||||
|
State & political subdivision loans
|
52,100
|
2.2
|
54,182
|
2.3
|
||||||||||||
|
Total loans
|
2,350,622
|
100.0
|
2,313,242
|
100.0
|
||||||||||||
|
Less allowance for credit losses
|
22,806
|
21,699
|
||||||||||||||
|
Net loans
|
$
|
2,327,816
|
$
|
2,291,543
|
||||||||||||
|
2025/2024
|
||||||||
|
Change
|
||||||||
|
Amount
|
%
|
|||||||
|
Real estate:
|
||||||||
|
Residential
|
$
|
(10,426
|
)
|
(3.0
|
)
|
|||
|
Commercial
|
97,079
|
8.7
|
||||||
|
Agricultural
|
19,726
|
6.0
|
||||||
|
Construction
|
(70,361
|
)
|
(42.8
|
)
|
||||
|
Consumer
|
(21,295
|
)
|
(19.4
|
)
|
||||
|
Other commercial loans
|
24,154
|
15.6
|
||||||
|
Other agricultural loans
|
585
|
2.0
|
||||||
|
State & political subdivision loans
|
(2,082
|
)
|
(3.8
|
)
|
||||
|
Total loans
|
$
|
37,380
|
1.6
|
|||||
Total loans grew $37,380,0000 in 2025 and total $2,350,622,000 at the end of 2025. The primary driver of growth during 2025 was increases in real estate lending and other commercial loans.
Index
Residential real estate loans decreased $10,426,000 primarily due to the interest rate environment that lessened demand. During 2025, $153,519,000 of residential real estate loans were originated for sale on the secondary market, which compares to $155,379,000 for 2024. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income. During 2025, the Bank originated and added to its residential real estate portfolio $13,909,000 of loans.
The following table presents the maturity distribution of our loan portfolio as of December 31, 2025 (in thousands). The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
|
Due in One year or
less
|
After one year but within
five years
|
After five years through
fifteen years
|
After fifteen
years
|
Total
|
||||||||||||||||
|
Real estate:
|
||||||||||||||||||||
|
Residential
|
$
|
1,667
|
$
|
9,324
|
$
|
61,161
|
$
|
268,820
|
$
|
340,972
|
||||||||||
|
Commercial
|
175,823
|
542,011
|
376,851
|
123,829
|
1,218,514
|
|||||||||||||||
|
Agricultural
|
22,626
|
24,608
|
171,679
|
128,535
|
347,448
|
|||||||||||||||
|
Construction
|
27,345
|
33,966
|
12,645
|
20,009
|
93,965
|
|||||||||||||||
|
Consumer
|
80,506
|
2,983
|
4,554
|
167
|
88,210
|
|||||||||||||||
|
Other commercial loans
|
90,042
|
39,583
|
49,364
|
177
|
179,166
|
|||||||||||||||
|
Other agricultural loans
|
18,151
|
8,250
|
3,846
|
-
|
30,247
|
|||||||||||||||
|
State & political subdivision loans
|
1,415
|
817
|
39,745
|
10,123
|
52,100
|
|||||||||||||||
|
$
|
417,575
|
$
|
661,542
|
$
|
719,845
|
$
|
551,660
|
$
|
2,350,622
|
|||||||||||
The following table presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of loans in accordance with changes in the interest rate index that mature after December 31, 2026 (in thousands).
|
Sensitivity of loans to changes in interest rates - loans due after
December 31, 2026:
|
Predetermined interest
rate
|
Floating or adjustable interest
rate
|
Total
|
|||||||||
|
Real estate:
|
||||||||||||
|
Residential
|
$
|
178,013
|
$
|
161,292
|
$
|
339,305
|
||||||
|
Commercial
|
493,008
|
549,683
|
1,042,691
|
|||||||||
|
Agricultural
|
16,594
|
308,228
|
324,822
|
|||||||||
|
Construction
|
24,023
|
42,597
|
66,620
|
|||||||||
|
Consumer
|
4,767
|
2,937
|
7,704
|
|||||||||
|
Other commercial loans
|
24,393
|
64,731
|
89,124
|
|||||||||
|
Other agricultural loans
|
6,606
|
5,490
|
12,096
|
|||||||||
|
State & political subdivision loans
|
16,314
|
34,371
|
50,685
|
|||||||||
|
$
|
763,718
|
$
|
1,169,329
|
$
|
1,933,047
|
|||||||
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution's total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of December 31, 2025, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 287.0% of consolidated risk based capital. Construction, land and land development loans represented 30.5% of consolidated risk based capital as of December 31, 2025. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital and may adversely affect shareholder returns. The Company has an extensive Capital Policy and Capital Plan, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. Due to the concentration in commercial real estate loans, the Company has implemented enhanced monitoring and risk assessment procedures with respect to this portfolio. As of December 31, 2025, management believes that it has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.
Index
Given the significance of commercial real estate ("CRE") loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of December 31, 2025 (dollars in thousands):
|
2025
|
Owner Occupied
|
Non-Owner Occupied
|
Total
|
|||||||||||||||||||||
|
Commercial Real Estate:
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Residential Rental and Speculation
|
$
|
7,636
|
0.63
|
%
|
$
|
185,033
|
15.19
|
%
|
$
|
192,669
|
15.81
|
%
|
||||||||||||
|
Multifamily Rental
|
-
|
0.00
|
%
|
185,860
|
15.25
|
%
|
185,860
|
15.25
|
%
|
|||||||||||||||
|
Retail
|
41,287
|
3.39
|
%
|
123,523
|
10.14
|
%
|
164,810
|
13.53
|
%
|
|||||||||||||||
|
Mixed Use
|
14,699
|
1.21
|
%
|
87,757
|
7.20
|
%
|
102,456
|
8.41
|
%
|
|||||||||||||||
|
Hotel/Motel
|
-
|
0.00
|
%
|
98,063
|
8.05
|
%
|
98,063
|
8.05
|
%
|
|||||||||||||||
|
Office
|
14,224
|
1.17
|
%
|
67,660
|
5.55
|
%
|
81,884
|
6.72
|
%
|
|||||||||||||||
|
Industrial/Flex/Warehouse
|
21,865
|
1.79
|
%
|
57,323
|
4.70
|
%
|
79,188
|
6.50
|
%
|
|||||||||||||||
|
Specialty
|
51,019
|
4.19
|
%
|
24,785
|
2.03
|
%
|
75,804
|
6.22
|
%
|
|||||||||||||||
|
Land
|
2,425
|
0.20
|
%
|
55,709
|
4.57
|
%
|
58,134
|
4.77
|
%
|
|||||||||||||||
|
Student Housing
|
-
|
0.00
|
%
|
52,797
|
4.33
|
%
|
52,797
|
4.33
|
%
|
|||||||||||||||
|
Amusement/Entertainment
|
30,632
|
2.51
|
%
|
837
|
0.07
|
%
|
31,469
|
2.58
|
%
|
|||||||||||||||
|
Self Storage
|
479
|
0.04
|
%
|
24,166
|
1.98
|
%
|
24,645
|
2.02
|
%
|
|||||||||||||||
|
Schools/Higher Ed/Vocational
|
6,918
|
0.57
|
%
|
13,187
|
1.08
|
%
|
20,105
|
1.65
|
%
|
|||||||||||||||
|
Food and beverage
|
14,999
|
1.23
|
%
|
1,221
|
0.10
|
%
|
16,220
|
1.33
|
%
|
|||||||||||||||
|
Medical office
|
8,636
|
0.71
|
%
|
7,521
|
0.62
|
%
|
16,157
|
1.33
|
%
|
|||||||||||||||
|
Healthcare/Hospitals
|
6,748
|
0.55
|
%
|
-
|
0.00
|
%
|
6,748
|
0.55
|
%
|
|||||||||||||||
|
Senior Living
|
-
|
0.00
|
%
|
6,529
|
0.54
|
%
|
6,529
|
0.54
|
%
|
|||||||||||||||
|
Other
|
2,351
|
0.19
|
%
|
2,625
|
0.22
|
%
|
4,976
|
0.41
|
%
|
|||||||||||||||
|
Total
|
$
|
223,918
|
18.38
|
%
|
$
|
994,596
|
81.62
|
%
|
$
|
1,218,514
|
100.00
|
%
|
||||||||||||
|
2024
|
Owner Occupied
|
Non-Owner Occupied
|
Total
|
|||||||||||||||||||||
|
Commercial Real Estate:
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Residential Rental
|
$
|
6,717
|
0.60
|
%
|
$
|
177,003
|
15.78
|
%
|
$
|
183,720
|
16.38
|
%
|
||||||||||||
|
Multifamily Rental
|
522
|
0.05
|
%
|
175,314
|
15.63
|
%
|
175,836
|
15.68
|
%
|
|||||||||||||||
|
Retail
|
57,365
|
5.12
|
%
|
114,620
|
10.22
|
%
|
171,985
|
15.34
|
%
|
|||||||||||||||
|
Hotel/Motel
|
43,178
|
3.85
|
%
|
62,941
|
5.61
|
%
|
106,119
|
9.46
|
%
|
|||||||||||||||
|
Mixed Use
|
21,051
|
1.88
|
%
|
69,783
|
6.22
|
%
|
90,834
|
8.10
|
%
|
|||||||||||||||
|
Industrial/Flex/Warehouse
|
24,387
|
2.17
|
%
|
65,232
|
5.82
|
%
|
89,619
|
7.99
|
%
|
|||||||||||||||
|
Office
|
11,280
|
1.01
|
%
|
57,767
|
5.15
|
%
|
69,047
|
6.16
|
%
|
|||||||||||||||
|
Land
|
2,800
|
0.25
|
%
|
49,111
|
4.38
|
%
|
51,911
|
4.63
|
%
|
|||||||||||||||
|
Specialty
|
26,545
|
2.37
|
%
|
23,427
|
2.09
|
%
|
49,972
|
4.46
|
%
|
|||||||||||||||
|
Student Housing
|
-
|
0.00
|
%
|
47,346
|
4.22
|
%
|
47,346
|
4.22
|
%
|
|||||||||||||||
|
Amusement/Entertainment
|
16,896
|
1.51
|
%
|
5,067
|
0.45
|
%
|
21,963
|
1.96
|
%
|
|||||||||||||||
|
Medical office
|
10,549
|
0.94
|
%
|
7,664
|
0.68
|
%
|
18,213
|
1.62
|
%
|
|||||||||||||||
|
Self Storage
|
1,921
|
0.17
|
%
|
9,769
|
0.87
|
%
|
11,690
|
1.04
|
%
|
|||||||||||||||
|
Other
|
1,865
|
0.17
|
%
|
9,221
|
0.82
|
%
|
11,086
|
0.99
|
%
|
|||||||||||||||
|
Schools/Higher Ed/Vocational
|
934
|
0.08
|
%
|
8,020
|
0.72
|
%
|
8,954
|
0.80
|
%
|
|||||||||||||||
|
Healthcare/Hospitals
|
7,162
|
0.64
|
%
|
-
|
0.00
|
%
|
7,162
|
0.64
|
%
|
|||||||||||||||
|
Senior Living
|
-
|
0.00
|
%
|
5,978
|
0.53
|
%
|
5,978
|
0.53
|
%
|
|||||||||||||||
|
Total
|
$
|
233,172
|
20.79
|
%
|
$
|
888,263
|
79.21
|
%
|
$
|
1,121,435
|
100.00
|
%
|
||||||||||||
Index
The following table provides a breakdown of our construction portfolio by collateral type as of December 31, 2025 (dollars in thousands):
|
December 31, 2025
|
December 31, 2024
|
|||||||||||||||
|
Construction:
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
|
Residential
|
$
|
32,732
|
34.83
|
%
|
$
|
59,334
|
36.11
|
%
|
||||||||
|
Multifamily
|
24,844
|
26.44
|
%
|
49,838
|
30.33
|
%
|
||||||||||
|
Industrial/Flex/Warehouse
|
19,586
|
20.84
|
%
|
15,337
|
9.33
|
%
|
||||||||||
|
Agricultural and land
|
10,432
|
11.10
|
%
|
4,528
|
2.76
|
%
|
||||||||||
|
Office
|
3,148
|
3.35
|
%
|
8,456
|
5.15
|
%
|
||||||||||
|
Food and beverage
|
1,519
|
1.62
|
%
|
-
|
0.00
|
%
|
||||||||||
|
Mixed Use
|
558
|
0.59
|
%
|
7,580
|
4.61
|
%
|
||||||||||
|
Self Storage
|
476
|
0.51
|
%
|
11,986
|
7.29
|
%
|
||||||||||
|
Specialty
|
398
|
0.42
|
%
|
-
|
0.00
|
%
|
||||||||||
|
Retail
|
150
|
0.16
|
%
|
2,299
|
1.40
|
%
|
||||||||||
|
Other
|
122
|
0.13
|
%
|
881
|
0.54
|
%
|
||||||||||
|
Hotel/Motel
|
-
|
0.00
|
%
|
623
|
0.38
|
%
|
||||||||||
|
Schools/Higher Ed/Vocational
|
-
|
0.00
|
%
|
3,464
|
2.11
|
%
|
||||||||||
|
Total
|
$
|
93,965
|
100.00
|
%
|
$
|
164,326
|
100.00
|
%
|
||||||||
The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio ("LTV"). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at December 31, 2025 and 2024 (dollars in thousands):
|
2025
|
2024
|
||||||||||||||||||||||
|
LTV Range
|
Number of Loans
|
Amount
|
%
|
Number of Loans
|
Amount
|
%
|
|||||||||||||||||
|
0%-25%
|
832
|
$
|
177,207
|
14.54
|
%
|
820
|
$
|
152,157
|
12.49
|
%
|
|||||||||||||
|
25.01%-50%
|
550
|
387,019
|
31.76
|
%
|
546
|
323,919
|
26.58
|
%
|
|||||||||||||||
|
50.01%-60%
|
289
|
226,199
|
18.56
|
%
|
303
|
209,845
|
17.22
|
%
|
|||||||||||||||
|
60.01%-70%
|
340
|
273,932
|
22.48
|
%
|
333
|
267,687
|
21.97
|
%
|
|||||||||||||||
|
70.01%-75%
|
132
|
117,272
|
9.62
|
%
|
181
|
122,075
|
10.02
|
%
|
|||||||||||||||
|
75.01%-80%
|
44
|
30,080
|
2.47
|
%
|
51
|
36,544
|
3.00
|
%
|
|||||||||||||||
|
>80%
|
5
|
6,805
|
0.56
|
%
|
8
|
9,208
|
0.76
|
%
|
|||||||||||||||
|
Total
|
2,192
|
$
|
1,218,514
|
100.00
|
%
|
2,242
|
$
|
1,121,435
|
92.03
|
%
|
|||||||||||||
Allowance for Credit Losses - Loans and Credit Quality Risk
The allowance for credit losses - loans is maintained at a level which, in management's judgment, is adequate to absorb probable future credit losses inherent in the loan portfolio. The provision for credit losses is charged against current income. Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance. The allowance for credit losses - loans was $22,806,000 or 0.97% of total loans as of December 31, 2025 as compared to $21,699,000 or 0.94% of loans as of December 31, 2024. The $1,107,000 increase is a result of a $1,888,000 provision for credit losses - loans, less net charge-offs of $781,000. Net charge-offs for 2025 are driven by loans acquired as part of the HVBC acquisition due to collateral issues and the acquired medical student loan portfolio from HVBC.
The adequacy of the allowance for credit losses - loans is subject to a formal, quarterly analysis by management of the Company. In order to better analyze the risks associated with the loan portfolio, the entire portfolio is divided into several categories. As stated above, commercial loans on non-accrual status are specifically reviewed and given a specific reserve, if appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, Note 1, "Summary of Significant Accounting Policies," and Note 5, "Loans," in the consolidated financial statements provides additional disclosure on the allowance for credit losses. The Company adopted ASC 326 effective January 1, 2023. Note 1, "Summary of Significant Accounting Policies," in the consolidated financial statements provides additional disclosure on the adoption of ASC 326.
Index
The following table shows the distribution of the allowance for credit losses - loans and the percentage of loans compared to total loans by loan category (dollars in thousands) as of December 31:
|
2025
|
2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Real estate loans:
|
||||||||||||||||
|
Residential
|
$
|
3,112
|
14.5
|
$
|
1,940
|
15.2
|
||||||||||
|
Commercial
|
10,017
|
51.8
|
9,174
|
48.5
|
||||||||||||
|
Agricultural
|
4,841
|
14.8
|
3,529
|
14.2
|
||||||||||||
|
Construction
|
916
|
4.0
|
1,402
|
7.1
|
||||||||||||
|
Consumer
|
1,201
|
3.8
|
1,338
|
4.7
|
||||||||||||
|
Other commercial loans
|
2,534
|
7.6
|
3,766
|
6.7
|
||||||||||||
|
Other agricultural loans
|
115
|
1.3
|
133
|
1.3
|
||||||||||||
|
State & political subdivision loans
|
55
|
2.2
|
61
|
2.3
|
||||||||||||
|
Unallocated
|
15
|
N/A
|
356
|
N/A
|
||||||||||||
|
Total allowance for loan losses
|
$
|
22,806
|
100.0
|
$
|
21,699
|
100.0
|
||||||||||
The following tables presents the activity in the allowance for credit losses - loans, by portfolio segment, for 2025, 2024 and 2023 (in thousands).
|
Balance at
December 31, 2024
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2025
|
||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||
|
Residential
|
$
|
1,940
|
$
|
-
|
$
|
-
|
$
|
1,172
|
$
|
3,112
|
||||||||||
|
Commercial
|
9,174
|
(40
|
)
|
-
|
883
|
10,017
|
||||||||||||||
|
Agricultural
|
3,529
|
-
|
-
|
1,312
|
4,841
|
|||||||||||||||
|
Construction
|
1,402
|
-
|
-
|
(486
|
)
|
916
|
||||||||||||||
|
Consumer
|
1,338
|
(327
|
)
|
41
|
149
|
1,201
|
||||||||||||||
|
Other commercial loans
|
3,766
|
(491
|
)
|
36
|
(777
|
)
|
2,534
|
|||||||||||||
|
Other agricultural loans
|
133
|
-
|
-
|
(18
|
)
|
115
|
||||||||||||||
|
State and political subdivision loans
|
61
|
-
|
-
|
(6
|
)
|
55
|
||||||||||||||
|
Unallocated
|
356
|
-
|
-
|
(341
|
)
|
15
|
||||||||||||||
|
Total
|
$
|
21,699
|
$
|
(858
|
)
|
$
|
77
|
$
|
1,888
|
$
|
22,806
|
|||||||||
|
Balance at
December 31, 2023
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2024
|
||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||
|
Residential
|
$
|
2,354
|
$
|
(5
|
)
|
$
|
-
|
$
|
(409
|
)
|
$
|
1,940
|
||||||||
|
Commercial
|
9,178
|
-
|
-
|
(4
|
)
|
9,174
|
||||||||||||||
|
Agricultural
|
3,264
|
-
|
-
|
265
|
3,529
|
|||||||||||||||
|
Construction
|
1,950
|
-
|
-
|
(548
|
)
|
1,402
|
||||||||||||||
|
Consumer
|
1,412
|
(107
|
)
|
22
|
11
|
1,338
|
||||||||||||||
|
Other commercial loans
|
2,313
|
(2,561
|
)
|
21
|
3,993
|
3,766
|
||||||||||||||
|
Other agricultural loans
|
270
|
-
|
-
|
(137
|
)
|
133
|
||||||||||||||
|
State and political subdivision loans
|
45
|
-
|
-
|
16
|
61
|
|||||||||||||||
|
Unallocated
|
367
|
-
|
-
|
(11
|
)
|
356
|
||||||||||||||
|
Total
|
$
|
21,153
|
$
|
(2,673
|
)
|
$
|
43
|
$
|
3,176
|
$
|
21,699
|
|||||||||
Index
|
Balance at
December 31,
2022
|
Impact of
adopting CECL
|
Allowance for credit
loss on PCD
acquired loans
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31,
2023
|
||||||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
1,056
|
$
|
79
|
$
|
108
|
$
|
(1
|
)
|
$
|
-
|
$
|
1,112
|
$
|
2,354
|
|||||||||||||
|
Commercial
|
10,120
|
(3,070
|
)
|
39
|
-
|
-
|
2,089
|
9,178
|
||||||||||||||||||||
|
Agricultural
|
4,589
|
(1,145
|
)
|
-
|
-
|
-
|
(180
|
)
|
3,264
|
|||||||||||||||||||
|
Construction
|
801
|
(103
|
)
|
37
|
-
|
-
|
1,215
|
1,950
|
||||||||||||||||||||
|
Consumer
|
135
|
1,040
|
677
|
(365
|
)
|
40
|
(115
|
)
|
1,412
|
|||||||||||||||||||
|
Other commercial loans
|
1,040
|
(328
|
)
|
828
|
(963
|
)
|
9
|
1,727
|
2,313
|
|||||||||||||||||||
|
Other agricultural loans
|
489
|
(219
|
)
|
-
|
-
|
-
|
-
|
270
|
||||||||||||||||||||
|
State and political
|
||||||||||||||||||||||||||||
|
subdivision loans
|
322
|
(280
|
)
|
-
|
-
|
-
|
3
|
45
|
||||||||||||||||||||
|
Unallocated
|
-
|
726
|
-
|
-
|
-
|
(359
|
)
|
367
|
||||||||||||||||||||
|
Total
|
$
|
18,552
|
$
|
(3,300
|
)
|
$
|
1,689
|
$
|
(1,329
|
)
|
$
|
49
|
$
|
5,492
|
$
|
21,153
|
||||||||||||
The following table provides information related to credit loss experience and net (charge-offs) recoveries for 2025, 2024 and 2023 (dollars in thousands).
|
2025
|
Credit Loss
Expense
(Benefit)
|
Net (charge-
offs) Recoveries
|
Average
Loans
|
Ratio of net
(charge-offs)
recoveries to
Average loans
|
Allowance
to total
loans
|
Non-
accrual
loans as a
percent of
loans
|
Allowance to
total non-
accrual loans
|
|||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
1,172
|
-
|
$
|
346,313
|
0.00
|
%
|
0.91
|
%
|
1.01
|
%
|
90.39
|
%
|
|||||||||||||||
|
Commercial
|
883
|
(40
|
)
|
1,153,166
|
0.00
|
%
|
0.82
|
%
|
0.94
|
%
|
86.14
|
%
|
||||||||||||||||
|
Agricultural
|
1,312
|
-
|
334,201
|
0.00
|
%
|
1.39
|
%
|
0.62
|
%
|
225.69
|
%
|
|||||||||||||||||
|
Construction
|
(486
|
)
|
-
|
135,920
|
0.00
|
%
|
0.97
|
%
|
0.55
|
%
|
177.52
|
%
|
||||||||||||||||
|
Consumer
|
149
|
(286
|
)
|
96,097
|
-0.30
|
%
|
1.36
|
%
|
0.87
|
%
|
155.97
|
%
|
||||||||||||||||
|
Other commercial loans
|
(777
|
)
|
(455
|
)
|
167,670
|
-0.27
|
%
|
1.41
|
%
|
4.37
|
%
|
33.81
|
%
|
|||||||||||||||
|
Other agricultural loans
|
(18
|
)
|
-
|
28,679
|
0.00
|
%
|
0.38
|
%
|
1.33
|
%
|
28.54
|
%
|
||||||||||||||||
|
State & political subdivision loans
|
(6
|
)
|
-
|
52,730
|
0.00
|
%
|
0.11
|
%
|
0.00
|
%
|
NA
|
|||||||||||||||||
|
Unallocated
|
(341
|
)
|
-
|
-
|
NA
|
NA
|
NA
|
NA
|
||||||||||||||||||||
|
Total
|
$
|
1,888
|
$
|
(781
|
)
|
$
|
2,314,776
|
-0.03
|
%
|
0.97
|
%
|
1.13
|
%
|
85.73
|
%
|
|||||||||||||
| 2024 |
|
|
Credit Loss
Expense
(Benefit)
|
|
|
|
Net (charge-
offs) Recoveries
|
|
|
|
Average
Loans
|
|
|
|
Ratio of net
(charge-offs)
recoveries to
Average loans
|
|
|
|
Allowance
to total
loans
|
|
|
|
Non-
accrual
loans as a
percent of
loans
|
|
|
|
Allowance to
total non-
accrual loans
|
|
|
Real estate:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
(409
|
)
|
$
|
(5
|
)
|
$
|
356,292
|
0.00
|
%
|
0.55
|
%
|
0.82
|
%
|
67.57
|
%
|
||||||||||||
|
Commercial
|
(4
|
)
|
-
|
1,109,075
|
0.00
|
%
|
0.82
|
%
|
1.28
|
%
|
63.87
|
%
|
||||||||||||||||
|
Agricultural
|
265
|
-
|
324,500
|
0.00
|
%
|
1.08
|
%
|
1.24
|
%
|
86.88
|
%
|
|||||||||||||||||
|
Construction
|
(548
|
)
|
-
|
182,714
|
0.00
|
%
|
0.85
|
%
|
0.17
|
%
|
495.41
|
%
|
||||||||||||||||
|
Consumer
|
11
|
(85
|
)
|
83,916
|
-0.10
|
%
|
1.22
|
%
|
0.92
|
%
|
133.53
|
%
|
||||||||||||||||
|
Other commercial loans
|
3,993
|
(2,540
|
)
|
156,847
|
-1.62
|
%
|
2.43
|
%
|
1.67
|
%
|
145.86
|
%
|
||||||||||||||||
|
Other agricultural loans
|
(137
|
)
|
-
|
26,088
|
0.00
|
%
|
0.45
|
%
|
1.81
|
%
|
24.77
|
%
|
||||||||||||||||
|
State & political subdivision loans
|
16
|
-
|
55,919
|
0.00
|
%
|
0.11
|
%
|
0.00
|
%
|
NA
|
||||||||||||||||||
|
Unallocated
|
(11
|
)
|
-
|
-
|
NA
|
NA
|
NA
|
NA
|
||||||||||||||||||||
|
Total
|
$
|
3,176
|
$
|
(2,630
|
)
|
$
|
2,295,351
|
-0.11
|
%
|
0.94
|
%
|
1.11
|
%
|
84.43
|
%
|
|||||||||||||
Index
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
1,112
|
(1
|
)
|
$
|
290,971
|
0.00
|
%
|
0.65
|
%
|
0.86
|
%
|
76.38
|
%
|
||||||||||||||
|
Commercial
|
2,089
|
-
|
986,188
|
0.00
|
%
|
0.84
|
%
|
0.10
|
%
|
808.63
|
%
|
|||||||||||||||||
|
Agricultural
|
(180
|
)
|
-
|
312,423
|
0.00
|
%
|
1.04
|
%
|
0.85
|
%
|
122.25
|
%
|
||||||||||||||||
|
Construction
|
1,215
|
-
|
135,315
|
0.00
|
%
|
1.00
|
%
|
1.20
|
%
|
82.73
|
%
|
|||||||||||||||||
|
Consumer
|
(115
|
)
|
(325
|
)
|
74,555
|
-0.44
|
%
|
2.72
|
%
|
1.35
|
%
|
201.43
|
%
|
|||||||||||||||
|
Other commercial loans
|
1,727
|
(954
|
)
|
115,264
|
-0.83
|
%
|
1.59
|
%
|
1.20
|
%
|
132.17
|
%
|
||||||||||||||||
|
Other agricultural loans
|
-
|
-
|
30,557
|
0.00
|
%
|
0.88
|
%
|
1.60
|
%
|
54.88
|
%
|
|||||||||||||||||
|
State & political subdivision loans
|
3
|
-
|
59,308
|
0.00
|
%
|
0.08
|
%
|
0.00
|
%
|
NA
|
||||||||||||||||||
|
Unallocated
|
(359
|
)
|
-
|
-
|
NA
|
NA
|
NA
|
NA
|
||||||||||||||||||||
|
Total
|
$
|
5,492
|
$
|
(1,280
|
)
|
$
|
2,004,581
|
-0.06
|
%
|
0.94
|
%
|
0.54
|
%
|
173.57
|
%
|
|||||||||||||
The Company believes it utilizes a disciplined and thorough loan review process based upon its internal loan policy approved by the Company's Board of Directors. The purpose of the review is to assess loan quality, analyze delinquencies, identify problem loans, evaluate potential charge-offs and recoveries, and assess general overall economic conditions in the markets served. An external independent loan review is performed on our commercial portfolio at least semi-annually for the Company. The external consultant is engaged to review 1) a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated.
Management believes it uses the best information available to make such determinations and the allowance for credit losses - loans is adequate as of December 31, 2025. However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination. A prolonged downturn in the economy, changes in the economies of various segments of our agricultural and commercial portfolios, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, credit loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank's allowance for credit losses - loans. The banking agencies could require the recognition of additions to the allowance for credit losses based upon their judgment of information available to them at the time of their examination.
On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports. Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list. The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include. Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan from the watchlist. In certain cases, loans may be placed on non-accrual status or charged-off based upon management's evaluation of the borrower's ability to pay. All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans, other commercial loans and other agricultural loans on non-accrual are evaluated quarterly for impairment.
See also "Note 5 - Loans and Related Allowance for Credit Losses - Loans" to the consolidated financial statements.
As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Bank's allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate loans total 66.6% of the loan portfolio at December 31 2025, 64.7% of the allowance is assigned to these portions of the loan portfolio. Residential real estate loans comprise 14.5% of the loan portfolio as of December 31, 2025 and 13.7% of the allowance is assigned to this segment. Other commercial loans comprise 7.6% of the loan portfolio as of December 31, 2025 and 11.6% of the allowance is assigned to this segment.
Index
The following table is a summary of our non-performing assets for the years ended December 31, 2025 and 2024 (in thousands).
|
2025
|
2024
|
|||||||
|
Non-performing loans:
|
||||||||
|
Non-accruing loans
|
$
|
26,602
|
$
|
25,701
|
||||
|
Accrual loans - 90 days or more past due
|
229
|
276
|
||||||
|
Total non-performing loans
|
26,831
|
25,977
|
||||||
|
Foreclosed assets held for sale
|
2,358
|
2,635
|
||||||
|
Total non-performing assets
|
$
|
29,189
|
$
|
28,612
|
||||
The following table identifies amounts of loans contractually past due 30 to 90 days and non-performing loans by loan category, as well as the change from December 31, 2024 to December 31, 2025 in non-performing loans (in thousands). Non-performing loans include those accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans. Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management's assessment of its ultimate ability to collect principal and interest.
|
December 31, 2025
|
December 31, 2024
|
|||||||||||||||||||||||||||||||
|
Non-Performing Loans
|
Non-Performing Loans
|
|||||||||||||||||||||||||||||||
|
30 - 89 Days
Past Due
|
90 Days Past
Due Accruing
|
Non-
accrual
|
Total Non-
Performing
|
30 - 89 Days
Past Due
|
90 Days Past
Due Accruing
|
Non-
accrual
|
Total Non-
Performing
|
|||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||||||
|
Residential
|
$
|
3,168
|
$
|
151
|
$
|
3,443
|
$
|
3,594
|
$
|
1,527
|
$
|
-
|
$
|
2,871
|
$
|
2,871
|
||||||||||||||||
|
Commercial
|
4,394
|
-
|
11,497
|
11,497
|
3,915
|
-
|
14,364
|
14,364
|
||||||||||||||||||||||||
|
Agricultural
|
1,178
|
55
|
2,145
|
2,200
|
383
|
269
|
4,062
|
4,331
|
||||||||||||||||||||||||
|
Construction
|
-
|
-
|
516
|
516
|
1,119
|
-
|
283
|
283
|
||||||||||||||||||||||||
|
Consumer
|
309
|
15
|
770
|
785
|
312
|
7
|
1,002
|
1,009
|
||||||||||||||||||||||||
|
Other commercial loans
|
203
|
8
|
7,828
|
7,836
|
760
|
-
|
2,582
|
2,582
|
||||||||||||||||||||||||
|
Other agricultural loans
|
17
|
-
|
403
|
403
|
-
|
-
|
537
|
537
|
||||||||||||||||||||||||
|
Total nonperforming loans
|
$
|
9,269
|
$
|
229
|
$
|
26,602
|
$
|
26,831
|
$
|
8,016
|
$
|
276
|
$
|
25,701
|
$
|
25,977
|
||||||||||||||||
|
Change in Non-Performing Loans
|
||||||||
|
2025 / 2024
|
||||||||
|
Amount
|
%
|
|||||||
|
Real estate:
|
||||||||
|
Residential
|
$
|
723
|
25.2
|
|||||
|
Commercial
|
(2,867
|
)
|
(20.0
|
)
|
||||
|
Agricultural
|
(2,131
|
)
|
(49.2
|
)
|
||||
|
Construction
|
233
|
NA
|
||||||
|
Consumer
|
(224
|
)
|
(22.2
|
)
|
||||
|
Other commercial loans
|
5,254
|
203.5
|
||||||
|
Other agricultural loans
|
(134
|
)
|
(25.0
|
)
|
||||
|
Total nonperforming loans
|
$
|
854
|
3.3
|
|||||
Nonperforming loans increased $854,000 during 2025. During 2025, several large relationships were placed on non-accrual status, including one construction loan relationship, a commercial relationship that includes a commercial real estate loan and an other commercial loan and finally a commercial real estate relationship. Two commercial relationships and two agricultural relationships were returned to accrual status during 2025 and three loans that were on non-accrual status as of December 31, 2024 paid off during 2025. All non-performing commercial, agricultural and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter ends. In addition, non-performing residential loans with a balance in excess of $150,000 are individually evaluated. The specific reserves for these non-performing loans as of December 31, 2025 was $1,039,000 compared to specific reserves for non-performing loans as of December 31, 2024 of $888,529. In addition, the Bank's policy is to reserve 100% of all non-performing student loans. The reserve for these loans was $770,000 and $1,002,000 as of December 31, 2025 and 2024, respectively.
Management believes that the allowance for credit losses - loans December 31, 2025 was adequate at that date, which was based on the following factors:
|
|
• |
Specific reserves for non-performing loans total $1,808,000.
|
|
|
• |
The Company has a history of low charge-offs, which were 0.03% of average loans on an annualized basis for 2025 and 0.11% for 2024, which included the charge-offs related to the Braavo loans.
|
Index
Bank Owned Life Insurance
The Company holds bank owned life insurance policies to offset current and future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits. As of December 31, 2025, and 2024, the cash surrender value of the life insurance was $51,501,000 and $50,341,000, respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. The amounts recorded as non-interest income totaled $1,433,000, $1,684,000 and $1,254,000 in 2025, 2024 and 2023, respectively. The decrease in 2025 compared to 2024 is due to death proceeds received in 2024 upon the passing of a former employee. The increase in 2024 compared to 2023 is due to the HVBC acquisition being outstanding for the entire year versus a partial year in 2023. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers' credit ratings.
Effective January 1, 2015, the Company restructured its agreements so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under the restructured agreements, the employee's beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds. The policies acquired as part of the acquisition of MidCoast are only for the benefit of the Bank. The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of an acquisition in 2015, provide a fixed dollar benefit for the beneficiary's' estate, which is dependent on several factors including whether the covered individual was a Director of the acquired company or an employee of the acquired company and their salary level. As of December 31, 2025, and 2024, included in other liabilities on the Consolidated Balance sheet is a liability of $529,000 and $514,000, respectively, for the obligation under the split-dollar benefit agreements.
Fair Value of Derivative Instruments - asset
The Company holds derivative instruments to hedge interest rate risk, to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet, and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivative instrument assets was $6,927,000 and $10,370,000, respectively.The change in the fair value of financial instruments was due to the changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest ratehedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.
Deferred Tax Asset
Deferred tax assets are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period. (See Note 12 for additional information) As of December 31, 2025 and 2024, the balance for deferred tax assets was $11,440,000 and $15,199,000, respectively. The change was due to the change in the market value of the Bank's available-for-sale investment portfolio, the amortization of various credit and interest rate marks associated with acquisitions and the usage of net operating losses acquired from acquisitions.
Other Assets
Other assets decreased $1,486,000 in 2025 to $53,145,000 from $54,631,000 in 2024. The decrease was driven by a decrease in other receivables of $2,871,000 due to timing of payments associated with a participation loan and a participating bank and a decrease in tax receivable of $2,098,000. Regulatory stock increased $2,221,000 and there was a $634,000 increase in the right to use asset.
Index
Deposits
The following table shows the breakdown of deposits by deposit type (dollars in thousands) at December 31:
|
2025
|
2024
|
2023
|
||||||||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
|
Non-interest-bearing deposits
|
$
|
516,657
|
21.7
|
$
|
532,776
|
22.4
|
$
|
523,784
|
22.6
|
|||||||||||||||
|
Interest-bearing demand deposits
|
25,576
|
1.1
|
18,004
|
0.8
|
$
|
-
|
-
|
|||||||||||||||||
|
NOW accounts
|
593,825
|
25.0
|
581,673
|
24.4
|
670,712
|
28.9
|
||||||||||||||||||
|
Savings deposits
|
286,554
|
12.1
|
292,918
|
12.3
|
307,357
|
13.2
|
||||||||||||||||||
|
Money market deposit accounts
|
480,509
|
20.2
|
434,856
|
18.3
|
400,154
|
17.2
|
||||||||||||||||||
|
Certificates of deposit
|
473,858
|
19.9
|
521,801
|
21.8
|
419,474
|
18.1
|
||||||||||||||||||
|
Total
|
$
|
2,376,979
|
100.0
|
$
|
2,382,028
|
100.0
|
$
|
2,321,481
|
100.0
|
|||||||||||||||
|
2025/2024
|
2024/2023
|
|||||||||||||||
|
Change
|
Change
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Non-interest-bearing deposits
|
$
|
(16,119
|
)
|
(3.0
|
)
|
$
|
8,992
|
1.7
|
||||||||
|
Interest-bearing demand deposits
|
7,572
|
42.1 |
18,004
|
NA
|
||||||||||||
|
NOW accounts
|
12,152
|
2.1
|
(89,039
|
)
|
(13.3
|
)
|
||||||||||
|
Savings deposits
|
(6,364
|
)
|
(2.2
|
)
|
(14,439
|
)
|
(4.7
|
)
|
||||||||
|
Money market deposit accounts
|
45,653
|
10.5
|
34,702
|
8.7
|
||||||||||||
|
Certificates of deposit
|
(47,943
|
)
|
(9.2
|
)
|
102,327
|
24.4
|
||||||||||
|
Total
|
$
|
(5,049
|
)
|
(0.2
|
)
|
$
|
60,547
|
2.6
|
||||||||
2025
Total deposits decreased $5,049,000 in 2025, or 0.2%. While less in 2025 than 2024, competitive pressure for deposits continues to be at the forefront. Additionally, we have numerous state and political organization depositors with seasonal funding timelines. During 2025, brokered certificates of deposit decreased $33,055,000 to $60,000,000. Additionally, a school district in our southeastern Pennsylvania market saw a decrease in their balance of $58,946,000 due to the lack of state budget for parts of 2025. We continue to work on enhancing our cash management services to improve our customer services. As a percentage of total deposits, non-interest-bearing deposits totaled 21.7% as of the end of 2025, which compares to 22.4% at the end of 2024. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition.
2024
Total deposits increased $60,547,000 in 2024, or 2.6%. With the rise in market interest rates, competitive pressure for deposits increased during 2024. During 2024, brokered certificates of deposit decreased $16.2 million to $93.1 million. As a percentage of total deposits, non-interest-bearing deposits totaled 22.4% as of the end of 2024, which compares to 22.6% at the end of 2023.
Remaining maturities of certificates of deposit in excess of FDIC insurance limits are as follows for December 31, 2025 (dollars in thousands):
|
2025
|
||||
|
3 months or less
|
$
|
35,532
|
||
|
Over 3 months through 6 months
|
30,842
|
|||
|
Over 6 months through 12 months
|
41,106
|
|||
|
Over 12 months
|
29,136
|
|||
|
Total
|
$
|
136,616
|
||
|
As a percent of total certificates of deposit
|
28.83
|
%
|
||
Uninsured deposits as of December 31, 2025 and 2024 are estimated based on regulatory reporting requirements to be $1,124,675,000 and $1,160,581,000, respectively. Included in this balance as of December 31, 2025 and 2024 are balances held through Intrafi, which provides customers with FDIC insurance coverage by placing customer funds with insured banks within the Intrafi network, as well as deposits collateralized by securities (almost exclusively municipal deposits), which together total $646,677,000, or 27.2%, and $638,624,000, or 26.8% of the Bank's total deposits, respectively. As a result, deposits in excess of $250,000 that are unsecured total $477,998,000, or 20.1% and $521,957,00, or 21.9% of deposits as of December 31, 2025 and 2024, respectively.
Index
Deposits by type of depositor are as follows (dollars in thousands) at December 31:
|
2025
|
2024
|
2023
|
||||||||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
|
Individuals
|
$
|
1,072,845
|
45.1
|
$
|
1,134,144
|
47.6
|
$
|
1,129,655
|
48.7
|
|||||||||||||||
|
Businesses and other organizations
|
767,673
|
32.3
|
741,566
|
31.1
|
748,257
|
32.2
|
||||||||||||||||||
|
State & political subdivisions
|
536,461
|
22.6
|
506,318
|
21.3
|
443,569
|
19.1
|
||||||||||||||||||
|
Total
|
$
|
2,376,979
|
100.0
|
$
|
2,382,028
|
100.0
|
$
|
2,321,481
|
100.0
|
|||||||||||||||
Borrowed Funds
Borrowed funds increased $11,727,000 during 2025. Short term borrowings from the FHLB increased $65,339,000 and totaled $263,483,000 as of December 31, 2025 compared to $198,144,000 as of December 31, 2024. Long term borrowings from the FHLB decreased $41,350,000 and were all paid-off as of December 31, 2025. The Company has a line of credit with an unaffiliated bank for $15.0 million, which is unused as of December, 31, 2025. Management continually monitors interest rates in order to minimize interest rate risk in future years and as part of this may extend some of the short-term borrowings via term notes. The Bank has four interest rate swap agreements outstanding to convert floating-rate debt to fixed rate debt on notional amounts of $10.0 million and three agreements with individual notional amounts of $6.0 million. The $10.0 million agreements were originated on April 1, 2020 and expire on April 1, 2025 and April 1, 2027, respectively. The three $6.0 million agreements originated on May 14, 2020 had a two year forward start date and expire on May 14, 2027, 2029 and 2032. During 2025,one swap agreement for $15.0 million matured. The Company has an interest rate swap agreement outstanding that was entered into on April 13, 2020 to convert floating-rate debt to fixed rate debt on a notional amount of $7.5 million. The interest rate swap agreement expires on June 17, 2027. The interest rate swap instruments involve an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amounts. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period in which they arise. The fair value of the interest rate swaps at December 31, 2025 was $2,487,000 and is included within fair value of derivative instruments - asset on the consolidated balance sheets.
Fair Value of Derivative Instruments - liability
The Company holds derivative instruments to hedge interest rate risk and to offer customers longer term fixed rate loans through a program similar to a back to back swap, which results in both a derivative asset and liability on the Consolidated Balance Sheet and through the residential lending platform through interest rate locks. (See Note 18 for additional information). As of December 31, 2025, and 2024, the fair value for the derivatives instrument liabilities was $4,100,000 and $5,817,000, respectively.The change in the fair value of financial instruments was due to changes in market interest rates during 2025, the time to maturity of the various instruments and the maturity or early termination of certain instruments. The effective portion of changes in the fair value of the cash flow interest hate hedge derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.
Other Liabilities
Other liabilities decreased $2,875,000 to $32,856,000 during 2025. The primary driver was a decrease of $4,459,000 due to payments made in 2025 to the low-income housing projects in which the Bank is a partner. Other liabilities increased $682,000 due to an increase in the liability associated with right of use assets due to leases entered into during 2025.
Stockholders' Equity
We evaluate stockholders' equity in relation to total assets and the risk associated with those assets. The greater our capital resources, the greater the likelihood of meeting our cash obligations and absorbing unforeseen losses. For these reasons, capital adequacy has been, and will continue to be, of paramount importance. Due to its importance, we develop a capital plan and stress test capital levels using various techniques and assumptions annually to ensure that in the event of unforeseen circumstances, we would remain in compliance with our capital plan approved by the Board of Directors and regulatory requirement levels.
Our Board of Directors determines our cash dividend rate after considering our capital requirements, current and projected net income, and other factors. In 2025 and 2024, the Company paid out 26.11% and 33.44% of net income in cash dividends, respectively. The decrease in the payout percentage was due to the increase in net income in 2025 due to the expansion of the net interest margin.
Index
As of December 31, 2025, the total number of common shares outstanding was 4,807,080. For comparative purposes, outstanding shares for prior periods were adjusted for the June 2025 stock dividend in computing earnings and cash dividends per share as detailed in Note 1 of the consolidated financial statements. As part of the Company's employee stock purchase plan, the Company issued 1,157 shares at a cost of $68,000. During 2025, we purchased 6,151 shares of treasury stock at a weighted average cost of $58.09 per share. The Company awarded 4,431 shares of restricted stock to employees at a weighted average cost per share of $57.28 under an equity incentive plan. The Board of Directors was awarded 3,674 shares at a cost of $58.71 per share.
Stockholders' equity increased 12.8% in 2025 to $338,051,000.Excluding accumulated other comprehensive loss, stockholders' equity increased $27,173,000, or 8.4%. Net income for 2025 was $36,572,000, offset by net cash dividends of $9,548,000 and net treasury stock activity of ($36,000). All of the Company's debt investment securities are classified as available-for-sale, making this portion of the Company's balance sheet more sensitive to the changing market value of investments. Accumulated other comprehensive loss decreased $11,144,000 from December 31, 2024, primarily as a result of the increase in the fair market value of the investment portfolio. Total stockholders' equity was approximately 11.0% of total assets as of December 31, 2025, compared to 9.9% of total assets as of December 31, 2024.
LIQUIDITY
Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors. Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet borrowers' needs, provide funds for normal operating expenses and cash dividends, and fund future capital expenditures.
To maintain proper liquidity, we use funds management policies along with our investment and asset liability policies to assure we can meet our financial obligations to depositors, credit customers and stockholders. Management monitors liquidity by reviewing loan demand, investment opportunities, deposit pricing and the cost and availability of borrowing funds. Additionally, the bank has established various limits and ratios to monitor liquidity. On a quarterly basis, we stress test our liquidity position to ensure that the Bank has the capability of meeting its cash flow requirements in the event of unforeseen circumstances. The Company's historical activity in this area can be seen in the Consolidated Statement of Cash Flows from investing and financing activities.
Cash generated by operating activities, investing activities and financing activities influences liquidity management. The most important source of funds is the deposits that are primarily core deposits (deposits from customers with other relationships). Short-term debt from the Federal Home Loan Bank supplements the Company's availability of funds as well as a line of credit arrangement with a corresponding bank. Other sources of short-term funds include brokered CDs and the sale of loans, if needed.
The Company's use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is detailed. Other significant uses of funds are capital expenditures, purchase of loans and acquisition premiums. Surplus funds are then invested in investment securities.
Capital expenditures, including software purchases in 2025 totaled $1,296,000, which included:
|
|
■ |
ATM upgrades totaling $463,000
|
|
|
■ |
Computers, servers and copier purchases of $162,000
|
|
|
■ |
Dover branch remodel totaling $321,000
|
Capital expenditures, including software purchases in 2024 totaled $1,314,000, which included:
|
|
■ |
ATM upgrades totaling $935,000
|
|
|
■ |
Computers, servers and copier purchases of $245,000
|
We expect these expenditures will support our initiatives and will create operating efficiencies, while providing quality customer service.
Index
In addition to the Bank's cash balances, the Bank achieves additional liquidity primarily from its investment in the FHLB of Pittsburgh and the resulting borrowing capacity obtained through this investment, investments that mature in less than one year and expected principal repayments from mortgage backed securities. The Bank has a maximum borrowing capacity at the Federal Home Loan Bank of approximately $1,115,189,000, inclusive of any outstanding amounts, as a source of liquidity. The Bank also has two unsecured federal funds lines with third party providers in the total amount of $34.0 million as of December 31, 2025, which are unsecured and a borrower in custody agreement was established with the FRB in the amount of $11,798,000, which is collateralized by $21,827,000 of municipal loans, which is unused at December 31, 2025. The Company has a $15.0 million line of credit with a New York community bank, which is unused as of December 31, 2025.
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company also has repurchased shares of its common stock. The Company's primary source of income is dividends received from the Bank. The Bank may not declare a dividend without approval from the FRB, unless the dividend to be declared by the Bank's Board of Directors does not exceed the total of: (i) the Bank's net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus. In addition, the Bank can only pay dividends to the extent that its retained net profits (including the portion transferred to surplus) exceed its bad debts. The FRB, the OCC, the PDB and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend. At December 31, 2025, the Company (unconsolidated basis) had liquid assets of $4,586,000.
CONTRACTUAL OBLIGATIONS
The Company has various financial obligations, including contractual obligations which may require cash payments. The following table (in thousands) presents as of December 31, 2025, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the obligations can be found in Notes 9, 10, 13 and 19 to the Consolidated Financial Statements.
|
Contractual Obligations
|
One year
or Less
|
One to
Three Years
|
Three to
Five Years
|
Over Five
Years
|
Total
|
|||||||||||||||
|
Deposits without a stated maturity
|
$
|
1,877,545
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,877,545
|
||||||||||
|
Time deposits
|
366,083
|
82,962
|
19,456
|
5,357
|
473,858
|
|||||||||||||||
|
FHLB Advances
|
160,483
|
-
|
-
|
-
|
160,483
|
|||||||||||||||
|
Term borrowings - FHLB
|
103,000
|
-
|
-
|
-
|
103,000
|
|||||||||||||||
|
Stifel
|
3,320
|
-
|
-
|
-
|
3,320
|
|||||||||||||||
|
Note Payable
|
-
|
-
|
-
|
7,500
|
7,500
|
|||||||||||||||
|
Subordinated Debt
|
-
|
-
|
-
|
19,648
|
19,648
|
|||||||||||||||
|
Repurchase agreements
|
15,497
|
-
|
-
|
-
|
15,497
|
|||||||||||||||
|
Low income housing partnerships
|
605
|
787
|
26
|
121
|
1,539
|
|||||||||||||||
|
Operating leases
|
1,921
|
3,814
|
3,035
|
4,285
|
13,055
|
|||||||||||||||
|
Total
|
$
|
2,528,454
|
$
|
87,563
|
$
|
22,517
|
$
|
36,911
|
$
|
2,675,445
|
||||||||||
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For information about our loan commitments, unused lines of credit and letters of credit, see Note 17 of the notes to consolidated financial statements.
For the year ended December 31, 2025, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our consolidated financial condition, results of operations or cash flows.
Index
INTEREST RATE AND MARKET RISK MANAGEMENT
The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.
Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, since the Company has no trading portfolio, it is not subject to trading risk.
At December 31, 2025, the Company had equity securities that represent only 0.06% of our total assets, and therefore market risk related to equity securities is not significant.
The primary factors that make assets interest-sensitive include adjustable-rate features on loans and investments, loan repayments, investment maturities and money market investments. The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit, repurchase agreements and short-term borrowings. Savings deposits, NOW accounts and money market investor accounts, with the exception of top interest tier money market and NOW accounts, are considered core deposits and are not short-term interest sensitive and therefore are included in the table below in the over five year column. Top interest tier money market and NOW accounts are included in the table below in the within three month column. Borrowings subject to swap arrangements are included in the table below based on the swap arrangement maturity.
The following table shows the cumulative static gap (at amortized cost) for various time intervals (dollars in thousands):
Maturity or Re-pricing of Company Assets and Liabilities as of December 31, 2025
|
|
Within
Three
Months
|
Four to
Twelve
Months
|
One to
Two
Years
|
Two to
Three
Years
|
Three to
Five
Years
|
Over
Five
Years
|
Total
|
|||||||||||||||||||||
|
Interest-earning assets:
|
||||||||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
$
|
10,358
|
$
|
844
|
$
|
2,976
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
14,178
|
||||||||||||||
|
Investment securities
|
76,879
|
50,995
|
69,993
|
33,386
|
58,511
|
172,755
|
462,519
|
|||||||||||||||||||||
|
Residential mortgage loans
|
40,328
|
71,112
|
57,332
|
47,691
|
68,903
|
55,606
|
340,972
|
|||||||||||||||||||||
|
Construction loans
|
46,430
|
22,980
|
24,555
|
-
|
-
|
-
|
93,965
|
|||||||||||||||||||||
|
Commercial and farm loans
|
477,468
|
325,290
|
458,669
|
203,257
|
231,422
|
79,269
|
1,775,375
|
|||||||||||||||||||||
|
Loans to state & political subdivisions
|
8,441
|
11,418
|
7,000
|
1,781
|
3,655
|
19,805
|
52,100
|
|||||||||||||||||||||
|
Other loans
|
81,218
|
1,590
|
1,518
|
861
|
804
|
2,219
|
88,210
|
|||||||||||||||||||||
|
Total interest-earning assets
|
$
|
741,122
|
$
|
484,229
|
$
|
622,043
|
$
|
286,976
|
$
|
363,295
|
$
|
329,654
|
$
|
2,827,319
|
||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||||||
|
Interest-bearing demand deposits
|
$
|
21,074
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
4,502
|
$
|
25,576
|
||||||||||||||
|
NOW accounts
|
406,828
|
-
|
-
|
-
|
-
|
186,997
|
593,825
|
|||||||||||||||||||||
|
Savings accounts
|
-
|
-
|
-
|
-
|
-
|
286,554
|
286,554
|
|||||||||||||||||||||
|
Money Market accounts
|
440,874
|
-
|
-
|
-
|
-
|
39,635
|
480,509
|
|||||||||||||||||||||
|
Certificates of deposit
|
126,086
|
239,997
|
56,357
|
26,605
|
19,456
|
5,357
|
473,858
|
|||||||||||||||||||||
|
Long-term borrowing
|
254,300
|
19,648
|
23,500
|
-
|
6,000
|
6,000
|
309,448
|
|||||||||||||||||||||
|
Total interest-bearing liabilities
|
$
|
1,249,162
|
$
|
259,645
|
$
|
79,857
|
$
|
26,605
|
$
|
25,456
|
$
|
529,045
|
$
|
2,169,770
|
||||||||||||||
|
Excess interest-earning assets (liabilities)
|
$
|
(508,040
|
)
|
$
|
224,584
|
$
|
542,186
|
$
|
260,371
|
$
|
337,839
|
$
|
(199,391
|
)
|
||||||||||||||
|
Cumulative interest-earning assets
|
$
|
741,122
|
$
|
1,225,351
|
$
|
1,847,394
|
$
|
2,134,370
|
$
|
2,497,665
|
$
|
2,827,319
|
||||||||||||||||
|
Cumulative interest-bearing liabilities
|
1,249,162
|
1,508,807
|
1,588,664
|
1,615,269
|
1,640,725
|
2,169,770
|
||||||||||||||||||||||
|
Cumulative gap
|
$
|
(508,040
|
)
|
$
|
(283,456
|
)
|
$
|
258,730
|
$
|
519,101
|
$
|
856,940
|
$
|
657,549
|
||||||||||||||
|
Cumulative interest rate sensitivity ratio (1)
|
0.59
|
0.81
|
1.16
|
1.32
|
1.52
|
1.30
|
||||||||||||||||||||||
|
(1)
|
Cumulative interest-earning assets divided by interest-bearing liabilities.
|
The previous table and the simulation models discussed below are presented assuming money market investment accounts and NOW accounts in the top interest rate tier are re-priced within the first three months. The loan amounts reflect the principal balances expected to be re-priced as a result of contractual amortization and anticipated early payoffs.
Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on the Bank's net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competition and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. We have not experienced the kind of earnings volatility that might be indicated from gap analysis.
Index
The Bank currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Bank's risk exposure. In this analysis, the Bank examines the results of movements in interest rates with additional assumptions made concerning the timing of interest rate changes, prepayment speeds on mortgage loans and mortgage securities and deposit pricing movements. Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of December 31, 2025 (dollars in thousands):
|
Changes in Rates
|
Prospective One-Year
Net Interest Income
|
Change In
Prospective
|
% Change In
Prospective
|
|||||||||
|
-400 Shock
|
$
|
114,544
|
$
|
10,869
|
10.48
|
%
|
||||||
|
-300 Shock
|
111,243
|
7,568
|
7.30
|
%
|
||||||||
|
-200 Shock
|
107,847
|
4,172
|
4.02
|
%
|
||||||||
|
-100 Shock
|
105,526
|
1,851
|
1.79
|
%
|
||||||||
|
Base
|
103,675
|
-
|
0.00
|
%
|
||||||||
|
+100 Shock
|
101,236
|
(2,439
|
)
|
-2.35
|
%
|
|||||||
|
+200 Shock
|
98,513
|
(5,162
|
)
|
-4.98
|
%
|
|||||||
|
+300 Shock
|
95,941
|
(7,734
|
)
|
-7.46
|
%
|
|||||||
|
+400 Shock
|
93,325
|
(10,350
|
)
|
-9.98
|
%
|
|||||||
The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure. Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. The projections above utilize a static balance sheet and do not include any changes that may result from the growth of the Bank. Management has developed policy limits for acceptable changes in net interest income for multiple scenarios, including shock scenarios. As of December 31, 2025, changes in net interest income projected for all scenarios, including the shock scenarios noted above, are in line with Bank policy limits for interest rate risk.
CRITICAL ACCOUNTING POLICIES; CRITICAL ACCOUNTING ESTIMATES
The Company's accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require management's judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments and critical accounting estimates.
Allowance for Credit Losses
The Company's allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macroeconomic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Company does business.
Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.
Index
The evaluation is comprised of specific and pooled components. The specific component is the Company's evaluation of credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan's initial effective interest rate if not collateral dependent. The majority of the Company's loans subject to individual evaluation are considered collateral dependent. All other loans are evaluated collectively for credit loss by pooling loans based on similar risk characteristics.
As a significant percentage of the Company's loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.
The pooled component of the evaluation is determined by applying reasonable and supportable economic forecasts and historical averages to the remaining loans segmented by similar risk characteristics. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of allowance for credit loss required by the calculation.
One of the most significant judgments used in projecting loss rates when estimating the allowance for credit losses is the macro-economic forecasts provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate, national gross domestic product and changes in home values. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate and gross domestic product. Changes in the macro-economic forecast, especially for the national unemployment rate and gross domestic product, could significantly impact the calculated estimated credit losses between reporting periods.
Other key assumptions in the calculation of the allowance for credit losses include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at December 31, 2025 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Company's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.
The quantitative estimated losses are supplemented by more qualitative factors that impact potential losses. Qualitative factors include changes in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The allowance for credit loss may be materially affected by these qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors. The qualitative factors applied at December 31, 2025, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.
While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Company's control, such as the performance of the Company's portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit losses. Additionally, the level of allowance for credit losses may fluctuate based on the balance and mix of the loan portfolio. If actual results differ significantly from management's assumptions, the Company's allowance for credit loss may not be sufficient to cover inherent losses in the Company's loan portfolio, resulting in additions to the Company's allowance for credit losses and an increase in the provision for credit losses.
Index
Goodwill and Other Intangible Assets
As discussed in Note 1 of the consolidated financial statements, the Company performs an evaluation of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performed a quantitative assessment in 2025 to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Based on the fair value of the reporting unit, no impairment of goodwill was recognized in 2025, 2024 or 2023.
Business Combinations
Business combinations are accounted for by applying the acquisition method. As of the acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposits intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs.
Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.
Citizens Financial Services Inc. published this content on March 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 12, 2026 at 10:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]