# EDGAR Filing Document

**Accession Number:** 0001098151
**File Stem:** 0001437749-25-025716
**Filing Date:** 2025-8
**Character Count:** 309739
**Document Hash:** 065ae30d109220924585ce8b41dad2b0
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-25-025716.hdr.sgml**: 20250808

**ACCESSION NUMBER**: 0001437749-25-025716

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 75

**CONFORMED PERIOD OF REPORT**: 20250630

**FILED AS OF DATE**: 20250808

**DATE AS OF CHANGE**: 20250808

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** FIDELITY D & D BANCORP INC
- **CENTRAL INDEX KEY:** 0001098151
- **STANDARD INDUSTRIAL CLASSIFICATION:** NATIONAL COMMERCIAL BANKS [6021]
- **ORGANIZATION NAME:** 02 Finance
- **EIN:** 233017653
- **STATE OF INCORPORATION:** PA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38229
- **FILM NUMBER:** 251198272

**BUSINESS ADDRESS:**
- **STREET 1:** BLAKELY & DRINKER STREETS
- **CITY:** DUNMORE
- **STATE:** PA
- **ZIP:** 18512
- **BUSINESS PHONE:** 5703428281

**MAIL ADDRESS:**
- **STREET 1:** BLAKELY & DRINKER STREETS
- **CITY:** DUNMORE
- **STATE:** PA
- **ZIP:** 18512

?xml version='1.0' encoding='ASCII'? fdbc20250630_10q.htm

[**Table of Contents**](#toc)

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION** 

Washington, D.C. 20549

**FORM 10-Q**

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

SECURITIES EXCHANGE ACT OF 1934

**For the quarterly period ended June 30, 2025**

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________________

Commission file number: 001-38229

**FIDELITY D & D BANCORP, INC.**

---

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

---

Address of principal executive offices:

**Blakely & Drinker St.**

**Dunmore, Pennsylvania 18512**

TELEPHONE: **570-342-8281**

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

---

| | |
|:---|:---|
| **<u>Title of each class</u>** | **<u>Name of each exchange on which registered</u>** |
| Common stock, without par value<br> FDBC | The NASDAQ Stock Market, LLC |

---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days. ☒ Yes ☐ No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | | | | |
|:---|:---|:---|:---|:---|
| Large accelerated filer ☐ | Non-accelerated filer ☐ | Accelerated filer ☒ | Smaller reporting company ☒ | Emerging growth company ☐ |

---

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

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

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on July 31, 2025, the latest practicable date, was 5,767,302 shares.

------

[**Table of Contents**](#toc)

**FIDELITY D & D BANCORP, INC.**

<u>Form 10-Q June 30, 2025</u>

<u>Index</u>

---

| | | |
|:---|:---|:---|
| Part I. Financial Information |  | &nbsp;&nbsp; **Page** |
| Item 1. | &nbsp;&nbsp; [Financial Statements (unaudited):](#part1) |  |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024](#bs) | [3](#bs) |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Consolidated Statements of Income for the three months and six months ended June 30, 2025 and 2024](#income) | [4](#income) |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2025 and 2024](#compincome) | [5](#compincome) |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 30, 2025 and 2024](#equity) | [6](#equity) |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024](#cashflows) | [8](#cashflows) |
|  | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Notes to Consolidated Financial Statements (Unaudited)](#notes) | [10](#notes) |
| Item 2. | &nbsp;&nbsp; [Management's Discussion and Analysis of Financial Condition and Results of Operations](#mda) | [34](#mda) |
| Item 3. | &nbsp;&nbsp; [Quantitative and Qualitative Disclosure about Market Risk](#qqd) | [55](#qqd) |
| Item 4. | &nbsp;&nbsp; [Controls and Procedures](#controls) | [58](#controls) |
| Part II. Other Information |  |  |
| Item 1. | &nbsp;&nbsp; [Legal Proceedings](#legal) | [58](#legal) |
| Item 1A. | &nbsp;&nbsp; [Risk Factors](#risk) | [58](#risk) |
| Item 2. | &nbsp;&nbsp; [Unregistered Sales of Equity Securities and Use of Proceeds](#unregistered) | [58](#unregistered) |
| Item 3. | &nbsp;&nbsp; [Defaults upon Senior Securities](#default) | [58](#default) |
| Item 4. | &nbsp;&nbsp; [Mine Safety Disclosures](#minesafety) | [58](#minesafety) |
| Item 5. | &nbsp;&nbsp; [Other Information](#item5otherinfo) | [58](#item5otherinfo) |
| Item 6. | &nbsp;&nbsp; [Exhibits](#exhibits) | [59](#exhibits) |
| [Signatures](#signatures) |  | [61](#signatures) |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2

------

[**Table of Contents**](#toc)

**PART I** – **Financial Information**

**Item 1: Financial Statements** 

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Balance Sheets

---

| | | |
|:---|:---|:---|
| (Unaudited) |  |  |
| (dollars in thousands) | ***June 30, 2025*** | *December 31, 2024* |
| Assets: |  |  |
| Cash and due from banks | $**33360** | $26269 |
| Interest-bearing deposits with financial institutions | **132135** | 57084 |
| Total cash and cash equivalents | **165495** | 83353 |
| Available-for-sale securities | **319279** | 331457 |
| &nbsp;&nbsp;&nbsp;&nbsp; Held-to-maturity securities (fair value of $195,400 in 2025; $194,575 in 2024) | **226542** | 225764 |
| Restricted investments in bank stock | **4240** | 3961 |
| Loans and leases, net (allowance for credit losses of $19,976 in 2025; $19,666 in 2024) | **1817030** | 1779136 |
| Loans held-for-sale (fair value $482 in 2025; $2,089 in 2024) | **471** | 2054 |
| Foreclosed assets held-for-sale | **414** | 430 |
| Bank premises and equipment, net | **40097** | 35914 |
| Leased property under finance leases, net | **861** | 975 |
| Right-of-use assets | **9250** | 8785 |
| Cash surrender value of bank owned life insurance | **58849** | 58069 |
| Accrued interest receivable | **9988** | 9632 |
| Goodwill | **19628** | 19628 |
| Core deposit intangible, net | **736** | 876 |
| Other assets | **25695** | 24582 |
| Total assets | $**2698575** | $2584616 |
| Liabilities: |  |  |
| Deposits: |  |  |
| Interest-bearing | $**1877254** | $1806885 |
| Non-interest-bearing | **558074** | 533935 |
| Total deposits | **2435328** | 2340820 |
| &nbsp;&nbsp;&nbsp;&nbsp; Allowance for credit losses on off-balance sheet credit exposures | **1019** | 1084 |
| Finance lease obligation | **897** | 1011 |
| Operating lease liabilities | **10215** | 9714 |
| &nbsp;&nbsp;&nbsp;&nbsp; Short-term borrowings | **10** |  |
| Secured borrowings | **6134** | 6266 |
| Accrued interest payable and other liabilities | **27060** | 21752 |
| Total liabilities | **2480663** | 2380647 |
| Shareholders' equity: |  |  |
| Preferred stock authorized 5,000,000 shares with no par value; none issued | **-** |  |
| Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding; 5,767,490 at June 30, 2025; and 5,736,252 at December 31, 2024) | **120333** | 119430 |
| Retained earnings | **148365** | 140113 |
| Accumulated other comprehensive loss | **(50699)** | (55574) |
| &nbsp;&nbsp;&nbsp;&nbsp; Treasury stock, at cost (2,081 shares at June 30, 2025 and 54 shares at December 31, 2024) | **(87)** |  |
| Total shareholders' equity | **217912** | 203969 |
| Total liabilities and shareholders' equity | $**2698575** | $2584616 |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Statements of Income

---

| | | | | |
|:---|:---|:---|:---|:---|
| (Unaudited) | *Three months ended* | *Three months ended* | *Six months ended* | *Six months ended* |
| (dollars in thousands except per share data) | ***June 30, 2025*** | *June 30, 2024* | ***June 30, 2025*** | *June 30, 2024* |
| Interest income: |  |  |  |  |
| Loans and leases: |  |  |  |  |
| Taxable | $**24009** | $21292 | $**47302** | $42221 |
| Nontaxable | **1319** | 1224 | **2622** | 2428 |
| Interest-bearing deposits with financial institutions | **1513** | 440 | **2284** | 816 |
| Restricted investments in bank stock | **70** | 75 | **144** | 156 |
| Investment securities: |  |  |  |  |
| U.S. government agency and corporations | **1521** | 1460 | **2980** | 2949 |
| States and political subdivisions (nontaxable) | **925** | 1103 | **1890** | 2208 |
| States and political subdivisions (taxable) | **408** | 445 | **851** | 887 |
| Total interest income | **29765** | 26039 | **58073** | 51665 |
| Interest expense: |  |  |  |  |
| Deposits | **11738** | 10459 | **22925** | 20400 |
| Secured borrowings | **98** | 120 | **186** | 241 |
| Other short-term borrowings | **-** | 343 | **-** | 963 |
| Total interest expense | **11836** | 10922 | **23111** | 21604 |
| Net interest income | **17929** | 15117 | **34962** | 30061 |
| Provision for credit losses on loans | **300** | 275 | **755** | 400 |
| Net provision (benefit) for credit losses on unfunded loan commitments | **20** | 140 | **(65)** | 90 |
| Net interest income after provision for credit losses | **17609** | 14702 | **34272** | 29571 |
| Other income: |  |  |  |  |
| Service charges on deposit accounts | **1026** | 945 | **2018** | 1902 |
| Interchange fees | **1283** | 1191 | **2640** | 2489 |
| Service charges on loans | **434** | 281 | **763** | 585 |
| Fees from trust fiduciary activities | **1050** | 884 | **2014** | 1733 |
| Fees from financial services | **234** | 295 | **539** | 563 |
| Fees and other revenue | **644** | 417 | **1041** | 759 |
| Earnings on bank-owned life insurance | **391** | 358 | **780** | 706 |
| Gain (loss) on write-down, sale or disposal of: |  |  |  |  |
| Loans | **308** | 245 | **1061** | 448 |
| Available-for-sale debt securities | **-** |  | **(822)** |  |
| Premises and equipment | **(11**) | (1) | **298** | 3 |
| Total other income | **5359** | 4615 | **10332** | 9188 |
| Other expenses: |  |  |  |  |
| Salaries and employee benefits | **7704** | 6928 | **15396** | 14060 |
| Premises and equipment | **2406** | 2172 | **4843** | 4331 |
| Data processing and communication | **732** | 714 | **1460** | 1457 |
| Advertising and marketing | **602** | 413 | **1645** | 1144 |
| Professional services | **970** | 1191 | **1928** | 2254 |
| Automated transaction processing | **480** | 486 | **938** | 911 |
| Office supplies and postage | **157** | 190 | **404** | 393 |
| PA shares tax expense | **402** | 390 | **242** | 415 |
| Loan collection | **43** | 51 | **101** | 54 |
| Other real estate owned, net | **14** | (13) | **(57)** | (13) |
| FDIC assessment | **297** | 302 | **607** | 600 |
| Other | **903** | 792 | **1757** | 1700 |
| Total other expenses | **14710** | 13616 | **29264** | 27306 |
| Income before income taxes | **8258** | 5701 | **15340** | 11453 |
| Provision for income taxes | **1337** | 766 | **2428** | 1460 |
| Net income | $**6921** | $4935 | $**12912** | $9993 |
| Per share data: |  |  |  |  |
| Net income - basic | $**1.20** | $0.86 | $**2.24** | $1.74 |
| Net income - diluted | $**1.20** | $0.86 | $**2.23** | $1.73 |
| Dividends | $**0.40** | $0.38 | $**0.80** | $0.76 |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

---

| | | | | |
|:---|:---|:---|:---|:---|
| Consolidated Statements of Comprehensive Income |  |  |  |  |
| (Unaudited) | *Three months ended June 30,* | *Three months ended June 30,* | *Six months ended June 30,* | *Six months ended June 30,* |
| (dollars in thousands) | ***2025*** | *2024* | ***2025*** | *2024* |
| Net income | $**6921** | $4935 | $**12912** | $9993 |
| Other comprehensive income (loss), before tax: |  |  |  |  |
| Unrealized holding gain (loss) on available-for-sale debt securities | **1080** | 670 | **4155** | (1746) |
| Reclassification adjustment for net losses realized in income | **-** |  | **822** |  |
| Amortization of unrealized loss on held-to-maturity securities | **595** | 582 | **1193** | 1166 |
| Net unrealized gain (loss) | **1675** | 1252 | **6170** | (580) |
| Tax effect | **(352**) | (263) | **(1295)** | 122 |
| Unrealized gain (loss), net of tax | **1323** | 989 | **4875** | (458) |
| Other comprehensive income (loss), net of tax | **1323** | 989 | **4875** | (458) |
| Total comprehensive income, net of tax | $**8244** | $5924 | $**17787** | $9535 |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Statements of Changes in Shareholders' Equity

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| For the Six Months Ended June 30, 2025 and 2024 |  |  |  |  |  |  |
| (Unaudited) |  |  |  | Accumulated |  |  |
|  |  |  |  | other |  |  |
|  | *Capital stock* | *Capital stock* | *Retained* | *comprehensive* | *Treasury* |  |
| (dollars in thousands) | *Shares* | *Amount* | *earnings* | *income (loss)* | *Stock* | *Total* |
| Balance, December 31, 2023 | 5703636 | $117695 | $128251 | $(56467) | $*-* | $189479 |
| Net income | *-* | *-* | 9993 | *-* | *-* | 9993 |
| Other comprehensive loss | *-* |  |  | (458) |  | (458) |
| Issuance of common stock through Employee Stock Purchase Plan | 6764 | 280 | *-* | *-* | *-* | 280 |
| Re-issuance of common stock through Dividend Reinvestment Plan | 1645 | 4 | *-* | *-* | 79 | 83 |
| Forfeited restricted dividend reinvestment shares | (15) |  |  |  |  |  |
| Issuance of common stock from vested restricted share grants through stock compensation plans | 25304 |  | *-* | *-* | *-* |  |
| Stock-based compensation expense | *-* | 798 | *-* | *-* | *-* | 798 |
| Repurchase of shares to cover withholdings | (1606) | *-* | *-* | *-* | (79) | (79) |
| Cash dividends declared | *-* | *-* | (4404) | *-* | *-* | (4404) |
| Balance, June 30, 2024 | 5735728 | $118777 | $133840 | $(56925) | $*-* | $195692 |
| Balance, December 31, 2024 | 5736252 | $119430 | $140113 | $(55574) | $- | $203969 |
| Net income | *-* | *-* | **12912** | *-* | *-* | **12912** |
| Other comprehensive income | *-* | *-* | *-* | **4875** | *-* | **4875** |
| Issuance of common stock through Employee Stock Purchase Plan | **5406** | **248** | *-* | *-* | *-* | **248** |
| Forfeited restricted dividend reinvestment shares | **(59)** |  |  |  |  | **-** |
| Issuance of common stock from vested restricted share grants through stock compensation plans | **27859** |  | *-* | *-* | *-* | ***-*** |
| Stock-based compensation expense | *-* | **655** | *-* | *-* | *-* | **655** |
| Repurchase of shares to cover withholdings | **(1968)** | **-** |  |  | **(87)** | **(87)** |
| Cash dividends declared | *-* | *-* | **(4660)** | *-* | *-* | **(4660)** |
| **Balance, June 30, 2025** | **5767490** | $**120333** | $**148365** | $**(50699)** | $**(87)** | $**217912** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Statements of Changes in Shareholders' Equity

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| For the Three Months Ended June 30, 2025 and 2024 |  |  |  |  |  |  |
| (Unaudited) |  |  |  | *Accumulated* |  |  |
|  |  |  |  | *other* |  |  |
|  | *Capital stock* | *Capital stock* | *Retained* | *comprehensive* | *Treasury* |  |
| (dollars in thousands) | *Shares* | *Amount* | *earnings* | *income (loss)* | *Stock* | *Total* |
| Balance, March 31, 2024 | 5735732 | $118438 | $131111 | $(57914) | $*-* | $191635 |
| Net income | *-* | *-* | 4935 | *-* | *-* | 4935 |
| Other comprehensive income | *-* | *-* | *-* | 989 | *-* | 989 |
| Forfeited restricted dividend reinvestment shares | (4) |  |  |  |  |  |
| Stock-based compensation expense | *-* | 339 | *-* | *-* | *-* | 339 |
| Cash dividends declared | *-* | *-* | (2206) | *-* | *-* | (2206) |
| Balance, June 30, 2024 | 5735728 | $118777 | $133840 | $(56925) | $*-* | $195692 |
| Balance, March 31, 2025 | 5767500 | $120004 | $143779 | $(52022) | $(87) | $211674 |
| Net income | *-* | *-* | **6921** | *-* | *-* | **6921** |
| Other comprehensive income | *-* |  |  | **1323** |  | **1323** |
| Forfeited restricted dividend reinvestment shares | **(10)** |  |  |  |  | **-** |
| Stock-based compensation expense | *-* | **329** | *-* | *-* | *-* | **329** |
| Cash dividends declared | *-* | *-* | **(2335)** | *-* | *-* | **(2335)** |
| **Balance, June 30, 2025** | **5767490** | $**120333** | $**148365** | $**(50699)** | $**(87)** | $**217912** |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Statements of Cash Flows

---

| | | |
|:---|:---|:---|
| (Unaudited) | *Six months ended June 30,* | *Six months ended June 30,* |
| (dollars in thousands) | ***2025*** | *2024* |
| **Cash flows from operating activities:** |  |  |
| Net income | $**12912** | $9993 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| Depreciation, amortization and accretion | **2796** | 2745 |
| Provision for credit losses on loans | **755** | 400 |
| Net (benefit) provision for credit losses on unfunded loan commitments | **(65**) | 90 |
| Deferred income tax benefit | **(1290**) | (452) |
| Stock-based compensation expense | **655** | 798 |
| Proceeds from sale of loans held-for-sale | **34015** | 25697 |
| Originations of loans held-for-sale | **(27546)** | (24776) |
| Earnings from bank-owned life insurance | **(780)** | (706) |
| Gain from bank-owned life insurance claim | **(166)** |  |
| Net gain from sales of loans | **(1061)** | (448) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss from sales of investment securities | **822** |  |
| Net gain from sale and write-down of foreclosed assets held-for-sale | **(76)** | (15) |
| Net gain from write-down and disposal of bank premises and equipment | **(298**) | (3) |
| Operating lease payments | **35** | 25 |
| Change in: |  |  |
| Accrued interest receivable | **(356**) | (786) |
| Other assets | **1267** | 1334 |
| Accrued interest payable and other liabilities | **2642** | 130 |
| Net cash provided by operating activities | **24261** | 14026 |
| **Cash flows from investing activities:** |  |  |
| Available-for-sale securities: |  |  |
| Proceeds from sales | **16665** |  |
| Proceeds from maturities, calls and principal pay-downs | **13284** | 11545 |
| &nbsp;&nbsp;&nbsp;&nbsp; Purchases | **(14747)** |  |
| Increase in restricted investments in bank stock | **(279)** | (63) |
| Net increase in loans and leases | **(44337)** | (44601) |
| Principal portion of lease payments received under direct finance leases | **1761** | 2292 |
| Purchase of bank-owned life insurance policies |  | (2000) |
| Purchases of bank premises and equipment | **(5865)** | (2782) |
| Proceeds from sale of bank premises and equipment | **581** | 19 |
| Proceeds from sale of foreclosed assets held-for-sale | **533** | 235 |
| Net cash used in investing activities | **(32404)** | (35355) |
| **Cash flows from financing activities:** |  |  |
| Net increase in deposits | **95017** | 10707 |
| Net decrease in borrowings | **(120**) | (19014) |
| Repayment of finance lease obligation | **(113)** | (109) |
| Proceeds from employee stock purchase plan participants | **248** | 280 |
| &nbsp;&nbsp;&nbsp;&nbsp; Repurchase of shares to cover withholdings | **(87**) | (79) |
| Dividends paid, net of dividends reinvested | **(4660)** | (4320) |
| Net cash provided by (used in) financing activities | **90285** | (12535) |
| Net increase (decrease) in cash and cash equivalents | **82142** | (33864) |
| Cash and cash equivalents, beginning | **83353** | 111949 |
| Cash and cash equivalents, ending | $**165495** | $78085 |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8

------

[**Table of Contents**](#toc)

**Fidelity D & D Bancorp, Inc. and Subsidiary**

Consolidated Statements of Cash Flows (continued)

---

| | | |
|:---|:---|:---|
|  | *Six months ended June 30,* | *Six months ended June 30,* |
| (dollars in thousands) | ***2025*** | *2024* |
| **Supplemental Disclosures of Cash Flow Information** |  |  |
| Cash payments for: |  |  |
| Interest | $**22552** | $21387 |
| Income tax |  |  |
| Federal taxes | **2900** | 1650 |
| State taxes | **33** | 17 |
| **Supplemental Disclosures of Non-cash Investing Activities:** |  |  |
| Net change in unrealized losses on available-for-sale securities | **4155** | (1746) |
| Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity | **1193** | 1166 |
| Transfers from loans to foreclosed assets held-for-sale | **441** | 219 |
| Transfers from loans to loans held-for-sale, net | **2870** |  |
| Security settlement pending | **2550** |  |
| Net change in right-of-use asset | **630** | 1391 |
| Net change in lease liability | **630** | 1483 |

---

See notes to unaudited consolidated financial statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9

------

[**Table of Contents**](#toc)

**FIDELITY D & D BANCORP, INC.**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

***1.* Nature of operations and critical accounting policies**

**<u>Nature of operations</u>**

Fidelity D & D Bancorp, Inc. (the Company) is a bank holding company and the parent of The Fidelity Deposit and Discount Bank (the Bank). The Bank is a commercial bank and trust company chartered under the laws of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of the Company. Having commenced operations in *1903,* the Bank is committed to providing superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna, Northampton and Luzerne Counties and Wealth Management offices in Schuylkill and Lebanon Counties.

**<u>Principles of consolidation</u>**

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to this Form *10*-Q and Rule *8*-*03* of Regulation S-*X.* Accordingly, they do *not* include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included. All significant inter-company balances and transactions have been eliminated in consolidation.

For additional information and disclosures required under U.S. GAAP, refer to the Company's Annual Report on Form *10*-K for the year ended *December 31, 2024*.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report. Management prepared the unaudited financial statements in accordance with U.S. GAAP. In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls. These systems and controls are designed to provide reasonable but *not* absolute assurance that the financial records accurately reflect the transactions of the Company, the Company's assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of *June 30, 2025* and *December 31, 2024* and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders' equity for the *three* and *six* months ended *June 30, 2025* and *2024* and consolidated statements of cash flows for the *six* months ended *June 30, 2025* and *2024* present fairly the financial condition and results of operations of the Company. All material adjustments required for a fair presentation have been made. These adjustments are of a normal recurring nature.

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after *June 30, 2025* through the date these consolidated financial statements were issued.

This Quarterly Report on Form *10*-Q should be read in conjunction with the Company's audited financial statements for the year ended *December 31, 2024*, and the notes included therein, included within the Company's Annual Report filed on Form *10*-K.

**<u>Critical accounting estimates</u>**

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

A material estimate is the calculation of fair values of the Company's investment securities. Fair values of investment securities are determined by pricing provided by a *third*-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services. Accordingly, when buying or selling investment securities, price quotes *may* be obtained from more than *one* source. All of the Company's debt securities are classified as available-for-sale (AFS) or held-to-maturity (HTM). AFS debt securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders' equity as a component of accumulated other comprehensive income (AOCI). Debt securities, for which the Company has the positive intent and ability to hold to maturity, are reported at amortized cost. On occasion, the Company *may* transfer securities from AFS to HTM at fair value on the date of transfer.

Another material estimate that is particularly susceptible to significant change relates to the determination of the allowance for credit losses. Management believes that the allowance for credit losses at *June 30, 2025* is adequate and reasonable to cover expected losses. Given the subjective nature of identifying and estimating loan losses, it is reasonably possible that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount. While management uses available information to recognize losses on loans, changes in current economic conditions and reasonable and supportable forecasts *may* necessitate revisions in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Such agencies *may* require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *10*

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

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

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

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

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

● **Credit loss measurement method:** Multiple measurement methods for estimating ACLs are allowable per measurement of credit losses on loans and leases (ASC Topic *326*). The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the Commercial & Industrial, Commercial Real Estate Non-Owner Occupied, Commercial Real Estate Owner Occupied, Commercial Construction, Home Equity Installment Loan, Home Equity Line of Credit, Residential Real Estate, and Residential Construction pools. The weighted average remaining maturity (WARM) method is used for the Municipal, Non-Recourse Auto, Recourse Auto, Direct Finance Lease, and Consumer Other pools.

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

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

● **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 |
| &nbsp;&nbsp;&nbsp;&nbsp;o | changes in underlying collateral. |

---

Assets are evaluated on a collective (or pool) basis or individually, as applicable consistent with ASC Topic *326.* In accordance with ASC Topic *326,* the Company will evaluate individual instruments for expected credit losses when those instruments do *not* share similar risk characteristics with instruments evaluated using a collective (pooled) basis. In contrast to legacy accounting standards, this criterion is broader than the "impairment" concept as management *may* evaluate assets individually even when *no* specific expectation of collectability is in place. Instruments will *not* be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope.

For individually evaluated assets, an ACL is determined separately for each financial asset. As of the reporting date, the Company is using the collateral and cash flow methods.

ASC Topic *326* defines a collateral-dependent asset as a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on Management's assessment, is experiencing financial difficulty. The ACL for a collateral-dependent loan is measured using the fair value of collateral, regardless of whether foreclosure is probable. The fair value of collateral must be adjusted for estimated costs to sell if repayment or satisfaction of the asset depends on the sale of the collateral. If repayment is dependent only on the operation of the collateral, and *not* on the sale of the collateral, the fair value of the collateral would *not* be adjusted for estimated costs to sell. If the fair value of the collateral, adjusted for costs to sell if applicable, is less than the amortized cost basis of the collateral-dependent asset, the difference is recorded as an ACL.

The Company's policy is to charge-off unsecured consumer loans when they become *90* days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *11*

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If the individually evaluated asset is determined to *not* be collateral dependent, the ACL is measured based on the expected cash flows. This measurement is based on the amount and timing of cash flows; the effective interest rate (EIR) is used to discount the cash flows; and the basis for the determination of cash flows, including consideration of past events, current conditions, and reasonable and supportable forecasts about the future. These cash flows are discounted back by the EIR and compared to the amortized cost basis of the asset. If the present value of cash flows is less than the amortized cost, an ACL is recorded. When the present value of cash flows is equal to or greater than the amortized cost, *no* ACL is recorded.

An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.

***2.* New accounting pronouncements**

In *November 2024,* FASB issued ASU *2024*-*03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic *220*-*40*): Disaggregation of Income Statement Expenses*, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after *December 15, 2026,* and for interim periods within fiscal years beginning after *December 15, 2027.* Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it *may* have on its consolidated financial statements and related disclosures but expects additional disclosures upon adoption.

***3.* Accumulated other comprehensive income** 

The following tables illustrate the changes in accumulated other comprehensive income by component and the details about the components of accumulated other comprehensive income as of and for the periods indicated:

---

| | | | |
|:---|:---|:---|:---|
| ***As of and for the three months ended June 30, 2025*** | ***As of and for the three months ended June 30, 2025*** | ***As of and for the three months ended June 30, 2025*** | ***As of and for the three months ended June 30, 2025*** |
|  | *Unrealized gains* |  |  |
|  | *(losses) on* | *Securities* |  |
|  | *available-for-sale* | *transferred to* |  |
| (dollars in thousands) | *debt securities* | *held-to-maturity* | *Total* |
| Beginning balance | $**(38652)** | $**(13370)** | $**(52022)** |
| Other comprehensive income before reclassifications, net of tax | **853** | **-** | **853** |
| Amounts reclassified from accumulated other comprehensive income, net of tax | **-** | **470** | **470** |
| Net current-period other comprehensive income | **853** | **470** | **1323** |
| Ending balance | $**(37799)** | $**(12900)** | $**(50699)** |

---

---

| | | | |
|:---|:---|:---|:---|
| ***As of and for the six months ended June 30, 2025*** | ***As of and for the six months ended June 30, 2025*** | ***As of and for the six months ended June 30, 2025*** | ***As of and for the six months ended June 30, 2025*** |
|  | *Unrealized gains* |  |  |
|  | *(losses) on* | *Securities* |  |
|  | *available-for-sale* | *transferred to* |  |
| (dollars in thousands) | *debt securities* | *held-to-maturity* | *Total* |
| Beginning balance | $**(41731)** | $**(13843)** | $**(55574)** |
| Other comprehensive income before reclassifications, net of tax | **3283** | **-** | **3283** |
| Amounts reclassified from accumulated other comprehensive income, net of tax | **649** | **943** | **1592** |
| Net current-period other comprehensive income | **3932** | **943** | **4875** |
| Ending balance | $**(37799)** | $**(12900)** | $**(50699)** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *12*

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| | | | |
|:---|:---|:---|:---|
| *As of and for the three months ended June 30, 2024* | *As of and for the three months ended June 30, 2024* | *As of and for the three months ended June 30, 2024* | *As of and for the three months ended June 30, 2024* |
|  | *Unrealized gains* |  |  |
|  | *(losses) on* | *Securities* |  |
|  | *available-for-sale* | *transferred to* |  |
| (dollars in thousands) | *debt securities* | *held-to-maturity* | *Total* |
| Beginning balance | $(42668) | $(15246) | $(57914) |
| Other comprehensive income before reclassifications, net of tax | 529 |  | 529 |
| Amounts reclassified from accumulated other comprehensive income, net of tax |  | 460 | 460 |
| Net current-period other comprehensive income | 529 | 460 | 989 |
| Ending balance | $(42139) | $(14786) | $(56925) |

---

---

| | | | |
|:---|:---|:---|:---|
| As of and for the six months ended June 30, 2024 |  |  |  |
|  | *Unrealized gains* |  |  |
|  | *(losses) on* | *Securities* |  |
|  | *available-for-sale* | *transferred to* |  |
| (dollars in thousands) | *securities* | *held-to-maturity* | *Total* |
| Beginning balance | $(40760) | $(15707) | $(56467) |
| Other comprehensive (loss) income before reclassifications, net of tax | (1379) |  | (1379) |
| Amounts reclassified from accumulated other comprehensive income, net of tax |  | 921 | 921 |
| Net current-period other comprehensive (loss) income | (1379) | 921 | (458) |
| Ending balance | $(42139) | $(14786) | $(56925) |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| Details about accumulated other | *Amount reclassified from accumulated* | *Amount reclassified from accumulated* | *Amount reclassified from accumulated* | *Amount reclassified from accumulated* | *Affected line item in the statement* |
| comprehensive income components | *other comprehensive income* | *other comprehensive income* | *other comprehensive income* | *other comprehensive income* | *where net income is presented* |
|  | *For the three months ended June 30,* | *For the three months ended June 30,* | *For the six months ended June 30,* | *For the six months ended June 30,* |  |
| **(dollars in thousands)** | ***2025*** | *2024* | ***2025*** | *2024* |  |
| Realized losses on AFS debt securities | $- | $- | $**(822)** | $- | *Gain (loss) on sale of investment securities* |
| Amortization of unrealized loss on held-to-maturity securities | **(595)** | (582) | **(1193)** | (1166) | *Interest income on investment securities* |
| Total reclassifications for the period | **(595)** | (582) | **(2015)** | (1166) | *Income before income taxes* |
| Income tax effect | **125** | 122 | **423** | 245 | *Provision for income taxes* |
| Total reclassifications for the period | $**(470**) | $(460) | $**(1592)** | $(921) | *Net income* |

---

***4.* Investment securities**

<u>Agency</u> <u>–</u> <u>Government-sponsored enterprise (GSE) and Mortgage-backed securities (MBS) - GSE residential</u> 

Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan Bank of Pittsburgh (FHLB) and Government National Mortgage Association (GNMA). These securities have interest rates that are fixed, have varying short to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.

<u>Obligations of states and political subdivisions (municipal)</u> 

The municipal securities are general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities. Fair values of these securities are highly driven by interest rates. Management performs ongoing credit quality reviews on these issues.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *13*

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The Company did not record any allowance for credit losses on its available-for-sale or held-to-maturity securities. The Company excludes accrued interest receivable from the amortized cost basis of investment securities disclosed throughout this footnote. As of *June 30, 2025* and *December 31, 2024,* accrued interest receivable for investment securities totaled $3.2 million and $3.4 million, respectively, and is included in the accrued interest receivable line in the consolidated balance sheets. The amortized cost and fair value of investment securities at *June 30, 2025* and *December 31, 2024* are summarized as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  | ***Gross*** | ***Gross*** |  |
|  | ***Amortized*** | ***unrealized*** | ***unrealized*** | ***Fair*** |
| (dollars in thousands) | ***cost*** | ***gains*** | ***losses*** | ***value*** |
| **June 30, 2025** |  |  |  |  |
| Held-to-maturity securities: |  |  |  |  |
| Agency - GSE | $**83046** | $**-** | $**(5336)** | $**77710** |
| Obligations of states and political subdivisions | **143496** | **-** | **(25806)** | **117690** |
| Total held-to-maturity securities | $**226542** | $**-** | $**(31142)** | $**195400** |
| Available-for-sale debt securities: |  |  |  |  |
| Agency - GSE | $**29321** | $**-** | $**(2246)** | $**27075** |
| Obligations of states and political subdivisions | **121606** | **-** | **(19188)** | **102418** |
| MBS - GSE residential | **216198** | **172** | **(26584)** | **189786** |
| Total available-for-sale debt securities | $**367125** | $**172** | $**(48018)** | $**319279** |

---

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| | | | | |
|:---|:---|:---|:---|:---|
|  |  | ***Gross*** | ***Gross*** |  |
|  | ***Amortized*** | ***unrealized*** | ***unrealized*** | ***Fair*** |
| (dollars in thousands) | ***cost*** | ***gains*** | ***losses*** | ***value*** |
| December 31, 2024 |  |  |  |  |
| Held-to-maturity securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Agency - GSE | $82486 | $- | $(8092) | $74394 |
| &nbsp;&nbsp;&nbsp; Obligations of states and political subdivisions | 143278 |  | (23097) | 120181 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total held-to-maturity securities | $225764 | $- | $(31189) | $194575 |
| Available-for-sale debt securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Agency - GSE | $31273 | $- | $(3073) | $28200 |
| &nbsp;&nbsp;&nbsp; Obligations of states and political subdivisions | 135149 |  | (15891) | 119258 |
| &nbsp;&nbsp;&nbsp; MBS - GSE residential | 217858 |  | (33859) | 183999 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | $384280 | $- | $(52823) | $331457 |

---

The amortized cost and fair value of debt securities at *June 30, 2025* by contractual maturity are summarized below:

---

| | | |
|:---|:---|:---|
|  | *Amortized* | *Fair* |
| (dollars in thousands) | *cost* | *value* |
| Held-to-maturity securities: |  |  |
| &nbsp;&nbsp;&nbsp; Due in one year or less | $- | $- |
| &nbsp;&nbsp;&nbsp; Due after one year through five years | 36145 | 34738 |
| &nbsp;&nbsp;&nbsp; Due after five years through ten years | 80586 | 73205 |
| &nbsp;&nbsp;&nbsp; Due after ten years | 109811 | 87457 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total held-to-maturity securities | $226542 | $195400 |
| Available-for-sale securities: |  |  |
| Debt securities: |  |  |
| &nbsp;&nbsp;&nbsp; Due in one year or less | $2982 | $2966 |
| &nbsp;&nbsp;&nbsp; Due after one year through five years | 37706 | 34734 |
| &nbsp;&nbsp;&nbsp; Due after five years through ten years | 8981 | 7942 |
| &nbsp;&nbsp;&nbsp; Due after ten years | 100690 | 83851 |
| &nbsp;&nbsp;&nbsp; MBS - GSE residential | 215632 | 189786 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | $365991 | $319279 |

---

There was a $0.6 million increase to the carrying value of municipal AFS securities and a $0.6 million increase to the carrying value of mortgage-backed securities resulting from the interest rate swap that was *not* included in the maturity table above.

Actual maturities will differ from contractual maturities because issuers and borrowers *may* have the right to call or repay obligations with or without call or prepayment penalty. Agency – GSE and municipal securities are included based on their original stated maturity. MBS – GSE residential, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total. Most of the securities have fixed rates or have predetermined scheduled rate changes and many have call features that allow the issuer to call the security at par before its stated maturity without penalty.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *14*

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Some of the Company's debt securities are pledged to secure trust funds, public deposits, short-term borrowings, FHLB advances, Federal Reserve Bank of Philadelphia Discount Window borrowings and certain other deposits as required by law. Securities pledged at *June 30, 2025* had a carrying amount of $344.6 million and were pledged to secure public deposits, trust client deposits, borrowings and derivative instruments.

The following table presents the fair value and gross unrealized losses of debt securities aggregated by investment type, the length of time and the number of securities that have been in a continuous unrealized loss position as of *June 30, 2025* and *December 31, 2024*:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *Less than 12 months* | *Less than 12 months* | *More than 12 months* | *More than 12 months* | *Total* | *Total* |
|  | *Fair* | *Unrealized* | *Fair* | *Unrealized* | *Fair* | *Unrealized* |
| (dollars in thousands) | *value* | *losses* | *value* | *losses* | *value* | *losses* |
| **June 30, 2025** |  |  |  |  |  |  |
| Agency - GSE | $**-** | $**-** | $**104785** | $**(7581)** | $**104785** | $**(7581)** |
| Obligations of states and political subdivisions | **-** | **-** | **220107** | **(44428)** | **220107** | **(44428)** |
| MBS - GSE residential | **3907** | **(50)** | **165166** | **(25968)** | **169073** | **(26018)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $**3907** | $**(50)** | $**490058** | $**(77977)** | $**493965** | $**(78027)** |
| Number of securities | **2** |  | **399** |  | **401** |  |
| December 31, 2024 |  |  |  |  |  |  |
| Agency - GSE | $- | $- | $102594 | $(11165) | $102594 | $(11165) |
| Obligations of states and political subdivisions | 384 | (11) | 239055 | (38469) | 239439 | (38480) |
| MBS - GSE residential | 15050 | (253) | 168949 | (33099) | 183999 | (33352) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $15434 | $(264) | $510598 | $(82733) | $526032 | $(82997) |
| Number of securities | 8 |  | 416 |  | 424 |  |

---

There was a $1.1 million and $1.0 million increase to the carrying value of AFS securities resulting from the interest rate swap that increased the unrealized loss position at *June 30, 2025* and *December 31, 2024,* respectively, that was *not* included in the table above.

The Company had 401 debt securities in an unrealized loss position at *June 30, 2025*, including 45 agency-GSE securities, 137 MBS – GSE residential securities and 219 municipal securities. The severity of these unrealized losses based on their underlying cost basis was as follows at *June 30, 2025*: 6.75% for agency - GSE, 13.34% for total MBS-GSE residential; and 16.79% for municipals. Management has *no* intent to sell any securities in an unrealized loss position as of *June 30, 2025.*

The Company reassessed classification of certain investments and effective *April 1, 2022,* the Company transferred agency and municipal investment securities with a book value of $245.5 million from available-for-sale to held-to-maturity. The securities were transferred at their fair value. The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, is being accreted into interest income from other comprehensive income over the life of the bonds. The allowance for credit losses on these securities was evaluated under the accounting policy for HTM debt securities.

Unrealized losses on available-for-sale securities have *not* been recognized into income because management believes the cause of the unrealized losses is related to changes in interest rates and is *not* directly related to credit quality. Quarterly, management conducts a formal review of investment securities to assess whether the fair value of a debt security is less than its amortized cost as of the balance sheet date. An allowance for credit losses has *not* been recognized on these securities in an unrealized loss position because: (*1*) the entity does *not* intend to sell the security; (*2*) more likely than *not* the entity will *not* be required to sell the security before recovery of its amortized cost basis; or (*3*) the present value of expected cash flows is sufficient to recover the entire amortized cost. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

The Company has U.S. agency bonds and municipal securities classified as held-to-maturity. Management estimated *no* credit loss reserve will be necessary for agency bonds HTM given the strong credit history of GSE and other U.S. agency issued bonds and the involvement of the U.S. government. For municipal securities HTM, the Company utilized a *third*-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of credit loss reserve calculated using this model was immaterial to the Company's financial statements, therefore *no* reserve was recorded, but the Company will continue to evaluate these securities on a quarterly basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *15*

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***5.* Loans and leases**

The classifications of loans and leases at *June 30, 2025* and *December 31, 2024* are summarized as follows:

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| | | |
|:---|:---|:---|
| (dollars in thousands) | ***June 30, 2025*** | *December 31, 2024* |
| Commercial and industrial: |  |  |
| Commercial | $**177916** | $172834 |
| &nbsp;&nbsp;&nbsp; Municipal | **95408** | 101706 |
| Commercial real estate: |  |  |
| &nbsp;&nbsp;&nbsp; Non-owner occupied | **408107** | 394219 |
| &nbsp;&nbsp;&nbsp; Owner occupied | **327410** | 304889 |
| &nbsp;&nbsp;&nbsp; Construction | **64245** | 50930 |
| Consumer: |  |  |
| &nbsp;&nbsp;&nbsp; Home equity installment | **54176** | 54214 |
| &nbsp;&nbsp;&nbsp; Home equity line of credit | **63429** | 58130 |
| &nbsp;&nbsp;&nbsp; Auto loans - Recourse | **10688** | 11389 |
| &nbsp;&nbsp;&nbsp; Auto loans - Non-recourse | **58352** | 75440 |
| &nbsp;&nbsp;&nbsp; Direct finance leases | **22901** | 27827 |
| &nbsp;&nbsp;&nbsp; Other | **27055** | 23848 |
| Residential: |  |  |
| &nbsp;&nbsp;&nbsp; Real estate | **511565** | 504815 |
| &nbsp;&nbsp;&nbsp; Construction | **17478** | 20507 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | **1838730** | 1800748 |
| Less: |  |  |
| &nbsp;&nbsp;&nbsp; Allowance for credit losses on loans | **(19976)** | (19666) |
| &nbsp;&nbsp;&nbsp; Unearned lease revenue | **(1724)** | (1946) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loans and leases, net | $**1817030** | $1779136 |

---

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

---

| | | |
|:---|:---|:---|
| (dollars in thousands) | ***June 30, 2025*** | *December 31, 2024* |
| Net unamortized fair value mark discount on acquired loans | $**(4230)** | $(4867) |
| Net unamortized deferred loan origination costs | **4943** | 4981 |
| Total | $**713** | $114 |

---

The Company excludes accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of *June 30, 2025* and *December 31, 2024,* accrued interest receivable for loans totaled $6.8 million and $6.3 million, respectively, and is included in the accrued interest receivable line in the consolidated balance sheets and is excluded from the estimate of credit losses.

Direct finance leases include the lease receivable and the guaranteed lease residual. Unearned lease revenue represents the difference between the lessor's investment in the property and the gross investment in the lease. Unearned revenue is accrued over the life of the lease using the effective interest method.

The Company services real estate loans for investors in the secondary mortgage market which are *not* included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgages serviced for others amounted to $506.1 million as of *June 30, 2025* and $495.4 million as of *December 31, 2024.* Mortgage servicing rights amounted to $1.3 million and $1.3 million as of *June 30, 2025* and *December 31, 2024,* respectively, and is included in other assets in the consolidated balance sheets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *16*

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[**Table of Contents**](#toc)

***<u>Non-accrual loans</u>***

Non-accrual loans and loans past due over *89* days still accruing, segregated by class, at *June 30, 2025* and *December 31, 2024*, were as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| (dollars in thousands) | *Non-accrual With No Allowance for Credit Loss* | *Non-accrual With an Allowance for Credit Loss* | *Total Non-accrual* | *Loans Past Due Over 89 Days Still Accruing* |
| **At June 30, 2025** |  |  |  |  |
| Commercial and industrial: |  |  |  |  |
| Commercial | $**657** | $**52** | $**709** | $**-** |
| Commercial real estate: |  |  |  |  |
| Non-owner occupied | **615** | **-** | **615** | **-** |
| Owner occupied | **725** | **84** | **809** | **-** |
| Consumer: |  |  |  |  |
| Home equity installment | **153** | **-** | **153** | **-** |
| Home equity line of credit | **264** | **180** | **444** | **-** |
| Auto loans - Non-recourse | **38** | **-** | **38** | **-** |
| Residential: |  |  |  |  |
| Real estate | **306** | **-** | **306** | **-** |
| Total | $**2758** | $**316** | $**3074** | $**-** |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| (dollars in thousands) | *Non-accrual With No Allowance for Credit Loss* | *Non-accrual With an Allowance for Credit Loss* | *Total Non-accrual* | *Loans Past Due Over 89 Days Still Accruing* |
| At December 31, 2024 |  |  |  |  |
| Commercial and industrial: |  |  |  |  |
| Commercial | $35 | $2673 | $2708 | $- |
| Commercial real estate: |  |  |  |  |
| Non-owner occupied | 711 |  | 711 |  |
| Owner occupied | 2505 | 84 | 2589 |  |
| Consumer: |  |  |  |  |
| Home equity installment | 41 |  | 41 |  |
| Home equity line of credit | 281 | 180 | 461 |  |
| &nbsp;&nbsp;&nbsp; Auto loans - Non-recourse | 52 |  | 52 |  |
| Direct finance leases |  |  |  | 32 |
| Other | 20 |  | 20 |  |
| Residential: |  |  |  |  |
| Real estate | 549 | 212 | 761 |  |
| Total | $4194 | $3149 | $7343 | $32 |

---

The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan. C&I and CRE loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due *90* days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at *90* days past due as to principal and interest and unsecured consumer loans are charged-off when the loan is *90* days or more past due as to principal and interest.

***<u>Loan modifications to borrowers experiencing financial difficulty</u>***

Occasionally, the Company modifies loans to borrowers in financial distress by providing interest rates below the market rate, temporary interest-only payment periods, term extensions at interest rates lower than the current market rate for new debt with similar risk and/or converting revolving credit lines to term loans. The Company typically does *not* forgive principal when modifying loans.

In some cases, the Company provides multiple types of concessions on *one* loan. Typically, *one* type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as lowering the interest rate, *may* be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *17*

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[**Table of Contents**](#toc)

The following tables present the amortized cost basis of loans at *June 30, 2025* and *June 30, 2024* that were both experiencing financial difficulty and modified during the *six* months ended *June 30, 2025* and *2024,* by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* |
| (dollars in thousands) | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** |
|  | *Principal Forgiveness* | *Payment Delay* | *Term Extension* | *Interest Rate Reduction* | *Combination Term Extension and Principal Forgiveness* | *Combination Term Extension Interest Rate Reduction* | *Total Class of Financing Receivable* |
| Commercial real estate: |  |  |  |  |  |  |  |
| Owner occupied | $**-** | $**367** | $**7356** | $**-** | $**-** | $**-** | **2.36%** |
| Total | $**-** | $**367** | $**7356** | $**-** | $**-** | $**-** |  |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* | *Loans modified during the six months ended:* |
| (dollars in thousands) | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* |
|  | *Principal Forgiveness* | *Payment Delay* | *Term Extension* | *Interest Rate Reduction* | *Combination Term Extension and Principal Forgiveness* | *Combination Term Extension Interest Rate Reduction* | *Total Class of Financing Receivable* |
| Commercial and industrial: |  |  |  |  |  |  |  |
| Commercial | $- | $50 | $- | $- | $- | $- | 0.03% |
| Commercial real estate: |  |  |  |  |  |  |  |
| Non-owner occupied |  | 285 |  |  |  |  | 0.08% |
| Owner occupied |  |  | 6546 |  |  |  | 2.38% |
| Total | $- | $335 | $6546 | $- | $- | $- |  |

---

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

No loans that have been modified in the last *12* months to borrowers experiencing financial difficulty were past due at *June 30, 2025.*

No loans that have been modified in the previous *12* months to borrowers experiencing financial difficulty were past due at *June 30, 2024.*

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the *six* months ended *June 30, 2025* and *2024*:

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** |
|  | *Principal Forgiveness* | *Weighted-Average Interest Rate Reduction* | *Weighted-Average Term Extension (Months)* |
| Commercial real estate: |  |  |  |
| Owner occupied | $- | -**%** | **5.6** |
| Total | $**-** | **-%** | **5.6** |

---

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* |
|  | *Principal Forgiveness* | *Weighted-Average Interest Rate Reduction* | *Weighted-Average Term Extension (Months)* |
| Commercial real estate: |  |  |  |
| Owner occupied | $- | -% | 5.0 |
| Total | $- | -% | 5.0 |

---

There were no financing receivables that had a payment default during the *six* months ended *June 30, 2025* and *2024* and were modified in the *twelve* months prior to that default to borrowers experiencing financial difficulty.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. The allowance for credit losses (ACL) *may* be increased, adjustments *may* be made in the allocation of the ACL or partial charge-offs *may* be taken to further write-down the carrying value of the loan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *18*

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***<u>Past due loans</u>***

Loans are considered past due when the contractual principal and/or interest is *not* received by the due date. For loans reported *30*-*59* days past due, certain categories of loans are reported past due as and when the loan is in arrears for *two* payments or billing cycles. An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands):

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  |  | *Recorded* |
|  |  |  | *Past due* |  |  |  | *investment past* |
|  | *30 - 59 Days* | *60 - 89 Days* | *90 days* | *Total* |  | *Total* | *due ≥ 90 days* |
| **June 30, 2025** | *past due* | *past due* | *or more (1)* | *past due* | *Current* | *loans (3)* | *and accruing* |
| Commercial and industrial: |  |  |  |  |  |  |  |
| Commercial | $**-** | $**85** | $**709** | $**794** | $**177122** | $**177916** | $*-* |
| Municipal | **-** | **-** | **-** | **-** | **95408** | **95408** | ***-*** |
| Commercial real estate: |  |  |  |  |  |  |  |
| Non-owner occupied | **-** | **-** | **615** | **615** | **407492** | **408107** | ***-*** |
| Owner occupied | **-** | **3443** | **809** | **4252** | **323158** | **327410** | ***-*** |
| Construction | **-** | **-** | **-** | **-** | **64245** | **64245** | ***-*** |
| Consumer: |  |  |  |  |  |  |  |
| Home equity installment | **246** | **-** | **153** | **399** | **53777** | **54176** | ***-*** |
| Home equity line of credit | **68** | **-** | **444** | **512** | **62917** | **63429** | ***-*** |
| Auto loans - Recourse | **68** | **-** | **-** | **68** | **10620** | **10688** | ***-*** |
| Auto loans - Non-recourse | **280** | **54** | **38** | **372** | **57980** | **58352** | ***-*** |
| Direct finance leases | **53** | **-** | **-** | **53** | **21124** | **21177** | ***-*** |
| Other | **35** | **-** | **-** | **35** | **27020** | **27055** | ***-*** |
| Residential: |  |  |  |  |  |  |  |
| Real estate | **-** | **206** | **306** | **512** | **511053** | **511565** | ***-*** |
| Construction | **-** | **-** | **-** | **-** | **17478** | **17478** | ***-*** |
| Total | $**750** | $**3788** | $**3074** | $**7612** | $**1829394** | $**1837006** | $***-*** |

---

<sup>(*1*)</sup> Includes non-accrual loans. <sup>(*2*)</sup> Net of unearned lease revenue of $1.7 million. <sup>(*3*)</sup> Includes net deferred loan costs of $4.9 million and net unamortized fair value mark discount on acquired loans of $4.2 million.

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  |  | *Recorded* |
|  |  |  | *Past due* |  |  |  | *investment past* |
|  | *30 - 59 Days* | *60 - 89 Days* | *90 days* | *Total* |  | *Total* | *due ≥ 90 days* |
| December 31, 2024 | *past due* | *past due* | or more <sup>(1)</sup> | *past due* | *Current* | loans <sup>(3)</sup> | *and accruing* |
| Commercial and industrial |  |  |  |  |  |  |  |
| Commercial | $61 | $24 | $2708 | $2793 | $170041 | $172834 | $*-* |
| Municipal |  |  |  |  | 101706 | 101706 | *-* |
| Commercial real estate: |  |  |  |  |  |  |  |
| Non-owner occupied | 27 |  | 711 | 738 | 393481 | 394219 | *-* |
| Owner occupied | 2348 | 589 | 2589 | 5526 | 299363 | 304889 | *-* |
| Construction |  |  |  |  | 50930 | 50930 | *-* |
| Consumer: |  |  |  |  |  |  |  |
| Home equity installment | 232 | 121 | 41 | 394 | 53820 | 54214 | *-* |
| Home equity line of credit | 226 |  | 461 | 687 | 57443 | 58130 | *-* |
| Auto loans - Recourse | 173 | 18 |  | 191 | 11198 | 11389 | *-* |
| Auto loans - Non-recourse | 447 | 54 | 52 | 553 | 74887 | 75440 | *-* |
| Direct finance leases | 284 | 27 | 32 | 343 | 25538 | 25881 | *32* |
| Other | 8 | 15 | 20 | 43 | 23805 | 23848 | *-* |
| Residential: |  |  |  |  |  |  |  |
| Real estate |  | 695 | 761 | 1456 | 503359 | 504815 | *-* |
| Construction |  |  |  |  | 20507 | 20507 | *-* |
| Total | $3806 | $1543 | $7375 | $12724 | $1786078 | $1798802 | $*32* |

---

<sup>(*1*)</sup> Includes non-accrual loans. <sup>(*2*)</sup> Net of unearned lease revenue of $1.9 million. <sup>(*3*)</sup> Includes net deferred loan costs of $5.0 million and net unamortized fair value mark discount on acquired loans of $4.9 million.

***<u>Credit Quality Indicators</u>***

Management is responsible for conducting the Company's credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans. Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company's assessment of conditions that affect the borrower's ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers' current financial information, historical payment experience, credit documentation, public information, and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades *may* be changed at any time management feels an upgrade or downgrade *may* be warranted. The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the Board of Directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company's policies and procedures.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *19*

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***Commercial and industrial and commercial real estate***

The Company utilizes a loan grading system and assigns a credit risk grade to its loans in the C&I and CRE portfolios. The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio. The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the C&I and CRE portfolios.

These loans are assigned credit risk grades based on the Company's assessment of conditions that affect the borrower's ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers' current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades *may* be changed at any time management feels an upgrade or downgrade is warranted.

The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE loans:

*Pass*

Loans in this category have an acceptable level of risk and are graded in a range of *one* to five. Secured loans generally have good collateral coverage. Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends. Management is competent, and a reasonable succession plan is evident. Payment experience on the loans has been good with minor or *no* delinquency experience. Loans with a grade of *one* are of the highest quality in the range. Those graded *five* are of marginally acceptable quality.

*Special Mention*

Loans in this category are graded a *six* and *may* be protected but are potentially weak. They constitute a credit risk to the Company but have *not* yet reached the point of adverse classification. Some of the following conditions *may* exist: little or *no* collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions. Cash flow *may not* be sufficient to support total debt service requirements.

*Substandard*

Loans in this category are graded a *seven* and have a well-defined weakness which *may* jeopardize the ultimate collectability of the debt. The collateral pledged *may* be lacking in quality or quantity. Financial statements *may* indicate insufficient cash flow to service the debt; and/or do *not* reflect a sound net worth. The payment history indicates chronic delinquency problems. Management is weak. There is a distinct possibility that the Company *may* sustain a loss. All loans on non-accrual are rated substandard. Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due. Loans *90* days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as modifications experiencing financial difficulty can be graded substandard.

*Doubtful*

Loans in this category are graded an *eight* and have a better than *50%* possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which *may* strengthen credit in the near-term. Many of the weaknesses present in a substandard loan exist. Liquidation of collateral, if any, is likely. Any loan graded lower than an *eight* is considered to be uncollectible and charged-off.

***Consumer and residential***

The consumer and residential loan segments are regarded as homogeneous loan pools and as such are *not* risk rated. For these portfolios, the Company utilizes payment activity and history in assessing performance. Non-performing loans are comprised of non-accrual loans and loans past due *90* days or more and accruing. All loans *not* classified as non-performing are considered performing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *20*

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The following table presents loans including $4.9 million and $5.0 million of deferred costs, and $4.2 million and $4.9 million of fair value mark discount, segregated by class and vintage, categorized into the appropriate credit quality indicator category as of *June 30, 2025* and *December 31, 2024*, respectively:

**Commercial credit exposure**

**Credit risk profile by creditworthiness category**

**As of *June 30, 2025***

(dollars in thousands)

---

| | | | | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **June 30, 2025** | *2025* |  | *2024* |  | *2023* |  | *2022* |  | *2021* |  | *Prior* |  | *Revolving Loans Amortized Cost Basis* |  | *Revolving Loans Converted to Term* |  | *Total* |  |
| *Commercial and industrial* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $**13062** |  | $**22306** |  | $**20408** |  | $**9384** |  | $**11520** |  | $**15861** |  | $**82186** |  | $**-** |  | $**174727** |  |
| Special Mention | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **1500** |  | **-** |  | **1500** |  |
| Substandard | **-** |  | **-** |  | **31** |  | **118** |  | **678** |  | **815** |  | **47** |  | **-** |  | **1689** |  |
| Doubtful | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total commercial and industrial | $**13062** |  | $**22306** |  | $**20439** |  | $**9502** |  | $**12198** |  | $**16676** |  | $**83733** |  | $**-** |  | $**177916** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**5** |  | $**277** |  | $**71** |  | $**-** |  | $**-** |  | $**353** |  |
| *Commercial and industrial - municipal* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $**7598** |  | $**7655** |  | $**16571** |  | $**12587** |  | $**23983** |  | $**26961** |  | $**53** |  | $**-** |  | $**95408** |  |
| Special Mention | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Substandard | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Doubtful | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total commercial and industrial - municipal | $**7598** |  | $**7655** |  | $**16571** |  | $**12587** |  | $**23983** |  | $**26961** |  | $**53** |  | $**-** |  | $**95408** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Commercial real estate - non-owner occupied* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $**14810** |  | $**73513** |  | $**41262** |  | $**67207** |  | $**63821** |  | $**129538** |  | $**11046** |  | $**-** |  | $**401197** |  |
| Special Mention | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Substandard | **-** |  | **-** |  | **-** |  | **-** |  | **426** |  | **6484** |  | **-** |  | **-** |  | **6910** |  |
| Doubtful | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total commercial real estate - non-owner occupied | $**14810** |  | $**73513** |  | $**41262** |  | $**67207** |  | $**64247** |  | $**136022** |  | $**11046** |  | $**-** |  | $**408107** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Commercial real estate - owner occupied* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $**34304** |  | $**51502** |  | $**32449** |  | $**29850** |  | $**39865** |  | $**102667** |  | $**16244** |  | $**-** |  | $**306881** |  |
| Special Mention | **-** |  | **943** |  | **-** |  | **-** |  | **-** |  | **886** |  | **885** |  | **-** |  | **2714** |  |
| Substandard | **-** |  | **-** |  | **-** |  | **6913** |  | **868** |  | **10034** |  | **-** |  | **-** |  | **17815** |  |
| Doubtful | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total commercial real estate - owner occupied | $**34304** |  | $**52445** |  | $**32449** |  | $**36763** |  | $**40733** |  | $**113587** |  | $**17129** |  | $**-** |  | $**327410** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Commercial real estate - construction* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $**9590** |  | $**39744** |  | $**13394** |  | $**-** |  | $**-** |  | $**-** |  | $**1517** |  | $**-** |  | $**64245** |  |
| Special Mention | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Substandard | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Doubtful | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total commercial real estate - construction | $**9590** |  | $**39744** |  | $**13394** |  | $**-** |  | $**-** |  | $**-** |  | $**1517** |  | $**-** |  | $**64245** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *21*

------

[**Table of Contents**](#toc)

**Consumer & Mortgage lending credit exposure**

**Credit risk profile based on payment activity**

**As of *June 30, 2025***

(dollars in thousands)

---

| | | | | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **June 30, 2025** | *2025* |  | *2024* |  | *2023* |  | *2022* |  | *2021* |  | *Prior* |  | *Revolving Loans Amortized Cost Basis* |  | *Revolving Loans Converted to Term* |  | *Total* |  |
| *Home equity installment* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**4307** |  | $**6457** |  | $**6598** |  | $**14655** |  | $**7387** |  | $**14619** |  | $**-** |  | $**-** |  | $**54023** |  |
| Non-performing | **-** |  |  |  | **-** |  | **21** |  | **-** |  | **132** |  | **-** |  | **-** |  | **153** |  |
| Total home equity installment | $**4307** |  | $**6457** |  | $**6598** |  | $**14676** |  | $**7387** |  | $**14751** |  | $**-** |  | $**-** |  | $**54176** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Home equity line of credit* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**52926** |  | $**10059** |  | $**62985** |  |
| Non-performing | **-** |  |  |  | **-** |  | **-** |  | **-** |  | **-** |  | **444** |  | **-** |  | **444** |  |
| Total home equity line of credit | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**53370** |  | $**10059** |  | $**63429** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Auto loans - recourse* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**2013** |  | $**3730** |  | $**1677** |  | $**959** |  | $**1272** |  | $**1037** |  | $**-** |  | $**-** |  | $**10688** |  |
| Non-performing | **-** |  |  |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total auto loans - recourse | $**2013** |  | $**3730** |  | $**1677** |  | $**959** |  | $**1272** |  | $**1037** |  | $**-** |  | $**-** |  | $**10688** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |
| *Auto loans - non-recourse* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**1242** |  | $**4437** |  | $**22328** |  | $**21237** |  | $**6875** |  | $**2195** |  | $**-** |  | $**-** |  | $**58314** |  |
| Non-performing | **-** |  | **35** |  | **-** |  | **-** |  | **-** |  | **3** |  | **-** |  | **-** |  | **38** |  |
| Total auto loans - non-recourse | $**1242** |  | $**4472** |  | $**22328** |  | $**21237** |  | $**6875** |  | $**2198** |  | $**-** |  | $**-** |  | $**58352** |  |
| Current period gross write-offs | $**-** |  | $**9** |  | $**33** |  | $**-** |  | $**67** |  | $**19** |  | $**-** |  | $**-** |  | $**128** |  |
| *Direct finance leases (1)* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**3709** |  | $**7040** |  | $**6073** |  | $**3605** |  | $**684** |  | $**66** |  | $**-** |  | $**-** |  | $**21177** |  |
| Non-performing | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total direct finance leases | $**3709** |  | $**7040** |  | $**6073** |  | $**3605** |  | $**684** |  | $**66** |  | $**-** |  | $**-** |  | $**21177** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**3** |  | $**2** |  | $**3** |  | $**-** |  | $**-** |  | $**-** |  | $**8** |  |
| *Consumer - other* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**9409** |  | $**7893** |  | $**4894** |  | $**1275** |  | $**711** |  | $**702** |  | $**2171** |  | $**-** |  | $**27055** |  |
| Non-performing | **-** |  |  |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total consumer - other | $**9409** |  | $**7893** |  | $**4894** |  | $**1275** |  | $**711** |  | $**702** |  | $**2171** |  | $**-** |  | $**27055** |  |
| Current period gross write-offs | $**3** |  | $**16** |  | $**39** |  | $**4** |  | $**3** |  | $**17** |  | $**-** |  | $**-** |  | $**82** |  |
| *Residential real estate* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**12832** |  | $**44582** |  | $**63537** |  | $**86700** |  | $**133814** |  | $**169794** |  | $**-** |  | $**-** |  | $**511259** |  |
| Non-performing | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **306** |  | **-** |  | **-** |  | **306** |  |
| Total residential real estate | $**12832** |  | $**44582** |  | $**63537** |  | $**86700** |  | $**133814** |  | $**170100** |  | $**-** |  | $**-** |  | $**511565** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**18** |  | $**-** |  | $**-** |  | $**18** |  |
| *Residential - construction* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $**2894** |  | $**12572** |  | $**-** |  | $**-** |  | $**2012** |  | $**-** |  | $**-** |  | $**-** |  | $**17478** |  |
| Non-performing | **-** |  |  |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  | **-** |  |
| Total residential - construction | $**2894** |  | $**12572** |  | $**-** |  | $**-** |  | $**2012** |  | $**-** |  | $**-** |  | $**-** |  | $**17478** |  |
| Current period gross write-offs | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  | $**-** |  |

---

<sup>(*1*)</sup> Net of unearned lease revenue of $1.7 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *22*

------

[**Table of Contents**](#toc)

**Commercial credit exposure**

**Credit risk profile by creditworthiness category**

**As of *December 31, 2024***

(dollars in thousands)

---

| | | | | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| December 31, 2024 | *2024* |  | *2023* |  | *2022* |  | *2021* |  | *2020* |  | *Prior* |  | *Revolving Loans Amortized Cost Basis* |  | *Revolving Loans Converted to Term* |  | *Total* |  |
| *Commercial and industrial* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $26711 |  | $22519 |  | $11367 |  | $15837 |  | $2957 |  | $14581 |  | $74871 |  | $- |  | $168843 |  |
| Special Mention |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Substandard |  |  | 35 |  | 169 |  | 2684 |  | 12 |  | 991 |  | 100 |  |  |  | 3991 |  |
| Doubtful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total commercial and industrial | $26711 |  | $22554 |  | $11536 |  | $18521 |  | $2969 |  | $15572 |  | $74971 |  | $- |  | $172834 |  |
| Current period gross write-offs | $- |  | $- |  | $141 |  | $35 |  | $21 |  | $202 |  | $- |  | $- |  | $399 |  |
| *Commercial and industrial - municipal* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $10549 |  | $23789 |  | $14509 |  | $24102 |  | $12535 |  | $16222 |  | $- |  | $- |  | $101706 |  |
| Special Mention |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Substandard |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Doubtful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total commercial and industrial - municipal | $10549 |  | $23789 |  | $14509 |  | $24102 |  | $12535 |  | $16222 |  | $- |  | $- |  | $101706 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |
| *Commercial real estate - non-owner occupied* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $69675 |  | $34230 |  | $72073 |  | $66554 |  | $45215 |  | $90237 |  | $8513 |  | $- |  | $386497 |  |
| Special Mention |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Substandard |  |  |  |  |  |  | 685 |  | 115 |  | 6922 |  |  |  |  |  | 7722 |  |
| Doubtful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total commercial real estate - non-owner occupied | $69675 |  | $34230 |  | $72073 |  | $67239 |  | $45330 |  | $97159 |  | $8513 |  | $- |  | $394219 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |
| *Commercial real estate - owner occupied* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $52059 |  | $31026 |  | $31983 |  | $41420 |  | $20746 |  | $91316 |  | $15951 |  | $- |  | $284501 |  |
| Special Mention |  |  |  |  |  |  |  |  | 514 |  | 886 |  |  |  |  |  | 1400 |  |
| Substandard |  |  |  |  | 6758 |  | 906 |  | 510 |  | 10784 |  | 30 |  |  |  | 18988 |  |
| Doubtful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total commercial real estate - owner occupied | $52059 |  | $31026 |  | $38741 |  | $42326 |  | $21770 |  | $102986 |  | $15981 |  | $- |  | $304889 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $132 |  | $- |  | $- |  | $132 |  |
| *Commercial real estate - construction* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Pass | $21400 |  | $26055 |  | $1665 |  | $- |  | $- |  | $293 |  | $1517 |  | $- |  | $50930 |  |
| Special Mention |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Substandard |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Doubtful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total commercial real estate - construction | $21400 |  | $26055 |  | $1665 |  | $- |  | $- |  | $293 |  | $1517 |  | $- |  | $50930 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *23*

------

[**Table of Contents**](#toc)

**Consumer & Mortgage lending credit exposure**

**Credit risk profile based on payment activity**

**As of *December 31, 2024***

(dollars in thousands)

---

| | | | | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| December 31, 2024 | *2024* |  | *2023* |  | *2022* |  | *2021* |  | *2020* |  | *Prior* |  | *Revolving Loans Amortized Cost Basis* |  | *Revolving Loans Converted to Term* |  | *Total* |  |
| *Home equity installment* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $7214 |  | $7296 |  | $15611 |  | $7779 |  | $6464 |  | $9809 |  | $- |  | $- |  | $54173 |  |
| Non-performing |  |  |  |  |  |  |  |  |  |  | 41 |  |  |  |  |  | 41 |  |
| Total home equity installment | $7214 |  | $7296 |  | $15611 |  | $7779 |  | $6464 |  | $9850 |  | $- |  | $- |  | $54214 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $7 |  | $- |  | $- |  | $7 |  |
| *Home equity line of credit* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $47487 |  | $10182 |  | $57669 |  |
| Non-performing |  |  |  |  |  |  |  |  |  |  |  |  | 461 |  |  |  | 461 |  |
| Total home equity line of credit | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $47948 |  | $10182 |  | $58130 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $41 |  | $- |  | $41 |  |
| *Auto loans - recourse* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $4743 |  | $2336 |  | $1179 |  | $1735 |  | $1094 |  | $302 |  | $- |  | $- |  | $11389 |  |
| Non-performing |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total auto loans - recourse | $4743 |  | $2336 |  | $1179 |  | $1735 |  | $1094 |  | $302 |  | $- |  | $- |  | $11389 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |
| *Auto loans - non-recourse* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $5402 |  | $27679 |  | $27790 |  | $9981 |  | $3588 |  | $948 |  | $- |  | $- |  | $75388 |  |
| Non-performing |  |  |  |  |  |  | 48 |  |  |  | 4 |  |  |  |  |  | 52 |  |
| Total auto loans - non-recourse | $5402 |  | $27679 |  | $27790 |  | $10029 |  | $3588 |  | $952 |  | $- |  | $- |  | $75440 |  |
| Current period gross write-offs | $- |  | $22 |  | $67 |  | $23 |  | $6 |  | $13 |  | $- |  | $- |  | $131 |  |
| *Direct finance leases (2)* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $8598 |  | $7121 |  | $7592 |  | $2444 |  | $94 |  | $- |  | $- |  | $- |  | $25849 |  |
| Non-performing |  |  |  |  |  |  | 32 |  |  |  |  |  |  |  |  |  | 32 |  |
| Total direct finance leases | $8598 |  | $7121 |  | $7592 |  | $2476 |  | $94 |  | $- |  | $- |  | $- |  | $25881 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |
| *Consumer - other* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $11794 |  | $6048 |  | $1760 |  | $1055 |  | $398 |  | $617 |  | $2156 |  | $- |  | $23828 |  |
| Non-performing |  |  |  |  | 20 |  |  |  |  |  |  |  |  |  |  |  | 20 |  |
| Total consumer - other | $11794 |  | $6048 |  | $1780 |  | $1055 |  | $398 |  | $617 |  | $2156 |  | $- |  | $23848 |  |
| Current period gross write-offs | $38 |  | $93 |  | $30 |  | $31 |  | $7 |  | $41 |  | $- |  | $- |  | $240 |  |
| *Residential real estate* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $35008 |  | $64399 |  | $89014 |  | $137434 |  | $51728 |  | $126471 |  | $- |  | $- |  | $504054 |  |
| Non-performing |  |  | 315 |  |  |  |  |  |  |  | 446 |  |  |  |  |  | 761 |  |
| Total residential real estate | $35008 |  | $64714 |  | $89014 |  | $137434 |  | $51728 |  | $126917 |  | $- |  | $- |  | $504815 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |
| *Residential - construction* |  | |  | |  | |  | |  | |  | |  | |  | |  | |
| Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Performing | $15601 |  | $2894 |  | $- |  | $2012 |  | $- |  | $- |  | $- |  | $- |  | $20507 |  |
| Non-performing |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total residential - construction | $15601 |  | $2894 |  | $- |  | $2012 |  | $- |  | $- |  | $- |  | $- |  | $20507 |  |
| Current period gross write-offs | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  | $- |  |

---

<sup>(*2*)</sup> Net of unearned lease revenue of $1.9 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *24*

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<u>***Collateral dependent loans***</u>

Loans that do *not* share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. The following table presents the individually evaluated, collateral dependent loans as of *June 30, 2025* and *December 31, 2024:*

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | *Real Estate* | *Other* | *Total Collateral-Dependent Loans* |
| **At June 30, 2025** |  |  |  |
| Commercial and industrial: |  |  |  |
| Commercial | $**-** | $**709** | $**709** |
| Commercial real estate: |  |  |  |
| Non-owner occupied | **615** | **-** | **615** |
| Owner occupied | **809** | **-** | **809** |
| Consumer: |  |  |  |
| Home equity installment | **153** | **-** | **153** |
| Home equity line of credit | **444** | **-** | **444** |
| Auto loans - Non-recourse | **-** | **38** | **38** |
| Residential: |  |  |  |
| Real estate | **306** | **-** | **306** |
| Total | $**2327** | $**747** | $**3074** |

---

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | *Real Estate* | *Other* | *Total Collateral-Dependent Loans* |
| At December 31, 2024 |  |  |  |
| Commercial and industrial: |  |  |  |
| Commercial | $- | $2708 | $2708 |
| Commercial real estate: |  |  |  |
| Non-owner occupied | 711 |  | 711 |
| Owner occupied | 2589 |  | 2589 |
| Consumer: |  |  |  |
| Home equity installment | 41 |  | 41 |
| Home equity line of credit | 461 |  | 461 |
| Auto loans - Non-recourse |  | 52 | 52 |
| Other | 20 |  | 20 |
| Residential: |  |  |  |
| Real estate | 761 |  | 761 |
| Total | $4583 | $2760 | $7343 |

---

***<u>Allowance for credit losses</u>***

Management continually evaluates the credit quality of the Company's loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management's best estimate of the amount of credit losses in the loan portfolio.

Information related to the change in the allowance for credit losses on loans and the Company's recorded investment in loans by portfolio segment as of the period indicated is as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| ***As of and for the six months ended June 30, 2025*** | ***As of and for the six months ended June 30, 2025*** |  |  |  |  |  |
|  | *Commercial &* | *Commercial* |  | *Residential* |  |  |
| (dollars in thousands) | *industrial* | *real estate* | *Consumer* | *real estate* | *Unallocated* | *Total* |
| Allowance for Credit Losses: |  |  |  |  |  |  |
| Beginning balance | $**2345** | $**8943** | $**2377** | $**5989** | $**12** | $**19666** |
| Charge-offs | **(353)** | **-** | **(218)** | **(18**) | **-** | **(589)** |
| Recoveries | **13** | **21** | **92** | **18** | **-** | **144** |
| Provision (benefit) for credit losses | **88** | **558** | **(198**) | **279** | **28** | **755** |
| Ending balance | $**2093** | $**9522** | $**2053** | $**6268** | $**40** | $**19976** |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| ***As of and for the three months ended June 30, 2025*** | ***As of and for the three months ended June 30, 2025*** |  |  |  |  |  |
|  | *Commercial &* | *Commercial* |  | *Residential* |  |  |
| (dollars in thousands) | *industrial* | *real estate* | *Consumer* | *real estate* | *Unallocated* | *Total* |
| Allowance for Credit Losses: |  |  |  |  |  |  |
| Beginning balance | $**2413** | $**9182** | $**2271** | $**6094** | $**57** | $**20017** |
| Charge-offs | **(324**) | **-** | **(84)** | **-** | **-** | **(408)** |
| Recoveries | **8** | **2** | **39** | **18** | **-** | **67** |
| Provision (benefit) for credit losses | **(4)** | **338** | **(173)** | **156** | **(17)** | **300** |
| Ending balance | $**2093** | $**9522** | $**2053** | $**6268** | $**40** | $**19976** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *25*

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---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As of and for the six months ended June 30, 2024 |  |  |  |  |  |  |
|  | *Commercial &* | *Commercial* |  | *Residential* |  |  |
| (dollars in thousands) | *industrial* | *real estate* | *Consumer* | *real estate* | *Unallocated* | *Total* |
| Allowance for Credit Losses: |  |  |  |  |  |  |
| Beginning balance | $1850 | $8835 | $2391 | $5694 | $36 | $18806 |
| Charge-offs | (153) | (131) | (193) |  |  | (477) |
| Recoveries | 5 | 155 | 41 | 45 |  | 246 |
| Provision (benefit) for credit losses | 479 | (172) | 129 | (13) | (23) | 400 |
| Ending balance | $2181 | $8687 | $2368 | $5726 | $13 | $18975 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| *As of and for the three months ended June 30, 2024* | *As of and for the three months ended June 30, 2024* |  |  |  |  |  |
|  | *Commercial &* | *Commercial* |  | *Residential* |  |  |
| (dollars in thousands) | *industrial* | *real estate* | *Consumer* | *real estate* | *Unallocated* | *Total* |
| Allowance for Credit Losses: |  |  |  |  |  |  |
| Beginning balance | $1904 | $8824 | $2263 | $5846 | $49 | $18886 |
| Charge-offs | (39) | (126) | (86) |  |  | (251) |
| Recoveries | 3 |  | 19 | 43 |  | 65 |
| Provision (benefit) for credit losses | 313 | (11) | 172 | (163) | (36) | 275 |
| Ending balance | $2181 | $8687 | $2368 | $5726 | $13 | $18975 |

---

<u>***Unfunded commitments***</u>

The Company's allowance for credit losses on unfunded commitments is recognized as a liability on the consolidated balance sheets, with adjustments to the reserve recognized in the provision for credit losses on unfunded commitments on the consolidated statements of income. The Company's activity in the allowance for credit losses on unfunded commitments for the period was as follows:

---

| | | |
|:---|:---|:---|
| (dollars in thousands) | *For the Six Months Ended June 30, 2025* | *For the Six Months Ended June 30, 2024* |
| Beginning balance | $**1084** | $944 |
| Provision (benefit) for credit losses | **(65**) | 90 |
| Ending balance | $**1019** | $1034 |

---

***<u>Direct finance leases</u>***

The Company originates direct finance leases through *three* automobile dealerships. The amortized cost of the Company's lease receivables, net of unearned income, was $3.9 million and $4.5 million as of *June 30, 2025* and *December 31, 2024*, respectively. The residual value of the direct finance leases is fully guaranteed by the dealerships. Residual values amounted to $16.9 million and $20.9 million at *June 30, 2025* and *December 31, 2024*, respectively, and are included in the amortized cost of direct finance leases. As of *June 30, 2025,* there was also $442 thousand in deferred lease expense included in the carrying value of direct finance leases that is *not* included in the table below.

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

---

| | |
|:---|:---|
| (dollars in thousands) | *Amount* |
| 2025 | $5641 |
| 2026 | 9603 |
| 2027 | 4759 |
| 2028 | 2067 |
| 2029 | 303 |
| 2030 and thereafter | 86 |
| &nbsp;&nbsp;&nbsp; Total future minimum lease payments receivable | 22459 |
| Less: Unearned income | (1724) |
| Undiscounted cash flows to be received | $20735 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *26*

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***6.* Earnings per share**

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards. The Company maintains *one* active share-based compensation plan that *may* generate additional potentially dilutive common shares. For granted and unexercised stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued SSARs were exercised and converted into common stock. As of the *three* and *six* months ended *June 30, 2025,* there were 7,472 and 7,847 potentially dilutive shares related to issued and unexercised SSARs compared to 8,589 and 8,900 for the same *2024* periods, respectively. The calculation did *not* include 46,423 weighted average unexercised SSARs that could potentially dilute earnings per share but their effect was antidilutive for the *three* and *six* months ended *June 30, 2025*. For restricted stock, dilution would occur from the Company's previously granted but unvested shares. There were 15,816 and 21,449 potentially dilutive shares related to unvested restricted share grants for the *three* and *six* months ended *June 30, 2025* compared to 21,316 and 25,881 for the same *2024* period, respectively.

In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised SSARs and unvested restricted stock. Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock. Proceeds include amounts received from the exercise of outstanding stock options and compensation cost for future service that the Company has *not* yet recognized in earnings. The Company does *not* consider awards from share-based grants in the computation of basic EPS.

The following table illustrates the data used in computing basic and diluted EPS for the periods indicated:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | *Three months ended June 30,* | *Three months ended June 30,* | *Six months ended June 30,* | *Six months ended June 30,* |
|  | ***2025*** | *2024* | ***2025*** | *2024* |
| (dollars in thousands except per share data) |  |  |  |  |
| Basic EPS: |  |  |  |  |
| Net income available to common shareholders | $**6921** | $4935 | $**12912** | $9993 |
| Weighted-average common shares outstanding | **5767495** | 5735606 | **5760757** | 5728982 |
| Basic EPS | $**1.20** | $0.86 | $**2.24** | $1.74 |
| Diluted EPS: |  |  |  |  |
| Net income available to common shareholders | $**6921** | $4935 | $**12912** | $9993 |
| Weighted-average common shares outstanding | **5767495** | 5735606 | **5760757** | 5728982 |
| Potentially dilutive common shares | **23288** | 29905 | **29296** | 34781 |
| Weighted-average common and potentially dilutive shares outstanding | **5790783** | 5765511 | **5790053** | 5763763 |
| Diluted EPS | $**1.20** | $0.86 | $**2.23** | $1.73 |

---

***7.* Stock plans**

The Company has *one* active stock-based compensation plan (the stock compensation plan) from which it can grant stock-based compensation awards and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance. The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. The Company's stock compensation plan was shareholder-approved and permits the grant of share-based compensation awards to its employees and directors. The Company believes that the stock-based compensation plan will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company's common stock. In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders. In the stock compensation plan, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock.

At the *2022* annual shareholders' meeting, the Company's shareholders approved and the Company adopted the *2022* Omnibus Stock Incentive Plan which replaced the *2012* Omnibus Stock Incentive Plan and the *2012* Director Stock Incentive Plan (collectively, the *2012* stock incentive plans). The *2012* stock incentive plans expired in *2022.* Unless terminated by the Company's Board of Directors, the *2022* Omnibus Stock Incentive Plan will expire on, and *no* stock-based awards shall be granted after the year *2032.*

In the *2022* Omnibus Stock Incentive Plan, the Company has reserved 500,000 shares of its no-par common stock for future issuance. The Company recognizes share-based compensation expense over the requisite service or vesting period. Since *2019,* the Company has approved a Long-Term Incentive Plan (LTIP) each year that awarded restricted stock and/or stock-settled stock appreciation rights (SSARs) to senior officers and managers based on the attainment of performance goals. The SSAR awards have a ten-year term from the date of each grant.

During the *first* quarter of *2025,* the Company approved a LTIP and awarded restricted stock to senior officers and managers in *February 2025* based on *2024* performance.

During the *first* quarter of *2024,* the Company approved a LTIP and awarded restricted stock to senior officers and managers in *February 2024* based on *2023* performance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *27*

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The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended *June 30, 2025* and *2024* under the *2022* stock incentive plan:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | *June 30, 2024* | *June 30, 2024* | *June 30, 2024* |
|  |  |  | ***Weighted-*** |  |  | ***Weighted-*** |
|  | ***Shares*** |  | ***average grant*** | ***Shares*** |  | ***average grant*** |
|  | ***granted*** |  | ***date fair value*** | ***granted*** |  | ***date fair value*** |
| Omnibus plan | **15200** | *(2)* | $**45.09** | 10000 | *(2)* | $46.96 |
| Omnibus plan | **1588** | *(2)* | **45.09** | 1558 | *(2)* | 46.96 |
| Omnibus plan | **17065** | *(3)* | **45.09** | 10871 | *(3)* | 46.96 |
| Omnibus plan | **50** | *(1)* | **45.09** | 50 | *(1)* | 46.96 |
| Total | **33903** |  | $**45.09** | 22479 |  | $46.96 |

---

<sup>(*1*)</sup> Vest after 1 year <sup>(*2*)</sup> Vest after 3 years – 33% each year <sup>(*3*)</sup> Vest fully after 3 years

The fair value of the shares granted in *2025* and *2024* was calculated using the grant date closing stock price.

A summary of the status of the Company's non-vested restricted stock as of and changes during the period indicated are presented in the following table:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | *2012 & 2022 Stock incentive plans* | *2012 & 2022 Stock incentive plans* | *2012 & 2022 Stock incentive plans* | *2012 & 2022 Stock incentive plans* |
|  | *Director* | *Omnibus* | *Total* | *Weighted- average grant date fair value* |
| Non-vested balance at December 31, 2024 | 4800 | 63825 | 68625 | $48.68 |
| Granted |  | 33903 | 33903 | 45.09 |
| Forfeited |  | (1477) | (1477) | 47.88 |
| Vested | (4800) | (23059) | (27859) | 49.38 |
| **Non-vested balance at June 30, 2025** | **-** | **73192** | **73192** | $**46.77** |

---

A summary of the status of the Company's SSARs as of and changes during the period indicated are presented in the following table:

---

| | | | |
|:---|:---|:---|:---|
|  | *Awards* | *Weighted-average grant date fair value* | *Weighted-average remaining contractual term (years)* |
| Outstanding December 31, 2024 | 64326 | $11.59 | 2.8 |
| Granted |  |  |  |
| Exercised |  |  |  |
| Forfeited |  |  |  |
| **Outstanding June 30, 2025** | **64326** | $**11.59** | **2.3** |

---

All the SSARs outstanding at *June 30, 2025,* are fully vested and exercisable.

Share-based compensation expense is included as a component of salaries and employee benefits in the consolidated statements of income. The following tables illustrate stock-based compensation expense recognized on non-vested equity awards during the *three* and *six* months ended *June 30, 2025* and *2024* and the unrecognized stock-based compensation expense as of *June 30, 2025*:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | *Three months ended June 30,* | *Three months ended June 30,* | *Six months ended June 30,* | *Six months ended June 30,* |
| (dollars in thousands) | ***2025*** | *2024* | ***2025*** | *2024* |
| Stock-based compensation expense: |  |  |  |  |
| 2012 Director stock incentive plan | $**-** | $60 | $**30** | $139 |
| 2012 Omnibus stock incentive plan | **-** | 61 | **19** | 149 |
| 2022 Omnibus stock incentive plan | **329** | 218 | **579** | 384 |
| Employee stock purchase plan | **-** |  | **27** | 126 |
| Total stock-based compensation expense | $**329** | $339 | $**655** | $798 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *28*

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| | |
|:---|:---|
|  | *As of* |
| (dollars in thousands) | ***June 30, 2025*** |
| Unrecognized stock-based compensation expense: |  |
| 2022 Omnibus stock incentive plan | $**2207** |

---

The unrecognized stock-based compensation expense as of *June 30, 2025* will be recognized ratably over the period ended *February 2028* for the *2022* Omnibus Stock Incentive Plan.

In addition to the *2022* stock incentive plan, the Company established the *2002* Employee Stock Purchase Plan (the ESPP) and reserved 165,000 shares of its un-issued capital stock for issuance under the plan. The ESPP was designed to promote broad-based employee ownership of the Company's stock and to motivate employees to improve job performance and enhance the financial results of the Company. Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company's capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined. As of *June 30, 2025*, 113,997 shares have been issued under the ESPP. The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance. The Company recognizes compensation expense on its ESPP on the date the shares are purchased, and it is included as a component of salaries and employee benefits in the consolidated statements of income.

***8.* Fair value measurements**

The accounting guidelines establish a framework for measuring and disclosing information about fair value measurements. The guidelines of fair value reporting instituted a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into *three* broad levels as follows:

**<u>Level *1*</u> -** inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

**<u>Level *2*</u> -** inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are *not* active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

**<u>Level *3*</u> -** inputs are unobservable and are based on the Company's own assumptions to measure assets and liabilities at fair value. Level *3* pricing for securities *may* also include unobservable inputs based upon broker-traded transactions.

A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company uses fair value to measure certain assets and, if necessary, liabilities on a recurring basis when fair value is the primary measure for accounting. Thus, the Company uses fair value for AFS securities. Fair value is used on a non-recurring basis to measure certain assets when adjusting carrying values to market values, such as collateral dependent individually evaluated loans, other real estate owned (ORE) and other repossessed assets.

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

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** | ***June 30, 2025*** |
|  |  |  | ***Quoted prices*** | ***Significant*** | ***Significant*** |
|  |  |  | ***in active*** | ***other*** | ***other*** |
|  | ***Carrying*** | ***Estimated*** | ***markets*** | ***observable inputs*** | ***unobservable inputs*** |
| (dollars in thousands) | ***amount*** | ***fair value*** | ***(Level 1)*** | ***(Level 2)*** | ***(Level 3)*** |
| Financial assets: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Cash and cash equivalents | $**165495** | $**165495** | $**165495** | $**-** | $**-** |
| &nbsp;&nbsp;&nbsp; Held-to-maturity securities | **226542** | **195400** | **-** | **195400** |  |
| &nbsp;&nbsp;&nbsp; Available-for-sale debt securities | **319279** | **319279** | **-** | **319279** | **-** |
| &nbsp;&nbsp;&nbsp; Restricted investments in bank stock | **4240** | **4240** | **-** | **4240** | **-** |
| &nbsp;&nbsp;&nbsp; Loans and leases, net | **1817030** | **1714530** | **-** | **-** | **1714530** |
| &nbsp;&nbsp;&nbsp; Loans held-for-sale | **471** | **482** | **-** | **482** | **-** |
| &nbsp;&nbsp;&nbsp; Accrued interest receivable | **9988** | **9988** | **-** | **9988** | **-** |
| &nbsp;&nbsp;&nbsp; Interest rate swaps | **153** | **153** | **-** | **153** | **-** |
| Financial liabilities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Deposits with no stated maturities | **2082060** | **2082060** | **-** | **2082060** | **-** |
| &nbsp;&nbsp;&nbsp; Time deposits | **353268** | **351916** | **-** | **351916** | **-** |
| Short-term borrowings | **10** | **10** |  | **10** |  |
| &nbsp;&nbsp;&nbsp; Secured borrowings | **6134** | **5339** | **-** | **-** | **5339** |
| &nbsp;&nbsp;&nbsp; Accrued interest payable | **5547** | **5547** | **-** | **5547** | **-** |
| &nbsp;&nbsp;&nbsp; Interest rate swaps | **1285** | **1285** | **-** | **1285** | **-** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *29*

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
|  |  |  | *Quoted prices* | *Significant* | *Significant* |
|  |  |  | *in active* | *other* | *other* |
|  | *Carrying* | *Estimated* | *markets* | *observable inputs* | *unobservable inputs* |
| (dollars in thousands) | *amount* | *fair value* | *(Level 1)* | *(Level 2)* | *(Level 3)* |
| Financial assets: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Cash and cash equivalents | $83353 | $83353 | $83353 | $- | $- |
| &nbsp;&nbsp;&nbsp; Held-to-maturity securities | 225764 | 194575 |  | 194575 |  |
| &nbsp;&nbsp;&nbsp; Available-for-sale debt securities | 331457 | 331457 |  | 331457 |  |
| &nbsp;&nbsp;&nbsp; Restricted investments in bank stock | 3961 | 3961 |  | 3961 |  |
| &nbsp;&nbsp;&nbsp; Loans and leases, net | 1779136 | 1672690 |  |  | 1672690 |
| &nbsp;&nbsp;&nbsp; Loans held-for-sale | 2054 | 2089 |  | 2089 |  |
| &nbsp;&nbsp;&nbsp; Accrued interest receivable | 9632 | 9632 |  | 9632 |  |
| &nbsp;&nbsp;&nbsp; Interest rate swaps | 209 | 209 |  | 209 |  |
| Financial liabilities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Deposits with no stated maturities | 2001920 | 2001920 |  | 2001920 |  |
| &nbsp;&nbsp;&nbsp; Time deposits | 338900 | 337629 |  | 337629 |  |
| &nbsp;&nbsp;&nbsp; Secured borrowings | 6266 | 5723 |  |  | 5723 |
| &nbsp;&nbsp;&nbsp; Accrued interest payable | 4988 | 4988 |  | 4988 |  |
| &nbsp;&nbsp;&nbsp; Interest rate swaps | 1224 | 1224 |  | 1224 |  |

---

The carrying value of short-term financial instruments, as listed below, approximates their fair value. These instruments generally have limited credit exposure, *no* stated or short-term maturities, carry interest rates that approximate market and generally are recorded at amounts that are payable on demand:

● Cash and cash equivalents;

● Non-interest bearing deposit accounts;

● Savings, interest-bearing checking and money market accounts

● Short-term borrowings and

● Accrued interest.

**Securities:** Fair values on investment securities are determined by prices provided by a *third*-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.

**Accruing loans and leases:** The fair value of accruing loans is estimated by calculating the net present value of the future expected cash flows discounted at current offering rates for similar loans. Current offering rates consider, among other things, credit risk.

The carrying value that fair value is compared to is net of the allowance for credit losses and since there is significant judgment included in evaluating credit quality, loans are classified within Level *3* of the fair value hierarchy.

**Non-accrual loans:** Loans which the Company has measured as non-accruing are generally based on the fair value of the loan's collateral. Fair value is generally determined based upon independent *third*-party appraisals of the properties. These loans are classified within Level *3* of the fair value hierarchy. The fair value consists of loan balances less the valuation allowance.

**Loans held-for-sale:** The fair value of loans held-for-sale is estimated using rates currently offered for similar loans and is typically obtained from the FNMA or FHLB.

**Interest rate swaps:** Fair values on derivative instruments are determined by valuations provided by a *third*-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.

**Time deposits:** The fair value of time deposits is based on discounted cash flows using rates which approximate market rates for deposits of similar maturities.

**Secured borrowings:** The fair value for these obligations uses an income approach based on expected cash flows on a pooled basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *30*

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The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***Total carrying value*** | ***Quoted prices in active markets*** | ***Significant other observable inputs*** | ***Significant other unobservable inputs*** |
| (dollars in thousands) | ***June 30, 2025*** | ***(Level 1)*** | ***(Level 2)*** | ***(Level 3)*** |
| Assets: |  |  |  |  |
| Available-for-sale securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Agency - GSE | $**27075** | $**-** | $**27075** | $**-** |
| &nbsp;&nbsp;&nbsp; Obligations of states and political subdivisions | **102418** | **-** | **102418** | **-** |
| &nbsp;&nbsp;&nbsp; MBS - GSE residential | **189786** | **-** | **189786** | **-** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | $**319279** | $**-** | $**319279** | $**-** |
| Interest rate swaps | **153** |  | **153** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets | $**319432** | $- | $**319432** | $- |
| Liabilities: |  |  |  |  |
| Interest rate swaps | $**1285** | $- | $**1285** | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities | $**1285** | $- | $**1285** | $- |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | *Total carrying value* | *Quoted prices in active markets* | *Significant other observable inputs* | *Significant other unobservable inputs* |
| (dollars in thousands) | *December 31, 2024* | *(Level 1)* | *(Level 2)* | *(Level 3)* |
| Assets: |  |  |  |  |
| Available-for-sale securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Agency - GSE | $28200 | $- | $28200 | $- |
| &nbsp;&nbsp;&nbsp; Obligations of states and political subdivisions | 119258 |  | 119258 |  |
| &nbsp;&nbsp;&nbsp; MBS - GSE residential | 183999 |  | 183999 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total available-for-sale debt securities | $331457 | $- | $331457 | $- |
| Interest rate swaps | 209 |  | 209 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets | $331666 | $- | $331666 | $- |
| Liabilities: |  |  |  |  |
| Interest rate swaps | $1224 | $- | $1224 | $- |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities | $1224 | $- | $1224 | $- |

---

Debt securities in the AFS portfolio are measured at fair value using market quotations provided by a *third*-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Assets classified as Level *2* use valuation techniques that are common to bond valuations. That is, in active markets whereby bonds of similar characteristics frequently trade, quotes for similar assets are obtained.

There were no Level *3* financial instruments measured at fair value on a recurring basis as of and for the periods ending *June 30, 2025* and *December 31, 2024*, respectively.

From time-to-time, the Company *may* be required to record at fair value financial instruments on a non-recurring basis, such as individually evaluated loans, ORE and other repossessed assets. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting on write downs of individual assets. The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | | | ***Quoted prices in*** | ***Significant other*** | ***Significant other*** |
| <br>(dollars in thousands) | <br>***Valuation techniques*** | <br>***Total carrying value***<br>***at June 30, 2025*** | ***active markets***<br>***(Level 1)*** | ***observable inputs***<br>***(Level 2)*** | ***unobservable inputs***<br>***(Level 3)*** |
| Individually evaluated loans | *Fair value of collateral appraised value* | $**271** | $**-** | $**-** | $**271** |
| Other real estate owned | *Fair value of asset less selling costs* | **-** | **-** | **-** | **-** |
| &nbsp;&nbsp;&nbsp; *Total* | &nbsp;&nbsp;&nbsp; *Total* | $**271** | $**-** | $**-** | $**271** |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  |  | Quoted prices in | Significant other | Significant other |
|  |  | *Total carrying value* | *active markets* | *observable inputs* | *unobservable inputs* |
| (dollars in thousands) | *Valuation techniques* | *at December 31, 2024* | *(Level 1)* | *(Level 2)* | *(Level 3)* |
| Individually evaluated loans | *Fair value of collateral appraised value* | $2810 | $- | $- | $2810 |
| Other repossessed assets | *Fair value of asset less selling costs* | 1 |  |  | 1 |
| *Total* | *Total* | $2811 | $- | $- | $2811 |

---

The following describes valuation methodologies used for financial instruments measured at fair value on a non-recurring basis. Individually evaluated loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for credit losses, and as such are carried at the lower of net recorded investment or the estimated fair value. Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *31*

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Valuation techniques for individually evaluated, collateral dependent loans are typically determined through independent appraisals of the underlying collateral or *may* be determined through present value of discounted cash flows. Both techniques include various Level *3* inputs which are *not* identifiable. The valuation technique *may* be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions. If real estate is *not* the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates and other factors *may* be utilized to determine fair value.

At *June 30, 2025* and *December 31, 2024,* the range of liquidation expenses and other valuation adjustments applied to individually evaluated, collateral dependent loans ranged from -13.81% to -20.68% and from -13.81% to -31.19%, respectively. The weighted average of liquidation expenses and other valuation adjustments applied to individually evaluated, collateral dependent loans amounted to -16.54% as of *June 30, 2025* and -24.85% as of *December 31, 2024,* respectively. Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used to determine fair value, the Company recognizes that valuations could differ across a wide spectrum of techniques employed. Accordingly, fair value estimates for individually evaluated, collateral dependent loans are classified as Level *3.*

For ORE, fair value is generally determined through independent appraisals of the underlying properties which generally include various Level *3* inputs which are *not* identifiable. Appraisals form the basis for determining the net realizable value from these properties. Net realizable value is the result of the appraised value less certain costs or discounts associated with liquidation which occurs in the normal course of business. Management's assumptions *may* include consideration of the location and occupancy of the property, along with current economic conditions. Subsequently, as these properties are actively marketed, the estimated fair values *may* be periodically adjusted through incremental subsequent write-downs. These write-downs usually reflect decreases in estimated values resulting from sales price observations as well as changing economic and market conditions. As of *June 30, 2025* and *December 31, 2024,* the net realizable values of properties in ORE were higher than the carrying value.

At *June 30, 2025,* there were no other repossessed assets. At *December 31, 2024,* there was *one* other repossessed asset totaling $1 thousand. The Company refers to the National Automobile Dealers Association (NADA) guide to determine a vehicle's fair value.

***9.* Employee Benefits**

***<u>Bank-Owned Life Insurance (BOLI)</u>***

The Company has purchased single premium BOLI policies on certain officers. The policies are recorded at their cash surrender values. Increases in cash surrender values are included in non-interest income in the consolidated statements of income. The policies' cash surrender value totaled $58.8 million and $58.1 million, respectively, as of *June 30, 2025* and *December 31, 2024* and is reflected as an asset on the consolidated balance sheets. For the *six* months ended *June 30, 2025* and *2024*, the Company has recorded income of $0.8 million and $0.7 million, respectively, due to an increase in cash surrender values. During the *second* quarter of *2025,* the Company recorded $0.2 million in additional income from a BOLI death claim that was in process. This was recorded in fees and other revenue on the consolidated statements of income.

***<u>Officer Life Insurance</u>***

The Bank enters into separate split dollar life insurance arrangements (Split Dollar Agreements) with certain officers which provide each officer a specified death benefit should the officer die while in the Bank's employ. The Bank owns the policies and all cash values thereunder. Upon death of the covered employee, the agreed-upon amount of death proceeds from the policies will be paid directly to the insured's beneficiary. As of *June 30, 2025*, the policies had total death benefits of $58.8 million of which $9.6 million would be paid to the officer's beneficiaries and the remaining $49.2 million would be paid to the Bank. In addition, five executive officers have the opportunity to retain a split dollar benefit equal to *two* times their highest base salary after separation from service if the vesting requirements are met. As of *June 30, 2025* and *December 31, 2024*, the Company had a balance in accrued expenses of $549 thousand and $471 thousand, respectively, for the split dollar benefit.

***<u>Supplemental Executive Retirement plan (SERP)</u>***

On *March 29, 2017,* the Bank entered into separate supplemental executive retirement agreements (individually the "SERP Agreement") with five officers, pursuant to which the Bank will credit an amount to a SERP account established on each participant's behalf while they are actively employed by the Bank for each calendar month from *March 1, 2017* until retirement. On *March 20, 2019,* the Bank entered into a SERP Agreement with one officer, pursuant to which the Bank will credit an amount to a SERP account established for the participant's behalf while they are actively employed by the Bank for each calendar month from *March 1, 2019* until normal retirement age. As a result of the acquisition of Landmark, the Company acquired a SERP agreement with one former employee. In *June 2024,* the Bank entered into a supplemental executive retirement plan agreement (the "SERP Agreement") with *one* officer; pursuant to which the Bank will credit an amount to a SERP account established for the participant's behalf while they are actively employed by the Bank for each calendar month from *June 1, 2024* until normal retirement age of *70.* As of *June 30, 2025* and *December 31, 2024*, the Company had a balance in accrued expenses of $5.1 million and $4.9 million in connection with these SERPs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *32*

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***10.* Derivative Instruments**

The Company is exposed to certain risks relating to its ongoing business operations and economic conditions. The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates and to assist customers with their risk management objectives. All derivative instruments are recognized as either assets or liabilities at fair value in the statement of financial position.

<u>Interest rate derivative - *no* hedge designation</u>

The Company is a party to interest rate derivatives that are *not* designated as hedging instruments. The Company enters into interest rate swaps that allow certain commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a *third*-party financial institution, such that the Company minimizes its net interest rate risk exposure resulting from such transactions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Company's consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities). As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do *not* result in an impact to earnings; however, there *may* be fair value adjustments related to credit-quality variations between counterparties, which *may* impact earnings as required by FASB ASC *820.* There was *no* effect on earnings in any periods presented.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | *Weighted* |  |  |  |
|  | *Notional* | *Average Maturity* | *Interest Rate* | *Interest Rate* |  |
| (dollars in thousands) | *Amount* | *(Years)* | *Paid* | *Received* | *Fair Value* |
| **June 30, 2025** |  |  |  |  |  |
| Classified in Other assets: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Customer interest rate swaps | $1735 | 12.41 | *30 Day SOFR + Margin* | *Fixed* | $153 |
| Classified in Accrued interest payable and other liabilities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Third party interest rate swaps | $1735 | 12.41 | *Fixed* | *30 Day SOFR + Margin* | $153 |

---

<u>Interest rate derivative - fair value hedge designation</u>

The Company's objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. This interest rate swap is designated as a fair value hedge and limits the risk to the investment portfolio of rising interest rates. The Company entered into an interest rate swap with a *third*-party financial institution to convert fixed rate investment securities to an adjustable rate to produce a more asset sensitive profile. The Company recorded the fair value of the fair value hedge in other assets and accrued interest payable and other liabilities on the consolidated balance sheet. The hedged items (fixed rate securities available-for-sale) are also recorded at fair value which offsets the adjustment to the fair value hedge. The related gains and losses are reported in interest income investment securities - U.S. government agencies and corporations and interest income investment securities - state and political subdivisions (nontaxable) in the consolidated statements of income. For the *six* months ended *June 30, 2025*, there was a $72 thousand reduction in interest income investment securities - U.S. government agencies and corporations and a $72 thousand reduction in interest income investment securities - state and political subdivisions (nontaxable). For the *six* months ended *June 30, 2024,* there was a $178 thousand increase to interest income from investment securities - U.S. government agencies and corporations and a $178 thousand increase to interest income from investment securities - state and political subdivisions (nontaxable). A qualitative assessment of hedge effectiveness was applied at inception of the hedge. Future hedge effectiveness will be determined on a qualitative basis at least annually. The hedge is expected to remain effective as long as the balance of the hedged item is projected to remain at or above the notional amount of the swap.

---

| | | | |
|:---|:---|:---|:---|
|  |  | *Weighted* |  |
|  | *Notional* | *Average Maturity* |  |
| (dollars in thousands) | *Amount* | *(Years)* | *Fair Value* |
| **June 30, 2025** |  |  |  |
| Pay-fixed interest rate swap agreements - securities AFS | $100000 | 1.25 | $(1132) |

---

The Company had investment securities with a book value of $2.6 million pledged as collateral on its interest rate swaps with a *third*-party financial institution as of *June 30, 2025*.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *33*

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**Item 2: Management**'**s Discussion and Analysis of Financial Condition and Results of Operations**

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of June 30, 2025 compared to December 31, 2024 and a comparison of the results of operations for the three and six months ended June 30, 2025 and 2024. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company's 2024 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 or terrorism; and |
| the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful. |

---

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

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

**Executive Summary**

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

As a leading Northeastern and Eastern Pennsylvania community bank, our goals are to enhance shareholder value while continuing to improve 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 34

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We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for June 2025 was 4.1%, remaining flat compared to December 2024. The local market unemployment rates in the Scranton - Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at June 30, 2025 were 5.1% in market area north and 4.5% in market area south, respectively, an increase of 1.3 percentage points and 1.1 percentage points from the 3.8% and 3.4%, respectively, at December 31, 2024. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 5.5% and 3.1% 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 remain flat and grow 0.4%, respectively, in the next year. In light of these expectations, we expect home prices to stabilize with the potential of a declining rate environment at the same time. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

For the six months ended June 30, 2025, net income was $12.9 million, or $2.23 diluted earnings per share, a 29% increase, compared to $10.0 million, or $1.73 diluted earnings per share, for the six months ended June 30, 2024.

As of June 30, 2025 and June 30, 2024, tangible common book value per share (non-GAAP) was $34.25 and $30.52 <sup>(1)</sup>, 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 economic environment in which we compete, the regulation 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 "Supervisory and Regulation" section of management's discussion and analysis of financial condition and results of operations in our 2024 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.

**<u>Non-GAAP Financial Measures</u>**

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company's financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company's tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at June 30, 2025 and 2024.

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

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | Three months ended | Three months ended | Six months ended | Six months ended |
| (dollars in thousands) | **June 30, 2025** | June 30, 2024 | **June 30, 2025** | June 30, 2024 |
| Interest income (GAAP) | $**29765** | $26039 | $**58073** | $51665 |
| Adjustment to FTE | **760** | 751 | **1531** | 1497 |
| Interest income adjusted to FTE (non-GAAP) | **30525** | 26790 | **59604** | 53162 |
| Interest expense (GAAP) | **11836** | 10922 | **23111** | 21604 |
| Net interest income adjusted to FTE (non-GAAP) | $**18689** | $15868 | $**36493** | $31558 |

---

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 | Three months ended | Six months ended | Six months ended |
| (dollars in thousands) | **June 30, 2025** | June 30, 2024 | **June 30, 2025** | June 30, 2024 |
| **Efficiency Ratio (non-GAAP)** |  |  |  |  |
| Non-interest expenses (GAAP) | $**14710** | $13616 | $**29264** | $27306 |
| Net interest income (GAAP) | **17929** | 15117 | **34962** | 30061 |
| Plus: taxable equivalent adjustment | **760** | 751 | **1531** | 1497 |
| Non-interest income (GAAP) | **5359** | 4615 | **10332** | 9188 |
| Plus: Loss on sales of securities | **-** |  | **822** |  |
| Net interest income (FTE) plus adjusted non-interest income (non-GAAP) | $**24048** | $20483 | $**47647** | $40746 |
| Efficiency ratio (non-GAAP) | **61.17%** | 66.47% | **61.42%** | 67.01% |

---

(1) See non-GAAP financial measurements reconciliation on page 36.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 35

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

---

| | | |
|:---|:---|:---|
| (dollars in thousands) | **June 30, 2025** | June 30, 2024 |
| **Tangible Book Value per Share (non-GAAP)** |  |  |
| Total assets (GAAP) | $**2698575** | $2500645 |
| Less: Intangible assets | **(20364)** | (20649) |
| Tangible assets | **2678211** | 2479996 |
| Total shareholders' equity (GAAP) | **217912** | 195692 |
| Less: Intangible assets | **(20364)** | (20649) |
| Tangible common equity | $**197548** | $175043 |
| Common shares outstanding, end of period | **5767490** | 5735728 |
| Tangible Common Book Value per Share (non-GAAP) | $**34.25** | $30.52 |
| Tangible Common Equity Ratio (non-GAAP) | **7.38%** | 7.06% |
| Unrealized losses on held-to-maturity securities, net of tax | $**(24602)** | $(24776) |
| Adjusted tangible common equity ratio (non-GAAP) | **6.46%** | 6.06% |

---

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

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | Three months ended | Three months ended | Six months ended | Six months ended |
| (dollars in thousands) | **June 30, 2025** | June 30, 2024 | **June 30, 2025** | June 30, 2024 |
| **Pre-Provision Net Revenue to Average Assets** |  |  |  |  |
| Income before taxes (GAAP) | $**8258** | $5701 | $**15340** | $11453 |
| Plus: Provision for credit losses | **320** | 415 | **690** | 490 |
| Total pre-provision net revenue (non-GAAP) | $**8578** | $6116 | $**16030** | $11943 |
| Total (annualized) (non-GAAP) | $**34404** | $24599 | $**32326** | $24018 |
| Average assets | $**2681194** | $2456828 | $**2645679** | $2453998 |
| Pre-Provision Net Revenue to Average Assets (non-GAAP) | **1.28%** | 1.00% | **1.22%** | 0.98% |

---

**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 a fully-taxable equivalent (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.

**<u>Comparison of the results of operations</u>**

**<u>three and six months ended June 30, 2025 and 2024</u>**

**<u>Overview</u>**

Net income for the quarter ended June 30, 2025 was $6.9 million, or $1.20 diluted earnings per share, compared to $4.9 million, or $0.86 diluted earnings per share, for the quarter ended June 30, 2024. The $2.0 million, or 40%, increase in net income resulted primarily from a $2.8 million increase in net interest income coupled with a $0.8 million increase in non-interest income. This was partially offset by a $1.1 million increase in non-interest expense and a $0.6 million increase in the provision for income tax. In the year-to-date comparison, net income increased by $2.9 million to $12.9 million, or $2.23 diluted earnings per share, from $10.0 million, or $1.73 diluted earnings per share. The increase in net income stemmed from the $4.9 million increase in net interest income and $1.1 million increase in non-interest income. This was partially offset by a $2.0 million increase in non-interest expense and a $1.0 million increase in the provision for income tax.

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Return on average assets (ROA) was 1.04% and 0.81% for the second quarters of 2025 and 2024, respectively, and 0.98% and 0.82% for the six months ended June 30, 2025 and 2024, respectively. During the same time periods, return on average shareholders' equity (ROE) was 13.02% and 10.44%, respectively, and 12.35% and 10.57%, respectively. The increases in ROA and ROE were primarily the result of an increase in net income during the second quarter of 2025 and year-to-date 2025, compared to the same periods of 2024. Pre-provision net revenue to average assets (non-GAAP) was 1.28% and 1.00% for the three months ended June 30, 2025 and 2024, respectively, and 1.22% and 0.98% for the six months ended June 30, 2025 and 2024, respectively. The increases were due to an increase in income before taxes quarter-over-quarter and year-over-year.

*<u>Net interest income and interest sensitive assets / liabilities</u>*

Net interest income was $17.9 million for the second quarter of 2025, a 19% increase over the $15.1 million earned for the second quarter of 2024. The $2.8 million increase in net interest income resulted from the increase of $3.7 million in interest income primarily due to a $213.6 million increase in the average balance of interest-earning assets and a 19 basis point increase in fully-taxable equivalent ("FTE") (non-GAAP measurement) yield. The loan portfolio had the most significant impact, producing a $2.8 million increase in FTE interest income from $124.6 million in higher quarterly average balances and an increase of 24 basis points in FTE loan yield. Additionally, the Company experienced an increase of $1.1 million in interest earned from interest-bearing deposits with other financial institutions from $102.0 million in higher average balances. Slightly offsetting the higher interest income, there was a $0.9 million increase in interest expense due to a $178.8 million quarter-over-quarter increase in average interest-bearing liability balances. The increase was primarily contributed to growth of $208.3 million in average interest-bearing deposit balances. However, this deposit growth was partially offset by a $28.5 million decrease in average short-term borrowings.

The FTE yield on interest-earning assets was 4.77% for the second quarter of 2025, an increase of 19 basis points from the 4.58% for the second quarter of 2024. The overall cost of interest-bearing liabilities was 2.52% for the second quarter of 2025, a decrease of 6 basis points from the 2.58% for the second quarter of 2024. The cost of funds decreased 1 basis point from 1.96% to 1.95% for the second quarters of 2024 and 2025, respectively. The Company's FTE net interest spread was 2.25% for the second quarter of 2025, an increase of 25 basis points from 2.00% recorded for the second quarter of 2024. FTE net interest margin increased to 2.92% for the three months ended June 30, 2025 from 2.71% for the same period of 2024 primarily due to the growth in higher yielding taxable commercial loans.

Net interest income was $35.0 million for the six months ended June 30, 2025 compared to $30.1 million for the six months ended June 30, 2024. The $4.9 million increase in net interest income resulted from the increase of $6.4 million in interest income primarily due to a $181.0 million increase in the average balance of interest-earning assets and a 20 basis point increase in FTE yield. On the asset side, the loan portfolio interest income growth resulted from producing $5.3 million more in interest income from an increase of 25 basis points in FTE loan yields on $120.5 million in higher average balances. Additionally, the Company experienced an increase of $1.5 million in interest earned from interest-bearing deposits with other financial institutions from $71.6 million in higher average balances. The increase in interest income was partially offset by a decrease of $0.3 million in interest earned on the investment portfolio due to decreases of 6 basis points in yield and $11.3 million in average balances. On the funding side, total interest expense increased by $1.5 million primarily due to an increase in interest expense paid on deposits of $2.5 million from 2 basis points higher rates paid on a $194.0 million larger average balance of interest-bearing deposits, partially offset by a decrease in interest expense on borrowings of $1.0 million for the six months ended June 30, 2025 compared to the same period in 2024.

The overall cost of interest-bearing liabilities was 2.51% for the six months ended June 30, 2025 compared to 2.54% for the six months ended June 30, 2024. The cost of funds decreased 1 basis point to 1.94% for the six months ended June 30, 2025 from 1.95% from the same period of 2024. The FTE yield on earning assets was 4.75% for the six months ended June 30, 2025, an increase of 20 basis points from the 4.55% year-to-date June 30, 2024. The Company's FTE net interest spread was 2.24% for the six months ended June 30, 2025, an increase of 23 basis points from the 2.01% recorded for the same period of 2024. FTE net interest margin increased by 21 basis points to 2.91% for the six months ended June 30, 2025 from 2.70% for the same 2024 period primarily due to the increase in yields earned on loans and leases outpacing the higher rates paid on interest-bearing deposits.

The table that follows presents the quarterly ratios for yield on interest-earning assets, net interest margin and net interest spread for the periods indicated:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Jun. 30, 2025** | Mar. 31, 2025 | Dec. 31, 2024 | Sep. 30, 2024 | Jun. 30, 2024 |
| Yield on interest-earning assets (FTE) (non-GAAP) | **4.77%** | 4.73% | 4.68% | 4.68% | 4.58% |
| Net interest spread (FTE) (non-GAAP) | **2.25%** | 2.24% | 2.08% | 1.98% | 2.00% |
| Net interest margin (FTE) (non-GAAP) | **2.92%** | 2.89% | 2.78% | 2.70% | 2.71% |

---

For the remainder of 2025, the Company currently expects to operate in a moderately declining interest rate environment. Management is primarily reliant on the Federal Open Market Committee's (FOMC) statements and forecast. For the six months ended June 30, 2025, the FOMC did not adjust interest rates based on the uncertainty about inflation and the effects of newly introduced tariffs on the economy. The current Blue Chip Financial Forecasts economic consensus anticipates two 25 basis points in rate cuts during the second half of 2025. Currently, the Company maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific assets, being proactive with loan pricing and managing deposit costs to maintain a reasonable spread.

The Company's cost of interest-bearing liabilities was 2.52% and 2.51% for the three and six months ended June 30, 2025, respectively, compared to 2.58% and 2.54% for the same 2024 periods. The reduction in average short-term borrowings contributed to the lower cost of interest-bearing liabilities.

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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 is actively addressing the Company's sensitivity to a changing rate environment to ensure interest rate risks are contained within acceptable levels. ALM also discusses revenue enhancing strategies to help combat the potential for a decline in net interest income. The Company's marketing department, together with ALM, and service-driven branch and relationship managers, continue to develop prudent strategies that will grow the loan portfolio and accumulate relationship driven deposits at costs lower than borrowing costs to improve net interest income performance.

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for June 30, 2025 and 2024 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See "Non-GAAP Financial Measures" within this management's discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the second quarters of 2025 and 2024, respectively, and $0.4 million and $0.4 million during the six months ended June 30, 2025 and 2024, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.3 million and $0.4 million are included in interest income from loans and $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended June 30, 2025 and 2024. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.6 million and $0.9 million are included in interest income from loans and $2 thousand and $5 thousand reduced interest expense on deposits and borrowings for the six months ended June 30, 2025 and 2024. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | Three months ended | Three months ended | Three months ended | Three months ended | Three months ended | Three months ended |
| (dollars in thousands) | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | June 30, 2024 | June 30, 2024 | June 30, 2024 |
|  | Average |  | Yield / | Average |  | Yield / |
| **Assets** | balance | Interest | rate | balance | Interest | rate |
| **<u>Interest-earning assets</u>** |  |  |  |  |  |  |
| Interest-bearing deposits | $**133763** | $**1513** | **4.54%** | $31750 | $440 | 5.57% |
| Restricted investments in bank stock | **4158** | **70** | **6.77** | 3983 | 75 | 7.64 |
| Investments: |  |  |  |  |  |  |
| Agency - GSE | **112183** | **404** | **1.44** | 112976 | 407 | 1.45 |
| MBS - GSE residential | **218684** | **1117** | **2.05** | 217616 | 1053 | 1.95 |
| State and municipal (nontaxable) | **185356** | **1336** | **2.89** | 192588 | 1529 | 3.19 |
| State and municipal (taxable) | **79902** | **408** | **2.05** | 86144 | 445 | 2.07 |
| Total investments | **596125** | **3265** | **2.20** | 609324 | 3434 | 2.27 |
| Loans and leases: |  |  |  |  |  |  |
| C&I and CRE (taxable) | **941849** | **14771** | **6.29** | 804538 | 12396 | 6.20 |
| C&I and CRE (nontaxable) | **124177** | **1668** | **5.39** | 123713 | 1549 | 5.04 |
| Consumer | **174311** | **2400** | **5.52** | 213465 | 2602 | 4.90 |
| Residential real estate | **591824** | **6838** | **4.63** | 565882 | 6294 | 4.47 |
| Total loans and leases | **1832161** | **25677** | **5.62** | 1707598 | 22841 | 5.38 |
| Total interest-earning assets | **2566207** | **30525** | **4.77%** | 2352655 | 26790 | 4.58% |
| Non-interest earning assets | **114987** |  |  | 104173 |  |  |
| **Total assets** | $**2681194** |  |  | $2456828 |  |  |
| **Liabilities and shareholders' equity** |  |  |  |  |  |  |
| **<u>Interest-bearing liabilities</u>** |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing checking | $**705255** | $**3715** | **2.11%** | $655689 | $3737 | 2.29% |
| Savings and clubs | **192166** | **138** | **0.29** | 198471 | 153 | 0.31 |
| MMDA | **629145** | **4382** | **2.79** | 545850 | 3922 | 2.89 |
| Certificates of deposit | **351982** | **3503** | **3.99** | 270202 | 2647 | 3.94 |
| Total interest-bearing deposits | **1878548** | **11738** | **2.51** | 1670212 | 10459 | 2.52 |
| Secured borrowings | **6162** | **98** | **6.39** | 7269 | 120 | 6.64 |
| Short-term borrowings | **11** | **-** | **-** | 28478 | 343 | 4.85 |
| Total interest-bearing liabilities | **1884721** | **11836** | **2.52%** | 1705959 | 10922 | 2.58% |
| Non-interest bearing deposits | **547278** |  |  | 530047 |  |  |
| Non-interest bearing liabilities | **36049** |  |  | 30733 |  |  |
| Total liabilities | **2468048** |  |  | 2266739 |  |  |
| Shareholders' equity | **213146** |  |  | 190089 |  |  |
| **Total liabilities and shareholders' equity** | $**2681194** |  |  | $2456828 |  |  |
| Net interest income - FTE |  | $**18689** |  |  | $15868 |  |
| Net interest spread |  |  | **2.25%** |  |  | 2.00% |
| Net interest margin |  |  | **2.92%** |  |  | 2.71% |
| Cost of funds |  |  | **1.95%** |  |  | 1.96% |

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | Six months ended | Six months ended | Six months ended | Six months ended | Six months ended | Six months ended |
| (dollars in thousands) | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | June 30, 2024 | June 30, 2024 | June 30, 2024 |
|  | Average |  | Yield / | Average |  | Yield / |
| **Assets** | balance | Interest | rate | balance | Interest | rate |
| **Interest-earning assets** |  |  |  |  |  |  |
| Interest-bearing deposits | $**101846** | $**2284** | **4.52%** | $30215 | $816 | 5.43% |
| Restricted investments in bank stock | **4066** | **144** | **7.14** | 3958 | 156 | 7.94 |
| Investments: |  |  |  |  |  |  |
| Agency - GSE | **112980** | **812** | **1.45** | 112827 | 814 | 1.45 |
| MBS - GSE residential | **217529** | **2168** | **2.01** | 220676 | 2135 | 1.95 |
| State and municipal (nontaxable) | **188470** | **2727** | **2.92** | 193519 | 3061 | 3.18 |
| State and municipal (taxable) | **82888** | **851** | **2.07** | 86124 | 887 | 2.07 |
| Total investments | **601867** | **6558** | **2.20** | 613146 | 6897 | 2.26 |
| Loans and leases: |  |  |  |  |  |  |
| C&I and CRE (taxable) | **928699** | **28894** | **6.27** | 800684 | 24628 | 6.19 |
| C&I and CRE (nontaxable) | **126197** | **3316** | **5.30** | 123356 | 3072 | 5.01 |
| Consumer | **178976** | **4852** | **5.47** | 217431 | 5259 | 4.86 |
| Residential real estate | **588782** | **13556** | **4.64** | 560663 | 12334 | 4.42 |
| Total loans and leases | **1822654** | **50618** | **5.60** | 1702134 | 45293 | 5.35 |
| Total interest-earning assets | **2530433** | **59604** | **4.75%** | 2349453 | 53162 | 4.55% |
| Non-interest earning assets | **115246** |  |  | 104545 |  |  |
| **Total assets** | $**2645679** |  |  | $2453998 |  |  |
| **Liabilities and shareholders' equity** |  |  |  |  |  |  |
| **<u>Interest-bearing liabilities</u>** |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing checking | $**684353** | $**6999** | **2.06%** | $661654 | $7558 | 2.30% |
| Savings and clubs | **192099** | **272** | **0.29** | 200179 | 309 | 0.31 |
| MMDA | **630556** | **8734** | **2.79** | 535530 | 7511 | 2.82 |
| Certificates of deposit | **345887** | **6920** | **4.03** | 261549 | 5022 | 3.86 |
| Total interest-bearing deposits | **1852895** | **22925** | **2.50** | 1658912 | 20400 | 2.47 |
| Secured borrowings | **6194** | **186** | **6.05** | 7302 | 241 | 6.63 |
| Short-term borrowings | **16** | **-** | **2.77** | 41216 | 963 | 4.70 |
| Total interest-bearing liabilities | **1859105** | **23111** | **2.51%** | 1707430 | 21604 | 2.54% |
| Non-interest bearing deposits | **540321** |  |  | 524952 |  |  |
| Non-interest bearing liabilities | **35496** |  |  | 31584 |  |  |
| Total liabilities | **2434922** |  |  | 2263966 |  |  |
| Shareholders' equity | **210757** |  |  | 190032 |  |  |
| **Total liabilities and shareholders' equity** | $**2645679** |  |  | $2453998 |  |  |
| Net interest income - FTE |  | $**36493** |  |  | $31558 |  |
| Net interest spread |  |  | **2.24%** |  |  | 2.01% |
| Net interest margin |  |  | **2.91%** |  |  | 2.70% |
| Cost of funds |  |  | **1.94%** |  |  | 1.95% |

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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:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | Six months ended June 30, | Six months ended June 30, | Six months ended June 30, | Six months ended June 30, | Six months ended June 30, | Six months ended June 30, |
| (dollars in thousands) | **2025 compared to 2024** | **2025 compared to 2024** | **2025 compared to 2024** | 2024 compared to 2023 | 2024 compared to 2023 | 2024 compared to 2023 |
|  | Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to | Increase (decrease) due to |
|  | Volume | Rate | Total | Volume | Rate | Total |
| <u>Interest income:</u> |  |  |  |  |  |  |
| Interest-bearing deposits | $**1626** | $**(158**) | $**1468** | $632 | $32 | $664 |
| Restricted investments in bank stock | **4** | **(16**) | **(12**) | (26) | 1 | (25) |
| Investments: |  |  |  |  |  |  |
| Agency - GSE | **-** | **(2**) | **(2**) | 4 | (8) | (4) |
| MBS - GSE residential | **(33)** | **66** | **33** | (224) | 182 | (42) |
| State and municipal | **(93)** | **(261**) | **(354**) | (435) | 262 | (173) |
| Total investments | **(126)** | **(197**) | **(323**) | (655) | 436 | (219) |
| Loans and leases: |  |  |  |  |  |  |
| Residential real estate | **615** | **609** | **1224** | 1013 | 911 | 1924 |
| C&I and CRE | **3832** | **626** | **4458** | 1646 | 2113 | 3759 |
| Consumer | **(1004)** | **597** | **(407**) | (448) | 693 | 245 |
| Total loans and leases | **3443** | **1832** | **5275** | 2211 | 3717 | 5928 |
| Total interest income | **4947** | **1461** | **6408** | 2162 | 4186 | 6348 |
| <u>Interest expense:</u> |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing checking | **247** | **(807**) | **(560**) | 91 | 3723 | 3814 |
| Savings and clubs | **(13)** | **(24**) | **(37**) | (43) | 12 | (31) |
| Money market | **1297** | **(74**) | **1223** | 54 | 1929 | 1983 |
| Certificates of deposit | **1667** | **232** | **1899** | 1537 | 1872 | 3409 |
| Total deposits | **3198** | **(673**) | **2525** | 1639 | 7536 | 9175 |
| Secured borrowings | **(35)** | **(20**) | **(55**) | (7) | 19 | 12 |
| Short-term borrowings | **(684)** | **(279**) | **(963**) | (361) | (32) | (393) |
| Total interest expense | **2479** | **(972**) | **1507** | 1271 | 7523 | 8794 |
| Net interest income | $**2468** | $**2433** | $**4901** | $891 | $(3337) | $(2446) |

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*<u>Provision for credit losses</u>*

The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to increase 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.

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For the three months ended June 30, 2025, the provision for credit losses on loans was $300 thousand and the provision for unfunded commitments was $20 thousand compared to a $275 thousand provision for credit losses on loans and a $140 thousand provision for credit losses on unfunded loan commitments for the three months ended June 30, 2024.

For the three months ended June 30, 2025, the increase in the provision for credit losses on loans compared to the prior year period was due to $155 thousand in higher net charge-offs and a higher average total loan balance compared to the same period in 2024. For the three months ended June 30, 2025, the decrease in the provision for unfunded commitments was due to lower levels of unfunded commitments during the quarter due to increased utilization, specifically commercial construction commitments, compared to the year earlier period.

For the six months ended June 30, 2025, the provision for credit losses on loans was $755 thousand and the provision for credit losses on unfunded loan commitments was a net benefit of $65 thousand compared to a $400 thousand provision for credit losses on loans and a $90 thousand provision for credit losses on unfunded commitments for the six months ended June 30, 2024.

For the six months ended June 30, 2025, the increase in the provision for credit losses on loans compared to the prior year period was due to $215 thousand in higher net charge-offs and a higher average total loan balance compared to the same period in 2024. For the six months ended June 30, 2025, the decrease in the provision for unfunded commitments was due to lower growth in unfunded commitments during the period due to increased utilization, specifically commercial construction commitments, compared to the year earlier period.

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for six months ended June 30, 2025 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.

*<u>Other income</u>*

Total non-interest income increased $0.7 million, or 16%, to $5.3 million for the second quarter of 2025 compared to $4.6 million for the second quarter of 2024. The increase in non-interest income was primarily attributed to increases of $0.2 million in trust fees, a $0.2 million BOLI death benefit, $0.2 million in loan service charges, and $0.1 million in interchange fees.

Total non-interest income for the six months ended June 30, 2025 was $10.3 million, an increase of $1.1 million, or 12%, from $9.2 million for the six months ended June 30, 2024. The increase was primarily due to $0.3 million higher fees from trust fiduciary activities. The Company also had $0.2 million more non-interest income resulting from an increase in interchange fees, a $0.2 million BOLI death benefit, and an increase of $0.2 million in service charges on loans primarily from commercial loans. During the first half of 2025, gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities.

*<u>Operating expenses</u>*

Non-interest expenses increased $1.1 million, or 8%, for the second quarter of 2025 to $14.7 million from $13.6 million for the same quarter of 2024. The increase in non-interest expenses was primarily due to the increases in salaries and benefits expense of $0.8 million, premises and equipment expense of $0.2 million, and advertising expense of $0.2 million. These increases were partially offset by a $0.2 million decrease in professional services for the three months ended June 30, 2025 compared to the same period of 2024.

Non-interest expenses increased to $29.3 million for the six months ended June 30, 2025, an increase of $2.0 million, or 7%, from $27.3 million for the six months ended June 30, 2024. Salaries and benefits expense increased $1.3 million due to an increase in the number of bankers, group insurance costs, and banker incentives in the first half of 2025, compared to the same period in 2024. Additionally, the Company experienced an increase of $0.5 million in advertising and marketing expenses primarily due to a $0.3 million increase in Neighborhood Assistance Program donations from which the Company recognized $0.2 million in additional tax credits causing a corresponding decrease in PA shares tax expense. There was also an increase of $0.5 million in premises and equipment expense primarily due to higher costs for software licenses, subscriptions, and maintenance. The increases were partially offset by $0.3 million less in professional services expense.

The ratios of non-interest expense less non-interest income to average assets, known as the expense ratio, were 1.38% and 1.48% for the six months ended June 30, 2025 and 2024. The expense ratio decreased because of higher average assets. The efficiency ratio (non-GAAP) decreased from 67.01% at June 30, 2024 to 61.42%<sup>(1)</sup> at June 30, 2025 due to net interest income increasing.

*<u>Provision for income taxes</u>*

The provision for income taxes increased $0.6 million during the three months ended June 30, 2025 compared to the same period in 2024 primarily due to a $2.6 million increase in income before taxes. The provision for income taxes increased $1.0 million during the six months ended June 30, 2025 compared to the same period in 2024 primarily due to a $3.9 million increase in income before taxes and $0.2 million less in tax credits. The Company's effective tax rate was 15.8% at June 30, 2025 compared to 12.7% at June 30, 2024. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income.

(1) See non-GAAP financial measurements reconciliation on page 35.

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**<u>Comparison of financial condition at</u>**

<u>**June 30, 2025 and December 31, 2024**</u>

*<u>Overview</u>*

The Company's total assets had a balance of $2.7 billion as of June 30, 2025, an increase of $114.0 million from December 31, 2024. The increase resulted from $82.1 million in growth in cash and cash equivalents as of June 30, 2025. The loans and leases portfolio increased $37.9 million during the same period of 2025. Asset growth was offset by a decrease of $11.4 million in the investment portfolio. Deposit growth of $94.5 million was used to fund the loan portfolio with the remaining balances held in cash.

***<u>Funds Deployed:</u>***

*<u>Investment securities</u>*

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 six months ended June 30, 2025, AOCI improved by $4.9 million primarily due to the change in fair value of the Company's investment securities.

As of June 30, 2025, the carrying value of held-to-maturity securities was $226.5 million, net of $12.9 million in remaining transferred discount.

The Company utilized a fair value hedge to designate and swap a portion of the fixed rate AFS portfolio. The Company has an approved Derivative Policy that requires Board pre-approval on such balance sheet hedging activities as well as ongoing reporting to its ALCO Committee. The Board has approved up to $200 million in notional amount of pay-fixed interest rate swap and the Company has executed on $100 million to date.

During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of June 30, 2025, the Company recorded the fair value of the swap of $1.1 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $1.1 million increase to the carrying value of designated investment securities.

As of June 30, 2025, the carrying value of investment securities amounted to $545.8 million, or 20% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On June 30, 2025, 35% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).

The Company's municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $191.1 million ($167.8 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $85.0 million ($78.2 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.

During the first half of 2025, the carrying value of total investments decreased $11.4 million, or 2%. The decline was primarily due to the sale of $17.5 million in available-for-sale securities and $11.3 million in paydowns partially offset by $14.7 million in purchases of 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.

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A comparison of investment securities at June 30, 2025 and December 31, 2024 is as follows:

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 | December 31, 2024 | December 31, 2024 |
| (dollars in thousands) | Amount | % | Book yield | Reprice term (years) | Amount | % | Book yield | Reprice term (years) |
| HTM securities: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Obligations of states & political subdivisions - tax exempt | $**83575** | **15.3%** | **2.1%** | **19.3** | $83544 | 15.1% | 2.1% | 19.8 |
| Obligations of states & political subdivisions - taxable | **59921** | **11.0** | **2.1** | **9.8** | 59734 | 10.7 | 2.1 | 10.3 |
| Agency - GSE | **83046** | **15.2** | **1.4** | **4.9** | 82486 | 14.7 | 1.4 | 5.4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total HTM securities | $**226542** | **41.5%** | **1.8%** | **11.6** | $225764 | 40.5% | 1.8% | 12.1 |
| AFS debt securities: |  |  |  |  |  |  |  |  |
| MBS - GSE residential | $**189786** | **34.8%** | **2.2%** | **5.7** | $183999 | 33.0% | 2.0% | 5.9 |
| &nbsp;&nbsp;&nbsp; Obligations of states & political subdivisions - tax exempt | **84187** | **15.4** | **2.3** | **18.4** | 95635 | 17.2 | 2.4 | 17.5 |
| &nbsp;&nbsp;&nbsp; Obligations of states & political subdivisions - taxable | **18231** | **3.3** | **1.5** | **4.3** | 23623 | 4.2 | 1.6 | 4.6 |
| &nbsp;&nbsp;&nbsp; Agency - GSE | **27075** | **5.0** | **1.2** | **3.0** | 28200 | 5.1 | 1.2 | 3.3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total AFS debt securities | $**319279** | **58.5%** | **2.1%** | **8.9** | $331457 | 59.5% | 2.0% | 8.9 |
| Total securities | $**545821** | **100.0%** | **2.0%** | **10.0** | $557221 | 100.0% | 2.0% | 10.1 |

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The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities. The portfolio had no adjustable-rate instruments as of June 30, 2025 and December 31, 2024.

The AFS securities were recorded with a net unrealized loss of $47.8 million and a net unrealized loss of $52.8 million as of June 30, 2025 and December 31, 2024, respectively. Of the $5.0 million net improvement; $7.5 million was attributable to mortgage-backed securities and $0.8 million was attributable to agency securities. This improvement was offset by a $3.3 million decrease to municipal securities. The direction and magnitude of the change in value of the Company's investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company's investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company's investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company's debt securities portfolio could be subject to market value increases.

As of June 30, 2025, the Company had $276.3 million in public deposits, or 11% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of June 30, 2025, the balance of pledged securities required was $319.4 million, or 59% of total securities.

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company's intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the six months ended June 30, 2025, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

During the first half of 2025, the Company sold nineteen available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.8 million as the amortized cost was $17.5 million compared to the sales proceeds of $16.7 million. This sale was due to the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

*<u>Restricted investments in bank stock</u>*

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 $4.2 million and $3.9 million as of June 30, 2025 and December 31, 2024, respectively. The dividends received from the FHLB totaled $152 thousand and $148 thousand for the six months ended June 30, 2025 and 2024, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of June 30, 2025 and December 31, 2024.

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*<u>Loans held-for-sale (HFS)</u>*

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

As of June 30, 2025 and December 31, 2024, loans HFS consisted of residential mortgages with carrying amounts of $0.5 million and $2.1 million, respectively, which approximated their fair values. During the six months ended June 30, 2025, residential mortgage loans with principal balances of $32.0 million were sold into the secondary market and the Company recognized net gains of $0.5 million, compared to $25.5 million and $0.5 million, respectively, during the six months ended June 30, 2024.

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At June 30, 2025 and December 31, 2024, the servicing portfolio balance of sold residential mortgage loans was $506.1 million and $495.4 million, respectively, with mortgage servicing rights of $1.3 million and $1.3 million for the same periods, respectively. Additionally, during the first half of 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.

*<u>Loans and leases</u>*

As of June 30, 2025, the Company had gross loans and leases totaling $1.8 billion, an increase of $37.9 million, or 2%, compared to $1.8 billion at December 31, 2024.

During the six months ended June 30, 2025, the growth in the portfolio was attributed to a $48.5 million increase in the commercial portfolio primarily due to the origination of three commercial real estate owner occupied loans to two borrowers totaling $19.0 million; a single origination totaling $4.7 million to a commercial real estate non owner occupied borrower; $22.0 million in advances on existing commercial construction commitments; and general portfolio growth. The Company also experienced a $3.7 million increase in the residential portfolio, which was offset by the $14.2 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.

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

The composition of the loan portfolio at June 30, 2025 and December 31, 2024 is summarized as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 |
| (dollars in thousands) | Amount | % | Amount | % |
| Commercial and industrial: |  |  |  |  |
| Commercial | $**177916** | **9.7%** | $172834 | 9.6% |
| &nbsp;&nbsp;&nbsp;&nbsp; Municipal | **95408** | **5.2** | 101706 | 5.6 |
| Commercial real estate: |  |  |  |  |
| Non-owner occupied | **408107** | **22.2** | 394219 | 21.9 |
| Owner occupied | **327410** | **17.8** | 304889 | 16.9 |
| Construction | **64245** | **3.5** | 50930 | 2.9 |
| Consumer: |  |  |  |  |
| Home equity installment | **54176** | **2.9** | 54214 | 3.0 |
| Home equity line of credit | **63429** | **3.4** | 58130 | 3.2 |
| Auto loans - Recourse | **10688** | **0.6** | 11389 | 0.6 |
| &nbsp;&nbsp;&nbsp;&nbsp; Auto loans - Non-recourse | **58352** | **3.2** | 75440 | 4.2 |
| Direct finance leases | **22901** | **1.2** | 27827 | 1.5 |
| Other | **27055** | **1.5** | 23848 | 1.4 |
| Residential: |  |  |  |  |
| Real estate | **511565** | **27.8** | 504815 | 28.0 |
| Construction | **17478** | **1.0** | 20507 | 1.2 |
| Gross loans | **1838730** | **100.0%** | 1800748 | 100.0% |
| Less: |  |  |  |  |
| Allowance for credit losses | **(19976)** |  | (19666) |  |
| Unearned lease revenue | **(1724)** |  | (1946) |  |
| Net loans | $**1817030** |  | $1779136 |  |
| Loans held-for-sale | $**471** |  | $2054 |  |

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

As of June 30, 2025, the commercial portfolio increased by $48.5 million, or 5%, to $1.1 billion compared to the December 31, 2024 balance of $1.0 billion. The increase was due to growth of $49.7 million in commercial real estate loans partially offset by a $1.2 million reduction in commercial and industrial loans.

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

For the six months ended June 30, 2025, commercial and industrial (non-municipal) loans increased $5.1 million, or 3%, from $172.8 million at December 31, 2024 to $177.9 million at June 30, 2025, which was due to 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 no defaults noted.

For the six months ended June 30, 2025, municipal loans decreased $6.3 million, or 6%, from $101.7 million at December 31, 2024, to $95.4 million at June 30, 2025 which was attributed to the payoff of a $7.0 million loan during the second quarter.

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).

For the six months ended June 30, 2025, owner occupied commercial real estate loans increased $22.5 million, or 7%, from $304.9 million on December 31, 2024, to $327.4 million at June 30, 2025, due to an origination to a single commercial real estate owner occupied borrower totaling $9.4 million during the first quarter, the origination of two loans to a single commercial real estate owner occupied borrower totaling $9.7 million during the second 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 June 30, 2025 compared to December 31, 2024:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 |
| (dollars in thousands) | Amount | % | Amount | % |
| Commercial real estate non-owner occupied: |  |  |  |  |
| 1-4 Family | $**42296** | **10.36%** | $45613 | 11.57% |
| Multifamily | **47949** | **11.75%** | 48087 | 12.20% |
| Industrial | **46301** | **11.35%** | 51486 | 13.06% |
| Mixed Use | **54005** | **13.23%** | 53233 | 13.50% |
| Retail | **65906** | **16.15%** | 64227 | 16.29% |
| Land | **24822** | **6.08%** | 17368 | 4.41% |
| Special Purpose | **41862** | **10.26%** | 32187 | 8.16% |
| Hotel | **29979** | **7.35%** | 29607 | 7.51% |
| Office | **54987** | **13.47%** | 52411 | 13.30% |
| Total | $**408107** | **100.00%** | $394219 | 100.00% |

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For the six months ended June 30, 2025, non-owner occupied commercial real estate loans increased $13.9 million, or 4%, from $394.2 million on December 31, 2024, to $408.1 million on June 30, 2025 due to an origination to a single commercial real estate non owner occupied borrower totaling $4.7 million during the second quarter, an $8.7 million construction loan that stabilized and was converted to non-owner occupied commercial real estate during the first quarter, and general 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.

In the table above, office space comprised $55.0 million and special purpose comprised $41.9 million in outstanding amounts at June 30, 2025, 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; self-storage facilities comprised $21.6 million, or 52%, of the special purpose segment as of June 30, 2025.

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Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners' personal financial conditions. As of June 30, 2025, the commercial construction portfolio had a balance of $64.2 million and consisted of $44.8 million, or 70%, of non-owner-occupied loans and $19.4 million, or 30%, of owner-occupied loans.

For the six months ended June 30, 2025, commercial construction loans increased $13.3 million, or 26%, from $50.9 million on December 31, 2024 to $64.2 million at June 30, 2025. This increase was attributed to $9.6 million in commercial construction commitments originated during the year and $27.8 million in advances during the year on commercial construction loan availability booked prior to June 30, 2025. This increase was partially offset by $23.5 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans and $0.6 million in loans that were paid off during the six months ended June 30, 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.

As of June 30, 2025, the total consumer loan portfolio decreased by $14.2 million, or 6%, to $236.6 million compared to the December 31, 2024 balance of $250.8 million, primarily due to a management strategic determination to reduce the indirect auto portfolio of $23 million, due to payoffs with minimal originations. Offsetting the reduction in the indirect auto portfolio was growth of $5.3 million in the HELOC portfolio due to a sales campaign done during the first half of the year and growth of $3.2 million in the consumer other portfolio, which was attributed to $5.4 million loans purchased from the third-party originator BHG Financial. For the remainder of 2025, the Company expects maturities of approximately $17.4 million in the dealer portfolio with minimal originations.

**Residential**

As of June 30, 2025, the residential loan portfolio increased by $3.7 million, or less than 1%, to $529.0 million compared to the December 31, 2024 balance of $525.3 million due to general portfolio growth.

The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $405 million in fixed-rate and $107 million in adjustable-rate mortgages as of June 30, 2025.

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.

*<u>Allowance for</u> <u>credit</u> <u>losses</u>*

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.

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● **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; |

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---

| | |
|:---|:---|
| o | experience, ability and depth of lending management; |

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| | |
|:---|:---|
| o | national and local economic trends and conditions; |

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| | |
|:---|:---|
| o | changes in credit concentrations; and |

---

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| | |
|:---|:---|
| o | changes in underlying collateral. |

---

A 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 and certain key ratios for the period indicated:

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | **As of and for the six months ended June 30, 2025** | As of and for the twelve months ended December 31, 2024 | As of and for the six months ended June 30, 2024 |
| Balance at beginning of period | $**19666** | $18806 | $18806 |
| <u>Charge-offs:</u> |  |  |  |
| Commercial and industrial | **(353** | (399) | (153) |
| Commercial real estate | **-** | (132) | (131) |
| Consumer | **(218** | (419) | (193) |
| Residential | **(18** |  |  |
| &nbsp;&nbsp;&nbsp; Total | **(589** | (950) | (477) |
| <u>Recoveries:</u> |  |  |  |
| Commercial and industrial | **13** | 12 | 5 |
| Commercial real estate | **21** | 352 | 155 |
| Consumer | **92** | 76 | 41 |
| Residential | **18** | 45 | 45 |
| &nbsp;&nbsp;&nbsp; Total | **144** | 485 | 246 |
| Net charge-offs | **(445** | (465) | (231) |
| Provision for credit losses on loans | **755** | 1325 | 400 |
| Balance at end of period | $**19976** | $19666 | $18975 |
| Allowance for credit losses to total loans | **1.09** | 1.09 | 1.10 |
| Net charge-offs to average total loans outstanding | **0.05** | 0.03 | 0.03 |
| Average total loans | $**1822654** | $1741349 | $1702133 |
| Loans 30 - 89 days past due and accruing | $**4538** | $5349 | $2166 |
| Loans 90 days or more past due and accruing | $**-** | $32 | $34 |
| Non-accrual loans | $**3074** | $7343 | $6889 |
| Allowance for credit losses to non-accrual loans | **6.50** | 2.68 | 2.75 |
| Allowance for credit losses to non-performing loans | **6.50** | 2.67 | 2.74 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For the six months ended June 30, 2025, the allowance increased $0.3 million, or 2%, to $20.0 million from $19.7 million on December 31, 2024. The increase in the allowance was based on the provisioning of $0.7 million partially offset by net charge-offs of $0.4 million.

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. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.

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Key loss driver assumptions used in the allowance estimate included the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts, the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prepayment and curtailment rates, and estimated remaining loan lives. Although key loss driver assumptions used in the ACL estimate remained largely stable from the estimate as of December 31, 2024 to the estimate as of June 30, 2025, 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.

During the second quarter of 2025, management created a separate pool for its consumer loans purchased from the third-party originator, BHG Financial, due to the unique risk characteristics of these loans compared to the consumer loans originated by the Company. The total balance of the BHG consumer loan portfolio was $11.3 million as of June 30, 2025.

Qualitative factors for the ACL estimate as of June 30, 2025 saw a general decrease compared to the prior quarter based on reduction in the qualitative factor for the improvement in the levels of and trends in delinquencies and non-accrual loans.

The allocation of net charge-offs among major categories of loans are as follows for the periods indicated:

---

| | | | | |
|:---|:---|:---|:---|:---|
| (dollars in thousands) | **For the six months ended June 30, 2025** | **% of Total Net Charge-offs** | For the six months ended June 30, 2024 | % of Total Net Charge-offs |
| <u>Net charge-offs</u> |  |  |  |  |
| Commercial and industrial | $**(340)** | **77%** | $(148) | 64% |
| Commercial real estate | **21** | **(5)** | 24 | (11) |
| Consumer | **(126)** | **28** | (152) | 66 |
| Residential | **-** | **-** | 45 | (19) |
| Total net charge-offs | $**(445)** | **100%** | $(231) | 100% |

---

For the six months ended June 30, 2025, net charge-offs against the allowance totaled $0.4 million compared with net charge-offs of $0.2 million for the six months ended June 30, 2024, representing a $0.2 million increase due to a $0.3 million commercial and industrial charge-off during the second quarter of 2025. Net charge-offs grew as a percentage of the total loan portfolio at 0.05% for the six months ended June 30, 2025 compared to 0.03% for the six months ended June 30, 2024.

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

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

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

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 | December 31, 2024 | June 30, 2024 | June 30, 2024 | June 30, 2024 |
|  |  | **% of** | **Category** |  | % of | Category |  | % of | Category |
|  |  | **Total** | **% of** |  | Total | % of |  | Total | % of |
| (dollars in thousands) | **Allowance** | **Allowance** | **Loans** | Allowance | Allowance | Loans | Allowance | Allowance | Loans |
| <u>Category</u> |  |  |  |  |  |  |  |  |  |
| Commercial real estate | $**9522** | **48%** | **44%** | $8943 | 45% | 42% | $8687 | 47% | 39% |
| Commercial and industrial | **2093** | **10** | **15** | 2345 | 12 | 15 | 2181 | 11 | 15 |
| Consumer | **2053** | **11** | **12** | 2377 | 13 | 14 | 2368 | 12 | 16 |
| Residential real estate | **6268** | **31** | **29** | 5989 | 30 | 29 | 5726 | 30 | 30 |
| Unallocated | **40** | **-** | **-** | 12 |  |  | 13 |  |  |
| Total | $**19976** | **100%** | **100%** | $19666 | 100% | 100% | $18975 | 100% | 100% |

---

As of June 30, 2025, the commercial real estate loan portfolio comprised 48% of the total allowance for credit losses, up 3 percentage points from December 31, 2024. As of June 30, 2025, the commercial real estate loan portfolio was 44% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

As of June 30, 2025, the commercial and industrial portfolio comprised 10% of the total allowance for credit losses, down 2 percentage points from December 31, 2024. As of June 30, 2025, the commercial and industrial portfolio was 15% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the municipal portfolio.

As of June 30, 2025, the consumer portfolio comprised 11% of the total allowance for credit losses, down 2 percentage points from December 31, 2024. As of June 30, 2025, the consumer portfolio is 12% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the indirect recourse and direct finance lease portfolios.

As of June 30, 2025, the residential portfolio comprised 31% of the total allowance for credit losses, up 1 percentage point from December 31, 2024. As of June 30, 2025, the residential portfolio is 29% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

As of June 30, 2025, 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, 2024.

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*<u>Non-performing assets</u>*

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

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

---

| | | | |
|:---|:---|:---|:---|
| (dollars in thousands) | **June 30, 2025** | December 31, 2024 | June 30, 2024 |
| Loans past due 90 days or more and accruing | $**-** | $32 | $34 |
| Non-accrual loans | **3074** | 7343 | 6889 |
| &nbsp;&nbsp;&nbsp; Total non-performing loans | **3074** | 7375 | 6923 |
| Other real estate owned and repossessed assets | **414** | 430 | 9 |
| Total non-performing assets | $**3488** | $7805 | $6932 |
| Total loans, including loans held-for-sale | $**1837477** | $1800856 | $1728509 |
| Total assets | $**2698575** | $2584616 | $2500645 |
| Non-accrual loans to total loans | **0.17%** | 0.41% | 0.40% |
| Non-performing loans to total loans | **0.17%** | 0.41% | 0.40% |
| Non-performing assets to total assets | **0.13%** | 0.30% | 0.28% |

---

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 0.13% of total assets at June 30, 2025 compared with 0.30% at December 31, 2024. The decrease resulted from a $4.3 million, or 55%, decline in non-performing assets, specifically non-accrual loans, which declined $4.3 million due to the sale of a $1.3 million commercial owner occupied real estate loan to a third-party purchaser during the first quarter of 2025. Additionally, the Company recorded a $1.7 million paydown and $0.3 million charge-off to the commercial and industrial loan portfolio during the second quarter of 2025.

On June 30, 2025, there were a total of 28 non-accrual loans to 26 unrelated borrowers with balances that ranged from less than $1 thousand to $0.6 million, or $3.1 million in the aggregate. On December 31, 2024, there were a total of 33 non-accrual loans to 30 unrelated borrowers with balances that ranged from less than $1 thousand to $2.6 million, or $7.3 million in the aggregate.

There were no loans past due 90 days or more accruing as of June 30, 2025, compared to two direct finance leases totaling $32 thousand as of December 31, 2024. All loans were well secured and in the process of collection.

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

The composition of non-performing loans as of June 30, 2025 is as follows:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | 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 | $**177916** | $**-** | $**709** | $**709** | **0.40%** |
| Municipal | **95408** | **-** | **-** | **-** | **-** |
| Commercial real estate: |  |  |  |  |  |
| Non-owner occupied | **408107** | **-** | **615** | **615** | **0.15%** |
| Owner occupied | **327410** | **-** | **809** | **809** | **0.25%** |
| Construction | **64245** | **-** | **-** | **-** | **-** |
| Consumer: |  |  |  |  |  |
| Home equity installment | **54176** | **-** | **153** | **153** | **0.28%** |
| Home equity line of credit | **63429** | **-** | **444** | **444** | **0.70%** |
| Auto loans-Recourse | **10688** | **-** | **-** | **-** | **-** |
| Auto loans-Non Recourse | **58352** | **-** | **38** | **38** | **0.07%** |
| Direct finance leases \* | **21177** | **-** | **-** | **-** | **-** |
| Other | **27055** | **-** | **-** | **-** | **-** |
| Residential: |  |  |  |  |  |
| Real estate | **511565** | **-** | **306** | **306** | **0.06%** |
| Construction | **17478** | **-** | **-** | **-** | **-** |
| Loans held-for-sale | **471** | **-** | **-** | **-** | **-** |
| Total | $**1837477** | $**-** | $**3074** | $**3074** | **0.17%** |

---

\*Net of unearned lease revenue of $1.7 million.

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Payments received from non-accrual loans are recognized on a cost recovery method. Payments are first applied to the outstanding principal balance, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of interest income. If the non-accrual loans that were outstanding as of June 30, 2025 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $162 thousand.

*<u>Foreclosed</u> <u>assets held-for-sale</u>*

From December 31, 2024 to June 30, 2025, other real estate owned (ORE) decreased from $429 thousand to $414 thousand, a $15 thousand decrease, which was attributed to the sale of one commercial property totaling $196 thousand and sale of three residential properties totaling $253 thousand. These sales were partially offset by the addition of three properties totaling $436 thousand.

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

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 |
| (dollars in thousands) | Amount | # | Amount | # |
| Balance at beginning of period | $**429** | **3** | $1 | 1 |
| Additions | **436** | **3** | 648 | 4 |
| Pay downs | **(2)** |  |  |  |
| Write downs |  |  |  |  |
| Transfers |  |  |  |  |
| Sales | **(449)** | **(4)** | (220) | (2) |
| Balance at end of period | $**414** | **2** | $429 | 3 |

---

As of June 30, 2025, the Company had two properties totaling $414 thousand with one property under agreement of sale and one property undergoing repairs prior to being listed for sale.

As of June 30, 2025, the Company had no other repossessed assets. As of December 31, 2024, the Company had one other repossessed asset totaling $1 thousand which was a vehicle.

*<u>Cash surrender value of bank owned life insurance</u>*

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.

*<u>Premises and equipment</u>*

Net of depreciation, premises and equipment increased $4.2 million during the first six months of 2025 primarily due to construction in the new headquarters building. These increases were partially offset by $1.2 million in depreciation expense.

The Company is in the process of corporate headquarters construction which will continue to increase construction in process. On December 23, 2020, the Commonwealth of Pennsylvania authorized the first of three Redevelopment Assistance Capital Program (RACP) grant funding in the amount of $2.0 million, a second on December 6, 2021 in the amount of $2.0 million, and the final grant award on November 1, 2024 in the amount of $4.0 million, bringing the total RACP grant award to $8.0 million. The $8.0 million RACP grants will offset the total construction costs of the renovation and rehabilitation of the historic Scranton Electric Building. As of June 30, 2025, the Company incurred $11.3 million in costs for the corporate headquarters building in downtown Scranton which included planning, engineering, and architectural fees as well as interior demolition and construction. The remaining building costs could range from $15 million to $17 million. This estimated range may expand due to unknown supply chain issues, labor pricing, design changes, or upgrades required to meet current codes. The Company currently estimates furniture and office equipment costs at $2.0 million and technology equipment and infrastructure at $0.6 million. The historic nature of this building has qualified the Company for an estimated $3.4 million in state and federal historic tax credits. The project is expected to be completed in the middle of 2026.

*<u>Other assets</u>*

During the first half of 2025, other assets increased by $1.1 million. The increase was primarily due to a security settlement of $2.6 million that is recorded within other assets until the settlement is closed, and the security is properly classified. Additionally, the Company recorded an increase of $0.8 million in prepaid assets. The primary asset to offset the increases was a decrease of $0.8 million in deferred taxes. On July 4, 2025, a new tax bill, H.R. 1 was signed into law. The Act extends or reinstates certain provisions of the 2017 Tax Cuts and Jobs Act, includes tax relief measures, modifies certain energy tax credits granted under the Inflation Reduction Act and sets various limits on tax deductions, among other key provisions. The Company expects this new law will have an immaterial effect on the calculation of deferred taxes in 2025.

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***<u>Funds Provided:</u>***

*<u>Deposits</u>*

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:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **June 30, 2025** | **June 30, 2025** | December 31, 2024 | December 31, 2024 |
| (dollars in thousands) | Amount | % | Amount | % |
| Interest-bearing checking | $**689518** | **28.3%** | $672290 | 28.7% |
| Savings and clubs | **191150** | **7.8** | 189534 | 8.1 |
| Money market | **643318** | **26.5** | 606161 | 25.9 |
| Certificates of deposit | **353268** | **14.5** | 338900 | 14.5 |
| &nbsp;&nbsp;&nbsp; Total interest-bearing | **1877254** | **77.1** | 1806885 | 77.2 |
| Non-interest bearing | **558074** | **22.9** | 533935 | 22.8 |
| &nbsp;&nbsp;&nbsp; Total deposits | $**2435328** | **100.0%** | $2340820 | 100.0% |

---

Total deposits increased $94.5 million, or 4%, to $2.4 billion at June 30, 2025 from $2.3 billion at December 31, 2024. Money market accounts increased $37.2 million primarily driven by growth in existing account balances from the continued focus on obtaining the best rate and our relationship strategy. Interest-bearing checking accounts grew by $17.2 million primarily caused by the increase in existing business account balances. Non-interest bearing checking balances increased $24.1 million primarily due to business demand deposit accounts. CDs increased $14.4 million, or 4%, as of June 30, 2025; this again attributed to interest rate sensitivity and maintaining a highly competitive rate offer for both new accounts and retention of clients. Savings and club account balances increased $1.6 million during the first half of 2025 primarily due to growth in public fund accounts and club balances. The Company focuses on obtaining a full-banking relationship with existing core operating checking account clients as well as forming new customer relationships. The Company will continue to execute its relationship development and client segment strategy, explore the demographics within its marketplace and develop targeted programs for its customers to maintain and grow core deposits. Seasonal public deposit fluctuations are expected to remain volatile and at times may partially offset future deposit growth. The Company will continue to closely monitor the competitive rate environment to align relationship retention and growth.

The Company utilizes Certificate of Deposit Account Registry Service (CDARS) reciprocal program and ICS reciprocal program to obtain FDIC insurance protection for clients who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $48.7 million and $49.4 million in CDARS as of June 30, 2025 and December 31, 2024. As of June 30, 2025 and December 31, 2024, ICS reciprocal deposits represented $151.3 million and $150.6 million, or 6% and 6%, respectively, of total deposits which are included in interest-bearing checking accounts in the table above.

As of June 30, 2025, total uninsured deposits were estimated to be $933.8 million, or 38% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies into ownership categories to estimate amounts over the FDIC insurance limit. As of June 30, 2025, the ratio of uninsured and non-collateralized deposits to total deposits was $615.7 million, or 25%. Collateralized deposits totaled $318.0 million, or 13%, of total deposits as of June 30, 2025.

The maturity distribution of certificates of deposit that meet or exceed the FDIC limit, by account, at June 30, 2025 is as follows:

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| | |
|:---|:---|
| (dollars in thousands) |  |
| Three months or less | $21652 |
| More than three months to six months | 45344 |
| More than six months to twelve months | 37976 |
| More than twelve months | 5175 |
| &nbsp;&nbsp;&nbsp; Total | $110147 |

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Approximately 47% of the CDs, with a weighted-average interest rate of 4.09%, are scheduled to mature in 2025 and an additional 50%, with a weighted-average interest rate of 3.85%, are scheduled to mature in 2026. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the six months ended June 30, 2025, CD retention is approximately 88%. 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.

*<u>Short-term borrowings</u>*

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

Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of June 30, 2025, the Company did not use any short-term borrowings to fund loan growth. As of June 30, 2025, the Company had the ability to borrow $139.8 million from the Federal Reserve borrower-in-custody program, full availability of $150.0 million in overnight borrowings with the FHLB open-repo line of credit and $20.0 million from lines of credit with correspondent banks.

*<u>Secured borrowings</u>*

As of June 30, 2025, the Company had 5 secured borrowing agreements with third parties with a carrying value of $6.1 million compared to 5 secured borrowing agreements with third parties with a carrying value of $6.2 million at December 31, 2024, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease throughout 2025 from scheduled amortization and, when possible, early pay-offs.

*<u>FHLB advances</u>*

The Company had no FHLB advances as of June 30, 2025 and December 31, 2024. As of June 30, 2025, the Company had the ability to borrow up to $776.3 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances during 2025.

 *<u>Liquidity</u>*

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's contingency funding plan (CFP) sets a framework for handling liquidity issues in the event circumstances arise which the Company deems to be less than normal. The Company established guidelines for identifying, measuring, monitoring and managing the resolution of potentially serious liquidity crises. The CFP outlines required monitoring tools, acceptable alternative funding sources and required actions during various liquidity scenarios. Thus, the Company has implemented a proactive means for the measurement and resolution for handling potentially significant adverse liquidity conditions. At least quarterly, the CFP monitoring tools, current liquidity position and monthly projected liquidity sources and uses are presented and reviewed by the Company's Asset/Liability Committee. As of June 30, 2025, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During the six months ended June 30, 2025, the Company grew cash and cash equivalents by $82.1 million. During the period, the Company's operations provided $24.3 million mostly from $36.3 million of net cash inflow from the components of net interest income partially offset by net non-interest expense/income related payments of $15.6 million. Cash inflow from interest-earning assets, deposit growth and loan payments were used to fund the loan portfolio, pay down secured borrowings, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past few years. The seasonal nature of deposits from municipalities and other public funding sources requires the Company to be prepared for the inherent volatility and the unpredictable timing of cash outflow from this customer base, including maintaining the requirements to pledge investment securities. Accordingly, the use of short-term overnight borrowings could be used to fulfill funding gap needs. As of June 30, 2025, the Company had $205.3 million in unpledged securities.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During 2021 and 2022, the Company also experienced deposit inflow resulting from businesses and municipalities that received relief from the CARES Act, American Rescue Plan Act ("ARPA") and other government stimulus. As of June 30, 2025, the Company has approximately $8.6 million, down from $13.5 million at the end of 2024, in remaining ARPA balances. The Company expects that the funds will be depleted by year end 2026.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Lending commitments include commitments to originate loans and commitments to fund unused lines of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Unfunded commitments of existing loan facilities totaled $530.1 million, standby letters of credit totaled $28.3 million and the level of uninsured and non-collateralized deposits was $615.7 million at June 30, 2025. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

As of June 30, 2025, the Company maintained $165.5 million in cash and cash equivalents and $319.8 million of investments AFS and loans HFS. Also, as of June 30, 2025, the Company had approximately $776.3 million available borrowing capacity from the FHLB, $20.0 million from correspondent banks, $139.8 million from the FRB, and $406.7 million from the IntraFi Network One-Way Buy program. The combined total of $1.8 billion represented 68% of total assets at June 30, 2025. Management believes this level of liquidity to be strong and adequate to support current operations.

 *<u>Capital</u>*

As of June 30, 2025, total shareholders' equity increased $13.9 million, or 7%, due principally to $8.3 million higher retained earnings from net income of $12.9 million plus a $4.9 million, after tax, improvement in accumulated other comprehensive income from lower net unrealized losses recorded on available-for-sale securities. Capital was further enhanced by $0.2 million from investments in the Company's common stock via the Employee Stock Purchase Plan (ESPP) and $0.7 million from stock-based compensation expense from the ESPP and restricted stock. Partially offsetting these increases, there were $4.7 million of cash dividends declared on the Company's common stock. The Company's dividend payout ratio, defined as the rate at which current earnings are paid to shareholders, was 36.09% as of June 30, 2025. The balance of earnings is retained to further strengthen the Company's capital position.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As of June 30, 2025, the Company reported a net unrealized loss position of $50.7 million, net of tax, from the securities portfolio compared to a net unrealized loss of $55.6 million as of December 31, 2024. The $4.9 million improvement to accumulated other comprehensive loss during the six months ended June 30, 2025 was primarily from the $5.0 million increase in net unrealized gains on AFS securities. Management believes that changes in fair value of the Company's securities are due to changes in interest rates and market conditions, and not in the creditworthiness of the issuers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Generally, when U.S. Treasury rates rise, investment securities' pricing declines and fair values of investment securities also decline. Although the yield curve has been volatile over the past year, a declining rate environment began in 2024 and has continued into fiscal year 2025. During the period of declining rates, the Company expects pricing in the bond portfolio to improve. There is no assurance that future realized and unrealized losses will not be recognized from the Company's portfolio of investment securities.

The tangible common equity (TCE) ratio (non-GAAP) was 7.38% and 7.06% for the six months ended June 30, 2025 and 2024, respectively. At June 30, 2025 and 2024, the held-to-maturity securities portfolio had $24.6 million and $24.8 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 6.46% and 6.06% <sup>(1)</sup> at June 30, 2025 and 2024, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To help maintain a healthy capital position, the Company can issue stock to participants in the DRP and ESPP plans. The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. During the first half of 2025, the Company re-issued treasury shares to fulfill the needs of the DRP. Both the DRP and the ESPP plans have been a consistent source of capital from the Company's loyal employees and shareholders and their participation in these plans will continue to help strengthen the Company's balance sheet.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%. A capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements of 2.50%. As of June 30, 2025 and December 31, 2024, the Bank exceeded all capital adequacy requirements to which it was subject.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1) See non-GAAP financial measures reconciliation on page 36.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table depicts the actual and required capital and related capital ratios of the Company, on a consolidated basis, and the Bank as of June 30, 2025 and December 31, 2024. No amounts were deducted from capital for interest-rate risk in either 2025 or 2024.

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  | For capital adequacy | For capital adequacy | To be well capitalized | To be well capitalized | To be well capitalized |
|  |  |  | For capital | For capital | For capital | purposes with capital | purposes with capital | under prompt corrective | under prompt corrective | under prompt corrective |
|  | Actual | Actual | adequacy purposes | adequacy purposes | adequacy purposes | conservation buffer | conservation buffer | action provisions | action provisions | action provisions |
| (dollars in thousands) | Amount | Ratio | Amount | Amount | Ratio | Amount | Ratio | Amount | Amount | Ratio |
| **As of June 30, 2025** |  |  |  |  |  |  |  |  |  |  |
| Total capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $**269242** | **14.7%** | **≥** | $**146367** | **8.0%** | $**192106** | **10.5%** |  | **N/A** | **N/A** |
| Bank | $**268966** | **14.7%** | **≥** | $**146357** | **8.0%** | $**192094** | **10.5%** | **≥** | $**182946** | **10.0%** |
| Tier 1 common equity (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $**248247** | **13.6%** | **≥** | $**82331** | **4.5%** | $**128071** | **7.0%** |  | **N/A** | **N/A** |
| Bank | $**247971** | **13.6%** | **≥** | $**82326** | **4.5%** | $**128063** | **7.0%** | ≥ | $**118915** | **6.5%** |
| Tier I capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $**248247** | **13.6%** | **≥** | $**109775** | **6.0%** | $**155515** | **8.5%** |  | **N/A** | **N/A** |
| Bank | $**247971** | **13.6%** | **≥** | $**109768** | **6.0%** | $**155504** | **8.5%** | ≥ | $**146357** | **8.0%** |
| Tier I capital (to average assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $**248247** | **9.2%** | ≥ | $**108431** | **4.0%** | $**108431** | **4.0%** |  | **N/A** | **N/A** |
| Bank | $**247971** | **9.2%** | ≥ | $**108428** | **4.0%** | $**108428** | **4.0%** | ≥ | $**135535** | **5.0%** |

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  | For capital adequacy | For capital adequacy | To be well capitalized | To be well capitalized | To be well capitalized |
|  |  |  | For capital | For capital | For capital | purposes with capital | purposes with capital | under prompt corrective | under prompt corrective | under prompt corrective |
|  | Actual | Actual | adequacy purposes | adequacy purposes | adequacy purposes | conservation buffer | conservation buffer | action provisions | action provisions | action provisions |
| (dollars in thousands) | Amount | Ratio | Amount | Amount | Ratio | Amount | Ratio | Amount | Amount | Ratio |
| As of December 31, 2024 |  |  |  |  |  |  |  |  |  |  |
| Total capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $259790 | 14.8% | ≥ | $140617 | 8.0% | $184560 | 10.5% |  | N/A | N/A |
| Bank | $258437 | 14.7% | ≥ | $140596 | 8.0% | $184532 | 10.5% | ≥ | $175745 | 10.0% |
| Tier 1 common equity (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $239039 | 13.6% | ≥ | $79097 | 4.5% | $123040 | 7.0% |  | N/A | N/A |
| Bank | $237687 | 13.5% | ≥ | $79085 | 4.5% | $123022 | 7.0% | ≥ | $114234 | 6.5% |
| Tier I capital (to risk-weighted assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $239039 | 13.6% | ≥ | $105463 | 6.0% | $149406 | 8.5% |  | N/A | N/A |
| Bank | $237687 | 13.5% | ≥ | $105447 | 6.0% | $149384 | 8.5% | ≥ | $140596 | 8.0% |
| Tier I capital (to average assets) |  |  |  |  |  |  |  |  |  |  |
| Consolidated | $239039 | 9.2% | ≥ | $103664 | 4.0% | $103664 | 4.0% |  | N/A | N/A |
| Bank | $237687 | 9.2% | ≥ | $103653 | 4.0% | $103653 | 4.0% | ≥ | $129567 | 5.0% |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company advises readers to refer to the Supervision and Regulation section of Management's Discussion and Analysis of Financial Condition and Results of Operation, of its 2024 Form 10-K for a discussion on the regulatory environment and recent legislation and rulemaking.

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**Item 3. Quantitative and Qualitative Disclosure About Market Risk**

*<u>Management of interest rate risk and market risk analysis.</u>*

The adequacy and effectiveness of an institution's interest rate risk management process and the level of its exposures are critical factors in the regulatory evaluation of an institution's sensitivity to changes in interest rates and capital adequacy. Management believes the Company's interest rate risk measurement framework is sound and provides an effective means to measure, monitor, analyze, identify and control interest rate risk in the balance sheet.

The Company is subject to the interest rate risks inherent in its lending, investing and financing activities. Fluctuations of interest rates will impact interest income and interest expense along with affecting market values of all interest-earning assets and interest-bearing liabilities, except for those assets or liabilities with a short-term remaining to maturity. Interest rate risk management is an integral part of the asset/liability management process. The Company has instituted certain procedures and policy guidelines to manage the interest rate risk position. Those internal policies enable the Company to react to changes in market rates to protect net interest income from significant fluctuations. The primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income along with creating an asset/liability structure that maximizes earnings.

*Asset/Liability Management.* One major objective of the Company when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Company's Asset/Liability Committee (ALCO), which is comprised of senior management and members of the board of directors. ALCO meets quarterly to monitor the relationship of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of managing the Company. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of non-contractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates.

*Interest Rate Risk Measurement.* Interest rate risk is monitored through the use of three complementary measures: static gap analysis, earnings at risk simulation and economic value at risk simulation. While each of the interest rate risk measurements has limitations, collectively, they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company and the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to changes in certain interest rate relationships.

*Static Gap*. The ratio between assets and liabilities re-pricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.

To manage this interest rate sensitivity gap position, an asset/liability model commonly known as cumulative gap analysis is used to monitor the difference in the volume of the Company's interest sensitive assets and liabilities that mature or re-price within given time intervals. A positive gap (asset sensitive) indicates that more assets will re-price during a given period compared to liabilities, while a negative gap (liability sensitive) indicates the opposite effect. The Company employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO in gauging the effects of interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread. At June 30, 2025, the Company maintained a one-year cumulative gap of positive (asset sensitive) $42.9 million, or 1.6%, of total assets. The effect of this positive gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of falling interest rates. Conversely, in an increasing interest rate environment, net interest income could be positively impacted because more assets than liabilities will re-price upward during the one-year period.

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Certain shortcomings are inherent in the method of analysis discussed above and presented in the next table. Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the table amounts. The ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.

The following table reflects the re-pricing of the balance sheet or "gap" position at June 30, 2025:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | More than three | More than |  |  |
|  | Three months | months to | one year | More than |  |
| (dollars in thousands) | or less | twelve months | to three years | three years | Total |
| Cash and cash equivalents | $132135 | $- | $- | $33360 | $165495 |
| Investment securities (1)(2) | 7048 | 21791 | 81137 | 440085 | 550061 |
| Loans and leases (2) | 541147 | 211222 | 437957 | 627175 | 1817501 |
| Fixed and other assets |  |  |  | 165518 | 165518 |
| Total assets | $680330 | $233013 | $519094 | $1266138 | $2698575 |
| Total cumulative assets | $680330 | $913343 | $1432437 | $2698575 |  |
| Non-interest-bearing transaction deposits (3) | $11102 | $33306 | $88818 | $424848 | $558074 |
| Interest-bearing transaction deposits (3) | 528782 | 60174 | 161047 | 773981 | 1523984 |
| Certificates of deposit | 73615 | 263397 | 13032 | 3226 | 353270 |
| Secured borrowings | 40 |  |  | 6094 | 6134 |
| Short-term borrowings | 10 |  |  |  | 10 |
| Other liabilities |  |  |  | 39191 | 39191 |
| Total liabilities | $613549 | $356877 | $262897 | $1247340 | $2480663 |
| Total cumulative liabilities | $613549 | $970426 | $1233323 | $2480663 |  |
| Interest sensitivity gap | $66781 | $(123864) | $256197 | $18798 |  |
| Cumulative gap | $66781 | $(57083) | $199114 | $217912 |  |
| Off-balance sheet: |  |  |  |  |  |
| Swap - portfolio hedge | $100000 | $- | $(100000) | $- |  |
| Cumulative gap | $166781 | $42917 | $199114 | $217912 |  |
| Cumulative gap to total assets | 6.2% | 1.6% | 7.4% | 8.1% |  |

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(1) Includes restricted investments in bank stock and the net unrealized gains/losses on available-for-sale securities.

(2) Investments and loans are included in the earlier of the period in which interest rates were next scheduled to adjust or the period in which they are due. In addition, loans were included in the periods in which they are scheduled to be repaid based on scheduled amortization. For amortizing loans and MBS – GSE residential, annual prepayment rates are assumed reflecting historical experience as well as management's knowledge and experience of its loan products.

(3) The Company's demand and savings accounts were generally subject to immediate withdrawal. However, management considers a certain amount of such accounts to be core accounts having significantly longer effective maturities based on the retention experiences of such deposits in changing interest rate environments. The effective maturities presented are the recommended maturity distribution limits for non-maturing deposits based on historical deposit studies.

*Earnings at Risk and Economic Value at Risk Simulations*. The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet that extend beyond static re-pricing gap analysis. Although it will continue to measure its re-pricing gap position, the Company utilizes additional modeling for identifying and measuring the interest rate risk in the overall balance sheet. The ALCO is responsible for focusing on "earnings at risk" and "economic value at risk", and how both relate to the risk-based capital position when analyzing the interest rate risk.

*Earnings at Risk*. An earnings at risk simulation measures the change in net interest income and net income should interest rates rise and fall. The simulation recognizes that not all assets and liabilities re-price one-for-one with market rates (e.g., savings rate). The ALCO looks at "earnings at risk" to determine income changes from a base case scenario under an increase and decrease of 200 basis points in interest rate simulation models.

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*Economic Value at Risk.* An earnings at risk simulation measures the short-term risk in the balance sheet. Economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from the Company's existing assets and liabilities. The ALCO examines this ratio quarterly utilizing an increase and decrease of 200 basis points in interest rate simulation models. The ALCO recognizes that, in some instances, this ratio may contradict the "earnings at risk" ratio.

The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity). This analysis assumed that the adjusted interest-earning asset and interest-bearing liability levels at June 30, 2025 remained constant. The impact of the rate movements was developed by simulating the effect of the rate change over a twelve-month period from the June 30, 2025 levels:

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| | | |
|:---|:---|:---|
|  | % change | % change |
|  | Rates +200 | Rates -200 |
| Earnings at risk: |  |  |
| &nbsp;&nbsp;&nbsp; Net interest income | 2.2% | (8.4)% |
| &nbsp;&nbsp;&nbsp; Net income | 5.1 | (19.8) |
| Economic value at risk: |  |  |
| &nbsp;&nbsp;&nbsp; Economic value of equity |  | (6.5) |
| &nbsp;&nbsp;&nbsp; Economic value of equity as a percent of total assets |  | (0.8) |

---

In the scenarios in the above table, the Board-approved policy has the following guidelines: net interest income within +/- 10%, net income within +/- 25%, economic value of equity within +/- 25%, economic value of equity as a percent of total assets within +/-5%.

Economic value has the most meaning when viewed within the context of risk-based capital. Therefore, the economic value may normally change beyond the Company's policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%. At June 30, 2025, the Company's risk-based capital ratio was 14.72%.

Given the existing economic and interest rate conditions along with the recent increase in earnings at risk exposure to rising rates, management is evaluating to pursue balance sheet hedging opportunities on both sides of balance sheet with an independent third-party vendor with derivative expertise in response to mitigate these interest rate risks on net interest income. The Company has a derivative policy in place and any balance sheet hedges require Board pre-approval along with quarterly monitoring requirements by the Company's ALCO Committee.

The table below summarizes estimated changes in net interest income over a twelve-month period beginning July 1, 2025, under alternate interest rate scenarios using the income simulation model described above:

---

| | | |
|:---|:---|:---|
|  | Net interest | % |
| (dollars in thousands) | income | variance |
| <u>Simulated change in interest rates</u> |  |  |
| +300 basis points | $78699 | 2.0% |
| +200 basis points | 78820 | 2.2% |
| +100 basis points | 78883 | 2.3% |
| Flat rate | 77121 | -% |
| -100 basis points | 73676) | (4.5)% |
| -200 basis points | 70674) | (8.4)% |
| -300 basis points | 68846) | (10.7)% |

---

Simulation models require assumptions about certain categories of assets and liabilities. The models schedule existing assets and liabilities by their contractual maturity, estimated likely call date or earliest re-pricing opportunity. MBS – GSE residential securities and amortizing loans are scheduled based on their anticipated cash flow including estimated prepayments. For investment securities, the Company uses a third-party service to provide cash flow estimates in the various rate environments. Savings, money market and interest-bearing checking accounts do not have stated maturities or re-pricing terms and can be withdrawn or re-price at any time. This may impact the margin if more expensive alternative sources of deposits are required to fund loans or deposit runoff. Management projects the re-pricing characteristics of these accounts based on historical performance and assumptions that it believes reflect their rate sensitivity. The model reinvests all maturities, repayments and prepayments for each type of asset or liability into the same product for a new like term at current product interest rates. As a result, the mix of interest-earning assets and interest bearing-liabilities is held constant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 57

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[**Table of Contents**](#toc)

**Item 4. Controls and Procedures**

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, and are effective. The Company made no changes in its internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, these controls during the last fiscal quarter ended June 30, 2025.

**PART II - Other Information**

**Item 1. Legal Proceedings**

The nature of the Company's business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of the Company after consultation with legal counsel, no legal proceedings are pending, which, if determined adversely to the Company or the Bank, would have a material adverse effect on the Company's retained earnings or financial condition, operations or the results of such operations. No legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management's knowledge, no governmental authorities have initiated or contemplated any material legal or regulatory actions against the Company or the Bank.

**Item 1A. Risk Factors**

Management of the Company does not believe there have been any material changes to the risk factors that were disclosed in the 2024 Form 10-K filed with the Securities and Exchange Commission on March 13, 2025, except as discussed below.

**Changes to trade policies and tariffs can have an adverse impact on our business and our customers.**

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers, particularly local businesses engaged in agriculture, manufacturing, and retail, may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers' ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

None

**Item 3. Default Upon Senior Securities**

None

**Item 4. Mine Safety Disclosures**

Not applicable

**Item *5.* Other Information**

During the *three* months ended *June 30, 2025,* no director or officer of the Company adopted or terminated a "Rule *10b5*-*1* trading arrangement" or a "non-Rule *10b5*-*1* trading arrangement" as each term is defined in Item *408*(a) of Regulation S-K.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *58*

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[**Table of Contents**](#toc)

**Item 6. Exhibits**

The following exhibits are filed herewith or incorporated by reference as a part of this Form 10-Q:

[***3(i) Amended and Restated Articles of Incorporation of Registrant.*** Incorporated by reference to Annex B of the Proxy Statement/Prospectus included in Registrant's Amendment 4 to its Registration Statement No. 333-90273 on Form S-4, filed with the SEC on April 6, 2000.](http://www.sec.gov/Archives/edgar/data/1098151/000095011500000509/0000950115-00-000509.txt)

[***3(ii) Amended and Restated Bylaws of Registrant.*** Incorporated by reference to Exhibit 3.1 to Registrant's Form 8-K filed with the SEC on April 16, 2020.](http://www.sec.gov/Archives/edgar/data/1098151/000109815120000017/fdbc-20200416xex3_1.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***2.1 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank, MNB Corporation and Merchants Bank of Bangor dated as of December 9, 2019.*** Incorporated by reference to Annex A of the Registrant's Registration Statement No. 333-236453 on Form S-4, filed with the Commission on February 14, 2020. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)](http://www.sec.gov/Archives/edgar/data/1098151/000109815119000063/fdbc-20191211xex2_1.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***2.2 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., NEPA Acquisition Subsidiary, LLC, The Fidelity Deposit and Discount Bank, Landmark Bancorp, Inc. and Landmark Community Bank dated as of February 25, 2021.*** Incorporated by reference to Annex A of the Registrant's Registration No. 333-255479 on Form S-4, filed with the Commission on April 23, 2021. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)](http://www.sec.gov/Archives/edgar/data/0001098151/000109815121000010/fdbc-20210225xex2_1.htm)

[**\**10.1 Registrant***'***s 2012 Dividend Reinvestment and Stock Repurchase Plan***. Incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement No. 333-183216 on Form S-3 filed with the SEC on August 10, 2012 as amended February 3, 2014.](http://www.sec.gov/Archives/edgar/data/1098151/000109815114000002/2014S-3D.htm)

[**\**10.2 Registrant***'***s 2002 Employee Stock Purchase Plan.*** Incorporated by reference to Appendix A to Definitive proxy Statement filed with the SEC on March 28, 2002.](http://www.sec.gov/Archives/edgar/data/1098151/000101731102000009/fidelproxy.htm)

[**\**10.3 Amended and Restated Executive Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Daniel J. Santaniello, dated March 23, 2011.*** Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on March 29, 2011.](http://www.sec.gov/Archives/edgar/data/1098151/000114420411017951/v216369_ex99-1.htm)

[***\*10.4 2012 Omnibus Stock Incentive Plan.*** Incorporated by reference to Appendix A to Registrant's Definitive Proxy Statement filed with the SEC on March 30, 2012.](http://www.sec.gov/Archives/edgar/data/1098151/000114420412018395/v306930_def14a.htm)

[***\*10.5 2012 Director Stock Incentive Plan.*** Incorporated by reference to Appendix B to Registrant's Definitive Proxy Statement filed with the SEC on March 30, 2012.](http://www.sec.gov/Archives/edgar/data/1098151/000114420412018395/v306930_def14a.htm)

[***\*10.6 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Salvatore R. DeFrancesco, Jr. dated as of March 17, 2016.*** Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on March 18, 2016.](http://www.sec.gov/Archives/edgar/data/1098151/000109815116000057/fdbc-20160318ex9916040ce.htm)

[***\*10.7 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Eugene J. Walsh dated as of March 29, 2017.*** Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on April 4, 2017.](http://www.sec.gov/Archives/edgar/data/1098151/000109815117000016/fdbc-20170404xex99_1.htm)

[***\*10.8 Form of Supplemental Executive Retirement Plan*** – Applicable to Daniel J. Santaniello and Salvatore R. DeFrancesco, Jr. Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on April 4, 2017.](http://www.sec.gov/Archives/edgar/data/1098151/000109815117000018/fdbc-20170404xex99_1.htm)

[***\*10.9 Form of Supplemental Executive Retirement Plan*** – Applicable to Eugene J. Walsh. Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the SEC on April 4, 2017.](http://www.sec.gov/Archives/edgar/data/1098151/000109815117000018/fdbc-20170404xex99_2.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 59

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[**Table of Contents**](#toc)

[***\*10.10 Form of Split Dollar Life Insurance Agreement*** – Applicable to Daniel J. Santaniello, Salvatore R. DeFrancesco, Jr. and Eugene J. Walsh. Incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K filed with the SEC on April 4, 2017.](http://www.sec.gov/Archives/edgar/data/1098151/000109815117000018/fdbc-20170404xex99_3.htm)

[***\*10.11 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Michael J. Pacyna dated as of March 20, 2019.*** Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on March 21, 2019.](http://www.sec.gov/Archives/edgar/data/1098151/000109815119000012/fdbc-20190321xex99_1.htm)

[***\*10.12 Form of Supplemental Executive Retirement Plan for Michael J. Pacyna.*** Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the SEC on March 21, 2019.](http://www.sec.gov/Archives/edgar/data/1098151/000109815119000012/fdbc-20190321xex99_2.htm)

[***\*10.13 Form of Split Dollar Life Insurance Agreement for Michael J. Pacyna.*** Incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K filed with the SEC on March 21, 2019.](http://www.sec.gov/Archives/edgar/data/1098151/000109815119000012/fdbc-20190321xex99_3.htm)

[***\*10.14 2022 Omnibus Stock Incentive Plan.*** Incorporated by reference to Appendix A to Registrant's Definitive Proxy Statement filed with the SEC on March 23, 2022.](http://www.sec.gov/Archives/edgar/data/1098151/000109815122000008/fdbc-20220323xdef14a.htm)

[***\*10.15 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Ruth Turkington dated <u>as of April 20, 2023.</u>*** Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K filed with the SEC on March 20, 2024.](http://www.sec.gov/Archives/edgar/data/1098151/000143774924008680/ex_639199.htm)

***[\*10.16 Form of Supplemental Executive Retirement Plan for Ruth Turkington.](http://www.sec.gov/Archives/edgar/data/1098151/000143774924021945/ex_694957.htm)***[Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the SEC on July 2, 2024.](http://www.sec.gov/Archives/edgar/data/1098151/000143774924021945/ex_694957.htm)

***[\*10.17 Form of Split Dollar Life Insurance Agreement for Ruth Turkington.](http://www.sec.gov/Archives/edgar/data/1098151/000143774924021945/ex_694958.htm)***[Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the SEC on July 2, 2024.](http://www.sec.gov/Archives/edgar/data/1098151/000143774924021945/ex_694958.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***31.1 Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.***](ex_822771.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***31.2 Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.***](ex_822772.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***32.1 Certification of Principal Executive Officer*** *pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.*](ex_822773.htm)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***32.2 Certification of Principal Financial Officer*** *pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.*](ex_822774.htm)

***101 Interactive data files:*** The following, from Fidelity D&D Bancorp, Inc.'s. Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, is formatted in Inline XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024; Consolidated Statements of Income for the three and six months ended June 30, 2025 and 2024; Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2025 and 2024; Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 30, 2025 and 2024; Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 and the Notes to the Consolidated Financial Statements. \*\*

***104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).***

________________________________________________

**\*** Management contract or compensatory plan or arrangement.

\*\* Pursuant to Rule 406T of Regulation S-T, the interactive data files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60

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[**Table of Contents**](#toc)

**<u>Signatures</u>**

**FIDELITY D & D BANCORP, INC.**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

---

| | |
|:---|:---|
|  | **Fidelity D & D Bancorp, Inc.** |
| Date: August 8, 2025 | <u>/s/ Daniel J. Santaniello</u> |
|  | &nbsp;&nbsp;&nbsp;&nbsp; Daniel J. Santaniello,<br> &nbsp;&nbsp;&nbsp;&nbsp; President and Chief Executive Officer |
|  | **Fidelity D & D Bancorp, Inc.** |
| Date: August 8, 2025 | <u>/s/ Salvatore R. DeFrancesco, Jr.</u> |
|  | &nbsp;&nbsp;&nbsp;&nbsp; Salvatore R. DeFrancesco, Jr.,<br> &nbsp;&nbsp;&nbsp;&nbsp; Treasurer and Chief Financial Officer |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 61

## Exhibit 31.1

**Exhibit 31.1**

**CERTIFICATION**

I, Daniel J. Santaniello, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: August 8, 2025 | |
|  | /s/ Daniel J. Santaniello |
|  | Daniel J. Santaniello, |
|  | President and Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

**CERTIFICATION** 

I, Salvatore R. DeFrancesco, Jr., certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: August 8, 2025 | /s/ Salvatore R. DeFrancesco, Jr. |
|  | &nbsp;&nbsp;&nbsp; Salvatore R. DeFrancesco, Jr., |
|  | &nbsp;&nbsp;&nbsp; Treasurer and Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADDED BY**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the "Company") for the period ended June 30, 2025, as filed with the Securities and Exchange Commission (the "Report"), I, Daniel J. Santaniello, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

---

| | | |
|:---|:---|:---|
| Date: August 8, 2025 | By: | /s/ Daniel J. Santaniello |
|  |  | &nbsp;&nbsp;&nbsp; Daniel J. Santaniello |
|  |  | &nbsp;&nbsp;&nbsp; President and Chief Executive Officer |

---

## Exhibit 32.2

**Exhibit 32.2**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADDED BY**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the "Company") for the period ended June 30, 2025, as filed with the Securities and Exchange Commission (the "Report"), I, Salvatore R. DeFrancesco, Jr., Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

---

| | | |
|:---|:---|:---|
| Date: August 8, 2025 | By: | /s/ Salvatore R. DeFrancesco, Jr. |
|  |  | &nbsp;&nbsp;&nbsp; Salvatore R. DeFrancesco, Jr., |
|  |  | &nbsp;&nbsp;&nbsp; Treasurer and Chief Financial Officer |

---