5.    LOANS AND OTHER REAL ESTATE OWNED (“OREO”)

Major categories of loans are summarized as follows as of  December 31, 2025 and December 31, 2024 (in thousands):

In the normal course of business, loans are extended to directors, executive officers, and their affiliates.

A summary of loan activity for those directors, executive officers, and their affiliates is as follows (in thousands):

(a) Loans to new directors and executive officers of $5.0 million that were acquired in the merger with NUBC are included in New Loans for 2025.  

The Company grants commercial, residential, and personal loans to customers primarily in Union, Centre, Northumberland and Snyder Counties, Pennsylvania. Although the Company has a diversified loan portfolio, a significant portion of its debtors' ability to honor their contracts is dependent on the economic conditions within this region. Additionally, approximately 11% and 15% of the Company's loans at December 31, 2025 and 2024, respectively, are to individuals and corporations in the agricultural business.

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the allowance for credit losses for loans, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $2.69 million and $1.18 million at  December 31, 2025 and December 31, 2024, respectively, and is included in “Accrued Interest Receivable” on the Company’s Consolidated Balance Sheets.

An initial allowance for credit losses on non-PCD loans of $4.01 million was recorded through the provision for credit losses within the Consolidated Statements of Income. At the date of acquisition, of the $446.42 million of loans acquired from NNB, $53.68 million, or 12.0%, of NNB’s loan portfolio, was accounted for as PCD loans.

The following table provides details related to the fair value of acquired PCD loans as of August 1, 2025:

The following table provides details related to the fair value of acquired Non-PCD loans as of August 1, 2025:

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition methos of accounting.  The principal balance of purchased loans is included in the allowance for credit losses calculation.  The remaining net discount on purchased loans at December 31, 2025 was $16.78 million.  The outstanding principal balance and the carrying amount at December 31, 2025 of loans acquired in the business combination were as follows: 

Other Real Estate Owned

Foreclosed assets held for sale consist of real estate acquired in settlement of foreclosed loans and is initially recorded at fair value less estimated costs to sell at the time of transfer from loans to foreclosed, establishing a new cost basis. Subsequent to the transfer, foreclosed assets are carried at the lower of the adjusted cost or fair value less costs to sell. Additional write-downs are charged against operating expenses. Costs related to the acquisition and holding of foreclosed assets are charged to operations when incurred. The fair value of real estate acquired through foreclosure is generally determined by reference to an outside appraisal. The Company did not hold any foreclosed assets as of  December 31, 2025 and December 31, 2024.  At  December 31, 2025 there were two commercial loans, three commercial real estate loans, and fourteen residential loans totaling $5.50 million in the process of foreclosure. There was one residential loan in the amount of $75,000 in the process of foreclosure as of December 31, 2024. 

Mortgage Servicing

The Company retains the servicing rights on certain mortgage loans sold to the FHLB and Fannie Mae and receives mortgage banking fee income based upon the principal balance outstanding. The mortgage servicing rights recorded as an asset are not material. Total loans serviced for the FHLB and Fannie Mae amounted to $159.31 million and $54.86 million at  December 31, 2025 and December 31, 2024, respectively. These mortgage loans sold and serviced by the Company are not reflected in the Company’s Consolidated Balance Sheets.