Muncy Columbia Financial Corporation
11/06/2026 | Press release | Distributed by Public on 11/06/2026 10:29
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
- Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of the financial condition and results of operations of the Corporation and should be read in conjunction with the more detailed and comprehensive disclosures included in the Annual Report on Form 10-K for the year ended December 31, 2025. In addition, please read this section in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements contained in Item 1, "Financial Statements" of Part I to this Quarterly Report on Form 10-Q.
The Corporation is in the business of providing customary retail, commercial banking and financial services to individuals, businesses and local governments through its 22 branch offices operated by Journey Bank, the Corporation's wholly-owned subsidiary. The Corporation's 22 branch offices are operated in Clinton, Columbia, Lycoming, Montour and Northumberland counties in Northcentral Pennsylvania.
CAUTIONARY STATEMENT
Certain statements in this section and elsewhere in this Quarterly Report on Form 10-Q, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of us may include "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect our current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to:
| · | Our business and financial results are affected by business and economic conditions, primarily in the Northcentral Pennsylvania market in which we operate. |
| · | Changes in interest rates and valuations in the debt, equity and other financial markets. |
| · | Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products. |
| · | Actions by the Federal Reserve Board and other government agencies, including those that impact money supply and market interest rates. |
| · | Changes in our customers' and suppliers' performance in general and their creditworthiness in particular. |
| · | Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors. |
| · | A downturn in significant segments of the United States or global financial markets could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities and indirectly by affecting our customers and suppliers and the economy generally. |
| · | Our business and financial performance could be impacted as the financial industry restructures in the current environment by changes in the competitive landscape. |
| · | Given current economic and financial market conditions, our forward-looking statements are subject to the risk that these conditions will be substantially different than we are currently expecting. |
| · | Legal, regulatory and governmental developments could have an impact on our ability to operate our businesses, our financial condition, results of operations, our competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (a) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (b) increased litigation risk from recent regulatory and other governmental developments; (c) the results of the regulatory examination process, and regulators' future use of supervisory and enforcement tools; (d) legislative and regulatory reforms, including changes to laws and regulations involving tax, pension, education and mortgage lending, the protection of confidential customer information, and other aspects of the financial institution industry; and (e) changes in accounting policies and principles. |
| · | A deterioration of the credit rating for United States long-term sovereign debt or the impact of uncertain or changing political conditions, including federal government shutdowns and uncertainty regarding United States fiscal debt, deficit and budget matters. |
| · | The impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts and the resulting impact on our business and our customers. |
| · | Our business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through the effective use of third-party insurance and capital management techniques. |
| · | Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands. |
| · | Our ability to implement our business initiatives and strategies could affect our financial performance over the next several years. |
| · | Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues. |
| · | Our business and operating results can also be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy, capital and other financial markets generally, or on us or our customers and suppliers. |
The words "believe," "expect," "anticipate," "project" and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of us. Any such statement speaks only as of the date the statement was made. We undertake no obligation to update or revise any forward looking statements.
The following discussion and analysis should be read in conjunction with the detailed information and consolidated financial statements, including notes thereto, included elsewhere in this report. Our consolidated financial condition and results of operations are essentially those of our subsidiary, Journey Bank. Therefore, the analysis that follows is directed to the performance of the Bank.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Corporation's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation's critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 ("Summary of Significant Accounting Policies") within the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025, as well as Note 1 to the Unaudited Consolidated Financial Statements which are included in Part I of this Quarterly Report on Form 10-Q.
The Corporation defines its critical accounting policies in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation's financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit losses, the fair value of available-for-sale debt securities and goodwill and other intangible assets are critical accounting policies. The Corporation's management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:
Allowance for Credit Losses (ACL) - Loans
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 326, Financial Instruments - Credit Losses, provides guidance on the accounting for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASC 326 requires consideration of a broad range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. Commonly referred to as Current Expected Credit Losses ("CECL"), ASC 326 requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. ASC 326 affects financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
Management evaluates the credit quality of the Corporation's loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ACL on a quarterly basis. The ACL is established through a provision for credit losses charged to earnings and is maintained at a level that management considers to be an estimate of the lifetime expected credit losses of the portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ACL, while recoveries of amounts previously charged off are credited to the ACL.
Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows, estimated losses on pools of homogeneous loans based on historical loss experience and reasonable and supportable forecasts, as well as consideration of current economic trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their examination of the Corporation, also review the ACL, and may require, based on information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ACL. Additionally, the ACL is determined, in part, by the composition and size of the loan portfolio.
The ACL consists of two components, a specific component and a general component. The specific component relates to loans that are individually analyzed for impairment. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the loan is lower than the carrying value of that loan. The general component covers all other loans and is based on loss experience as adjusted for qualitative factors. The general reserve component of the ACL is based on pools of loans segregated by loan segment. Loss factors are applied based on a loss driver analysis for each loan segment to determine the appropriate reserve related to those loans.
The ACL calculation includes subjective adjustments for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments generally increase allowance levels and include adjustments for factors deemed relevant, including: the nature and volume of portfolio changes, including loan portfolio growth; concentrations of credit based on loan type or industry; the volume and severity of past due, nonaccrual or adversely classified loans; trends in real estate or other collateral values; lending policies and procedures, including changes in underwriting and collections practices and loan review function; credit review function; lending, credit and other relevant management experience and risk tolerance; external factors and economic conditions not already captured. Each qualitative factor is assigned a value to reflect improvement, no change, minor risk, moderate risk, or major risk conditions based on management's best judgment using relevant information available at the time of the evaluation. Management uses a variety of future looking forecasts along with current economic statistics from reputable sources to assign the qualitative factor based on set parameters. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance calculation.
Although the Corporation's management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation's financial condition or results of operations. From January 1, 2026 to September 30, 2026, the level of the ACL increased from $10.0 million to $11.0 million and the ACL to total loans increased from 0.85% to 0.91%. The Corporation's ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Notes 1 "Summary of Significant Accounting Policies" and 3 "Loans and Allowance for Credit Losses" within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in Part I of this Quarterly Report on Form 10-Q for additional qualitative and quantitative information about the Corporation's ACL.
Fair Value of Available-For-Sale Debt Securities
Another material estimate is the calculation of fair values of the Corporation's debt securities. For the Corporation's debt securities, the Corporation receives estimated fair values from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers compare securities that have similar maturities, coupon rates, and credit ratings. Estimated fair values of debt securities may vary among brokers and other valuation services.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is periodically evaluated for impairment. Impairment testing is performed using either a qualitative or quantitative approach. The Corporation has selected September 30 as the date to perform the annual goodwill impairment test. Additionally, a goodwill impairment evaluation is performed on an interim basis when events or circumstances indicate impairment potentially exists. Based on the annual goodwill impairment test completed as of September 30, 2025, no impairment was noted. The annual goodwill impairment test as of September 30, 2026 has not yet been finalized as of the date of issuance of these unaudited consolidated financial statements, however management anticipates no impairment as no triggering events or circumstances were identified. No assurance can be given that future impairment tests will not result in a charge to earnings.
The Corporation's other intangible assets consist primarily of core deposit intangibles. The calculation of core deposit intangibles are based on significant judgements. Core deposit 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. Core deposit intangibles are amortized over the expected life of each acquired core deposit type, discounted at a long-term market oriented after-tax rate of return. Core deposit intangibles are reviewed for impairment when indicators of impairment are present. Indicators of impairment may include significant runoff or attrition. Management is not aware of any indicators of impairment related to core deposit intangibles as of September 30, 2026 or December 31, 2025.
FINANCIAL CONDITION
Total assets at September 30, 2026, were $1.688 billion, an increase of $15.0 million, or 0.9% from $1.673 billion at December 31, 2025. The change in total assets primarily reflects a decrease in cash and cash equivalents offset by an increase in loans receivable. Cash and cash equivalents decreased $12.8 million and gross loans receivable held for investment increased $30.8 million. Total liabilities at September 30, 2026, were $1.495 billion, an increase of $14.5 million, or 1.0% from $1.481 billion at December 31, 2025. Deposit balances increased by $59.1 million, short-term borrowings decreased by $4.9 million and long-term borrowings decreased by $40.6 million since December 31, 2025.
Total average assets increased 4.4% from $1.616 billion for the nine months ended September 30, 2025 to $1.686 billion for the nine months ended September 30, 2026. Average earning assets were $1.568 billion for the nine months ended September 30, 2026 and $1.509 billion for the nine months ended September 30, 2025. Average interest-bearing liabilities were $1.192 billion for the nine months ended September 30, 2026 and $1.155 billion for the nine months ended September 30, 2025.
Cash and cash equivalents decreased $12.8 million or 26.3% from $48.5 million at December 31, 2025 to $35.8 million at September 30, 2026. This decrease is directly related to the prepayment of long-term borrowings during the nine months ended September 30, 2026, which is discussed in further detail below.
Gross loans receivable held for investment increased $30.8 million or 2.6% to $1.208 billion at September 30, 2026 from $1.178 billion at December 31, 2025. Net new loan originations for the nine months ended September 30, 2026 totaled $35.4 million. Partially offsetting this increase was the sale of approximately $9.8 million in mortgage loans for the nine months ended September 30, 2026. On January 28, 2026, the Bank entered into an Asset Purchase and Interim Servicing Agreement pursuant to which the Bank agreed to sell a portfolio of 82 individual delinquent, nonperforming or reperforming 1-4 family residential mortgage loans. The outstanding principal balance of the loans was approximately $9.8 million. The sale resulted in reductions in past-due and nonaccrual residential real estate loans comparing respective September 30, 2026 and December 31, 2025 amounts.
Interest-bearing deposits increased $62.4 million to $1.198 billion at September 30, 2026 from $1.136 billion at December 31, 2025. Noninterest-bearing deposits decreased 1.2% from $277.0 million at December 31, 2025 to $273.7 million at September 30, 2026. The increase in total deposits during the nine months ended September 30, 2026 was a result of organic deposit growth in combination with a strategic initiative to reposition customer repurchase agreements, which are classified as short-term borrowings, into core deposit accounts.
Short-term borrowings, which consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term FHLB advances, decreased $4.9 million from $12.5 million at December 31, 2025 to $7.5 million at September 30, 2026. This change was exclusively related to a decrease in securities sold under agreements to repurchase due to the strategic initiative noted above. Short-term FHLB advances are utilized in the daily management of the Bank's loan and deposit portfolios. No short-term FHLB advances were outstanding at September 30, 2026 or December 31, 2025.
Long-term borrowings, which consist of advances due to the FHLB - Pittsburgh, totaled $40.6 million at December 31, 2025 and $0 at September 30, 2026. The Corporation prepaid, in full, its outstanding long-term FHLB borrowings during the nine months ended September 30, 2026. The prepayment of long-term borrowings was executed to reduce borrowing costs and enhance net interest margin on a prospective basis. The weighted-average FHLB interest rate of long-term borrowings which were prepaid was 3.96%.
Total stockholder's equity increased by $0.5 million, or 0.3%, from $192.5 million at December 31, 2025, to $193.0 million at September 30, 2026. This increase is primarily attributable to earnings, net of cash dividends, offset by an increase in accumulated other comprehensive loss due to changes in the fair values of available-for-sale debt securities. Accumulated other comprehensive loss amounted to $15.6 million as of September 30, 2026 and $4.0 million as of December 31, 2025.
The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased from 82.6% as of December 31, 2025 to 81.3% as of September 30, 2026 due to the asset/liability mix changes noted above, and remains within internal policy limits.
It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet are within manageable parameters. Constant monitoring using asset/liability reports and interest rate risk scenarios are in place along with quarterly asset/liability management meetings on the committee level by the Bank's Board of Directors. Additionally, the Bank's Asset/Liability Committee meets quarterly with an investment consultant and works with independent third parties regularly to review key assumptions and other metrics used in the modeling software.
Securities
The Corporation's investment securities portfolio provides a source of liquidity needed to meet expected loan demand and interest income to increase profitability. Additionally, the investment securities portfolio is used to meet pledging requirements to secure public deposits, customer repurchase agreements and for other purposes. Debt securities are classified as either available-for-sale or held-to-maturity at the time of purchase based on management's intent. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a component of stockholders' equity in accumulated other comprehensive income (loss), net of tax, while held-to-maturity securities are carried at amortized cost. At September 30, 2026 and December 31, 2025, all debt securities were classified as available-for-sale. Equity securities with readily determinable fair values are carried at fair value, with gains and losses due to fluctuations in market value included in the Consolidated Statements of Income. Securities with limited marketability and/or restrictions, such as FHLB of Pittsburgh stock, are carried at cost. Decisions to purchase or sell investment securities are based upon management's current assessment of long and short-term economic and financial conditions, including the interest rate environment and asset/liability management, liquidity and tax-planning strategies.
At September 30, 2026, the investment portfolio was comprised principally of available-for-sale debt securities including, fixed-rate, taxable and tax-exempt obligations of state and political subdivisions and fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include agencies, mortgage-backed securities and collateralized mortgage obligations, or CMOs. Additionally, the Corporation holds equity investments in the stock of certain publicly traded bank holding companies. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of stockholders' equity as of September 30, 2026.
The majority of the Corporation's debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. Generally, a security's value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder's equity, net of deferred income taxes. At September 30, 2026, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $15.6 million, net of deferred income taxes of $4.1 million, an increase of $11.5 million compared to the net unrealized holding loss of $4.0 million, net of deferred income taxes of $1.1 million, at December 31, 2025. Any future changes in interest rates could result in changes in the fair value of the Corporation's securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation's regulatory capital ratios.
The following table presents the carrying value of available-for-sale debt securities, at fair value at September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| (In Thousands) | Cost | Value | Cost | Value | ||||||||||||
| AVAILABLE-FOR-SALE DEBT SECURITIES: | ||||||||||||||||
| Obligations of U.S. Government agencies or corporations | $ | 96,599 | $ | 95,143 | $ | 54,500 | $ | 53,603 | ||||||||
| Mortgage-backed securities issued or guaranteed by U.S. Government agencies or corporations: | ||||||||||||||||
| Residential mortgage-backed securities | 162,363 | 149,329 | 190,299 | 182,347 | ||||||||||||
| Residential collateralized mortgage obligations | 5,139 | 5,238 | 5,758 | 6,217 | ||||||||||||
| Obligations of states and political subdivisions | 80,181 | 74,867 | 81,625 | 84,890 | ||||||||||||
| Other debt securities | 283 | 283 | 180 | 188 | ||||||||||||
| Total available-for-sale debt securities | $ | 344,565 | $ | 324,860 | $ | 332,362 | $ | 327,245 | ||||||||
| Aggregate Unrealized Loss | $ | (19,705 | ) | $ | (5,117 | ) | ||||||||||
| Aggregate Unrealized Loss as a % of Amortized Cost | (5.7% | ) | (1.5% | ) | ||||||||||||
The following table presents the weighted-average yields on available-for-sale debt securities by major category and maturity period at September 30, 2026. Yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security. Because mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity date, they are not included in the maturity categories in the following summary.
| Within | One- | Five- | After | |||||||||||||||||||||||||||||||||||||
| One | Five | Ten | Ten | |||||||||||||||||||||||||||||||||||||
| (Dollars In Thousands) | Year | Yield | Years | Yield | Years | Yield | Years | Yield | Total | Yield | ||||||||||||||||||||||||||||||
| AVAILABLE-FOR-SALE DEBT SECURITIES: | ||||||||||||||||||||||||||||||||||||||||
| Obligations of U.S. Government agencies or corporations | $ | 30,000 | 1.15% | $ | 57,650 | 4.35% | $ | 8,949 | 4.81% | $ | - | - | $ | 96,599 | 3.40% | |||||||||||||||||||||||||
| Obligations of state and political subdivisions | 1,833 | 3.36% | 10,834 | 4.12% | 34,090 | 4.21% | 33,424 | 4.62% | 80,181 | 4.35% | ||||||||||||||||||||||||||||||
| Other debt securities | - | - | 283 | 4.92% | - | - | - | - | 283 | 4.92% | ||||||||||||||||||||||||||||||
| Sub-total | $ | 31,833 | 1.28% | $ | 68,767 | 4.32% | $ | 43,039 | 4.33% | $ | 33,424 | 4.62% | $ | 177,063 | 3.83% | |||||||||||||||||||||||||
| Residential mortgage-backed securities | 162,363 | 3.67% | ||||||||||||||||||||||||||||||||||||||
| Residential collateralized mortgage obligations | 5,139 | 5.71% | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 344,565 | 3.78% | |||||||||||||||||||||||||||||||||||||
Marketable Equity Securities
At September 30, 2026 and December 31, 2025, the Corporation held $1.6 million and $1.4 million, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended September 30, 2026 and 2025:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| (In Thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Net gains recognized during the period on marketable equity securities | $ | 31 | $ | 48 | $ | 236 | $ | 28 | ||||||||
| Less: Net gains (losses) recognized during the period on marketable equity securities sold during the period | - | - | - | - | ||||||||||||
| Unrealized gains recognized during the period on marketable equity securities still held at the reporting date | $ | 31 | $ | 48 | $ | 236 | $ | 28 | ||||||||
See Note 2 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding Corporation's investment portfolio as of September 30, 2026.
Loans
Gross loans receivable increased 2.6% from $1.178 billion at December 31, 2025 to $1.208 billion at September 30, 2026. The percentage distribution in the loan portfolio is shown in the tables below at September 30, 2026, reflecting changes made to the Corporation's allowance methodology and related loan segments, and at December 31, 2025, reflecting the Corporation's previous allowance methodology and related loan segments:
| September 30, 2026 | ||||||||
| (In Thousands) | Amount | % | ||||||
| Commercial and industrial | $ | 59,023 | 4.9% | |||||
| Commercial real estate | 401,114 | 33.2% | ||||||
| All other commercial loans | 60,417 | 5.0% | ||||||
| Residential real estate | 675,880 | 55.9% | ||||||
| Consumer and other | 11,930 | 1.0% | ||||||
| Gross loans | $ | 1,208,364 | 100.0% | |||||
| December 31, 2025 | ||||||||
| (In Thousands) | Amount | % | ||||||
| Commercial and industrial | $ | 95,352 | 8.1% | |||||
| Commercial real estate: | ||||||||
| Commercial mortgages | 355,557 | 30.2% | ||||||
| Student housing | 48,043 | 4.1% | ||||||
| Residential real estate | 659,627 | 56.0% | ||||||
| Consumer and other | 19,002 | 1.6% | ||||||
| Gross loans | $ | 1,177,581 | 100.0% | |||||
Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Our lending activity is heavily concentrated in the geographic market areas we serve. This geographic concentration subjects our loan portfolio to the general economic conditions within the state. The risks created by this concentration have been considered by management and are monitored on an ongoing basis. As of September 30, 2026 and December 31, 2025, there were no concentrations of loans exceeding 10% of total loans other than the categories of loans disclosed in the table above. We believe our loan portfolio is diversified relative to industry concentrations across the various loan portfolio categories.
Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. At September 30, 2026 and December 31, 2025, the Bank's exposure to commercial real estate was well below these guidelines.
As of September 30, 2026, commercial real estate loans totaled $401.1 million or 33.2% of total gross loans. The following table presents the distribution of commercial real estate loans and related percentage of the total loan portfolio as of September 30, 2026 and December 31, 2025:
| September 30, 2026 | ||||||||
| (In Thousands) | Amount | % | ||||||
| Commercial real estate: | ||||||||
| Commercial construction | $ | 43,663 | 3.6% | |||||
| Multifamily | 81,984 | 6.8% | ||||||
| Owner occupied nonfarm nonresidential | 159,469 | 13.2% | ||||||
| Non-owner occupied nonfarm nonresidential | 115,998 | 9.6% | ||||||
| Total commercial real estate | $ | 401,114 | 33.2% | |||||
| December 31, 2025 | ||||||||
| (In Thousands) | Amount | % | ||||||
| Commercial real estate: | ||||||||
| Commercial mortgages: | ||||||||
| Commercial construction | $ | 19,105 | 1.6% | |||||
| Multifamily | 74,392 | 6.3% | ||||||
| Owner occupied nonfarm nonresidential | 122,506 | 10.4% | ||||||
| Non-owner occupied nonfarm nonresidential | 90,548 | 7.7% | ||||||
| Other commercial | 49,006 | 4.2% | ||||||
| Student housing | 48,043 | 4.1% | ||||||
| Total commercial real estate | $ | 403,600 | 34.3% | |||||
The following table presents the maturity distribution and interest rate information of the loan portfolio by major category as of September 30, 2026:
| As of September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed-Rate Loans | Variable- or Adjustable-Rate Loans | All Loans | ||||||||||||||||||||||||||||||||||||||||||
| 1 Year | 1-5 | 5-15 | >15 | 1 Year | 1-5 | 5-15 | >15 | |||||||||||||||||||||||||||||||||||||
| (In Thousands) | or Less | Years | Years | Years | Total | or Less | Years | Years | Years | Total | Total | |||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 3,531 | $ | 14,222 | $ | 5,620 | $ | 577 | $ | 23,950 | $ | 4,208 | $ | 6,667 | $ | 9,415 | $ | 14,783 | $ | 35,073 | $ | 59,023 | ||||||||||||||||||||||
| Commercial real estate | 2,722 | 10,658 | 19,750 | 801 | 33,931 | 6,458 | 11,223 | 97,434 | 252,068 | 367,183 | 401,114 | |||||||||||||||||||||||||||||||||
| All other commercial loans | 4,587 | 2,973 | 3,563 | - | 11,123 | 1,866 | 587 | 23,299 | 23,542 | 49,294 | 60,417 | |||||||||||||||||||||||||||||||||
| Residential real estate | 10,069 | 7,067 | 44,667 | 36,687 | 98,490 | 4,335 | 2,548 | 58,937 | 511,570 | 577,390 | 675,880 | |||||||||||||||||||||||||||||||||
| Consumer and other | 445 | 4,654 | 2,776 | 476 | 8,351 | 25 | 320 | 1,602 | 1,632 | 3,579 | 11,930 | |||||||||||||||||||||||||||||||||
| Total | $ | 21,354 | $ | 39,574 | $ | 76,376 | $ | 38,541 | $ | 175,845 | $ | 16,892 | $ | 21,345 | $ | 190,687 | $ | 803,595 | $ | 1,032,519 | $ | 1,208,364 | ||||||||||||||||||||||
See Note 3 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding the Corporation's loan portfolio as of September 30, 2026.
Asset Quality
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, net of deferred loan fees and costs, and reduced by the allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to earnings.
The Corporation has established and consistently applies loan policies and procedures designed to foster sound underwriting and credit monitoring practices. Credit risk is managed through the efforts of loan officers, the Chief Credit Officer, the loan review function, as well as oversight from the Board of Directors. Management continually evaluates its credit risk management practices to ensure problems in the loan portfolio are addressed in a timely manner, although, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions that are beyond management's control. Under the Corporation's risk rating system, loans are rated pass, special mention, substandard, doubtful, or loss, with all categories reviewed regularly as part of the risk management practices.
Non-performing loans are monitored on an ongoing basis as part of the Corporation's loan review process. Additionally, work-outs for non-performing loans and foreclosed assets held for sale are actively monitored through the Bank's Collections Department. A potential loss on a non-performing asset is generally determined by comparing the outstanding loan balance to the fair market value of the pledged collateral, less estimated cost to sell.
Management actively manages non-performing loans in an effort to mitigate loss to the Corporation by working with customers to develop strategies to resolve borrower difficulties, through sale or liquidation of collateral, foreclosure and other appropriate means. In addition, management monitors employment and economic conditions within its market area, as weakening of conditions could result in real estate devaluations and an increase in loan delinquencies, which could negatively impact asset quality and cause an increase in the provision for credit losses.
The following table presents information about non-performing assets, as of September 30, 2026 and December 31, 2025:
| September 30, | December 31, | |||||||
| (dollars in thousands) | 2026 | 2025 | ||||||
| Non-accrual loans | $ | 10,325 | $ | 11,523 | ||||
| Loans past due 90 days or more and still accruing | 146 | 135 | ||||||
| Total non-performing loans | 10,471 | 11,658 | ||||||
| Foreclosed assets held for sale | 801 | 320 | ||||||
| Total non-performing assets | $ | 11,272 | $ | 11,978 | ||||
| Non-performing loans as a percentage of total loans, gross | 0.87% | 0.99% | ||||||
| Non-performing assets as a percentage of total assets | 0.67% | 0.72% | ||||||
| Allowance for credit losses as a percentage of total loans, gross | 0.91% | 0.85% | ||||||
| Allowance for credit losses to non-performing assets | 97.87% | 83.14% | ||||||
Total non-performing assets amounted to $11,272,000, or 0.67% of total assets at September 30, 2026, as compared to $11,978,000, or 0.72% of total assets at December 31, 2025. For the nine months ended September 30, 2026, the Corporation experienced a decrease in nonaccrual loans, which was largely driven by nonaccrual residential real estate loans which decreased $1.6 million, primarily related to the loan sale mentioned previously.
Residential real estate non-accrual loans are generally related to a homogenous population of well secured loans collateralized by 1-4 family residential properties. With respect to commercial real estate non-accrual loans, the Corporation has experienced a limited number of large commercial relationships that have required significant monitoring and workout efforts. As a result, these relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.
Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of September 30, 2026. Management continues to closely monitor its loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.
Allowance for Credit Losses
The allowance for credit losses was $11.0 million and $10.0 million at September 30, 2026 and December 31, 2025, respectively. The allowance equaled 0.91% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at September 30, 2026 and 0.85% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at December 31, 2025. The allowance for credit losses is analyzed quarterly and reviewed by the Corporation's Board of Directors. Regular loan meetings with the Corporation's Board of Directors reviewed new loans over specified thresholds. Delinquent loans, loan exceptions and certain large loans are reviewed by the full Board no less than monthly to determine compliance with policies.
The following tables present the allocation of the allowance for credit losses as of September 30, 2026, reflecting the changes made to the Corporation's allowance methodology described in further detail below, and December 31, 2025, reflecting the Corporation's previous allowance methodology:
| September 30, 2026 | ||||||||||||
| (dollars in thousands) |
Allowance for Credit Losses |
Percent of Allowance |
Percent of Loans to Gross Loans |
|||||||||
| Commercial and industrial | $ | 686 | 6.2% | 4.9% | ||||||||
| Commercial real estate | 5,185 | 47.0% | 33.2% | |||||||||
| All other commercial loans | 308 | 2.8% | 5.0% | |||||||||
| Residential real estate | 4,621 | 41.9% | 55.9% | |||||||||
| Consumer and other | 232 | 2.1% | 1.0% | |||||||||
| Total | $ | 11,032 | 100.0% | 100.0% | ||||||||
| December 31, 2025 | ||||||||||||
| (dollars in thousands) |
Allowance for Credit Losses |
Percent of Allowance |
Percent of Loans to Gross Loans |
|||||||||
| Commercial and industrial | $ | 1,037 | 10.4% | 8.1% | ||||||||
| Commercial real estate | 6,148 | 61.7% | 34.3% | |||||||||
| Residential real estate | 2,556 | 25.7% | 56.0% | |||||||||
| Consumer and other | 218 | 2.2% | 1.6% | |||||||||
| Total | $ | 9,959 | 100.0% | 100.0% | ||||||||
Effective September 30, 2026, the Corporation changed its methodology for estimating the ACL on loans and other financial assets subject to ASC 326, Financial Instruments-Credit Losses. The change was made to enhance the precision of the Corporation's estimate of expected credit losses by incorporating a new cash flow methodology to better reflect the risk characteristics and expected cash flows of the Corporation's loan portfolio.
Prior to the change, the Corporation estimated expected credit losses using primarily a probability of default methodology. Under the revised methodology, the Corporation utilizes a cash flow model to calculate the sum of expected losses via a gross loss rate and recovery rate assumption for pools of loans that share similar risk characteristics to estimate expected credit losses over the contractual term of the applicable financial assets, adjusted for expected prepayments and other relevant factors. The revised methodology incorporates federal call report loan codes as the segmentation mechanism.
The change in methodology represents a change in accounting estimate resulting from an improvement in the Corporation's estimation methodology and does not represent a change in the underlying accounting principle or requirements of ASC 326. Accordingly, the change has been accounted for prospectively in the period of change.
The effect of the change in methodology on the ACL as of September 30, 2026 was an increase of approximately $100,000. The change resulted in an increase in provision for credit losses on loans of approximately $100,000 for the three and nine-month periods ended September 30, 2026. The effect on net income was approximately $79,000, or $0.01 per basic and diluted share, after consideration of the related income tax effect.
The overall level of the ACL increased from $10.0 million at December 31, 2025 to $11.0 million at September 30, 2026. The largest changes on an individual segment basis from December 31, 2025 to September 30, 2026 include a decrease in commercial real estate loans from $6.1 million at December 31, 2025 to $5.2 million at September 30, 2026, as well as an increase in residential real estate loans from $2.6 million at December 31, 2025 to $4.6 million at September 30, 2026. The decrease for commercial real estate loans is primarily related to a decrease in the ACL on individually evaluated loans from $3.6 million at December 31, 2025 to $0.4 million at September 30, 2026, partially offset by an increase in the ACL on collectively evaluated loans from $2.4 million at December 31, 2025 to $4.8 million at September 30, 2026. These changes include the impact of lower individually evaluated allowances related to student housing loans, which are no longer individually evaluated in the Corporation's new ACL methodology, as well as an increase in total loan volume and higher homogenous loan loss rates related to the implementation of the Corporation's new ACL methodology. The increase for residential real estate loans is primarily related to an increase in the ACL on collectively evaluated loans from $2.3 million at December 31, 2025 to $4.2 million at September 30, 2026. This change includes the impact of an increase in total loan volume and higher homogenous loan loss rates related to the implementation of the Corporation's new ACL methodology.
See Notes 1 and 3 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding the Corporation's allowance for credit losses as of September 30, 2026.
Deposits
Deposits are the primary source of funds for the Corporation's lending and investing activities. The Corporation provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts and time deposits. These accounts generally earn interest at rates the Corporation establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in commercial loan pricing decisions. While the Corporation's primary focus is on establishing customer relationships to attract core deposits, at times, the Corporation may use brokered deposits and other wholesale deposits to supplement its funding sources. As of September 30, 2026, the Corporation held no brokered deposits.
The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three and nine months ended September 30, 2026 and 2025, respectively:
| For the Three Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||
| Average | Average | Average | Average | Balance Change | ||||||||||||||||||||
| Balance | Rate | Balance | Rate | Amount | % | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Non-interest bearing | $ | 276,898 | - | % | $ | 273,870 | - | % | $ | 3,028 | 1.1 | % | ||||||||||||
| Savings | 197,081 | 0.03 | 194,417 | 0.03 | 2,664 | 1.4 | ||||||||||||||||||
| Interest-bearing demand deposits | 472,991 | 2.00 | 440,018 | 2.29 | 32,973 | 7.5 | ||||||||||||||||||
| Money market deposits | 115,362 | 1.87 | 105,762 | 1.98 | 9,600 | 9.1 | ||||||||||||||||||
| Time deposits | 392,923 | 3.32 | 365,505 | 3.44 | 27,418 | 7.5 | ||||||||||||||||||
| Total deposits | $ | 1,455,255 | 1.70 | % | $ | 1,379,572 | 1.80 | % | $ | 75,683 | 5.5 | % | ||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||
| Average | Average | Average | Average | Balance Change | ||||||||||||||||||||
| Balance | Rate | Balance | Rate | Amount | % | |||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||
| Non-interest bearing | $ | 277,904 | - | % | $ | 270,428 | - | % | $ | 7,476 | 2.8 | % | ||||||||||||
| Savings | 196,248 | 0.03 | 194,750 | 0.03 | 1,498 | 0.8 | ||||||||||||||||||
| Interest-bearing demand deposits | 460,193 | 1.98 | 415,247 | 2.26 | 44,946 | 10.8 | ||||||||||||||||||
| Money market deposits | 114,770 | 1.91 | 104,349 | 1.91 | 10,421 | 10.0 | ||||||||||||||||||
| Time deposits | 390,889 | 3.31 | 360,770 | 3.54 | 30,119 | 8.3 | ||||||||||||||||||
| Total deposits | $ | 1,440,004 | 1.69 | % | $ | 1,345,544 | 1.80 | % | $ | 94,460 | 7.0 | % | ||||||||||||
The Corporation believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2026 was 2.10% and 2.09%, respectively. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2025 was 2.24% and 2.25%, respectively.
At September 30, 2026, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Insurance Corporation insurance limit, totaled $406.0 million. Of this amount, $193.5 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $113.0 million at September 30, 2026.
See Note 4 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding the Corporation's deposits as of September 30, 2026.
Borrowings
Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances. Average short-term borrowings amounted to 0.8% and 1.0% of total average interest-bearing liabilities for the three and nine months ended September 30, 2026, respectively. Average short-term borrowings amounted to 1.5% and 2.8% of total average interest-bearing liabilities for the three and nine months ended September 30, 2025, respectively.
Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans are secured by certain qualifying assets of the Bank which consist principally of first mortgage loans. The carrying value of these collateralized items was $863.8 million at September 30, 2026. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB - Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $622.1 million at September 30, 2026. The unused portion of these lines of credit was $595.7 million at September 30, 2026.
See Note 5 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding the Corporation's borrowings as of September 30, 2026.
Capital Resources
Management believes, as of September 30, 2026, that Journey Bank meets all capital adequacy requirements to which it is subject. Management annually performs stress testing on its regulatory capital levels and expects Journey Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future.
Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, Journey Bank is subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although Muncy Columbia Financial Corporation is not subject to the specific consolidated capital requirements, its ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if it fails to hold sufficient capital commensurate with its overall risk profile.
The following table reflects the Bank's actual capital amounts and ratios at September 30, 2026 and December 31, 2025:
| Journey Bank |
Minimum Required For Capital Adequacy Purposes |
Minimum Required For Capital Adequacy Purposes with Conservation Buffer |
Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations |
|||||||||||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||||||
| September 30, 2026 | ||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | 185,115 | 18.18 | % | 8.00 | % | 10.50 | % | 10.00 | % | ||||||||||
| Tier I capital (to risk-weighted assets) | 174,217 | 17.11 | % | 6.00 | % | 8.50 | % | 8.00 | % | |||||||||||
| Tier I common equity (to risk-weighted assets) | 174,217 | 17.11 | % | 4.50 | % | 7.00 | % | 6.50 | % | |||||||||||
| Tier I capital (to average assets) | 174,217 | 10.50 | % | 4.00 | % | 4.00 | % | 5.00 | % | |||||||||||
| Total risk-weighted assets | 1,018,459 | |||||||||||||||||||
| Total average assets | 1,659,254 | |||||||||||||||||||
| Journey Bank |
Minimum Required For Capital Adequacy Purposes |
Minimum Required For Capital Adequacy Purposes with Conservation Buffer |
Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations |
|||||||||||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||||||
| December 31, 2025 | ||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | 170,931 | 16.87 | % | 8.00 | % | 10.50 | % | 10.00 | % | ||||||||||
| Tier I capital (to risk-weighted assets) | 161,300 | 15.92 | % | 6.00 | % | 8.50 | % | 8.00 | % | |||||||||||
| Tier I common equity (to risk-weighted assets) | 161,300 | 15.92 | % | 4.50 | % | 7.00 | % | 6.50 | % | |||||||||||
| Tier I capital (to average assets) | 161,300 | 9.93 | % | 4.00 | % | 4.00 | % | 5.00 | % | |||||||||||
| Total risk-weighted assets | 1,013,109 | |||||||||||||||||||
| Total average assets | 1,624,578 | |||||||||||||||||||
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 2026 was $6.0 million, or $0.57 per share, compared to $6.7 million, or $0.63 per share, for the three months ended September 30, 2025. Net income for the nine months ended September 30, 2026 was $20.4 million, or $1.92 per share, compared to $16.8 million, or $1.59 per share, for the nine months ended September 30, 2025. The decrease in net income for the three months ended September 30, 2026, compared to the same period in 2025, was primarily attributable to an increase in net interest income, offset by a decrease in non-interest income. The increase in net income for the nine months ended September 30, 2026, compared to the same period in 2025, was primarily attributable to a significant increase in net interest income, partially offset by a decrease in non-interest income.
Net interest income increased $2.0 million, or 12.7% to $17.6 million for the three months ended September 30, 2026, from $15.7 million for the same period in 2025. Non-interest income was $0.6 million for the three months ended September 30, 2026, a decrease of $2.3 million, or 78.9%, from $2.9 million for the same period in 2025, which primarily reflected increases in realized losses on available-for-sale debt securities. Non-interest expense was $10.1 million for the three months ended September 30, 2026, an increase of $0.1 million, or 0.7%, from $10.0 million for the same period in 2025, which was primarily related to increases in salaries and employee benefits partially offset by decreases in professional fees and other non-interest expense.
Net interest income increased $6.5 million, or 14.7% to $50.8 million for the nine months ended September 30, 2026, from $44.3 million for the same period in 2025. Non-interest income was $5.7 million for the nine months ended September 30, 2026, a decrease of $1.9 million, or 25.3%, from $7.6 million for the same period in 2025, which primarily reflected increases in gain on settlement of bank-owned life insurance claims and other non-interest income offset by increases in loss on sale of loans and realized losses on available-for-sale debt securities. Non-interest expense was $30.7 million for the nine months ended September 30, 2026, a decrease of $0.3 million, or 0.8%, from $30.9 million for the same period in 2025, which was primarily related to an increase in salaries and employee benefits offset by a decrease in other non-interest expense.
For the three and nine months ended September 30, 2026, the annualized return on average assets was 1.42% and 1.61%, respectively, compared to 1.63% and 1.39%, respectively for the comparable periods of 2025. The annualized return on average equity was 11.97% and 13.79%, respectively, for the three and nine months ended September 30, 2026, compared to 14.81% and 12.88%, respectively, for the comparable periods of 2025. For the three months ended September 30, 2026 total cash dividends of $0.155 per share were declared as compared to $0.150 for the same period of 2025. For the nine months ended September 30, 2026, total cash dividends of $0.797 per share were declared as compared to $0.617 for the same period of 2025, which included the impact of special one-time dividends of $0.333 per share and $0.167 per share for the nine months ended September 30, 2026 and 2025, respectively.
Net Interest Income
Net interest income is the difference between (i) interest income, interest and fees on interest-earning assets, and (ii) interest expense, interest paid on deposits and borrowed funds. Net interest income represents the largest component of the Corporation's operating income and, as such, is the primary determinant of profitability. Net interest income is impacted by variations in the volume, rate and composition of earning assets and interest-bearing liabilities, changes in general market interest rates and the level of non-performing assets. Interest income is shown on a fully tax-equivalent basis using the corporate statutory tax rate of 21.0% in 2026 and 2025.
Tax-equivalent net interest income increased $2.0 million, or 12.4%, to $17.9 million for the three months ended September 30, 2026 compared to $15.9 million for the same period in 2025. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, along with a decrease in interest expense which resulted primarily from a significant decrease in average borrowings coupled with a decrease in the average rate paid on total interest-bearing liabilities. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation's tax-equivalent net interest margin increased 39 basis points to 4.54% for the three months ended September 30, 2026 compared to 4.15% for the same period of 2025, which was largely caused by increases in yields on earning assets along with a decrease in total cost of funds. Additionally, interest rate spread, the difference between the average yield on interest-earning assets, shown on a fully tax-equivalent basis, and the average cost of interest-bearing liabilities, increased 44 basis points to 4.03% for the three months ended September 30, 2026 compared to 3.59% for the same period in 2025.
Tax-equivalent interest income increased $1.4 million, or 6.0%, to $24.3 million for the three months ended September 30, 2026 from $22.9 million for the same period in 2025, which was largely caused by growth in average earning assets, coupled with an increase in the tax-equivalent yield on average earning assets. Average earning assets increased $40.6 million, or 2.7%, to $1.566 billion for the three months ended September 30, 2026 from $1.525 billion for the same period in 2025, resulting in a corresponding increase to tax-equivalent interest income of $0.6 million. Specifically, average loans increased $37.2 million, or 3.2%, to $1.212 billion for the three months ended September 30, 2026 from $1.175 billion for the same period in 2025, which reflected strong organic loan growth, partially offset by the loan sale noted above. Total investment securities averaged $340.3 million for the three months ended September 30, 2026, an increase of $21.9 million, or 6.9%, compared to $318.4 million for the same period in 2025. The tax-equivalent yield on earning assets increased 19 basis points to 6.15% for the three months ended September 30, 2026 from 5.96% for the same period in 2025, which resulted in a corresponding increase in tax-equivalent interest income of $0.8 million. The Corporation's tax-equivalent yield on loans increased 11 basis points to 6.81% for the three months ended September 30, 2026 compared to 6.70% for the same period in 2025, resulting in a corresponding increase in tax-equivalent interest income of $0.3 million. Meanwhile, the tax-equivalent yield on investment securities increased 53 basis points to 3.91% for the three months ended September 30, 2026 from 3.38% for the same period in 2025 and caused a corresponding increase to tax-equivalent interest income of $0.5 million.
Interest expense decreased $0.6 million, or 8.9%, to $6.3 million for the three months ended September 30, 2026 from $6.9 million for the same period in 2025, which was primarily from a significant decrease in average borrowings, coupled with a lower overall cost of funds. Average borrowed funds, which are largely comprised of customer repurchase agreements and FHLB of Pittsburgh advances, averaged $9.9 million for the three months ended September 30, 2026, a decrease of $51.4 million from $61.2 million for the same period in 2025. Lower volumes of average borrowed funds resulted in a corresponding decrease in interest expense of $0.6 million. Total average interest-bearing deposits increased $72.7 million, or 6.6%, to $1.178 billion for the three months ended September 30, 2026, compared to $1.106 billion for the same period in 2025, which resulted in a corresponding increase in interest expense of $0.5 million. For the three months ended September 30, 2026, the Corporation's cost of funds decreased 25 basis points to 2.11% from 2.36% for the same period in 2025. The average rate paid on total borrowings decreased to 3.78% for the three months ended September 30, 2026 from 4.50% for the same period in 2025. The average rate paid on total interest-bearing deposits decreased 14 basis points to 2.10% for the three months ended September 30, 2026 from 2.24% for the same period in 2025, which resulted in a corresponding decrease in interest expense of $0.5 million.
On a year-to-date basis, tax equivalent net interest income increased $6.5 million, or 14.4%, to $51.8 million for the nine months ended September 30, 2026, from $45.2 million for the comparable period of 2025. The increase in tax-equivalent net interest income for the year-to-date period was largely due to a $5.2 million, or 7.8%, increase in tax equivalent interest income, to $71.2 million, from $66.0 million for 2025, combined with a decrease in interest expense of $1.4 million, or 6.5%, to $19.4 million for the nine months ended September 30, 2026, from $20.8 million for the nine months ended September 30, 2025. Similar to the quarterly period, the $5.2 million or 7.8%, increase in year-to-date tax equivalent interest income was primarily due to higher earning-asset yields, coupled with an increase in average earning assets balances. The tax-equivalent yield on average earning assets increased 22 basis points to 6.07% for the nine months ended September 30, 2026 from 5.85% for the same period in 2025, which resulted in a corresponding increase of $2.9 million to tax-equivalent interest income. The tax-equivalent yield on loans increased 12 basis points, while the tax-equivalent yield on investments increased 68 basis points comparing the year-to-date periods of 2026 and 2025, which resulted in corresponding increases in tax-equivalent interest income of $1.1 million and $1.9 million, respectively. Regarding earning-asset volumes, total average earning assets increased $59.7 million, or 4.0%, to $1.568 billion for the nine months ended September 30, 2026, from $1.509 billion for the same period of 2025, which resulted in a corresponding increase in tax-equivalent interest income of $2.3 million. Similar to the quarterly period, this was primarily due to an increase in average total loans which increased $34.7 million, or 3.0%, to $1.197 billion for the nine months ended September 30, 2026, from $1.162 billion for the same comparable period of 2025, which was primarily as a result of strong organic loan demand. This increase resulted in a corresponding increase in tax-equivalent interest income of $1.8 million.
The $1.4 million, or 6.5%, decrease in year-to-date interest expense was largely due to a significant decrease in average total borrowings. Average borrowed funds totaled $29.7 million for the nine months ended September 30, 2026, a decrease of $50.5 million from $80.2 million for the same period in 2025. Lower volumes of average borrowed funds resulted in a corresponding decrease in interest expense of $1.7 million. This decrease was partially offset by an increase in interest-bearing deposit volumes. Comparing the year-to-date periods of 2026 and 2025, average interest-bearing deposits increased $87.0 million, or 8.1%, to $1.162 billion from $1.075 billion, respectively, increasing interest expense by $1.7 million.
The following Average Balance Sheet and Rate Analysis tables present the average assets, actual income or expense and the average yield on assets, liabilities and stockholders' equity for the three and nine months ended September 30, 2026 and 2025.
AVERAGE BALANCE SHEET AND RATE ANALYSIS
THREE MONTHS ENDED SEPTEMBER 30,
| 2026 | 2025 | |||||||||||||||||||||||
| (In Thousands) |
Average Balance |
Interest |
Average Rate |
Average Balance |
Interest |
Average Rate |
||||||||||||||||||
| ASSETS: | (1) | (1) | ||||||||||||||||||||||
| Tax-exempt loans | $ | 38,622 | $ | 475 | 4.88 | % | $ | 39,442 | $ | 470 | 4.73 | % | ||||||||||||
| All other loans | 1,173,140 | 20,326 | 6.87 | % | 1,135,079 | 19,365 | 6.77 | % | ||||||||||||||||
| Total loans (2)(3)(4) | 1,211,762 | 20,801 | 6.81 | % | 1,174,521 | 19,835 | 6.70 | % | ||||||||||||||||
| Taxable securities | 261,858 | 2,311 | 3.50 | % | 240,268 | 1,647 | 2.72 | % | ||||||||||||||||
| Tax-exempt securities (3) | 78,487 | 1,046 | 5.29 | % | 78,184 | 1,069 | 5.42 | % | ||||||||||||||||
| Total securities | 340,345 | 3,357 | 3.91 | % | 318,452 | 2,716 | 3.38 | % | ||||||||||||||||
| Interest-bearing deposits in other banks | 13,822 | 105 | 3.01 | % | 32,403 | 348 | 4.26 | % | ||||||||||||||||
| Total interest-earning assets | 1,565,929 | 24,263 | 6.15 | % | 1,525,376 | 22,899 | 5.96 | % | ||||||||||||||||
| Other assets | 119,043 | 111,828 | ||||||||||||||||||||||
| TOTAL ASSETS | $ | 1,684,972 | $ | 1,637,204 | ||||||||||||||||||||
| LIABILITIES: | ||||||||||||||||||||||||
| Savings | $ | 197,081 | 15 | 0.03 | % | $ | 194,417 | 15 | 0.03 | % | ||||||||||||||
| Now deposits | 472,991 | 2,385 | 2.00 | % | 440,018 | 2,543 | 2.29 | % | ||||||||||||||||
| Money market deposits | 115,362 | 545 | 1.87 | % | 105,762 | 527 | 1.98 | % | ||||||||||||||||
| Time deposits | 392,923 | 3,293 | 3.32 | % | 365,505 | 3,170 | 3.44 | % | ||||||||||||||||
| Total interest-bearing deposits | 1,178,357 | 6,238 | 2.10 | % | 1,105,702 | 6,255 | 2.24 | % | ||||||||||||||||
| Short-term borrowings | 9,857 | 94 | 3.78 | % | 17,163 | 168 | 3.88 | % | ||||||||||||||||
| Long-term borrowings | - | - | 0.00 | % | 44,072 | 527 | 4.74 | % | ||||||||||||||||
| Total borrowings | 9,857 | 94 | 3.78 | % | 61,235 | 695 | 4.50 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,188,214 | 6,332 | 2.11 | % | 1,166,937 | 6,950 | 2.36 | % | ||||||||||||||||
| Noninterest-bearing deposits | 276,898 | 273,870 | ||||||||||||||||||||||
| Other liabilities | 19,501 | 16,387 | ||||||||||||||||||||||
| Stockholders' equity | 200,359 | 180,010 | ||||||||||||||||||||||
| TOTAL LIABILITIES AND | ||||||||||||||||||||||||
| STOCKHOLDERS' EQUITY | $ | 1,684,972 | $ | 1,637,204 | ||||||||||||||||||||
| Interest rate spread (6) | 4.03 | % | 3.59 | % | ||||||||||||||||||||
| Net interest income/margin (5) | $ | 17,931 | 4.54 | % | $ | 15,949 | 4.15 | % | ||||||||||||||||
(1) Average volume information was compared using daily averages for interest-earning and bearing accounts.
(2) Interest on loans includes loan fee income.
(3) Tax exempt interest revenue is shown on a tax-equivalent basis using a statutory federal income tax rate of 21 percent for 2026 and 2025.
(4) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(5) Net interest margin is computed by dividing annualized tax-equivalent net interest income by total interest earning assets.
(6) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
AVERAGE BALANCE SHEET AND RATE ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30,
| 2026 | 2025 | |||||||||||||||||||||||
| (In Thousands) |
Average Balance |
Interest |
Average Rate |
Average Balance |
Interest |
Average Rate |
||||||||||||||||||
| ASSETS: | (1) | (1) | ||||||||||||||||||||||
| Tax-exempt loans | $ | 40,883 | $ | 1,484 | 4.85 | % | $ | 41,227 | $ | 1,491 | 4.84 | % | ||||||||||||
| All other loans | 1,155,678 | 59,313 | 6.86 | % | 1,120,688 | 56,454 | 6.74 | % | ||||||||||||||||
| Total loans (2)(3)(4) | 1,196,561 | 60,797 | 6.79 | % | 1,161,915 | 57,945 | 6.67 | % | ||||||||||||||||
| Taxable securities | 271,903 | 6,620 | 3.26 | % | 252,482 | 4,388 | 2.32 | % | ||||||||||||||||
| Tax-exempt securities (3) | 79,035 | 3,197 | 5.41 | % | 79,013 | 3,197 | 5.41 | % | ||||||||||||||||
| Total securities | 350,938 | 9,817 | 3.74 | % | 331,495 | 7,585 | 3.06 | % | ||||||||||||||||
| Interest-bearing deposits in other banks | 20,881 | 568 | 3.64 | % | 15,279 | 483 | 4.23 | % | ||||||||||||||||
| Total interest-earning assets | 1,568,380 | 71,182 | 6.07 | % | 1,508,689 | 66,013 | 5.85 | % | ||||||||||||||||
| Other assets | 118,053 | 107,209 | ||||||||||||||||||||||
| TOTAL ASSETS | $ | 1,686,433 | $ | 1,615,898 | ||||||||||||||||||||
| LIABILITIES: | ||||||||||||||||||||||||
| Savings | $ | 196,248 | 44 | 0.03 | % | $ | 194,750 | 44 | 0.03 | % | ||||||||||||||
| Now deposits | 460,193 | 6,830 | 1.98 | % | 415,247 | 7,016 | 2.26 | % | ||||||||||||||||
| Money market deposits | 114,770 | 1,636 | 1.91 | % | 104,349 | 1,491 | 1.91 | % | ||||||||||||||||
| Time deposits | 390,889 | 9,673 | 3.31 | % | 360,770 | 9,542 | 3.54 | % | ||||||||||||||||
| Total interest-bearing deposits | 1,162,100 | 18,183 | 2.09 | % | 1,075,116 | 18,093 | 2.25 | % | ||||||||||||||||
| Short-term borrowings | 11,797 | 306 | 3.47 | % | 31,945 | 963 | 4.03 | % | ||||||||||||||||
| Long-term borrowings | 17,865 | 932 | 6.97 | % | 48,259 | 1,721 | 4.77 | % | ||||||||||||||||
| Total borrowings | 29,662 | 1,238 | 5.58 | % | 80,204 | 2,684 | 4.47 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,191,762 | 19,421 | 2.18 | % | 1,155,320 | 20,777 | 2.40 | % | ||||||||||||||||
| Noninterest-bearing deposits | 277,904 | 270,428 | ||||||||||||||||||||||
| Other liabilities | 19,414 | 15,362 | ||||||||||||||||||||||
| Stockholders' equity | 197,353 | 174,788 | ||||||||||||||||||||||
| TOTAL LIABILITIES AND | ||||||||||||||||||||||||
| STOCKHOLDERS' EQUITY | $ | 1,686,433 | $ | 1,615,898 | ||||||||||||||||||||
| Interest rate spread (6) | 3.89 | % | 3.45 | % | ||||||||||||||||||||
| Net interest income/margin (5) | $ | 51,761 | 4.41 | % | $ | 45,236 | 4.01 | % | ||||||||||||||||
(1) Average volume information was compared using daily averages for interest-earning and bearing accounts.
(2) Interest on loans includes loan fee income.
(3) Tax exempt interest revenue is shown on a tax-equivalent basis using a statutory federal income tax rate of 21 percent for 2026 and 2025.
(4) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(5) Net interest margin is computed by dividing annualized tax-equivalent net interest income by total interest earning assets.
(6) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
| Reconcilement of Taxable Equivalent Net Interest Income | ||||||||||||||||
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| (In Thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Total interest income | $ | 23,966 | $ | 22,601 | $ | 70,266 | $ | 65,104 | ||||||||
| Total interest expense | 6,333 | 6,950 | 19,421 | 20,777 | ||||||||||||
| Net interest income | 17,633 | 15,651 | 50,845 | 44,327 | ||||||||||||
| Tax equivalent adjustment | 298 | 298 | 916 | 909 | ||||||||||||
| Net interest income | ||||||||||||||||
| (fully taxable equivalent) | $ | 17,931 | $ | 15,949 | $ | 51,761 | $ | 45,236 | ||||||||
Rate/Volume Analysis
To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for the three and nine months ended September 30, 2026 versus September 30, 2025:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 vs 2025 | 2026 vs 2025 | |||||||||||||||||||||||
| Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||
| Due to | Due to | |||||||||||||||||||||||
| (In Thousands) | Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Loans, tax-exempt | $ | (10 | ) | $ | 14 | $ | 4 | $ | (12 | ) | $ | 5 | $ | (7 | ) | |||||||||
| Loans | 649 | 312 | 961 | 1,763 | 1,096 | 2,859 | ||||||||||||||||||
| Taxable investment securities | 150 | 514 | 664 | 338 | 1,894 | 2,232 | ||||||||||||||||||
| Tax-exempt investment securities | (10 | ) | (13 | ) | (23 | ) | 1 | (1 | ) | - | ||||||||||||||
| Interest bearing deposits | (193 | ) | (50 | ) | (243 | ) | 177 | (92 | ) | 85 | ||||||||||||||
| Total interest-earning assets | 586 | 777 | 1,363 | 2,267 | 2,902 | 5,169 | ||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Savings | - | - | - | - | - | - | ||||||||||||||||||
| NOW deposits | 192 | (350 | ) | (158 | ) | 759 | (945 | ) | (186 | ) | ||||||||||||||
| Money market deposits | 48 | (30 | ) | 18 | 149 | (4 | ) | 145 | ||||||||||||||||
| Time deposits | 237 | (114 | ) | 123 | 797 | (666 | ) | 131 | ||||||||||||||||
| Short-term borrowings | (70 | ) | (4 | ) | (74 | ) | (607 | ) | (50 | ) | (657 | ) | ||||||||||||
| Long-term borrowings, FHLB | (521 | ) | (6 | ) | (527 | ) | (1,084 | ) | 295 | (789 | ) | |||||||||||||
| Total interest-bearing liabilities | (114 | ) | (504 | ) | (618 | ) | 14 | (1,370 | ) | (1,356 | ) | |||||||||||||
| Change in net interest income | $ | 700 | $ | 1,281 | $ | 1,981 | $ | 2,253 | $ | 4,272 | $ | 6,525 | ||||||||||||
Provision for Credit Losses
A summary of the provision for credit losses for the three and nine months ended September 30, 2026 and 2025, is as follows:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| (In Thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Provision for credit losses: | ||||||||||||||||
| Loans receivable | $ | 821 | $ | 475 | $ | 1,283 | $ | 841 | ||||||||
| Off-balance sheet exposures | 121 | 4 | 122 | 2 | ||||||||||||
| Total provision for credit losses | $ | 942 | $ | 479 | $ | 1,405 | $ | 843 | ||||||||
For the three months ended September 30, 2026, there was a provision for credit losses of $942,000, an increase of $463,000 in expense compared to a provision for credit losses of $479,000 for the three months ended September 30, 2025. The provision for the three months ended September 30, 2026 included expense related to loans receivable of $821,000 and off-balance sheet exposures of $121,000. For the nine months ended September 30, 2026, there was a provision for credit losses of $1,405,000, an increase of $562,000 in expense compared to a provision for credit losses of $843,000 for the nine months ended September 30, 2025. The $1,405,000 provision for the nine months ended September 30, 2026 included expense related to loans receivable of $1,283,000 and off-balance sheet exposures of $122,000.
The provision amounts for the three and nine months ended September 30, 2026 and 2025 primarily reflect an increase in volume in the loan portfolio, changes in qualitative factors as well as changes related to the implementation of the Corporation's new ACL methodology effective September 30, 2026, as described above.
See Notes 1 and 3 within the Corporation's Notes to the Unaudited Consolidated Financial Statements which are included in this Quarterly Report on Form 10-Q for more information regarding the Corporation's allowance for credit losses as of September 30, 2026.
Non-interest Income
Total non-interest income decreased $2,281,000 or 78.9% to $611,000 for the three months ended September 30, 2026, compared to $2,892,000 for the three months ended September 30, 2025. Realized losses on available-for-sale debt securities, net, totaled $2,404,000 for the three months ended September 30, 2026. No realized losses on available-for-sale debt securities were recognized during the three months ended September 30, 2025. During the three months ended September 30, 2026, the Corporation sold certain available-for-sale debt securities at a loss as part of a balance sheet repositioning strategy designed to improve the Corporation's net interest margin and enhance future earnings potential. The securities sold generally carried substantially lower contractual yields relative to the yields available on comparable securities at the time of reinvestment. The proceeds from the sales were reinvested in higher-yielding securities, which management expects will contribute to improved interest income and net interest margin in future periods, subject to changes in market interest rates, deposit costs, balance sheet composition, and other factors affecting the Corporation's net interest margin.
For the nine months ended September 30, 2026, total non-interest income decreased $1,913,000 or 25.3% to $5,661,000, compared to $7,574,000 for the nine months ended September 30, 2025. Consistent with the quarterly period, realized losses on available-for-sale debt securities, net, resulted in a decrease of $3,423,000. Additionally, for the nine months ended September 30, 2026, a $354,000 loss on sale of loans was recorded, compared to a gain on sale of loans of $340,000 for the nine months ended September 30, 2025, which relates to the loan sale noted above. Offsetting these decreases was an increase of $485,000 in gains recognized related to bank-owned life insurance claims as well as an increase in other non-interest income of $1,180,000 which was primarily related to incentives received pursuant to the Bank's debit card processing contract and a sales tax refund received from the Commonwealth of Pennsylvania resulting from a state sales and use tax review engagement during the nine months ended September 30, 2026.
| For the Three Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | Change | ||||||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | ||||||||||||||||||
| Service charges and fees | $ | 777 | 127.2 | % | $ | 774 | 26.8 | % | $ | 3 | 0.4 | % | ||||||||||||
| Interchange fees | 659 | 107.9 | 671 | 23.2 | (12 | ) | (1.8 | ) | ||||||||||||||||
| Gain on sale of loans | 128 | 20.9 | 186 | 6.4 | (58 | ) | (31.2 | ) | ||||||||||||||||
| Earnings on bank-owned life insurance | 257 | 42.1 | 235 | 8.1 | 22 | 9.4 | ||||||||||||||||||
| Gain on settlement of bank-owned life insurance claims | - | - | 120 | 4.1 | (120 | ) | 100.0 | |||||||||||||||||
| Brokerage | 289 | 47.3 | 215 | 7.4 | 74 | 34.4 | ||||||||||||||||||
| Trust | 299 | 48.9 | 268 | 9.3 | 31 | 11.6 | ||||||||||||||||||
| Gains on marketable equity securities | 31 | 5.1 | 48 | 1.7 | (17 | ) | (35.4 | ) | ||||||||||||||||
| Realized losses on available-for-sale debt securities, net | (2,404 | ) | (393.5 | ) | - | - | (2,404 | ) | 100.0 | |||||||||||||||
| Other non-interest income | 575 | 94.1 | 375 | 13.0 | 200 | 53.3 | ||||||||||||||||||
| Total non-interest income | $ | 611 | 100.0 | % | $ | 2,892 | 100.0 | % | $ | (2,281 | ) | (78.9 | )% | |||||||||||
| For the Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | Change | ||||||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | ||||||||||||||||||
| Service charges and fees | $ | 2,279 | 40.3 | % | $ | 2,205 | 29.1 | % | $ | 74 | 3.4 | % | ||||||||||||
| Interchange fees | 1,948 | 34.4 | 1,967 | 26.0 | (19 | ) | (1.0 | ) | ||||||||||||||||
| (Loss) gain on sale of loans | (354 | ) | (6.3 | ) | 340 | 4.5 | (694 | ) | (204.1 | ) | ||||||||||||||
| Earnings on bank-owned life insurance | 746 | 13.2 | 699 | 9.2 | 47 | 6.7 | ||||||||||||||||||
| Gain on settlement of bank-owned life insurance claims | 605 | 10.7 | 120 | 1.6 | 485 | 100.0 | ||||||||||||||||||
| Brokerage | 837 | 14.8 | 700 | 9.2 | 137 | 19.6 | ||||||||||||||||||
| Trust | 878 | 15.5 | 786 | 10.4 | 92 | 11.7 | ||||||||||||||||||
| Gains on marketable equity securities | 236 | 4.2 | 28 | 0.4 | 208 | 742.9 | ||||||||||||||||||
| Realized losses on available-for-sale debt securities, net | (3,849 | ) | (68.0 | ) | (426 | ) | (5.6 | ) | (3,423 | ) | 803.5 | |||||||||||||
| Other non-interest income | 2,335 | 41.2 | 1,155 | 15.2 | 1,180 | 102.2 | ||||||||||||||||||
| Total non-interest income | $ | 5,661 | 100.0 | % | $ | 7,574 | 100.0 | % | $ | (1,913 | ) | (25.3 | )% | |||||||||||
Non-interest Expense
Total non-interest expense increased $70,000 or 0.7% from $9,978,000 for the three months ended September 30, 2025, to $10,048,000 for the three months ended September 30, 2026. Salaries and employee benefits expense of $5,417,000 for the three months ended September 30, 2026 increased $618,000 from $4,799,000 for same period in 2025. This increase was related to health insurance expenses associated with the Corporation's partially self-funded health insurance plan which were $422,000 higher for the three months ended September 30, 2026 than the same period in 2025, along with ongoing salary and wage increases for employees. The increase in salaries and employee benefits expense was partially offset by a decrease in professional fees of $164,000 due primarily to lower legal and consulting costs and a decrease in other non-interest expense of $351,000 due primarily to lower overall marketing and advertising costs comparing the three months ended September 30, 2026 to the same period in 2025.
For the nine months ended September 30, 2026, total non-interest expense decreased $260,000 or 0.8% to $30,665,000, compared to $30,925,000 for the nine months ended September 30, 2025. Salaries and employee benefits expense of $16,330,000 for the nine months ended September 30, 2026 increased $227,000 from $16,103,000 for the same period of 2025. The Corporation recorded one-time pretax expenses totaling $1,295,000 in conjunction with the retirement of its Executive Chairman during the three months ended March 31, 2025. This decrease was offset by health insurance expenses associated with the Corporation's partially self-funded health insurance plan which were $902,000 higher for the nine months ended September 30, 2026 than same period in 2025 along with ongoing salary and wage increases for employees. Other non-interest expense decreased $283,000 from $3,167,000 for the nine months ended September 30, 2025 to $2,884,000 for the nine months ended September 30, 2026 due primarily to lower overall marketing and advertising costs as well as lower check and debit card losses.
One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. For the three and nine months ended September 30, 2026 this percentage was 2.37% and 2.43%, respectively, compared to 2.42% and 2.56%, respectively, for the three and nine months ended September 30, 2025.
| For the Three Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | Change | ||||||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | ||||||||||||||||||
| Salaries and employee benefits | $ | 5,417 | 53.9 | % | $ | 4,799 | 48.1 | % | $ | 618 | 12.9 | % | ||||||||||||
| Occupancy | 669 | 6.7 | 644 | 6.5 | 25 | 3.9 | ||||||||||||||||||
| Furniture and equipment | 390 | 3.9 | 418 | 4.2 | (28 | ) | (6.7 | ) | ||||||||||||||||
| Pennsylvania shares tax | 374 | 3.7 | 336 | 3.4 | 38 | 11.3 | ||||||||||||||||||
| Professional fees | 327 | 3.3 | 491 | 4.9 | (164 | ) | (33.4 | ) | ||||||||||||||||
| Director's fees | 158 | 1.6 | 165 | 1.7 | (7 | ) | (4.2 | ) | ||||||||||||||||
| Federal deposit insurance | 195 | 1.9 | 217 | 2.2 | (22 | ) | (10.1 | ) | ||||||||||||||||
| Data processing and telecommunications | 973 | 9.7 | 877 | 8.8 | 96 | 10.9 | ||||||||||||||||||
| Automated teller machine and interchange | 152 | 1.5 | 230 | 2.3 | (78 | ) | (33.9 | ) | ||||||||||||||||
| Amortization of intangibles | 454 | 4.5 | 511 | 5.1 | (57 | ) | (11.2 | ) | ||||||||||||||||
| Other non-interest expense | 939 | 9.3 | 1,290 | 12.8 | (351 | ) | (27.2 | ) | ||||||||||||||||
| Total non-interest expense | $ | 10,048 | 100.0 | % | $ | 9,978 | 100.0 | % | $ | 70 | 0.7 | % | ||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | Change | ||||||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | ||||||||||||||||||
| Salaries and employee benefits | $ | 16,330 | 53.3 | % | $ | 16,103 | 52.1 | % | $ | 227 | 1.4 | % | ||||||||||||
| Occupancy | 2,085 | 6.8 | 2,004 | 6.5 | 81 | 4.0 | ||||||||||||||||||
| Furniture and equipment | 1,126 | 3.7 | 1,304 | 4.2 | (178 | ) | (13.7 | ) | ||||||||||||||||
| Pennsylvania shares tax | 1,123 | 3.7 | 938 | 3.0 | 185 | 19.7 | ||||||||||||||||||
| Professional fees | 1,416 | 4.6 | 1,353 | 4.4 | 63 | 4.7 | ||||||||||||||||||
| Director's fees | 486 | 1.6 | 483 | 1.6 | 3 | 0.6 | ||||||||||||||||||
| Federal deposit insurance | 585 | 1.9 | 652 | 2.1 | (67 | ) | (10.3 | ) | ||||||||||||||||
| Data processing and telecommunications | 2,814 | 9.2 | 2,794 | 9.0 | 20 | 0.7 | ||||||||||||||||||
| Automated teller machine and interchange | 454 | 1.5 | 595 | 1.9 | (141 | ) | (23.7 | ) | ||||||||||||||||
| Amortization of intangibles | 1,362 | 4.4 | 1,532 | 5.0 | (170 | ) | (11.1 | ) | ||||||||||||||||
| Other non-interest expense | 2,884 | 9.3 | 3,167 | 10.2 | (283 | ) | (8.9 | ) | ||||||||||||||||
| Total non-interest expense | $ | 30,665 | 100.0 | % | $ | 30,925 | 100.0 | % | $ | (260 | ) | (0.8 | )% | |||||||||||
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Bank to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand. The Bank's primary sources of funds are deposits, securities sold under agreements to repurchase, principal repayments of securities and outstanding loans, funds provided from operations, and day-to-day FHLB - Pittsburgh borrowings. In addition, the Bank invests excess funds in short-term interest-earning assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.
The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy and liquidity contingency plan, which are administered by its asset-liability committee ("ALCO"). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Bank's board of directors.
The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At September 30, 2026, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $576.1 million.
Liquidity management is required to ensure that adequate funds will be available to meet anticipated and unanticipated deposit withdrawals, debt service payments, investment commitments, commercial and consumer loan demand, and ongoing operating expenses. Funding sources include principal repayments on loans, sale of assets, growth in time and core deposits, short and long-term borrowings, investment securities coming due, loan prepayments and repurchase agreements. Regular loan payments are a dependable source of funds, while the sale of investment securities, deposit growth and loan prepayments are significantly influenced by general economic conditions and the level of interest rates.
The statement of cash flows presents the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are the Corporation's most liquid assets. Cash and cash equivalents totaled $35.8 million at September 30, 2026, a decrease of $12.8 million from $48.5 million at December 31, 2025, as net cash outflows from investing activities outpaced net cash inflows reported from operating and financing activities for the nine months ended September 30, 2026.
Net cash outflows from investing activities used $47.0 million of cash and cash equivalents during the nine months ended September 30, 2026. Accounting for the majority of the net cash outflows was $76.4 million related to proceeds from sales, paydowns, calls and maturities of available-for-sale debt securities which was offset by purchases of available-for-sale debt securities of $90.8 million and a net increase in loans of $35.4 million, which reflected strong loan demand. Financing activities provided $4.7 million in net cash, which resulted primarily from a $59.0 million increase in deposits, partially offset by $41.0 million repayment of long-term borrowings, a net decrease in short-term borrowings of $4.9 million along with cash dividends paid of $8.5 million. Operating activities include net income, adjusted for the effects of non-cash transactions including, among others, depreciation and amortization and the provision for credit losses, and is the primary source of cash flows from operations. For the nine months ended September 30, 2026, operating activities provided the Corporation with $29.5 million in net cash, which primarily reflected net income of $20.4 million and proceeds from the sale of mortgage loans of $23.8 million.
The Corporation regularly analyzes its ability to generate adequate amounts of cash to meet its short and long-term cash requirements and plans. As part of its quarterly asset liability management procedures, the Corporation performs liquidity cash flow forecasts in various base level and stress scenarios to monitor future cash needs. As of September 30, 2026, the Corporation is expected to maintain an adequate cash balance over the next 12 months. The Corporation has not identified any known demands, commitments, events or uncertainties that would result or that are reasonably likely to result in its liquidity position materially increasing or decreasing over the next 12 months. The Corporation's long-term cash needs are regularly analyzed through its strategic planning process, which includes a detailed review of liquidity and funding needs.
We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet present and future financial obligations and commitments on a timely basis. However, see potential liquidity risk factors at Item 1A - Risk Factors of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025 and refer to the Consolidated Statements of Cash Flows in this Form 10-Q.
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which interest-sensitive assets and interest-sensitive liabilities are matched. Interest rate sensitivity is the relationship between market interest rates and earnings volatility due to the repricing characteristics of assets and liabilities. The Bank's net interest income is affected by changes in the level of market interest rates. In order to maintain consistent earnings performance, the Bank seeks to manage, to the extent possible, the repricing characteristics of its assets and liabilities.
One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank's ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.
The ratio between assets and liabilities repricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.
To manage the interest sensitivity position, an asset/liability model called "gap analysis" is used to monitor the difference in the volume of the Bank's interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread. At September 30, 2026, our cumulative gap positions were within the internal risk management guidelines.
In addition to gap analysis, the Bank uses net interest income simulations and economic value of equity ("EVE") simulations as the primary tools in measuring and managing the Bank's position and considers balance sheet forecasts, the Bank's liquidity position, the economic environment, anticipated direction of interest rates and the Bank's earnings sensitivity to changes in these rates in its modeling. In addition, ALCO has established policy tolerance limits for acceptable negative changes in net interest income. Furthermore, as part of its ongoing monitoring, ALCO requires annual back testing of modeling results, which involves after-the-fact comparisons of projections with the Bank's actual performance to measure the validity of assumptions used in the modeling techniques.
The following table illustrates the simulated impact of parallel and instantaneous interest rate shocks of +100, +200, +300, -100, -200, and -300 basis points on net interest income and the change in economic value over a one-year time horizon from the September 30, 2026 levels:
| Rates +100 | Rates +200 | Rates +300 | Rates -100 | Rates -200 | Rates -300 | |||||||||||||||||||||||||||||||||||||||||||
|
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
Simulation Results |
Policy Limit |
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| Earnings at risk: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Percent change in net interest income | 4.68 | % | -10.00 | % | 1.32 | % | -15.00 | % | -2.27 | % | -20.00 | % | 8.90 | % | -10.00 | % | 9.41 | % | -15.00 | % | 11.10 | % | -20.00 | % | ||||||||||||||||||||||||
| Economic value at risk: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Percent change in economic value of equity | -4.92 | % | -15.00 | % | -10.76 | % | -25.00 | % | -17.19 | % | -30.00 | % | 0.85 | % | -15.00 | % | 0.91 | % | -25.00 | % | 1.66 | % | -30.00 | % | ||||||||||||||||||||||||
Model results from the simulation at September 30, 2026 indicated that the Bank was projected to see an increase in net interest income over a one-year horizon in any of the rate shock scenarios, with the exception of the +300 scenario, which showed a 2.27% decrease. The percent change in EVE is expected to decrease in all rates up scenarios and increase in all rates down scenarios. All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.
This analysis does not represent a forecast for the Bank and should not be relied upon as being indicative of expected operating results. These simulations are based on numerous assumptions, including but not limited to, the nature and timing of interest rate levels, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacements of asset and liability cash flows, and other factors. While assumptions reflect current economic and local market conditions, the Bank cannot make any assurances as to the predictive nature of these assumptions, including changes in interest rates, customer preferences, competition and liquidity needs, or what actions ALCO might take in responding to these changes.
It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet are within manageable parameters. Additionally, the Bank's ALCO meets quarterly with an asset liability management consultant.
IMPACT OF INFLATION AND CHANGING PRICES
The preparation of financial statements in conformity with U.S. GAAP requires management to measure the Corporation's financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The effect of inflation on the Corporation's operations is primarily related to increases in operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. The Corporation manages interest rate risk in several ways. There can be no assurance that the Corporation will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial condition of the Corporation's borrowers and could impact their ability to repay their loans, which could negatively affect the Corporation's asset quality through higher delinquency rates and increased charge-offs. Management will carefully consider the impact of inflation and rising interest rates on the Corporation's borrowers in managing credit risk related to the loan portfolio.
Muncy Columbia Financial Corporation published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 16:29 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]