Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of September 30, 2026 compared to December 31, 2025 and a comparison of the results of operations for the three and nine months ended September 30, 2026 and 2025. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company's 2025 Annual Report filed on Form 10-K.

Forward-looking statements

Certain of the matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words "expect," "anticipate," "intend," "plan," "believe," "estimate," and similar expressions are intended to identify such forward-looking statements.

The Company's actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

	■	local, regional and national economic conditions and changes thereto;
	■	the short-term and long-term effects of inflation, and rising costs to the Company, its customers and on the economy;
	■	the risks of changes and volatility of interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
	■	securities markets and monetary fluctuations and volatility;
	■	disruption of credit and equity markets;
	■	impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules;
	■	governmental monetary and fiscal policies, as well as legislative and regulatory changes;
	■	effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions;
	■	the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
	■	the impact of new or changes in existing laws and regulations, including laws and regulations concerning taxes, banking, securities and insurance and their application with which the Company and its subsidiaries must comply;
	■	the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
	■	the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
	■	the effects of economic conditions of any pandemic, epidemic or other health-related crisis such as COVID-19 and responses thereto on current customers and the operations of the Company, specifically the effect of the economy on loan customers' ability to repay loans;
	■	the effects of bank failures, banking system instability, deposit fluctuations, loan and securities value changes;
	■	technological changes;
	■	the interruption or breach in security of our information systems, continually evolving cybersecurity and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses;
	■	acquisitions and integration of acquired businesses;
	■	the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;
	■	acts of war, terrorism, or armed conflict; and
	■	the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document. The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

Readers should review the risk factors described in other documents that we file or furnish, from time to time, with the Securities and Exchange Commission, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K and other current reports filed or furnished on Form 8-K.

Executive Summary

The Company is a Pennsylvania corporation and a bank holding company, whose wholly-owned state chartered commercial bank and trust subsidiary is Fidelity Bank. The Company is headquartered in Scranton, Pennsylvania. We consider Lackawanna, Northampton and Luzerne Counties of Pennsylvania our primary marketplace, the "market area".

As a leading Northeastern and Eastern Pennsylvania community bank, our goals are to enhance shareholder value while we continue to operate a full-service community bank. We focus on growing our core business of retail and business lending and deposit gathering while maintaining strong asset quality and controlling operating expenses. We continue to implement management strategies to diversify earning assets (see "Funds Deployed" section of this management's discussion and analysis) and to increase the amount of relationship core deposits (see "Funds Provided" section of this management's discussion and analysis). These strategies include a focus on commercial lending and the ancillary business products and services supporting our commercial customers' needs as well as residential lending strategies and an array of consumer products. We focus on developing a full banking relationship with existing, as well as new business prospects. The Bank has a personal and corporate trust department and also provides alternative financial and insurance products with asset management services. In addition, we explore opportunities to selectively expand and optimize our franchise footprint, consisting presently of our 21-branch network.

We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for September 2026 was 4.2%, down 0.2 percentage points compared to December 2025. The local market unemployment rates in the Scranton - Wilkes-Barre - Hazleton (market area north) and the Allentown - Bethlehem - Easton (market area south) Metropolitan Statistical Areas (local) decreased. The local unemployment rates at September 30, 2026 were 3.8% in market area north and 3.5% in market area south, respectively, a decrease of 0.5 percentage points and 0.4 percentage points from the 4.3% and 3.9%, respectively, at December 31, 2025. The median home values in the Scranton - Wilkes-Barre - Hazleton metro and Allentown - Bethlehem - Easton metro each increased 2.3% and 3.2% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 2.6% and 2.6%, respectively, in the next year. In light of these expectations, we continue to monitor housing market conditions, including home price trends and interest rate expectations. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

For the nine months ended September 30, 2026, net income was $24.2 million, or $4.18 basic earnings per share and $4.16 diluted earnings per share, a 20% increase, compared to $20.3 million, or $3.51 basic earnings per share and $3.50 diluted earnings per share, for the nine months ended September 30, 2025.

As of September 30, 2026 and September 30, 2025, book value per share was $42.52 and $39.75, and tangible common book value per share (non-GAAP) was $39.06 and $36.23 ⁽¹⁾, respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.

Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients. We understand our markets, offer products and services along with financial advice that is appropriate for our community, clients and prospects. The Company continues to focus on the trusted financial advisor model by utilizing the team approach of experienced bankers that are fully engaged and dedicated towards maintaining and growing profitable relationships.

In addition to the challenging and competitive economic environment in which we operate, the regulatory and oversight of our business has changed significantly in recent years. As described more fully in Part II, Item 1A, "Risk Factors" below, as well as Part I, Item 1A, "Risk Factors," and in the "Supervision and Regulation" section of management's discussion and analysis of financial condition and results of operations in our 2025 Annual Report filed on Form 10-K, certain aspects of the Dodd-Frank Wall Street Reform Act (Dodd-Frank Act) continue to have a significant impact on us.

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

Non-GAAP Financial Measures

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company's financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company's tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at September 30, 2026 and 2025.

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

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

The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income less gain/(loss) on sales of securities. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:

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

The ratios of non-interest expense less non-interest income less (gain)/loss on sales of securities to average assets, is known as the expense ratio. The following table reconciles the non-GAAP financial measures of the expense ratio to GAAP:

​

​

Three months ended

​

​

Nine months ended

​

(dollars in thousands)

September 30, 2026

September 30, 2025

September 30, 2026

September 30, 2025

Expense Ratio (non-GAAP)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Non-interest expenses (GAAP)

​

$

16,108

​

​

$

14,632

​

​

$

47,291

​

​

$

43,896

​

Less: Non-interest income (GAAP)

​

​

6,124

​

​

​

5,105

​

​

​

16,796

​

​

​

15,437

​

Less: (Gain) loss on sales of securities

​

​

-

​

​

​

(3

)

​

​

577

​

​

​

819

​

Non-interest expense (GAAP)

​

​

9,984

​

​

​

9,530

​

​

​

29,918

​

​

​

27,640

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Average assets

​

$

2,858,101

​

​

$

2,708,126

​

​

$

2,832,550

​

​

$

2,666,723

​

Expense ratio (Non-GAAP)

​

​

1.38

%

​

​

1.39

%

​

​

1.41

%

​

​

1.39

%

The following table provides a reconciliation of tangible common equity (non-GAAP) and the calculations of tangible book value per share and tangible common equity ratio:

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

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

​

​

Three months ended

​

​

Nine months ended

​

(dollars in thousands)

​

September 30, 2026

​

​

September 30, 2025

​

​

September 30, 2026

​

​

September 30, 2025

​

Pre-Provision Net Revenue to Average Assets

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income before taxes (GAAP)

​

$

10,769

​

​

$

8,592

​

​

$

28,716

​

​

$

23,932

​

Plus: Provision for credit losses

​

​

1,059

​

​

​

310

​

​

​

2,764

​

​

​

1,000

​

Total pre-provision net revenue (non-GAAP)

​

$

11,828

​

​

$

8,902

​

​

$

31,480

​

​

$

24,932

​

Total (annualized) (non-GAAP)

​

$

46,925

​

​

$

35,316

​

​

$

42,088

​

​

$

33,334

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Average assets

​

$

2,858,101

​

​

$

2,708,126

​

​

$

2,832,550

​

​

$

2,666,723

​

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

​

​

1.64

%

​

​

1.30

%

​

​

1.49

%

​

​

1.25

%

General

The Company's earnings depend primarily on net interest income. Net interest income is the difference between interest income and interest expense. Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities. Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings. Net interest income is determined by the Company's interest rate spread (the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Interest rate spread is significantly impacted by: changes in interest rates and market yield curves and their related impact on cash flows; the composition and characteristics of interest-earning assets and interest-bearing liabilities; differences in the maturity and re-pricing characteristics of assets compared to the maturity and re-pricing characteristics of the liabilities that fund them and by the competition in the marketplace.

The Company's earnings are also affected by the level of its non-interest income and expenses and by the provisions for credit losses and income taxes. Non-interest income mainly consists of: service charges on the Company's loan and deposit products; interchange fees; trust and asset management service fees; increases in the cash surrender value of the bank owned life insurance and from net gains or losses from sales of loans and securities. Non-interest expense consists of: compensation and related employee benefit costs; occupancy; equipment; data processing; advertising and marketing; FDIC insurance premiums; professional fees; loan collection; net other real estate owned (ORE) expenses; supplies and other operating overhead.

Net interest income, net interest rate margin, net interest rate spread and the efficiency ratio are presented in the Management's Discussion & Analysis on an FTE basis. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

Comparison of the results of operations

three and nine months ended September 30, 2026 and 2025

Overview

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

Return on average assets (ROA) was 1.24% and 1.08% for the third quarters of 2026 and 2025, respectively, and 1.14% and 1.02% for the nine months ended September 30, 2026 and 2025, respectively. The increase in ROA was primarily the result of an increase in net income during the third quarter of 2026 and year-to-date 2026, compared to the same periods of 2025. Return on average shareholders' equity (ROE) was 13.96% and 13.25% for the third quarters of 2026 and 2025, respectively, and 13.03% and 12.67% for the nine months ended September 30, 2026 and 2025, respectively. The increase in ROE during the third quarter of 2026 and year-to-date 2026 was primarily the result of an increase in net income, compared to the same 2025 periods. Pre-provision net revenue to average assets (non-GAAP) was 1.64% and 1.30% ⁽¹⁾ for the three months ended September 30, 2026 and 2025, respectively, and 1.49% and 1.25% ⁽¹⁾ for the nine months ended September 30, 2026 and 2025, respectively. The increases were due to an increase in income before taxes quarter-over-quarter and year-over-year.

Net interest income and interest sensitive assets / liabilities

Net interest income increased $3.4 million, or 18%, compared with the third quarter of 2025, driven by higher average loan balances, improved loan yields and lower funding costs. Average loans increased $237.3 million, while the fully-taxable equivalent ("FTE") (non-GAAP measurement) yield on loans increased 4 basis points, resulting in higher interest income. Funding costs also benefited from a 29 basis point decline in the average rate paid on interest-bearing deposits, which more than offset the impact of a $76.4 million increase in average interest-bearing deposit balances. Collectively, these factors contributed to a 35 basis point increase in FTE net interest margin to 3.30%.

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

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

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

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

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

The Company's Asset Liability Management (ALM) team meets regularly to discuss among other things, interest rate risk and when deemed necessary adjusts interest rates. ALM and the Pricing Committee are actively addressing the Company's sensitivity to a changing rate environment to ensure interest rate risks are contained within acceptable levels. ALM also discusses revenue enhancing strategies to help combat the potential for a decline in net interest income. The Company's Marketing department, together with ALM, and the Pricing Committee, continue to develop prudent strategies that will grow the loan portfolio and accumulate relationship driven deposits at costs lower than borrowing costs to improve net interest income performance.

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for September 30, 2026 and 2025 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See "Non-GAAP Financial Measures" within this management's discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the third quarters of 2026 and 2025, respectively, and $0.6 million and $0.7 million during the nine months ended September 30, 2026 and 2025, respectively, are included in interest income from loans. Purchase accounting adjustments of $0.2 million and $0.3 million are included in interest income from loans and $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended September 30, 2026 and 2025. Purchase accounting adjustments of $0.7 million and $0.9 million are included in interest income from loans and $3 thousand and $4 thousand reduced interest expense on deposits and borrowings for the nine months ended September 30, 2026 and 2025. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

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

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

Changes in net interest income are a function of both changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which changes in interest rates and changes in volumes of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by the prior period rate), (2) the changes attributable to changes in interest rates (changes in rates multiplied by prior period volume) and (3) the net change. The combined effect of changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate. Tax-exempt income was not converted to a tax-equivalent basis on the rate/volume analysis:

		Nine months ended September 30,
(dollars in thousands)		2026 compared to 2025												2025 compared to 2024
		Increase (decrease) due to
		Volume				Rate				Total				Volume				Rate				Total
Interest income:
Interest-bearing deposits		$	(297	)		$	(562	)		$	(859	)		$	2,519			$	(204	)		$	2,315
Restricted investments in bank stock			37				4				41				10				(12	)			(2	)
Investments:
Agency - GSE			(34	)			(30	)			(64	)			(2	)			(3	)			(5	)
Commercial and residential MBS - GSE			(429	)			(451	)			(880	)			(25	)			145				120
State and municipal			(236	)			(254	)			(490	)			(153	)			(381	)			(534	)
Total investments			(699	)			(735	)			(1,434	)			(180	)			(239	)			(419	)
Loans and leases:
Residential real estate			529				401				930				809				806				1,615
C&I and CRE			9,580				(699	)			8,881				6,213				872				7,085
Consumer			(1,559	)			529				(1,030	)			(1,537	)			735				(802	)
Total loans and leases			8,550				231				8,781				5,485				2,413				7,898
Total interest income			7,591				(1,062	)			6,529				7,834				1,958				9,792
Interest expense:
Deposits:
Interest-bearing checking			(175	)			(1,002	)			(1,177	)			449				(1,056	)			(607	)
Savings and clubs			6				139				145				(14	)			(24	)			(38	)
Money market			2,268				(1,569	)			699				2,037				(359	)			1,678
Certificates of deposit			(252	)			(1,411	)			(1,663	)			2,310				43				2,353
Total deposits			1,847				(3,843	)			(1,996	)			4,782				(1,396	)			3,386
Secured borrowings			(47	)			(41	)			(88	)			(40	)			(21	)			(61	)
Short-term borrowings			29				-				29				(907	)			(526	)			(1,433	)
Total interest expense			1,829				(3,884	)			(2,055	)			3,835				(1,943	)			1,892
Net interest income		$	5,762			$	2,822			$	8,584			$	3,999			$	3,901			$	7,900

Provision for credit losses

The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to adjust the allowance for credit losses to a level that represents management's best estimate of expected credit losses in the Company's loan portfolio. Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company's Special Assets Committee meets periodically to review problem loans. The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.

Management continuously reviews the risks inherent in the loan portfolio. The determination of the amounts of the allowance for credit losses and the provision for credit losses is based on management's current judgments about the credit quality of the Company's financial assets and known and expected relevant internal and external factors that significantly affect collectability such as historical loss information, current conditions, and reasonable and supportable forecasts, including significant qualitative factors.

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

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

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

For the nine months ended September 30, 2026, the increase in the provision for credit losses on loans compared to the prior year period was primarily due to higher loan growth during the period. For the nine months ended September 30, 2026, the increase in the provision for unfunded commitments compared to the prior-year period was due to growth in originations within the portfolio, specifically in commercial construction commitments.

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for nine months ended September 30, 2026 to maintain an allowance level that management deemed adequate.

For a discussion on the allowance for credit losses, see "Allowance for credit losses", located in the comparison of financial condition section of management's discussion and analysis contained herein.

Other income

Total non-interest income increased $1.0 million, or 20%, to $6.1 million for the third quarter of 2026 compared to $5.1 million for the third quarter of 2025. The increase included $0.4 million of higher wealth management revenue and a $0.3 million gain on the sale of bank property. Commercial loan fee income also increased $0.2 million, primarily attributable to a prepayment penalty recognized during the quarter.

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

Operating expenses

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

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

The expense ratios (non-GAAP) were 1.38% and 1.39% ⁽¹⁾ for the three months ended September 30, 2026 and 2025, respectively, and 1.41% and 1.39% ⁽¹⁾ for the nine months ended September 30, 2026 and 2025, respectively. The decrease in the expense ratio during the third quarter of 2026, compared to the third quarter of 2025, was due to stronger growth in non-interest income and average total assets which more than absorbed the increase in non-interest expense. For the nine months ended September 30, 2026 compared to the same 2025 period, the increase in the expense ratio was primarily a result of a higher pace of growth of non-interest expense. The efficiency ratios (non-GAAP) decreased from 60.17% to 56.11% ⁽¹⁾ for the three months ended September 30, 2025 and 2026, respectively, and 61.00% to 57.90% ⁽¹⁾ for the nine months ended September 30, 2025 and 2026, respectively. The decrease in the efficiency ratio for both the third quarter of 2026 and year-to-date 2026, compared to the same 2025 periods, were due to net interest income increasing faster than non-interest expenses.

Provision for income taxes

The provision for income taxes increased $0.6 million during the three months ended September 30, 2026 compared to the same period in 2025 primarily due to a $2.2 million increase in income before taxes. The provision for income taxes increased $0.8 million during the nine months ended September 30, 2026 compared to the same period in 2025 primarily due to a $4.8 million increase in income before taxes. Partially offsetting the increase in income tax expense was approximately $0.5 million of benefit associated with purchased renewable energy tax credits. The Company's effective tax rate was 15.6% at September 30, 2026 compared to 15.4% at September 30, 2025. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the recognition of this $0.5 million discount in the first nine months of 2026 along with the effect of tax-exempt income in relation to the level of pre-tax income.

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

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

Comparison of financial condition at

September 30, 2026 and December 31, 2025

Overview

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

Funds Deployed:

Investment securities

The Company's investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels. In establishing investment strategies, the Company considers its business, growth strategies or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities in its portfolio, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations. The Company's policy prescribes permissible investment categories that meet the policy standards and management is responsible for structuring and executing the specific investment purchases within these policy parameters. Management buys and sells investment securities periodically depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies. Investment security purchases provide a way to quickly invest excess liquidity in order to generate additional earnings. The Company generally earns a positive interest spread by assuming interest rate risk using deposits or borrowings to purchase securities with longer maturities.

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders' equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the nine months ended September 30, 2026, AOCI decreased by $9.7 million primarily due to the change in fair value of the Company's investment securities.

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

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

The Company's municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $179.5 million ($155.8 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $81.6 million ($75.7 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 36% AAA, 62% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.

As of September 30, 2026, the carrying value of total investments decreased $10.7 million, or 2%, compared to December 31, 2025. The decline was primarily due to negative changes in fair value coupled with $16.4 million in paydowns and the sale of $5.8 million in available-for-sale securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company's liquidity needs and interest rate risk profile, to the extent possible.

A comparison of investment securities at September 30, 2026 and December 31, 2025 is as follows:

		September 30, 2026																December 31, 2025
(dollars in thousands)		Amount						%		Book yield				Reprice term (years)				Amount						%		Book yield				Reprice term (years)
HTM securities:				​				​				​				​				​				​				​				​
Obligations of states & political subdivisions - tax exempt		$	83,654				16.3	%			2.1	%			18.1			$	83,606				16.1	%			2.1	%			18.8
Obligations of states & political subdivisions - taxable			60,404				11.8				2.1				8.6				60,113				11.4				2.1				9.3
Agency - GSE			84,486				16.5				1.4				3.7				83,620				15.9				1.4				4.4
Total HTM securities		$	228,544				44.5	%			1.8	%			10.3			$	227,339				43.4	%			1.8	%			11.1
AFS debt securities:				​				​				​				​				​				​				​				​
Commercial MBS - GSE (fixed)		$	20,620				4.0	%			5.1	%			4.3			$	-				-	%			-	%			-
Commercial MBS - GSE (float)			2,800				0.5				4.3				0.1				-				-				-				-
Residential MBS - GSE			154,108				30.0				2.1				5.5				169,165				32.3				2.0				5.4
Obligations of states & political subdivisions - tax exempt			72,110				14.1				2.4				17.6				87,116				16.6				2.4				17.0
Obligations of states & political subdivisions - taxable			15,313				3.0				1.5				2.9				15,704				3.0				1.4				3.6
Agency - GSE			17,775				3.5				1.1				2.7				24,622				4.7				1.1				2.8
Corporate debt			2,000				0.4				7.3				5.3				-				-					​				​
Total AFS debt securities		$	284,726				55.5	%			2.4	%			8.4			$	296,607				56.6	%			2.0	%			8.5
Total securities		$	513,270				100.0	%			2.1	%			9.2			$	523,946				100.0	%			1.9	%			9.6

The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities.

The AFS securities had a net unrealized loss of $50.5 million and $36.4 million as of September 30, 2026 and December 31, 2025, respectively. The direction and magnitude of the change in value of the Company's investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company's investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company's investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company's debt securities portfolio could be subject to market value increases.

As of September 30, 2026, the Company had $401.8 million in public deposits, or 15% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of September 30, 2026, the balance of pledged securities required was $380.4 million, or 74% of total securities.

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company's intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the nine months ended September 30, 2026, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

During the first nine months of 2026, the Company sold five available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.6 million as the amortized cost was $5.8 million compared to the sales proceeds of $5.2 million. These sales were undertaken as part of the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

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

Restricted investments in bank stock

Investment in FHLB stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $7.7 million and $4.3 million as of September 30, 2026 and December 31, 2025, respectively. The dividends received from the FHLB totaled $276 thousand and $235 thousand for the nine months ended September 30, 2026 and 2025, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of September 30, 2026 and December 31, 2025.

Loans held-for-sale (HFS)

Upon origination, most residential mortgages and certain Small Business Administration (SBA) guaranteed loans may be classified as held-for-sale (HFS). In the event of market rate increases, fixed-rate loans and loans not immediately scheduled to re-price would no longer produce yields consistent with the current market. In declining interest rate environments, the Company would be exposed to prepayment risk as rates on fixed-rate loans decrease, and customers look to refinance loans. Consideration is given to the Company's current liquidity position and projected future liquidity needs. To better manage prepayment and interest rate risk, loans that meet these conditions may be classified as HFS. Occasionally, residential mortgage and/or business loans may be transferred from the loan portfolio to HFS. The carrying value of loans HFS is based on the lower of cost or estimated fair value. If the fair values of these loans decline below their original cost, the difference is written down and charged to current earnings. Subsequent appreciation in the portfolio is credited to current earnings but only to the extent of previous write-downs.

As of September 30, 2026 and December 31, 2025, loans HFS consisted of residential mortgages with carrying amounts of $0.4 million and $0.6 million, respectively, which approximated their fair values. During the nine months ended September 30, 2026, residential mortgage loans with principal balances of $38.8 million were sold into the secondary market and the Company recognized net gains of $0.6 million, compared to $47.4 million and $0.7 million, respectively, during the nine months ended September 30, 2025.

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships and opportunities with those customers. At September 30, 2026 and December 31, 2025, the servicing portfolio balance of sold residential mortgage loans was $514.2 million and $513.6 million, respectively, with mortgage servicing rights of $1.0 million and $1.1 million for the same periods, respectively.

Loans and leases

As of September 30, 2026, the Company had gross loans and leases totaling $2.2 billion, an increase of $263.7 million, or 14%, compared to $1.9 billion at December 31, 2025.

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

As management continues to identify ways to optimize the Company's balance sheet, the focus is to lend in areas that provide better risk-adjusted returns and improved opportunities to deepen relationships with our customers. This could result in a change in the composition of the loan portfolio in future periods.

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

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

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

As of September 30, 2026, the commercial portfolio increased by $282.5 million, or 24%, to $1.4 billion compared to the December 31, 2025 balance of $1.2 billion. The increase was due to growth of $246.9 million in commercial real estate loans and $35.6 million in commercial and industrial loans. The increased origination growth in the commercial portfolio was attributed to management's balance sheet optimization strategy to grow this segment of the loan and lease portfolio.

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, independent collateral appraisals, etc.

For the nine months ended September 30, 2026, commercial and industrial (non-municipal) loans increased $29.7 million, or 13%, from $220.5 million at December 31, 2025 to $250.2 million at September 30, 2026, which was primarily due to a single origination totaling $12.4 million and two originations to a single borrower totaling $5.1 million during the first quarter, a single origination totaling $4.0 million during the second quarter, and standard originations and advances outpacing scheduled payments and curtailments.

Municipal loans are secured by the full faith and credit of respective local government units located in the Commonwealth of Pennsylvania authorized in accordance with the Local Government Unit Debt Act. These loans have a long history of performance within contractual terms with minimal defaults noted.

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

Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral whose values tend to move inversely with interest rates. These loans are secured with mortgages, or commercial real estate mortgages (CREM) against the subject property. In underwriting commercial real estate construction loans, the Company performs a robust analysis of the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers consistent with Uniform Standards of Professional Appraisal Practice (USPAP) standards and compliant with Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Management continues to monitor the increased growth in commercial real estate lending relative to capital, including non-owner occupied CRE, through Board-approved policy limits, stress testing, risk-rating migration, debt-service coverage and loan-to-value monitoring. Asset quality within the portfolio remained strong at September 30, 2026. At September 30, 2026, the commercial real estate portfolio was 49% of total loans outstanding compared to 43% at December 31, 2025.

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

Owner occupied commercial real estate loans rely on income generated from the respective owners' businesses. Therefore, underwriting on owner occupied CRE loans emphasizes the owner's cash flow and financial conditions while the real estate typically represents the owners' primary business location. Since cash flows from operations are the primary source of repayment for owner-occupied commercial real estate loans, this segment has a different risk profile than non-owner occupied lending.

The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at September 30, 2026 compared to December 31, 2025:

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

For the nine months ended September 30, 2026, non-owner occupied commercial real estate loans increased $181.7 million, or 44%, from $416.5 million on December 31, 2025, to $598.2 million on September 30, 2026. The increase was primarily driven by the origination of a $37 million loan in the first quarter, of which $15 million was sold to a participating bank in the second quarter, a $19.6 million loan to a single borrower in the first quarter, six originations to six separate commercial real estate non owner occupied borrowers totaling $36.8 million during the second quarter, $23.0 million in construction loans that stabilized and were converted to non-owner occupied commercial real estate, six originations to six separate commercial real estate non owner occupied borrowers totaling $61.3 million during the third quarter, and standard portfolio growth.

Non-owner occupied CRE loans are commercial loans not occupied by their owners and thus rely on income from third parties, including multi-family residential tenants and commercial tenants representing various industries. Underwriting on non-owner occupied CRE loans evaluates cash flow derived from the respective tenants and the industries they occupy. As such, management considers non-owner occupied CRE loans as having a higher risk profile than owner occupied CRE loans. In keeping with its risk appetite and relationship management strategy, the Company avoids speculative commercial office space and prefers loans for projects with the following characteristics: sufficient equity, or loan to value, and have either S&P rated tenants with long term leases, loans structured with personal guarantees of owners whose personal financial strength provides meaningful cash flow support to supplement rental income volatility, residential projects with stable rents in desirable locations, or projects with sufficient diversity and industries proven to provide lower risk over the long term. Management continues to monitor commercial real estate concentrations through established concentration limits and reporting processes. Loan growth reflects disciplined underwriting standards and relationship-based lending opportunities within the Company's marketplace.

In the table above, office space comprised $71.2 million and special purpose comprised $58.6 million in outstanding amounts as of September 30, 2026, respectively. The office segment mainly has suburban medical and suburban professional third-party tenants. The special purpose segment includes self-storage facilities, assisted living facilities, nursing homes, and parking garages.

Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Most construction loans are lent to well-established developers with a proven track record and strong business and guaranteed with owners' personal financial conditions. As of September 30, 2026, the commercial real estate construction portfolio had a balance of $63.5 million and consisted of $43.0 million, or 68%, of non-owner-occupied loans and $20.4 million, or 32%, of owner-occupied loans.

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

Consumer

The consumer loan portfolio consisted of home equity installment, home equity line of credit, non-recourse auto loans, recourse auto loans, direct finance leases and other consumer loans.

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

Residential

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

The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $419 million in fixed-rate and $101 million in adjustable-rate mortgages as of September 30, 2026.

The Company considers its portfolio segmentation, including the real estate secured portfolio, to be reasonably diversified. The banking industry is affected by general economic conditions including, among other things, the effects of real estate values. The Company ensures that its mortgage lending adheres to standards of secondary market compliance. Furthermore, the Company's credit function strives to mitigate the negative impact of economic conditions by maintaining strict underwriting principles for all loan types.

Allowance for credit losses

Management continually evaluates the credit quality of the Company's loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management's best estimate of the amount of expected credit losses in the loan portfolio. When estimating the net amount expected to be collected, management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the Company's financial assets. Those estimates may be susceptible to significant change. Loan losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.

The methodology to analyze the adequacy of the ACL is based on seven primary components:

●

Data: The quality of the Company's data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls.

●

Segmentation: Financial assets are segmented based on similar risk characteristics.

●

Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool's estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets.

●

Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per Accounting Standards Codification (ASC) Topic 326. The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the commercial & industrial, commercial real estate non-owner occupied, commercial real estate owner occupied, commercial construction, home equity installment loan, home equity line of credit, residential real estate, and residential construction pools. The weighted average remaining maturity (WARM) method is used for the municipal, non-recourse auto, recourse auto, direct finance lease, and consumer other pools.

●

Reasonable and supportable forecasts: ASC Topic 326 requires management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company's forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12-month (4 quarter) reasonable and supportable forecast period.

●

Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire contractual life of financial assets. Management may apply reversion techniques for the contractual life remaining after considering the reasonable and supportable forecast period, which allows management to apply a historical loss rate to latter periods of the financial asset's life. The Company currently uses a 12 month (4 quarter) straight-line reversion period.

●

Qualitative factor adjustments: The Company's ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors:

o

levels of and trends in delinquencies and non-accrual loans;

o

levels of and trends in charge-offs and recoveries;

o

trends in volume and terms of loans;

o

changes in risk selection and underwriting standards;

o

changes in lending policies and legal and regulatory requirements;

o

experience, ability and depth of lending management;

o

national and local economic trends and conditions;

o

changes in credit concentrations; and

o

changes in underlying collateral.

A key control related to the allowance is the Company's Special Assets Committee. This committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance. The Special Assets Committee's focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment. The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company's Credit Administration function have assigned a criticized or classified risk rating.

The following tables set forth the activity in the allowance for credit losses on loans and certain key ratios for the period indicated:

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

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

Management believes that the current balance in the allowance for credit losses is adequate to meet the identified potential credit quality issues that may arise and other issues unidentified but inherent to the portfolio. Management has not identified evidence of broad-based deterioration within any material lending portfolio and continues to monitor economic conditions and portfolio performance closely. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.

Key loss driver assumptions used in the allowance estimate included the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts, the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prepayment and curtailment rates, and estimated remaining loan lives. Although key loss driver assumptions used in the ACL estimate remained largely stable from the estimate as of December 31, 2025 to the estimate as of September 30, 2026, the ACL on absolute terms increased based on growth in the loan and lease portfolio, changes in the composition of the portfolio, slower prepayment and curtailment rates, and less favorable economic forecasts.

Qualitative factors for the ACL estimate as of September 30, 2026 saw a general decrease compared to December 31, 2025 based on reduction in the qualitative factor for the improvement in the levels of and trends in delinquencies and non-accrual loans, specifically in the residential portfolio.

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

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

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

For a discussion on the provision for credit losses, see the "Provision for credit losses", located in the results of operations section of management's discussion and analysis contained herein.

The allowance for credit losses can generally absorb losses throughout the loan portfolio. However, in some instances an allocation is made for specific loans or groups of loans. Allocation of the allowance for credit losses for different categories of loans is based on the methodology used by the Company, as previously explained. The changes in the allocations from period-to-period are based upon quarter-end reviews of the loan portfolio.

The allowance among major categories of loans for the periods indicated, as well as the percentage of loans in each category to total loans, is summarized in the following table. This table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions, or indication of future charge-off trends. When present, the portion of the allowance designated as unallocated is within the Company's guidelines:

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

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

As of September 30, 2026, the commercial and industrial portfolio comprised 14% of the total allowance for credit losses, unchanged from December 31, 2025. As of September 30, 2026, the commercial and industrial portfolio was 17% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the municipal portfolio.

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

As of September 30, 2026, the residential portfolio comprised 30% of the total allowance for credit losses, down 2 percentage points from December 31, 2025. As of September 30, 2026, the residential portfolio is 25% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

As of September 30, 2026, the unallocated reserve, representing the portion of the allowance not specifically identified with a loan or groups of loans, was less than 1% of the total allowance for credit losses, unchanged from December 31, 2025.

Non-performing assets

The Company defines non-performing assets as accruing loans past due 90 days or more, non-accrual loans, other real estate owned (ORE) and repossessed assets.

The following table sets forth non-performing assets data as of the period indicated:

(dollars in thousands)		September 30, 2026				December 31, 2025				September 30, 2025
Loans past due 90 days or more and accruing		$	-			$	-			$	-
Non-accrual loans			2,566				1,892				2,600
Total non-performing loans			2,566				1,892				2,600
Other real estate owned and repossessed assets			-				326				420
Total non-performing assets		$	2,566			$	2,218			$	3,020
Total loans, including loans held-for-sale		$	2,175,412			$	1,911,724			$	1,914,893
Total assets		$	3,028,419			$	2,748,058			$	2,736,750
Non-accrual loans to total loans			0.12	%			0.10	%			0.14	%
Non-performing loans to total loans			0.12	%			0.10	%			0.14	%
Non-performing assets to total assets			0.08	%			0.08	%			0.11	%

Management continually monitors the loan portfolio to identify loans that are either delinquent or are otherwise deemed by management unable to repay in accordance with contractual terms. Generally, loans of all types are placed on non-accrual status if a loan of any type is past due 90 or more days or if collection of principal and interest is in doubt. Further, unsecured consumer loans are charged-off when the principal and/or interest is 90 days or more past due. Uncollected interest income accrued on all loans placed on non-accrual is reversed and charged to interest income.

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

As of September 30, 2026, there were a total of 28 non-accrual loans to 20 unrelated borrowers with balances that ranged from less than $1 thousand to $0.6 million, or $2.6 million in the aggregate. On December 31, 2025, there were a total of 24 non-accrual loans to 21 unrelated borrowers with balances that ranged from less than $1 thousand to $0.4 million, or $1.9 million in the aggregate.

There were no loans past due 90 days or more and accruing as of September 30, 2026 and December 31, 2025.

The Company seeks payments from all past due customers through an aggressive customer communication process. Unless well-secured and in the process of collection, past due loans will be placed on non-accrual at the 90-day point when it is deemed that a customer is non-responsive and uncooperative to collection efforts.

The composition of non-performing loans as of September 30, 2026 is as follows:

						Past due
		Gross				90 days or				Non-				Total non-				% of
		loan				more and				accrual				performing				gross
(dollars in thousands)		balances				still accruing				loans				loans				loans
Commercial and industrial:
Commercial		$	250,256			$	-			$	280			$	280				0.11	%
Municipal			126,544				-				-				-				-
Commercial real estate:
Non-owner occupied			598,154				-				-				-				-
Owner occupied			399,273				-				961				961				0.24	%
Construction			63,451				-				-				-				-
Consumer:
Home equity installment			52,949				-				689				689				1.30	%
Home equity line of credit			70,243				-				203				203				0.29	%
Auto loans-Recourse			9,231				-				12				12				0.13	%
Auto loans-Non Recourse			26,204				-				-				-				-
Direct finance leases *			13,688				-				-				-				-
Other			26,055				-				-				-				-
Residential:
Real estate			520,401				-				421				421				0.08	%
Construction			18,603				-				-				-				-
Loans held-for-sale			360				-				-				-				-
Total		$	2,175,412			$	-			$	2,566			$	2,566				0.12	%

*Net of unearned lease revenue of $1.1 million.

Payments received from non-accrual loans are recognized on a cost recovery method. Payments are first applied to the outstanding principal balance, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of interest income. If the non-accrual loans that were outstanding as of September 30, 2026 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $106 thousand.

Foreclosed assets held-for-sale

From December 31, 2025 to September 30, 2026, other real estate owned (ORE) decreased from $324 thousand to zero which was attributed to the sale of one residential property totaling $324 thousand.

The following table sets forth the activity in the ORE component of foreclosed assets held-for-sale:

		September 30, 2026								December 31, 2025
(dollars in thousands)		Amount				#				Amount				#
Balance at beginning of period		$	324				1			$	429				3
Additions			-				-				442				3
Pay downs			-				-				(2	)			-
Write downs			-				-				-				-
Transfers			-				-				-				-
Sales			(324	)			(1	)			(545	)			(5	)
Balance at end of period		$	-				-			$	324				1

Cash surrender value of bank owned life insurance

The Company maintains bank owned life insurance (BOLI) for a chosen group of employees at the time of purchase, namely its officers, where the Company is the owner and sole beneficiary of the policies. BOLI is classified as a non-interest earning asset. Increases or decreases in the cash surrender value are recorded as components of non-interest income. The BOLI is profitable from the appreciation of the cash surrender values of the pool of insurance and its tax-free advantage to the Company. This profitability is used to offset a portion of current and future employee benefit costs. The BOLI cash surrender value build-up can be liquidated if necessary, with associated tax costs. However, the Company intends to hold this pool of insurance, because it provides income that supports employee benefit cost increases which enhances the Company's capital position. Therefore, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value.

Premises and equipment

Net of depreciation, premises and equipment decreased $0.8 million during the first nine months of 2026 primarily due to a $9.0 million grant recorded that reduced construction in process. This decrease was coupled with $1.8 million in depreciation expense for the nine months ending September 30, 2026. Partially offsetting these decreases, the Company purchased $11.0 million in premises and equipment during the first nine months of 2026 primarily related to the new corporate center in downtown Scranton.

The Company has substantially completed the renovation of the new corporate headquarters located in downtown Scranton. On December 23, 2020, the Commonwealth of Pennsylvania authorized the first of three Redevelopment Assistance Capital Program (RACP) grant funding in the amount of $2.0 million, a second on December 6, 2021 in the amount of $2.0 million, and the final grant award on November 1, 2024 in the amount of $5.0 million, bringing the total RACP grant award to $9.0 million. The Company recorded the $9.0 million RACP grants in the first nine months of 2026 which offset the total construction costs of the renovation and rehabilitation of the historic Scranton Electric Building. As of September 30, 2026, the Company incurred $29.9 million in costs for the corporate headquarters building which included: $25.0 million in construction related costs; $3.3 million in furniture, equipment, and signage costs; and $1.6 million in parking lot costs. The Company currently expects $1.9 million in remaining costs which is primarily construction. The historic nature of this building has qualified the Company for an estimated $4.3 million in state and federal historic tax credits. During 2025, the Company transferred its former downtown Scranton location to other assets held-for-sale and the sale of the former location was finalized in the third quarter of 2026.

The Company is in the process of constructing a new Palmer Township branch to continue to enhance our footprint in the Allentown - Bethlehem - Easton market area. The Company expects this project to be completed by the first quarter of 2027 and has incurred costs of $1.2 million for this construction through September 30, 2026.

Funds Provided:

Deposits

The Company is a community-based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company's 21 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market; non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.

The following table represents the components of deposits as of the date indicated:

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

Total deposits increased $142.9 million, or 6%, to $2.6 billion as of September 30, 2026, compared to $2.5 billion at December 31, 2025. Growth continues to be driven by expansion in primary consumer and business households and relationships, increased balances within existing relationships, and continued execution of relationship-based retention and growth strategies.

Key drivers of deposit growth include:

●

Money Market Accounts: Increased $73.3 million, primarily reflecting growth in business and public account balances.

●

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

●

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

●

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

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

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

The Company utilizes the Certificate of Deposit Account Registry Service (CDARS) reciprocal program, ICS reciprocal program, and ModernFi reciprocal program to obtain FDIC insurance protection for clients who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $1.5 million and $48.9 million in CDARS as of September 30, 2026 and December 31, 2025, respectively. As of September 30, 2026 and December 31, 2025, ICS reciprocal deposits represented $119.2 million and $153.1 million, or 5% and 6%, respectively, of total deposits which are included in interest-bearing checking accounts in the table above. During the third quarter of 2026, the Company began offering ModernFi reciprocal deposits representing $58.3 million which are included in interest-bearing checking accounts in the table above.

As of September 30, 2026, total uninsured deposits were estimated to be $1.1 billion, or 43% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies into ownership categories to estimate amounts over the FDIC insurance limit. As of September 30, 2026, the ratio of uninsured and non-collateralized deposits to total deposits was $732.2 million, or 28%. Collateralized deposits totaled $380.4 million, or 15%, of total deposits as of September 30, 2026.

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

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

Approximately 35% of the CDs, with a weighted-average interest rate of 3.40%, are scheduled to mature in 2026 and an additional 62%, with a weighted-average interest rate of 3.36%, are scheduled to mature in 2027. Given our relatively low reliance on CDs as a percentage of total deposits, the Company's strategy is to remain disciplined rather than interest rate led. The Company will utilize competitive CD offerings where they support funding and relationship objectives, while avoiding broad-based pricing that unnecessarily increases our cost of deposits. As rates evolve, management will continue to use targeted terms, relationship pricing, and selective retention offers to manage maturities and liquidity while protecting net interest margin. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the nine months ended September 30, 2026, 88% of maturing CDs were retained in deposit products within the bank. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company.

Short-term borrowings

Borrowings are used as a complement to deposit generation as an alternative funding source whereby the Company will borrow under advances from the FHLB of Pittsburgh and other correspondent banks for asset growth and liquidity needs.

Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may need to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of September 30, 2026, the Company utilized $132.7 million in short-term borrowings. The increase in short-term borrowings at September 30, 2026 primarily supported the Company's liquidity position, including funding associated with strong commercial loan growth and collateral requirements related to growth in public deposits. Management expects utilization of wholesale funding to fluctuate based on loan funding requirements, deposit flows and available on-balance-sheet liquidity. As of September 30, 2026, the Company had the ability to borrow $55.1 million from the Federal Reserve borrower-in-custody program, availability of $82.0 million in borrowings with the FHLB open-repo line of credit and $25.0 million from lines of credit with correspondent banks.

Secured borrowings

As of September 30, 2026, the Company had 4 secured borrowing agreements with third parties with a carrying value of $4.7 million compared to 5 secured borrowing agreements with third parties with a carrying value of $6.0 million at December 31, 2025, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease through the remainder of 2026 from scheduled amortization and, when possible, early pay-offs.

FHLB advances

The Company had no FHLB advances as of September 30, 2026 and December 31, 2025. As of September 30, 2026, the Company had the ability to borrow up to $870.2 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances during 2026.

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

Management believes available liquidity sources are sufficient to meet anticipated funding obligations, support projected growth, and address potential customary stress scenarios.

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

As of September 30, 2026, available-for-sale securities had gross unrealized losses of $50.5 million, compared with gross unrealized losses of $36.5 million at December 31, 2025. The increase in unrealized losses primarily reflected changes in market interest rates and the fair value of the available-for-sale securities portfolio. Management believes that changes in fair value of the Company's securities are due to changes in interest rates and market conditions, and not in the creditworthiness of the issuers.

The tangible common equity (TCE) ratio (non-GAAP) was 7.54% and 7.69% for the nine months ended September 30, 2026 and 2025, respectively. At September 30, 2026 and 2025, the held-to-maturity securities portfolio had $31.5 million and $20.8 million in unrealized losses, net of deferred taxes. If the TCE ratio was adjusted to include the unrealized losses on held-to-maturity securities, the adjusted TCE ratio (non-GAAP) would have been 6.50% and 6.93% ⁽¹⁾ at September 30, 2026 and 2025, respectively.

																				For capital adequacy							To be well capitalized
									For capital											purposes with capital							under prompt corrective
		Actual							adequacy purposes											conservation buffer							action provisions
(dollars in thousands)		Amount				Ratio			Amount						Ratio					Amount				Ratio			Amount						Ratio
As of September 30, 2026
Total capital (to risk-weighted assets)
Consolidated		$	301,379				14.1	%	≥		$	171,040				8.0	%	≥		$	224,490				10.5	%				N/A				N/A
Bank		$	301,229				14.1	%	≥		$	171,033				8.0	%	≥		$	224,481				10.5	%	≥		$	213,791				10.0	%
Tier 1 common equity (to risk-weighted assets)
Consolidated		$	277,308				13.0	%	≥		$	96,210				4.5	%	≥		$	149,660				7.0	%				N/A				N/A
Bank		$	277,158				13.0	%	≥		$	96,206				4.5	%	≥		$	149,654				7.0	%	≥		$	138,964				6.5	%
Tier I capital (to risk-weighted assets)
Consolidated		$	277,308				13.0	%	≥		$	128,280				6.0	%	≥		$	181,730				8.5	%				N/A				N/A
Bank		$	277,158				13.0	%	≥		$	128,275				6.0	%	≥		$	181,723				8.5	%	≥		$	171,033				8.0	%
Tier I capital (to average assets)
Consolidated		$	277,308				9.6	%	≥		$	115,030				4.0	%	≥		$	115,030				4.0	%				N/A				N/A
Bank		$	277,158				9.6	%	≥		$	115,029				4.0	%	≥		$	115,029				4.0	%	≥		$	143,786				5.0	%

																				For capital adequacy							To be well capitalized
									For capital											purposes with capital							under prompt corrective
		Actual							adequacy purposes											conservation buffer							action provisions
(dollars in thousands)		Amount				Ratio			Amount						Ratio					Amount				Ratio			Amount						Ratio
As of December 31, 2025
Total capital (to risk-weighted assets)
Consolidated		$	280,783				14.8	%	≥		$	151,947				8.0	%	≥		$	199,430				10.5	%				N/A				N/A
Bank		$	280,685				14.8	%	≥		$	151,932				8.0	%	≥		$	199,411				10.5	%	≥		$	189,916				10.0	%
Tier 1 common equity (to risk-weighted assets)
Consolidated		$	259,315				13.7	%	≥		$	85,470				4.5	%	≥		$	132,954				7.0	%				N/A				N/A
Bank		$	259,218				13.7	%	≥		$	85,462				4.5	%	≥		$	132,941				7.0	%	≥		$	123,445				6.5	%
Tier I capital (to risk-weighted assets)
Consolidated		$	259,315				13.7	%	≥		$	113,960				6.0	%	≥		$	161,444				8.5	%				N/A				N/A
Bank		$	259,218				13.7	%	≥		$	113,949				6.0	%	≥		$	161,428				8.5	%	≥		$	151,932				8.0	%
Tier I capital (to average assets)
Consolidated		$	259,315				9.3	%	≥		$	111,023				4.0	%	≥		$	111,023				4.0	%				N/A				N/A
Bank		$	259,218				9.3	%	≥		$	111,023				4.0	%	≥		$	111,023				4.0	%	≥		$	138,779				5.0	%