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 September 30, 2026

☐	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 0-13222

CITIZENS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA		23-2265045
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15 South Main Street

Mansfield, Pennsylvania 16933

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (570) 662‑2121

N/A

(Former Name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par value $1.00 per share		CZFS		The Nasdaq Stock Market, LLC
Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered

Indicate by check mark whether the registrant (1) has filed all reports 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 subject 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, a 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	☐	Accelerated filer	☒

Non-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 the Registrant’s Common Stock, as of October 29, 2026, was 4,810,685.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of September 30, 2026 and December 31, 2025	1
	Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2026 and 2025	2
	Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2026 and 2025	3
	Consolidated Statement of Changes in Stockholders’ Equity for the Three and Nine Months ended September 30, 2026 and 2025	4
	Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2026 and 2025	5
	Notes to Consolidated Financial Statements	6-33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34-59
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	61
Item 6.	Exhibits	61
	Signatures	62

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(in thousands except share data)	September 30, 2026			December 31, 2025
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	18,187		$	23,933
Interest-bearing		9,171			10,358
Total cash and cash equivalents		27,358			34,291
Interest bearing time deposits with other banks		3,076			3,820
Equity securities		2,951			1,815
Available-for-sale securities		477,571			444,741

Loans held for sale - Residential Mortgages		12,559			9,393
Loans held for sale - Student Loans		245,283			79,351

Loans (net of allowance for credit losses: 2026 $23,786 and 2025, $22,806)		2,363,910			2,248,465

Premises and equipment		20,569			20,998
Accrued interest receivable		13,183			10,698
Goodwill		85,758			85,758
Bank owned life insurance		75,130			51,501
Other intangibles		1,812			2,221
Derivative assets		8,259			6,927
Deferred tax asset		14,525			11,440
Other assets		61,095			53,145

TOTAL ASSETS	$	3,413,039		$	3,064,564

LIABILITIES:
Deposits:
Noninterest-bearing	$	509,898		$	516,657
Interest-bearing		1,999,480			1,860,322
Total deposits		2,509,378			2,376,979
Borrowed funds		512,489			309,448
Accrued interest payable		3,571			3,130
Derivative liabilities		5,493			4,100
Other liabilities		30,821			32,856
TOTAL LIABILITIES		3,061,752			2,726,513
STOCKHOLDERS’ EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares at September 30, 2026 and December 31, 2025; none issued in 2026 or 2025		-			-
Common stock
$1.00 par value; authorized 25,000,000 shares at September 30, 2026 and December 31, 2025,issued 5,264,708 at September 30, 2026 and 5,255,807 at December 31, 2025		5,265			5,256
Additional paid-in capital		148,511			147,965
Retained earnings		238,801			213,623
Accumulated other comprehensive loss		(24,524	)		(12,377	)
Treasury stock, at cost: 454,023 shares at September 30, 2026 and 448,727 shares at December 31, 2025		(16,766	)		(16,416	)
TOTAL STOCKHOLDERS’ EQUITY		351,287			338,051
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,413,039		$	3,064,564

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2026		2025		2026		2025
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans	$	38,430	$	36,418	$	110,025	$	107,201
Interest-bearing deposits with banks		88		119		280		394
Investment securities:
Taxable		3,298		2,595		8,632		7,331
Nontaxable		1,022		684		2,869		1,815
Dividends		576		438		1,390		1,276
TOTAL INTEREST AND DIVIDEND INCOME		43,414		40,254		123,196		118,017
INTEREST EXPENSE:
Deposits		11,774		11,501		34,239		35,244
Borrowed funds		4,383		3,613		9,893		10,983
TOTAL INTEREST EXPENSE		16,157		15,114		44,132		46,227
NET INTEREST INCOME		27,257		25,140		79,064		71,790
Provision for credit losses		-		500		1,000		1,875
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		27,257		24,640		78,064		69,915
NON-INTEREST INCOME:
Service charges		1,677		1,598		4,389		4,192
Trust		191		186		626		593
Brokerage and insurance		623		761		1,832		2,071
Gains on loans sold		659		709		1,545		1,720
Equity security gains (losses), net		258		34		373		56
Earnings on bank owned life insurance		665		363		2,022		1,064
Other		235		203		1,225		1,250
TOTAL NON-INTEREST INCOME		4,308		3,854		12,012		10,946
NON-INTEREST EXPENSES:
Salaries and employee benefits		10,633		9,924		31,181		30,189
Occupancy		1,241		1,320		3,942		3,858
Furniture and equipment		288		273		911		856
Professional fees		531		493		1,599		1,535
FDIC insurance		420		395		1,185		1,340
Pennsylvania shares tax		430		430		1,147		1,054
Amortization of intangibles		92		113		303		367
Software expenses		536		457		1,420		1,342
Other real estate owned expenses		422		6		812		198
Other		2,431		2,673		7,992		7,820
TOTAL NON-INTEREST EXPENSES		17,024		16,084		50,492		48,559
Income before provision for income taxes		14,541		12,410		39,584		32,302
Provision for income taxes		2,620		2,405		7,100		6,213
NET INCOME	$	11,921	$	10,005	$	32,484	$	26,089

PER COMMON SHARE DATA:
Net Income - Basic	$	2.48	$	2.09	$	6.77	$	5.44
Net Income - Diluted	$	2.48	$	2.09	$	6.77	$	5.44

Number of shares used in computation - basic		4,800,757		4,796,946		4,798,879		4,797,335
Number of shares used in computation - diluted		4,802,407		4,798,051		4,801,314		4,799,466

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2026			2025			2026			2025
Net income	$	11,921		$	10,005		$	32,484		$	26,089
Other comprehensive income (loss):
Change in unrealized gains (losses) on available for sale securities		(14,219	)		8,366			(15,301	)		12,737
Income tax effect		2,986			(1,757	)		3,213			(2,675	)
Change in unrealized gain (loss) on interest rate swaps		90			(294	)		(74	)		(1,507	)
Income tax effect		(19	)		61			15			316
Other comprehensive income (loss), net of tax		(11,162	)		6,376			(12,147	)		8,871
Comprehensive income	$	759		$	16,381		$	20,337		$	34,960

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total


(in thousands, except share data)	Shares		Amount

Balance, June 30, 2026		5,262,935	$	5,263	$	148,341		$	229,333		$	(13,362	)	$	(16,742	)	$	352,833

Comprehensive income:
Net income									11,921									11,921
Net other comprehensive income (loss)												(11,162	)					(11,162	)
Issuance of Common stock		205				17												17
Issuance of Common Stock for restricted stock, executive and Board of Director Awards		1,568		2		94												96
Purchase of treasury stock (169 shares)															(13	)		(13	)
Restricted stock vesting						48												48
Forfeited restricted stock (200 Shares)						11									(11	)		-
Cash dividends, $0.510 per share									(2,453	)								(2,453	)
Balance, September 30, 2026		5,264,708	$	5,265	$	148,511		$	238,801		$	(24,524	)	$	(16,766	)	$	351,287

Balance, December 31, 2025		5,255,807	$	5,256	$	147,965		$	213,623		$	(12,377	)	$	(16,416	)	$	338,051

Comprehensive income:
Net income									32,484									32,484
Net other comprehensive income (loss)												(12,147	)					(12,147	)
Issuance of Common stock for ESPP		770		1		51												52
Issuance of Common Stock for restricted stock, executive and Board of Director Awards		8,131		8		286												294
Purchase of treasury stock (4,725 shares)															(318	)		(318	)
Restricted stock vesting						177												177
Forfeited restricted stock (572 Shares)						32									(32	)		-
Cash dividends, $1.520 per share									(7,306	)								(7,306	)
Balance, September 30, 2026		5,264,708	$	5,265	$	148,511		$	238,801		$	(24,524	)	$	(16,766	)	$	351,287

Balance, June 30, 2025		5,255,190	$	5,255	$	147,878		$	197,940		$	(21,026	)	$	(16,394	)	$	313,653

Comprehensive income:
Net income									10,005									10,005
Net other comprehensive income (loss)												6,376						6,376
Issuance of Common stock		274				16												16
Purchase of treasury stock (1,284 shares)															(76	)		(76	)
Restricted stock, executive and Board of Director awards (1,314 shares)						(23	)								81			58
Restricted stock vesting						53									-			53
Forfeited restricted stock (120 shares)						47									(47	)		-
Cash dividends, $0.500 per share									(2,403	)								(2,403	)
Balance, September 30, 2025		5,255,464	$	5,255	$	147,971		$	205,542		$	(14,650	)	$	(16,436	)	$	327,682

Balance, December 31, 2024		5,207,577	$	5,208	$	144,984		$	189,443		$	(23,521	)	$	(16,380	)	$	299,734

Comprehensive income:
Net income									26,089									26,089
Net other comprehensive income (loss)												8,871						8,871
Stock dividend		47,073		47		2,797			(2,844	)								-
Issuance of Common stock		814				48												48
Purchase of treasury stock (3,118 shares)															(185	)		(185	)
Restricted stock, executive and Board of Director awards (6,148 shares)						(208	)								183			(25	)
Restricted stock vesting						296												296
Forfeited restricted stock (119 shares)						54									(54	)		-
Cash dividends, $1.480 per share									(7,146	)								(7,146	)
Balance, September 30, 2025		5,255,464	$	5,255	$	147,971		$	205,542		$	(14,650	)	$	(16,436	)	$	327,682

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Index

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
(in thousands)	2026			2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,484		$	26,089
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		1,000			1,875
Depreciation and amortization		1,331			1,414
Amortization and accretion, net		(2,701	)		(2,144	)
Deferred income taxes		144			547
Investment securities losses (gains), net		(373	)		(56	)
Earnings on bank owned life insurance		(2,022	)		(1,064	)
Vesting of restricted stock		177			296
Originations of loans held for sale - residential mortgages		(106,647	)		(117,364	)
Proceeds from sales of loans held for sale - residential mortgages		104,953			115,131
Realized gains on loans sold		(1,545	)		(1,720	)
Increase in accrued interest receivable		(2,486	)		(1,105	)
Increase (decrease) in accrued interest payable		441			(939	)
Other, net		(1,567	)		(1,156	)
Net cash provided by operating activities		23,189			19,804
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from maturity and principal repayments		61,018			55,149
Purchase of securities		(109,076	)		(68,404	)
Purchase of equity securities		(764	)		-
Purchase of interest bearing time deposits with other banks		(100	)		-
Proceeds from life insurance		393			272
Purchase of bank owned life insurance		(22,000	)		-
Proceeds from matured interest bearing time deposits with other banks		844			-
Proceeds from redemption of regulatory stock		31,745			24,124
Purchase of regulatory stock		(37,695	)		(24,290	)
Originations of loans held for sale - student loans		(377,172	)		(314,035	)
Proceeds from sales of loans held for sale - student loans		211,239			314,759
Net decrease (increase) in loans		(115,479	)		(20,110	)
Purchase of premises and equipment		(646	)		(1,225	)
Proceeds from sale of premises and equipment		-			13
Investments in low income housing partnerships		(63	)		-
Proceeds from sale of foreclosed assets held for sale		-			170
Net cash used in investing activities		(357,756	)		(33,577	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		132,399			29,175
Repayments of long-term borrowings		(10,000	)		(37,000	)
Net increase in short-term borrowed funds		212,807			17,942
Purchase of treasury and restricted stock		(318	)		(373	)
Issuance of common stock for ESPP		52			48
Dividends paid		(7,306	)		(7,146	)
Net cash provided by financing activities		327,634			2,646
Net decrease in cash and cash equivalents		(6,933	)		(11,127	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		34,291			42,202
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	27,358		$	31,075

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	43,690		$	47,166
Income taxes paid	$	6,000		$	4,000
Loans transferred to foreclosed property	$	2,103		$	40
Right of use asset and liability	$	818		$	702
Stock Dividend	$	-		$	2,844
Investments in low income partnerships	$	937		$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Index

CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the “Company”) is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiary, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”).

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with U.S. generally accepted accounting principles. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Certain of the prior year amounts have been reclassified to conform with the current year presentation. Such reclassifications had no effect on net income or stockholders’ equity. All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim consolidated financial statements at September 30, 2026 and for the periods ended September 30, 2026 and 2025 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The results of operations reported for the Company for the nine month period ended September 30, 2026 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2025.

During the third quarter of 2026, management identified an error in the reporting of certain student loans originated by the Company that were previously reported as held for investment. The contract under which these loans are issued results in the loans being sold by the Company to a third party 270 days after the last distribution under the loan and therefore loans originated under this contract are considered loans held for sale. As a result, certain prior period amounts have been revised to correct immaterial prior period errors. Loans held for investment as of December 31, 2025 were reduced by $79,351,000 and are reflected as loans held for sale – student loans. In addition, in the investing section of the statement of cashflows, the net increase in loans for the nine months ended September 30, 2025 was revised to reflect originations of loans held for sale - student loans totaling $314,035,000 and the proceeds from the sale of loans held for sale – student loans of $314,759,000 to be consistent with the presentation for the nine months ended September 30, 2026. Consumer loan disclosures as of December 31, 2025 are revised to reduce the outstanding loan balances by $79,351,000 to be consistent with the presentation as of September 30, 2026. These revisions had no impact on total assets, liabilities, stockholders’ equity, income before income taxes, net income or per share amounts as of December 31, 2025, or for the three and nine months ended September 30, 2025.

Index

Note 2 – Revenue Recognition

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and nine months ended September 30, 2026 and 2025 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time. Revenue transactions that do not fall into the scope of ASC Topic 606 are not included in the table.

	Three Months Ended September 30,				Nine Months Ended September 30,
Revenue stream	2026		2025		2026		2025
Service charges on deposit accounts
Overdraft fees	$	417	$	388	$	1,187	$	1,115
Statement fees		82		69		249		163
Interchange revenue		1,050		1,009		2,587		2,538
ATM income		23		31		77		91
Other service charges		105		101		289		285
Total Service Charges		1,677		1,598		4,389		4,192
Trust		191		186		626		593
Brokerage and insurance		623		761		1,832		2,071
Other		232		226		657		722
Total	$	2,723	$	2,771	$	7,504	$	7,578

Note 3 - Earnings per Share

The following table sets forth the computation of earnings per share.

	Three months ended September 30,				Nine months ended September 30,
	2026		2025		2026		2025
Net income applicable to common stock	$	11,921,000	$	10,005,000	$	32,484,000	$	26,089,000

Basic earnings per share computation
Weighted average common shares outstanding		4,800,757		4,796,946		4,798,879		4,797,335
Earnings per share - basic	$	2.48	$	2.09	$	6.77	$	5.44

Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		4,800,757		4,796,946		4,798,879		4,797,335
Add: Dilutive effects of restricted stock		1,650		1,105		2,435		2,131
Weighted average common shares outstanding for dilutive earnings per share		4,802,407		4,798,051		4,801,314		4,799,466
Earnings per share - diluted	$	2.48	$	2.09	$	6.77	$	5.44

For the three months ended September 30, 2026 and 2025, there were 74 and 1,372 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices of $61.98 for the three month period ended September 30, 2026 and per share prices ranging from $61.98-$83.38 for the three month period ended September 30, 2025. For the nine months ended September 30, 2026 and 2025, 459 and 1,372 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $60.96-$69.19 for the nine month period ended September 30, 2026 and prices ranging from $61.98-$83.38 for the nine month period ended September 30, 2025.

Index

Note 4 – Available for Sale Securities

The amortized cost, gross unrealized gains and losses, allowance of credit losses and fair value of investment securities at September 30, 2026 and December 31, 2025 were as follows (in thousands):

September 30, 2026	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses		Fair Value
Available-for-sale securities:
U.S. agency securities	$	50,640	$	10	$	(3,646	)	$	-	$	47,004
U.S. treasury securities		59,248		-		(1,789	)		-		57,459
Obligations of state and political subdivisions		137,776		46		(11,729	)		-		126,093
Corporate obligations		4,830		191		(130	)		-		4,891
Mortgage-backed securities in government sponsored entities		258,155		36		(16,067	)		-		242,124
Total available-for-sale securities	$	510,649	$	283	$	(33,361	)	$	-	$	477,571

December 31, 2025
Available-for-sale securities:
U.S. agency securities	$	52,651	$	12	$	(2,908	)	$	-	$	49,755
U.S. treasury securities		84,551		225		(2,122	)		-		82,654
Obligations of state and political subdivisions		120,608		1,070		(5,792	)		-		115,886
Corporate obligations		11,304		405		(412	)		-		11,297
Mortgage-backed securities in government sponsored entities		193,405		1,103		(9,359	)		-		185,149
Total available-for-sale securities	$	462,519	$	2,815	$	(20,593	)	$	-	$	444,741

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2026 and December 31, 2025 (in thousands). As of September 30, 2026, the Company owned 347 securities whose fair value was less than their cost basis.

September 30, 2026	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses


U.S. agency securities	$	-	$	-		$	42,364	$	(3,646	)	$	42,364	$	(3,646	)
U.S. treasury securities		9,604		(141	)		47,855		(1,648	)		57,459		(1,789	)
Obligations of state and political subdivisions		53,799		(2,551	)		66,358		(9,178	)		120,157		(11,729	)
Corporate obligations		-		-			2,017		(130	)		2,017		(130	)
Mortgage-backed securities in government sponsored entities		160,741		(5,391	)		68,481		(10,676	)		229,222		(16,067	)
Total securities	$	224,144	$	(8,083	)	$	227,075	$	(25,278	)	$	451,219	$	(33,361	)

December 31, 2025
U.S. agency securities	$	-	$	-		$	45,104	$	(2,908	)	$	45,104	$	(2,908	)
U.S. treasury securities		-		-			72,784		(2,122	)		72,784		(2,122	)
Obligations of states and political subdivisions		5,642		(98	)		72,858		(5,694	)		78,500		(5,792	)
Corporate obligations		-		-			6,588		(412	)		6,588		(412	)
Mortgage-backed securities in government sponsored entities		36,858		(247	)		79,922		(9,112	)		116,780		(9,359	)
Total securities	$	42,500	$	(345	)	$	277,256	$	(20,248	)	$	319,756	$	(20,593	)

Index

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available-for-sale debt securities when the Company does not intend to sell, or when it is more likely than not that it not will be required to sell, the security before recovery of its amortized cost basis, which may be at maturity. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. The Company obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario, and utilizes a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within available-for-sale securities on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met. There was no allowance for credit losses for available for sale securities as of September 30, 2026 and December 31, 2025.

Accrued interest receivable on available-for-sale debt securities totaled $2,556,000 and $2,399,000 at September 30, 2026 and December 31, 2025 and is included within accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

There were no sales of available for sale securities during the three and nine months ended September 30, 2026 and 2025.

The following table presents the net gains on the Company’s equity investments recognized in earnings during the three and nine month periods ended September 30, 2026 and 2025, and the portion of unrealized gains for the period that relates to equity investments held at September 30, 2026 and 2025 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Equity Securities	2026		2025		2026		2025
Net gains (losses) recognized in equity securities during the period	$	258	$	34	$	373	$	56
Less: Net gains realized on the sale of equity securities during the period		-		-		-		-
Net unrealized gains (losses)	$	258	$	34	$	373	$	56

Investment securities with an approximate carrying value of $404.3 million and $367.9 million at September 30, 2026 and December 31, 2025, respectively, were pledged to secure public funds, certain other deposits and borrowing lines.

Index

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at September 30, 2026, by contractual maturity, are shown below (in thousands):

	Amortized Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	55,021	$	54,041
Due after one year through five years		99,604		93,729
Due after five years through ten years		75,948		70,192
Due after ten years		280,076		259,609
Total	$	510,649	$	477,571

Note 5 – Loans

The Company originates commercial, industrial, agricultural, residential, and consumer loans primarily to customers throughout north central, central, south central and south eastern Pennsylvania, southern New York, Wilmington, Dover and Georgetown, Delaware and Burlington County, New Jersey. Although the Company had a diversified loan portfolio at September 30, 2026 and December 31, 2025, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for credit losses - loans as of September 30, 2026 and December 31, 2025 (in thousands):

	September 30, 2026			December 31 , 2025
Real estate loans:
Residential	$	336,190		$	340,972
Commercial		1,276,050			1,218,514
Agricultural		370,505			347,448
Construction		103,498			93,965
Consumer		8,597			8,859
Other commercial loans		178,977			179,166
Other agricultural loans		31,323			30,247
State and political subdivision loans		82,556			52,100
Total		2,387,696			2,271,271
Allowance for credit losses - loans		(23,786	)		(22,806	)
Net loans	$	2,363,910		$	2,248,465

Allowance for Credit Losses - Loans

The allowance for credit losses related to loans encompasses loans evaluated collectively and individually for expected credit losses. It represents an estimate of credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. Loans individually evaluated consist of non-accrual commercial loans and recently modified loans that were experiencing financial difficulty at the time of the modification. The allowance for credit losses for off-balance sheet credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other off-balance sheet credit exposures. The total allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the allowance for credit losses as of September 30, 2026 and December 31, 2025 (in thousands):

	September 30, 2026		December 31, 2025
Allowance for Credit Losses - Loans	$	23,786	$	22,806
Allowance for Credit Losses - Off-Balance Sheet credit Exposure		1,075		1,163
Total allowance for credit losses	$	24,861	$	23,969

Index

The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2026 and 2025 (in thousands):

	Allowance for Credit Losses - Loans			Allowance for Credit Losses - Off-Balance Sheet credit Exposure			Total
Balance at June 30, 2026	$	23,559		$	1,441		$	25,000
Loans charge-off		(148	)		-			(148	)
Recoveries of loans previously charged-off		9			-			9
Net loans charged-off		(139	)		-			(139	)
Provision for (recovery of) credit losses		366			(366	)		-
Balance at September 30, 2026	$	23,786		$	1,075		$	24,861

Balance at December 31, 2025	$	22,806		$	1,163		$	23,969
Loans charge-off		(300	)		-			(300	)
Recoveries of loans previously charged-off		192			-			192
Net loans charged-off		(108	)		-			(108	)
Provision for (recovery of) credit losses		1,088			(88	)		1,000
Balance at September 30, 2026	$	23,786		$	1,075		$	24,861

Balance at June 30, 2025	$	22,109		$	914		$	23,023
Loans charge-off		(20	)		-			(20	)
Recoveries of loans previously charged-off		17			-			17
Net loans charged-off		(3	)		-			(3	)
Provision for credit losses		348			152			500
Balance at September 30, 2025	$	22,454		$	1,066		$	23,520

Balance at December 31, 2024	$	21,699		$	676		$	22,375
Loans charge-off		(801	)		-			(801	)
Recoveries of loans previously charged-off		71			-			71
Net loans charged-off		(730	)		-			(730	)
Provision for credit losses		1,485			390			1,875
Balance at September 30, 2025	$	22,454		$	1,066		$	23,520

The following tables present the activity in the allowance for credit losses – loans, by portfolio segment, for the three and nine months ended September 30, 2026 and 2025 (in thousands):

	For the three months ended September 30, 2026
	Balance at June 30, 2026		Charge-offs			Recoveries		Provision			Balance at September 30, 2026
Real estate loans:
Residential	$	2,671	$	-		$	-	$	(64	)	$	2,607
Commercial		11,006		-			-		696			11,702
Agricultural		4,411		-			-		274			4,685
Construction		913		-			-		108			1,021
Consumer		1,191		(13	)		6		(586	)		598
Other commercial loans		3,037		(135	)		3		(260	)		2,645
Other agricultural loans		190		-			-		28			218
State and political subdivision loans		106		-			-		15			121
Unallocated		34		-			-		155			189
Total	$	23,559	$	(148	)	$	9	$	366		$	23,786

Index

	For the nine months ended September 30, 2026
	Balance at December 31, 2025		Charge-offs			Recoveries		Provision			Balance at September 30, 2026
Real estate loans:
Residential	$	3,112	$	-		$	12	$	(517	)	$	2,607
Commercial		10,017		-			-		1,685			11,702
Agricultural		4,841		-			-		(156	)		4,685
Construction		916		-			-		105			1,021
Consumer		1,201		(33	)		18		(588	)		598
Other commercial loans		2,534		(267	)		162		216			2,645
Other agricultural loans		115		-			-		103			218
State and political subdivision loans		55		-			-		66			121
Unallocated		15		-			-		174			189
Total	$	22,806	$	(300	)	$	192	$	1,088		$	23,786

	For the three months ended September 30, 2025
	Balance at June 30, 2025		Charge-offs			Recoveries		Provision			Balance at September 30, 2025
Real estate loans:
Residential	$	3,062	$	-		$	-	$	148		$	3,210
Commercial		9,898		-			-		(445	)		9,453
Agricultural		4,542		-			-		262			4,804
Construction		1,273		-			-		(306	)		967
Consumer		1,119		(10	)		4		212			1,325
Other commercial loans		1,993		(10	)		13		435			2,431
Other agricultural loans		132		-			-		(7	)		125
State and political subdivision loans		56		-			-		2			58
Unallocated		34		-			-		47			81
Total	$	22,109	$	(20	)	$	17	$	348		$	22,454

	For the nine months ended September 30, 2025
	Balance at December 31, 2024		Charge-offs			Recoveries		Provision			Balance at September 30, 2025
Real estate loans:
Residential	$	1,940	$	-		$	-	$	1,270		$	3,210
Commercial		9,174		(40	)		-		319			9,453
Agricultural		3,529		-			-		1,275			4,804
Construction		1,402		-			-		(435	)		967
Consumer		1,338		(307	)		37		257			1,325
Other commercial loans		3,766		(454	)		34		(915	)		2,431
Other agricultural loans		133		-			-		(8	)		125
State and political subdivision loans		61		-			-		(3	)		58
Unallocated		356		-			-		(275	)		81
Total	$	21,699	$	(801	)	$	71	$	1,485		$	22,454

The provision for the three and nine months ended September 30, 2026 was driven by changes in economic forecasts and the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds as well as the historical loss factor. In addition, loss rates are updated to include the most recent completed year of 2025. The provision for 2026 was also impacted by the Iran conflict as we adjusted qualitative factors due to the impact this conflict is having on gas and diesel prices, as well as fertilizer prices and the impact they had on planting season. The provision was also impacted by the decrease in non-performing student loans that were are fully reserved. The decrease in the provision for consumer loans was due to the reclass of certain student loans to loans for held for sale, which are not subject to ASC 326 and a reduction in nonaccrual medical student loans held for investment.

Index

The provision for the first nine months of 2025 was driven by changes in economic forecasts and the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include 2024. For residential loans, the historical loss rate increased, while the prepayment speed slowed resulting in an increased provision. For other commercial loans, the historical loss rate decreased in the annual update resulting in a decrease in the provision for 2025.

The following table presents the allowance for credit losses – loans and amortized cost basis of loans as of September 30, 2026 and December 31, 2025 (in thousands):

	Allowance for Credit Losses - Loans						Loans
September 30, 2026	Collectively evaluated		Individually evaluated		Total Allowance for Credit Losses - Loans		Collectively evaluated		Individually evaluated		Total Loans
Real estate loans:
Residential	$	2,590	$	17	$	2,607	$	333,420	$	2,770	$	336,190
Commercial		10,737		965		11,702		1,237,119		38,931		1,276,050
Agricultural		4,685		-		4,685		368,195		2,310		370,505
Construction		952		69		1,021		102,547		951		103,498
Consumer		77		521		598		8,060		537		8,597
Other commercial loans		2,099		546		2,645		172,351		6,626		178,977
Other agricultural loans		187		31		218		30,821		502		31,323
State and political subdivision loans		121		-		121		82,556		-		82,556
Unallocated		189		-		189		-		-		-
Total	$	21,637	$	2,149	$	23,786	$	2,335,069	$	52,627	$	2,387,696

December 31, 2025
Real estate loans:
Residential	$	3,050	$	62	$	3,112	$	338,600	$	2,372	$	340,972
Commercial		9,757		260		10,017		1,193,742		24,772		1,218,514
Agricultural		4,841		-		4,841		345,302		2,146		347,448
Construction		830		86		916		93,450		515		93,965
Consumer		327		874		1,201		7,950		909		8,859
Other commercial loans		1,903		631		2,534		171,343		7,823		179,166
Other agricultural loans		115		-		115		29,844		403		30,247
State and political subdivision loans		55		-		55		52,100		-		52,100
Unallocated		15		-		15		-		-		-
Total	$	20,893	$	1,913	$	22,806	$	2,232,331	$	38,940	$	2,271,271

Non-performing Loans

Non-performing loans include those nonaccrual loans, described in more detail below, and all loans past due 90 or more days. Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

Index

The following table reflects the non-performing loan receivables, as well as those on non-accrual status as of September 30, 2026 and December 31, 2025, respectively. The balances are presented by class of loan receivable (in thousands):

	September 30, 2026								December 31, 2025
	Nonaccrual With a related allowance		Nonaccrual Without a related allowance		90 days or greater past due and accruing		Total non- performing loans		Nonaccrual With a related allowance		Nonaccrual Without a related allowance		90 days or greater past due and accruing		Total non- performing loans
Real estate loans:
Mortgages	$	272	$	3,351	$	-	$	3,623	$	153	$	3,229	$	-	$	3,382
Home Equity		-		106		7		113		-		61		151		212
Commercial		5,262		27,199		-		32,461		2,860		8,637		-		11,497
Agricultural		-		2,310		-		2,310		-		2,145		55		2,200
Construction		216		735		-		951		233		283		-		516
Consumer		492		1		1		494		770		-		15		785
Other commercial loans		6,626		-		3		6,629		6,282		1,546		8		7,836
Other agricultural loans		99		403				502		-		403		-		403
	$	12,967	$	34,105	$	11	$	47,083	$	10,298	$	16,304	$	229	$	26,831

As of September 30, 2026, there were $34.1 million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to the realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

The following table presents, by class of loans receivable, the amortized cost basis of collateral-dependent loans and type of collateral as of September 30, 2026 and December 31, 2025 (in thousands):

September 30, 2026	Real Estate		Business Assets		Total
Real estate loans:
Mortgages	$	3,623	$	-	$	3,623
Home Equity		106		-		106
Commercial		32,461		-		32,461
Agricultural		2,310		-		2,310
Construction		951		-		951
Other commercial loans		-		6,626		6,626
Other agricultural loans		-		502		502
	$	39,451	$	7,128	$	46,579

December 31, 2025
Real estate loans:
Mortgages	$	3,382	$	-	$	3,382
Home Equity		61		-		61
Commercial		11,497		-		11,497
Agricultural		2,145		-		2,145
Construction		516		-		516
Other commercial loans		-		7,828		7,828
Other agricultural loans		-		403		403
	$	17,601	$	8,231	$	25,832

Index

Credit Quality Information

For commercial real estate loans, agricultural real estate loans, construction loans, other commercial loans, other agricultural loans, and state and political subdivision loans, management uses a ten grade internal risk rating system to monitor and assess credit quality. The first six grades under the revised system are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

•

Pass (Grades 1-6) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

•

Special Mention (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

•

Substandard (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

•

Loss (Grade 10) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. Commercial, agricultural and state and political relationships over $750,000 in all Bank regions other than the Delaware region are reviewed annually to ensure the appropriateness of the loan grade. In the Delaware region all loan relationships greater than $1,000,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate.

Index

The following tables represent credit exposures by internally assigned grades, by origination year, as of September 30, 2026 and December 31, 2025 (in thousands):

													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
September 30, 2026	2026		2025		2024		2023		2022		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	137,223	$	122,286	$	48,729	$	107,109	$	326,734	$	411,689	$	42,483	$	1,843	$	1,198,096
Special Mention		-		-		-		782		9,050		14,896		-		-		24,728
Substandard		-		-		5,043		548		29,949		14,249		3,437		-		53,226
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	137,223	$	122,286	$	53,772	$	108,439	$	365,733	$	440,834	$	45,920	$	1,843	$	1,276,050
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural real estate
Risk Rating
Pass	$	48,485	$	59,073	$	28,852	$	18,473	$	40,251	$	140,143	$	18,738	$	129	$	354,144
Special Mention		623		1,189		258		1,804		1,288		2,849		1,522		-		9,533
Substandard		-		921		610		-		2,047		2,536		642		72		6,828
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	49,108	$	61,183	$	29,720	$	20,277	$	43,586	$	145,528	$	20,902	$	201	$	370,505
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Construction
Risk Rating
Pass	$	55,635	$	24,203	$	4,309	$	3,832	$	6,074	$	-	$	4,326	$	-	$	98,379
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		734		4,385		-		-		-		5,119
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	55,635	$	24,203	$	4,309	$	4,566	$	10,459	$	-	$	4,326	$	-	$	103,498
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Other commercial loans
Risk Rating
Pass	$	9,629	$	27,380	$	22,726	$	15,827	$	4,493	$	7,263	$	82,385	$	199	$	169,902
Special Mention		-		-		-		-		-		33		1,745		-		1,778
Substandard		-		-		101		-		3,804		744		2,648		-		7,297
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	9,629	$	27,380	$	22,827	$	15,827	$	8,297	$	8,040	$	86,778	$	199	$	178,977
Current period gross charge-offs	$	-	$	-	$	136	$	-	$	-	$	30	$	101	$	-	$	267

Other agricultural loans
Risk Rating
Pass	$	8,623	$	4,761	$	2,087	$	957	$	197	$	542	$	11,954	$	-	$	29,121
Special Mention		-		13		614		7		-		-		644		-		1,278
Substandard		-		-		-		269		425		-		230		-		924
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	8,623	$	4,774	$	2,701	$	1,233	$	622	$	542	$	12,828	$	-	$	31,323
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

State and political subdivision loans
Risk Rating
Pass	$	34,070	$	230	$	-	$	1,157	$	12,023	$	34,702	$	374	$	-	$	82,556
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	34,070	$	230	$	-	$	1,157	$	12,023	$	34,702	$	374	$	-	$	82,556
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total
Risk Rating
Pass	$	293,665	$	237,933	$	106,703	$	147,355	$	389,772	$	594,339	$	160,260	$	2,171	$	1,932,198
Special Mention		623		1,202		872		2,593		10,338		17,778		3,911		-		37,317
Substandard		-		921		5,754		1,551		40,610		17,529		6,957		72		73,394
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	294,288	$	240,056	$	113,329	$	151,499	$	440,720	$	629,646	$	171,128	$	2,243	$	2,042,909

Index

													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
December 31, 2025	2025		2024		2023		2022		2021		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	127,490	$	59,760	$	128,989	$	329,694	$	172,617	$	294,237	$	34,709	$	1,971	$	1,149,467
Special Mention		-		5,042		797		5,784		8,770		7,208		733		-		28,334
Substandard		-		-		1,021		24,582		3,024		9,772		2,314		-		40,713
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	127,490	$	64,802	$	130,807	$	360,060	$	184,411	$	311,217	$	37,756	$	1,971	$	1,218,514
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	40	$	-	$	-	$	40

Agricultural real estate
Risk Rating
Pass	$	54,278	$	30,648	$	18,810	$	47,254	$	20,747	$	139,424	$	18,558	$	131	$	329,850
Special Mention		55		40		3,276		1,384		1,731		1,893		1,723		-		10,102
Substandard		1,297		667		-		2,052		657		2,103		645		75		7,496
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	55,630	$	31,355	$	22,086	$	50,690	$	23,135	$	143,420	$	20,926	$	206	$	347,448
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Construction
Risk Rating
Pass	$	30,394	$	15,456	$	8,490	$	25,772	$	-	$	-	$	5,215	$	-	$	85,327
Special Mention		-		-		-		206		2,943		-		-		-		3,149
Substandard		-		-		789		4,417		283		-		-		-		5,489
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	30,394	$	15,456	$	9,279	$	30,395	$	3,226	$	-	$	5,215	$	-	$	93,965
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Other commercial loans
Risk Rating
Pass	$	33,300	$	27,244	$	18,039	$	4,938	$	6,098	$	3,819	$	74,628	$	232	$	168,298
Special Mention		-		-		-		-		-		-		2,442		-		2,442
Substandard		-		117		-		1,784		40		714		4,257		1,443		8,355
Doubtful		-		-		-		-		-		-		66		5		71
Total	$	33,300	$	27,361	$	18,039	$	6,722	$	6,138	$	4,533	$	81,393	$	1,680	$	179,166
Current period gross charge-offs	$	-	$	49	$	-	$	-	$	-	$	63	$	379	$	-	$	491

Other agricultural loans
Risk Rating
Pass	$	5,677	$	3,520	$	1,440	$	408	$	1,602	$	288	$	14,761	$	-	$	27,696
Special Mention		-		936		15		-		-		-		639		-		1,590
Substandard		-		-		294		438		-		-		229		-		961
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	5,677	$	4,456	$	1,749	$	846	$	1,602	$	288	$	15,629	$	-	$	30,247
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

State and political subdivision loans
Risk Rating
Pass	$	1,504	$	27	$	1,291	$	12,737	$	9,932	$	26,509	$	100	$	-	$	52,100
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	1,504	$	27	$	1,291	$	12,737	$	9,932	$	26,509	$	100	$	-	$	52,100
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total
Risk Rating
Pass	$	252,643	$	136,655	$	177,059	$	420,803	$	210,996	$	464,277	$	147,971	$	2,334	$	1,812,738
Special Mention		55		6,018		4,088		7,374		13,444		9,101		5,537		-		45,617
Substandard		1,297		784		2,104		33,273		4,004		12,589		7,445		1,518		63,014
Doubtful		-		-		-		-		-		-		66		5		71
Total	$	253,995	$	143,457	$	183,251	$	461,450	$	228,444	$	485,967	$	161,019	$	3,857	$	1,921,440

Index

For residential real estate mortgage loans, home equity loans, and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail above, and all loans past due 90 or more days and still accruing. The following tables present the recorded investment in those loan classes based on payment activity, by origination year, as of September 30, 2026 and December 31, 2025 (in thousands):

													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
September 30, 2026	2026		2025		2024		2023		2022		Prior		Cost Basis		to Term		Total
Residential real estate
Payment Performance
Performing	$	11,056	$	17,204	$	12,383	$	21,273	$	76,899	$	140,644	$	-	$	-	$	279,459
Nonperforming		-		-		-		-		1,262		2,361		-		-		3,623
Total	$	11,056	$	17,204	$	12,383	$	21,273	$	78,161	$	143,005	$	-	$	-	$	283,082
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Home equity
Payment Performance
Performing	$	1,080	$	2,074	$	1,819	$	2,111	$	1,308	$	6,380	$	37,777	$	446	$	52,995
Nonperforming		-		56		-		-		-		57		-		-		113
Total	$	1,080	$	2,130	$	1,819	$	2,111	$	1,308	$	6,437	$	37,777	$	446	$	53,108
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Payment Performance
Performing	$	2,122	$	1,163	$	782	$	189	$	257	$	2,344	$	1,242	$	4	$	8,103
Nonperforming		-		-		1		-		-		493		-		-		494
Total	$	2,122	$	1,163	$	783	$	189	$	257	$	2,837	$	1,242	$	4	$	8,597
Current period gross charge-offs	$	-	$	-	$	-	$	3	$	1	$	4	$	25	$	-	$	33

Total
Payment Performance
Performing	$	14,258	$	20,441	$	14,984	$	23,573	$	78,464	$	149,368	$	39,019	$	450	$	340,557
Nonperforming		-		56		1		-		1,262		2,911		-		-		4,230
Total	$	14,258	$	20,497	$	14,985	$	23,573	$	79,726	$	152,279	$	39,019	$	450	$	344,787

													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
December 31, 2025		2025		2024		2023		2022		2021	Prior		Cost Basis		to Term		Total
Residential real estate
Payment Performance
Performing	$	13,909	$	13,209	$	23,135	$	81,239	$	41,842	$	111,948	$	-	$	-	$	285,282
Nonperforming		-		-		-		1,057		1,132		1,193		-		-		3,382
Total	$	13,909	$	13,209	$	23,135	$	82,296	$	42,974	$	113,141	$	-	$	-	$	288,664
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Home equity
Payment Performance
Performing	$	2,854	$	2,528	$	2,533	$	1,727	$	1,150	$	6,918	$	34,100	$	286	$	52,096
Nonperforming		63		-		18		-		-		110		21		-		212
Total	$	2,917	$	2,528	$	2,551	$	1,727	$	1,150	$	7,028	$	34,121	$	286	$	52,308
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Payment Performance
Performing	$	1,934	$	1,050	$	373	$	354	$	412	$	2,577	$	1,374	$	-	$	8,074
Nonperforming		-		10		-		-		11		764		-		-		785
Total	$	1,934	$	1,060	$	373	$	354	$	423	$	3,341	$	1,374	$	-	$	8,859
Current period gross charge-offs	$	-	$	-	$	11	$	1	$	-	$	285	$	30	$	-	$	327

Total
Payment Performance
Performing	$	18,697	$	16,787	$	26,041	$	83,320	$	43,404	$	121,443	$	35,474	$	286	$	345,452
Nonperforming		63		10		18		1,057		1,143		2,067		21		-		4,379
Total	$	18,760	$	16,797	$	26,059	$	84,377	$	44,547	$	123,510	$	35,495	$	286	$	349,831

Index

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of September 30, 2026 and December 31, 2025 (in thousands):

September 30, 2026	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans Receivables
Real estate loans:
Mortgages	$	865	$	1,106	$	1,290	$	3,261	$	279,821	$	283,082
Home Equity		186		72		57		315		52,793		53,108
Commercial		1,858		151		30,153		32,162		1,243,888		1,276,050
Agricultural		730		579		2,117		3,426		367,079		370,505
Construction		-		-		951		951		102,547		103,498
Consumer		62		8		493		563		8,034		8,597
Other commercial loans		246		49		373		668		178,309		178,977
Other agricultural loans		356		-		411		767		30,556		31,323
State and political subdivision loans		-		-		-		-		82,556		82,556
Total	$	4,303	$	1,965	$	35,845	$	42,113	$	2,345,583	$	2,387,696

Loans considered non-accrual	$	1,398	$	174	$	35,834	$	37,406	$	9,666	$	47,072
Loans still accruing		2,905		1,791		11		4,707		2,335,917		2,340,624
Total	$	4,303	$	1,965	$	35,845	$	42,113	$	2,345,583	$	2,387,696

December 31, 2025
Real estate loans:
Mortgages	$	2,737	$	1,073	$	1,675	$	5,485	$	283,179	$	288,664
Home Equity		146		17		181		344		51,964		52,308
Commercial		1,733		2,695		9,871		14,299		1,204,215		1,218,514
Agricultural		1,020		158		1,982		3,160		344,288		347,448
Construction		-		233		283		516		93,449		93,965
Consumer		1		148		785		934		7,925		8,859
Other commercial loans		256		49		7,500		7,805		171,361		179,166
Other agricultural loans		17		-		403		420		29,827		30,247
State and political subdivision loans		-		-		-		-		52,100		52,100
Total	$	5,910	$	4,373	$	22,680	$	32,963	$	2,238,308	$	2,271,271

Loans considered non-accrual	$	396	$	778	$	22,451	$	23,625	$	2,977	$	26,602
Loans still accruing		5,514		3,595		229		9,338		2,235,331		2,244,669
Total	$	5,910	$	4,373	$	22,680	$	32,963	$	2,238,308	$	2,271,271

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

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 principal forgiveness, may be granted.

The following table shows the amortized cost basis by class of loans receivable, information regarding accrual and nonaccrual modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2026 and during the three and nine months ended September 30, 2025 (dollars in thousands).

Index

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Three months ended September 30, 2026
	Number of loans		Amortized Cost Basis		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		4	$	6,468		0.51	%
Total		4	$	6,468

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Nine months ended September 30, 2026
	Number of loans		Amortized Cost Basis		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		4	$	6,468		0.51	%
Total		4	$	6,468

Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		1	$	211		0.02	%
Other commercial loans		2		6,256		3.50	%
Total		3	$	6,467

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Three months ended September 30, 2025
	Number of loans		Amortized Cost Basis		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		7	$	13,905		1.18	%
Total		7	$	13,905

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Nine months ended September 30, 2025
	Number of loans		Amortized Cost Basis		% of Total Class of Financing Receivable
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages		1	$	109		0.04	%
Commercial		7		13,905		1.18	%
Other commercial loans		1		179		0.10	%
Total		9	$	14,193

Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		3	$	1,039		0.09	%
Total		3	$	1,039

The following table shows, by class of loans receivable, information regarding the financial effect on accrual and nonaccrual modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2026 and the three and nine months ended September 30, 2025.

Index

Three months ended September 30, 2026
Term Extension

Loan Type	Number of loans		Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		4	Extended the term of the loan 6 months and provide interest only payments for 4 months
Total		4

Nine months ended September 30, 2026
Term Extension

Loan Type	Number of loans		Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		4	Extended the term of the loan 6 months and provide interest only payments for 4 months
Total		4

Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		1	Extended term to 30 years
Other commercial loans		2	Extended the term five years
Total		3

Three months ended September 30, 2025
Term Extension

Loan Type	Number of loans		Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		7	Extended the loan maturity one year
Total		7

Nine months ended September 30, 2025
Term Extension

Loan Type	Number of loans		Financial Effect
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Mortgages		1	Extended the loan maturity 5 years with a 30 year amortization
Commercial		7	Extended the loan maturity one year
Other commercial loans		1	Extended the loan maturity 10 years as termed out or line of credit
Total		9

Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		3	Extended the loan maturity 5 years with a 30 year amortization
Total		3

The following presents, by class of loans, the amortized cost and payment status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty at September 30, 2026 (in thousands):

Index

		September 30, 2026
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty		Current		30-89 Days Past Due		90 Days Or Greater		Total
Real estate loans:
Commercial		$	6,468	$	-	$	-	$	6,468
	Total	$	6,468	$	-	$	-	$	6,468

Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
Real estate loans:
Commercial		$	211		-		-	$	211
Other commercial loans			6,256		-		-		6,256
	Total	$	6,467	$	-	$	-	$	6,467

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2026 and December 31, 2025, included within other assets are $4,461,000 of foreclosed assets. As of September 30, 2026, there are $1,836,000 of consumer residential mortgages included within foreclosed assets. As of September 30, 2026, the Company had initiated formal foreclosure proceedings on $1,330,000 of residential mortgage loans, the collateral properties of which have not yet been transferred into foreclosed assets.

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2026 and December 31, 2025 (in thousands):

	September 30, 2026							December 31, 2025
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	2,179	$	(1,716	)	$	463	$	2,362	$	(1,793	)	$	569
Core deposit intangibles		3,072		(1,723	)		1,349		3,072		(1,420	)		1,652
Total amortized intangible assets	$	5,251	$	(3,439	)	$	1,812	$	5,434	$	(3,213	)	$	2,221
Unamortized intangible assets:
Goodwill	$	85,758						$	85,758

(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in thousands). The Company based its projections of amortization expense shown below on existing asset balances at September 30, 2026. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Total
Three months ended September 30, 2026 (actual)	$	56	$	92	$	148
Nine months ended September 30, 2026 (actual)		182		303		485
Three months ended September 30, 2025 (actual)	$	68	$	113		181
Nine months ended September 30, 2025 (actual)		202		367		569
Estimate for year ending December 31,
Remaining 2026		49		92		141
2027		159		339		498
2028		113		284		397
2029		78		230		308
2030		45		177		222
Thereafter		19		227		246
Total	$	463	$	1,349	$	1,812

Index

Note 7 - Employee Benefit Plans

For additional detailed disclosure on the Company’s pension and employee benefit plans, please refer to Note 11 of the Company’s Audited Consolidated Financial Statements included in the 2025 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior to January 1, 2007. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plan’s actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation. The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and nine months ended September 30, 2026 and 2025, respectively (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2026			2025			2026			2025			Affected line item on the Consolidated Statement of Income
Service cost	$	64		$	68		$	193		$	205		Salary and Employee Benefits
Interest cost		106			113			317			339		Other Expenses
Expected return on plan assets		(197	)		(199	)		(590	)		(596	)	Other Expenses
Net amortization and deferral		-			-			-			-		Other Expenses
Net periodic benefit	$	(27	)	$	(18	)	$	(80	)	$	(52	)

The Bank does not expect to contribute to the Pension Plan during 2026.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the “Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including continuous employment or service with the Company. In April 2026, the Company’s stockholders authorized a total of 250,000 shares of the Company’s common stock to be made available under an equity incentive plan, of which the Restricted Stock plan is a component.

The following table details the vesting, awarding and forfeiting of restricted stock during the three and nine months ended September 30, 2026:

Index

	Three months						Nine months
	Unvested Shares			Weighted Average Market Price			Unvested Shares			Weighted Average Market Price
Outstanding, beginning of period		9,342		$	60.44			8,514		$	54.54
Granted		385			77.85			3,902			71.67
Forfeited		(200	)		(60.52	)		(572	)		(57.20	)
Vested		(884	)		(54.52	)		(3,201	)		(55.29	)
Outstanding, end of period		8,643		$	61.82			8,643		$	61.82

Compensation expense related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $228,000 and $220,000 for the nine months ended September 30, 2026 and 2025, respectively. For the three months ended September 30, 2026 and 2025, compensation expense totaled $79,000 and $73,000, respectively. At September 30, 2026, the total compensation cost related to nonvested awards that had not yet been recognized was $534,000, which is expected to be recognized over the next three years.

Note 8 – Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component, net of tax, for the three and nine months ended September 30, 2026 and 2025 (in thousands):

	Three months ended September 30, 2026
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized gain on interest rate swap (a)			Total
Balance as of June 30, 2026	$	(14,900	)	$	(297	)	$	1,835		$	(13,362	)
Other comprehensive income (loss) before reclassifications (net of tax)		(11,233	)		-			299			(10,934	)
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		-			-			(228	)		(228	)
Net current period other comprehensive income (loss)		(11,233	)		-			71			(11,162	)
Balance as of September 30, 2026	$	(26,133	)	$	(297	)	$	1,906		$	(24,524	)

	Nine months ended September 30, 2026
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized gain on interest rate swap (a)			Total
Balance as of December 31, 2025	$	(14,045	)	$	(297	)	$	1,965		$	(12,377	)

Other comprehensive income (loss) before reclassifications (net of tax)		(12,088	)		-			636			(11,452	)
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		-			-			(695	)		(695	)
Net current period other comprehensive income (loss)		(12,088	)		-			(59	)		(12,147	)
Balance as of September 30, 2026	$	(26,133	)	$	(297	)	$	1,906		$	(24,524	)

Index

	Three months ended September 30, 2025
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized gain on interest rate swap (a)			Total
Balance as of June 30, 2025	$	(23,111	)	$	(304	)	$	2,389		$	(21,026	)
Other comprehensive income (loss) before reclassifications (net of tax)		6,609			-			45			6,654
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		-			-			(278	)		(278	)
Net current period other comprehensive income (loss)		6,609			-			(233	)		6,376
Balance as of September 30, 2025	$	(16,502	)	$	(304	)	$	2,156		$	(14,650	)

	Nine months ended September 30, 2025
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized gain on interest rate swap (a)			Total
Balance as of December 31, 2024	$	(26,564	)	$	(304	)	$	3,347		$	(23,521	)
Other comprehensive income (loss) before reclassifications (net of tax)		10,062			-			(95	)		9,967
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		-			-			(1,096	)		(1,096	)
Net current period other comprehensive income (loss)		10,062			-			(1,191	)		8,871
Balance as of September 30, 2025	$	(16,502	)	$	(304	)	$	2,156		$	(14,650	)

(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2026 and 2025 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of Income
	Three Months Ended September 30,
	2026			2025
Unrealized gain (loss) on interest rate swap	$	288		$	353		Interest expense
		(60	)		(75	)	Provision for income taxes
	$	228		$	278		Net of tax
Total reclassifications	$	228		$	278

	Nine Months Ended September 30,
		2026			2025
Unrealized gain (loss) on interest rate swap	$	879		$	1,388		Interest expense
		(184	)		(292	)	Provision for income taxes
	$	695		$	1,096		Net of tax
Total reclassifications	$	695		$	1,096

(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

Note 9 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Index

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2026 and December 31, 2025 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Index

September 30, 2026	Level I		Level II			Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	2,951	$	-		$	-	$	2,951
Available for sale securities:
U.S. Agency securities		-		47,004			-		47,004
U.S. Treasury securities		-		57,459			-		57,459
Obligations of state and political subdivisions		-		126,093			-		126,093
Corporate obligations		-		4,891			-		4,891
Mortgage-backed securities in government sponsored entities		-		242,124			-		242,124
Derivative instruments		-		7,905			354		8,259
Liabilities
Derivative instruments		-		(5,493	)		-		(5,493	)

December 31, 2025	Level I		Level II			Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	1,815	$	-		$	-	$	1,815
Available for sale securities:
U.S. Agency securities		-		49,755			-		49,755
U.S. Treasuries securities		-		82,654			-		82,654
Obligations of state and political subdivisions		-		115,886			-		115,886
Corporate obligations		-		11,297			-		11,297
Mortgage-backed securities in government sponsored entities		-		185,149			-		185,149
Derivative instruments		-		6,587			340		6,927
Liabilities
Derivative instruments		-		(4,100	)		-		(4,100	)

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2026 and 2025 for interest rate lock commitments (IRLC) (in thousands):

For the three months ended September 30, 2026
	IRLC- Asset
Balance: June 30, 2026	$	485
Total unrealized losses:
Included in other comprehensive loss		-
Total losses included in earnings and held at reporting date		(131	)
Purchases, sales and settlements		-
Transfers in and/or out of Level 3		-
Ending Balance: September 30, 2026	$	354
Change in unrealized (losses) for the period included in earnings for assets held as of September 30, 2026		(131	)
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2025		-

Index

For the nine months ended September 30, 2026
	IRLC- Asset
Balance: December 31, 2025	$	340
Total unrealized losses:
Included in other comprehensive loss		-
Total losses included in earnings and held at reporting date		14
Purchases, sales and settlements		-
Transfers in and/or out of Level 3		-
Ending Balance: September 30, 2026	$	354
Change in unrealized (losses) for the period included in earnings for assets held as of September 30, 2026		14
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2025		-

For the three months ended September 30, 2025
	IRLC- Asset
Balance: June 30, 2025	$	548
Total unrealized losses:
Included in other comprehensive loss		-
Total losses included in earnings and held at reporting date		(123	)
Purchases, sales and settlements		-
Transfers in and/or out of Level 3		-
Ending Balance: September 30, 2025	$	425
Change in unrealized (losses) for the period included in earnings for assets held as of September 30, 2025		(123	)
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024		-

For the nine months ended September 30, 2025
	IRLC- Asset
Balance: December 31, 2024	$	317
Total unrealized losses:
Included in other comprehensive loss		-
Total losses included in earnings and held at reporting date		108
Purchases, sales and settlements		-
Transfers in and/or out of Level 3		-
Ending Balance: September 30, 2025	$	425
Change in unrealized (losses) for the period included in earnings for assets held as of September 30, 2025		108
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024		-

At September 30, 2026 and December 31, 2025, the Company had classified as Level 3 $354,000 and $340,000, respectively, of net derivative assets and liabilities related to interest rate lock commitments. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates applied ranged from 77.46% to 100.00% at September 30, 2026.

Significant unobservable inputs for assets measured at fair value on a recurring basis at September 30, 2026 and December 31, 2025 (dollars in thousands):

Quantitative Information about Level 3 Fair Value Measurements

September 30, 2026

Fair

Value

Valuation Technique

Significant

Unobservable Input

Range

Weighted Average

Measured at Fair Value on a Recurring Basis:

Net derivative asset and liability:

IRLC

354

Discounted cash flows

Pull-through rates

77.46%-100.00%

94.15

Index

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2025

Fair Value

Valuation Technique

Significant Unobservable

Input

Range

Weighted Average

Measured at Fair Value on a Recurring Basis:

Net derivative asset and liability:

IRLC

340

Discounted cash flows

Pull-through rates

75.39%-97.16%

85.90

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2026 and December 31, 2025 are included in the table below (in thousands):

September 30, 2026	Level I		Level II		Level III		Total
Collateral-dependent loans	$	-	$	-	$	13,951	$	13,951
Other real estate owned		-		-		4,194		4,194

December 31, 2025	Level I		Level II		Level III		Total
Collateral-dependent loans	$	-	$	-	$	8,628	$	8,628
Other real estate owned		-		-		2,358		2,358

•

Collateral-Dependent Loans - The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less estimated cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $1,331,000 and $259,000 at September 30, 2026 and December 31, 2025, respectively.

•

Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

Quantitative Information about Level III Fair Value Measurements

September 30, 2026

Fair

Value

Valuation Technique(s)

Unobservable input

Range

Weighted average

Collateral-dependent loans

13,951

Appraised Collateral Values

Discount for time since appraisal

0-100%

22.64%

Selling costs

0%-10%

8.55%

Holding period

0 - 12 months

11.67 months

Other real estate owned

4,194

Appraised Collateral Values

Discount for time since appraisal

7.5%-15.0%

10.80%

Index

December 31, 2025

Fair Value

Valuation Technique(s)

Unobservable input

Range

Weighted average

Collateral dependent loans

8,628

Appraised Collateral Values

Discount for time since appraisal

0-100%

32.18%

Selling costs

8%-10%

9.43%

Holding period

1 - 12 months

11.62 months

Other real estate owned

2,358

Appraised Collateral Values

Discount for time since appraisal

7.50%

Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

September 30, 2026	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	3,076	$	3,055	$	-	$	-	$	3,055
Net loans		2,363,910		2,343,858		-		-		2,343,858

Financial liabilities:
Deposits		2,509,378		2,504,057		1,927,313		-		576,744
Borrowed funds		512,489		503,729		-		-		503,729

December 31, 2025	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	3,820	$	3,802	$	-	$	-	$	3,802
Net loans		2,248,465		2,216,575		-		-		2,216,575

Financial liabilities:
Deposits		2,376,979		2,375,552		1,877,545		-		498,007
Borrowed funds		309,448		304,486		-		-		304,486

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

Note 10 - Segment Reporting

The Company’s reportable segment is determined by the Chief Executive Officer, who is the designated the chief operating decision maker, based upon information provided about the Company’s products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business such as branches, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker will evaluate the financial performance of the Company’s business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company’s segment and in the determination of allocating resources. The chief operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision maker uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, provisions for credit losses, payroll, and occupancy expenses provide the significant expenses in the banking operation. All operations are domestic.

Index

The measure of segment assets is reported on the balance sheet as total consolidated assets. Segment performance is evaluated using consolidated net income. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements (in thousands):

	Community Banking
	Three months ended September 30,				Nine months ended September 30,
	2026		2025		2026		2025
Total Interest and Dividend Income	$	43,414	$	40,254	$	123,196	$	118,017
Total non-interest income		4,308		3,854		12,012		10,946
Total Consolidated Revenues		47,722		44,108		135,208		128,963
Less:
Interest Expense		16,157		15,114		44,132		46,227
Segment net interest income and non-interest income		31,565		28,994		91,076		82,736
Less:
Provision for credit losses		-		500		1,000		1,875
Salaries and employee benefits		10,633		9,924		31,181		30,189
Occupancy		1,241		1,320		3,942		3,858
Other segment expenses		5,150		4,840		15,369		14,512
Income Taxes		2,620		2,405		7,100		6,213
Segment net income/consolidated net income	$	11,921	$	10,005	$	32,484	$	26,089

Note 11 – Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures. This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In May 2025, the FASB issued ASU 2025-03, Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which revises the guidance in ASC 805 on identifying the accounting acquirer in a business combination in which the legal acquiree is a variable interest entity (VIE). The reporting entity can determine that a transaction in which the legal acquiree is a VIE represents a reverse acquisition in which the legal acquirer is identified as the acquiree for accounting purposes. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs after the initial adoption date. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

Index

In May 2025, the FASB issued ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts With Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer, which clarifies the accounting for share-based consideration payable to a customer under ASC 718 and ASC 606. The amendments refine key aspects of the guidance, including the definition of “performance condition” as well as the measurement requirements and the treatment of forfeitures. The amendments will be effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods. Early adoption is permitted for financial statements that have not yet been issued. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for internal-use software that is developed using an incremental and iterative method (e.g., agile method). The guidance removes all references to project stages in ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. The guidance specifies that the property, plant, and equipment disclosure requirements under ASC 360-10 apply to capitalized software costs accounted for under ASC 350-40, regardless of how those costs are presented in the financial statements. The guidance, which applies to all entities, is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Entities may apply the guidance using a prospective, retrospective, or modified transition approach. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract, which (1) refines the scope of the guidance on derivatives in ASC 815 (Issue 1) and (2) clarifies the guidance on share-based payments from a customer in ASC 606 (Issue 2). The ASU is intended to address concerns about the application of derivative accounting to contracts that have features based on the operations or activities of one of the parties to the contract and to reduce diversity in the accounting for share-based payments in revenue contracts. The ASU adds a new scope exception for certain contracts that are not traded on an exchange and have an underlying that is based on operations or activities specific to one of the parties to the contract. This ASU clarifies that when an entity has a right to receive a share-based payment from its customer in exchange for the transfer of goods or services, the share-based payment should be accounted for as noncash consideration within the scope of ASC 606. ASU 2025-07 is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In November 2025, the FASB issued ASU 2025-08, Financial Instruments – Credit Losses (Topic 326), which amends the guidance in Topic 326 to expand the population of acquired financial assets subject to the gross-up approach to include loans (excluding credit cards) that are acquired without credit deterioration and deemed “seasoned.” All non-purchased credit deteriorated loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-purchased credit deteriorated loans (excluding credit cards) are considered to be seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. ASU 2025-08 should be applied prospectively and is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

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In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815), which amends certain aspects of the hedge accounting guidance in ASC 815 to more closely align hedge accounting with the economics of an entity’s risk management activities. The amendments, among other things, provide more flexibility for cash flow hedges and hedging of raw materials and other nonfinancial assets, as well as simplify hedge accounting for flexible debt and foreign currency debt. ASU 2025-09 should be applied prospectively for public business entities for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. For all other entities, the ASU is to be applied prospectively and is effective for fiscal years beginning after December 15, 2027, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities (Topic 832), which adds guidance on the recognition, measurement, and presentation of government grants. Among other things, the ASU defines whether a grant is related to an asset or to income. Under either scenario, an entity will not be able to recognize the grant until it is probable that both (a) the entity will comply with the conditions attached to the government grant, and (b) the government grant will be received. The new guidance is effective for public business entities in annual periods beginning after December 15, 2028, (including interim periods within) and one year later for all other entities, with early adoption permitted in any period for which financial statements have not yet been issued. The guidance can be applied on a modified prospective basis, a modified retrospective basis, or a full retrospective basis. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, to clarify interim disclosure requirements, the form and content of interim financial statements, and when ASC Topic 270 applies. The amendments in the ASU provide a list of specific interim disclosures that are required by generally accepted accounting principles (GAAP), which, together with the disclosure principle, represent the complete population of required disclosures in interim reporting periods. The intent of the disclosure principle is to help entities determine whether any disclosures not specified in Topic 270 should be provided in interim reporting periods. ASU 2025-11 may be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements for public business entities for interim periods in fiscal years beginning after December 15, 2027, and all other entities in interim periods in fiscal years beginning after December 15, 2028. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements, to address 33 issues that amend the Codification to (1) clarify, (2) correct errors, or (3) make minor improvements that affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments make the Codification easier to understand and apply. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In April 2026, the FASB issued ASU 2026-01, Equity (Topic 505), Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock, which requires paid-in-kind (PIK) dividends to be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. The measurement will be used for both recording the dividend in the financial statements and calculating earnings per share. The new guidance does not change when PIK dividends are recorded or when they impact earnings per share. It is effective for all entities for annual reporting periods beginning after December 15, 2026 (and interim periods within those annual periods), with early adoption permitted. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In May 2026, the FASB issued ASU 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818), which establishes guidance on the recognition, measurement, presentation, and disclosure of environmental credits and environmental credit obligations. Under the new standard, an entity will recognize and measure environmental credit assets based on their intended use as well as how the credits are obtained. Environmental credit obligations will be recognized and measured depending on whether an entity holds and expects to use compliance environmental credits to settle that obligation. The new guidance is effective for public business entities in annual reporting periods beginning after December 15, 2027 (and interim periods within those annual periods), and one year later for all other entities, with early adoption permitted as of the beginning of an annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2026, the FASB issued ASU 2026-03, Fair Value Measurements (Topic 820): Investment Companies with Equity Securities Subject to Contractual Sale Restrictions, which amends ASC 820 to require investment companies within the scope of ASC 946 to consider the effect of a contractual sale restriction when measuring an equity security’s fair value. The amendments are effective prospectively for all equity securities, including equity securities subject to “contractual sale restrictions that are in effect on the date of adoption.” Any adjustment that is made as a result of adoption is recognized as an adjustment to current-period earnings on the date the investment company first applies the amendments. The amount of this adjustment is disclosed in the period in which the investment company first applies the amendments. The new guidance is effective for annual reporting periods beginning after December 15, 2027, with early adoption permitted in an interim or annual reporting period on any date on or after the issuance date of the ASU. The Company is currently evaluating the impact of this new guidance on its financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we may incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc. or the combined Company. When we use words such as “believes,” “expects,” “anticipates,” or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements. The Company cautions readers that the following important factors, among others, could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:

•

Interest rates could change more rapidly or more significantly than we expect or the yield curve could invert for a longer period than anticipated.

•

The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.

•

The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.

•

It could take us longer than we anticipate implementing strategic initiatives, including expansions, designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.

•

Acquisitions and dispositions of assets and companies could affect us in ways that management has not anticipated.

•

We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.

•

We may become subject to new and unanticipated accounting, tax, regulatory or compliance practices or requirements. Failure to comply with any one or more of these requirements could have an adverse effect on our operations.

•

We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.

•

We could experience greater losses than expected due to the ever-increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.

•

We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.

•

The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products as a result of weather, government regulations, geopolitical environment, international trade agreements and tariffs and consumer tastes, which could negatively impact certain of our customers.

•

Loan concentrations in certain industries could negatively impact our results, if financial results or economic conditions deteriorate.

•

A budget impasse in the Commonwealth of Pennsylvania or a Federal Government shutdown could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank, as well as individuals who receive state and federal benefits.

•

Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.

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Additional factors that may affect our results are discussed under “Part II – Item 1A – Risk Factors” in this report and in the Company’s 2025 Annual Report on Form 10-K under “Item 1.A/ Risk Factors.” Except as required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.

Introduction

The following is management’s discussion and analysis of the Company’s consolidated financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial statements for the Company. Our consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with the preceding financial statements presented under Part I and the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of the results you may expect for the full year.

The Company engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Lycoming, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster and Chester counties in south central Pennsylvania and Allegany County in southern New York, and the Cities of Wilmington and Dover, Delaware. We also have limited branch offices in Union county, Pennsylvania and Georgetown Delaware, which primarily serve agricultural and commercial customers in those markets. With the HVBC acquisition in 2023, we expanded further into southeast Pennsylvania, including Montgomery, Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 47 banking facilities, 37 of which operate as bank branches. In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Ephrata, Fivepointville, State College, Kennett Square, Warrington, Williamsport, Plumsteadville, Philadelphia, two branches near the city of Lebanon and two branches in Huntington Valley. The Company has limited branch offices located in Winfield, Pennsylvania and Georgetown, Delaware. In New York, our office is in Wellsville. In Delaware, we have three branches in Wilmington and one in Dover. The mortgage centers acquired as part of the acquisition are located in Huntington Valley, PA, Philadelphia, PA and Mount Laurel, NJ. The business banking facility is located in Philadelphia, PA. During the first half of 2026, the Williamsport branch and the business banking facility located in Philadelphia moved to new locations.

Risk Management

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate risk, credit risk, liquidity risk and regulatory and compliance risk.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction, frequency and magnitude of changes in market interest rates. Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company. The Company uses its asset/liability and funds management policy to control and manage interest rate risk.

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Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans with customers and the purchase of securities from an issuer. The Company’s primary credit risk is in the loan portfolio. The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk. These guidelines include, among other things, contingent funding alternatives.

Operational risk arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. We expend significant resources on our operational systems and any breach or malfunction in operational systems could adversely impact our business and customers and our financial condition and earnings.

Regulatory and compliance risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

Competition

The banking industry in the Bank’s service areas continues to be extremely competitive for loans and deposits, both among commercial banks and with other financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities. Competition in our north central Pennsylvania market has increased as a result of other financial institutions expanding or looking to expand into new markets. With larger population centers in our central, south central and south east Pennsylvania markets, as well as in our Delaware market, we experience more competition to gather deposits and to make loans. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans, deposits and other financial services. Fintech and blockchain entities offering crypto services are also increasing competition for the Company’s financial services. The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

Trust and Investment Services; Oil and Gas Lease Services

Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities. In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific matters from lease negotiations to establishing a successful approach to personal wealth management. Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Balance Sheets since such items are not assets of the Company. Revenues and fees of the Trust Department are reflected in trust income in the Consolidated Statement of Income. As of September 30, 2026 and December 31, 2025, the Trust Department had $203.4 million and $194.8 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank’s market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc. The assets associated with these products are not included in the Consolidated Balance Sheets since such assets are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank’s Investment Representatives increased from $317.9 million at December 31, 2025 to $354.4 million at September 30, 2026 with the increase due to an increase in market values. Fee income from the sale of these products is reflected in brokerage and insurance income in the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, especially in our central, south central and south eastern Pennsylvania and Delaware markets.

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Results of Operations

Overview of the Income Statement

The Company had net income of $32,484,000 for the first nine months of 2026 compared to $26,089,000 for last year’s comparable period, an increase of $6,395,000, or 24.5%, primarily due to an increase in net interest income after the provision for credit losses of $8,149,000. Basic earnings per share for the first nine months of 2026 was $6.77, compared to $5.44 for last year’s comparable period, representing a 24.5% increase. Annualized return on assets and return on equity for the nine months of 2026 were 1.37% and 12.36%, respectively, compared with 1.16% and 11.15% for last year’s comparable period.

Net income for the three months ended September 30, 2026 was $11,921,000 compared to net income of $10,005,000 in the comparable 2025 period, an increase of $1,916,000. Basic earnings per share for the three months ended September 30, 2026 was $2.48, compared to $2.09 for last year’s comparable period, representing a 18.7% increase due to organic growth in net interest income after the provision of $2,617,000. Annualized return on assets and return on equity for the quarter ended September 30, 2026 was 1.45% and 13.39%, respectively, compared with 1.33% and 12.52% for the same 2025 period.

Net Interest Income

Net interest income, the most significant component of the Company’s earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense paid on interest-bearing liabilities.

Net interest income for the first nine months of 2026 was $79,064,000, an increase of $7,274,000, or 10.1%, compared to the same period in 2025. For the first nine months of 2026 the provision for credit losses was $1,000,000. The provision for the first nine months of 2025 was $1,875,000. Consequently, net interest income after the provision for credit losses was $78,064,000 in the first nine months of 2026 compared to $69,915,000 during the first nine months of 2025.

For the three months ended September 30, 2026, net interest income was $27,257,000 compared to $25,140,000, an increase of $2,117,000, or 8.4%, over the comparable period in 2025. There was no provision for credit losses in the third quarter of 2026 compared to $500,000 in 2025. Consequently, net interest income after the provision for credit losses was $27,257,000 for the quarter ended September 30, 2026 compared to $24,640,000 in 2025.

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The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and interest rate spread created for the three and nine months ended September 30, 2026 and 2025 on a tax equivalent basis (dollars in thousands):

	Analysis of Average Balances and Interest Rates Nine Months Ended
	September 30, 2026							September 30, 2025
(dollars in thousands)	Average Balance (1) $		Interest $		Average Rate %			Average Balance (1) $		Interest $		Average Rate %
ASSETS
Short-term investments:
Interest-bearing deposits at banks		22,323		200		1.19			24,479		306		1.67
Total short-term investments		22,323		200		1.19			24,479		306		1.67
Interest bearing time deposits at banks		3,542		80		3.02			3,820		88		3.08
Investment securities:
Taxable		375,226		10,022		3.56			381,600		8,607		3.01
Tax-exempt (3)		131,820		3,632		3.67			105,477		2,297		2.90
Total investment securities		507,046		13,654		3.59			487,077		10,904		2.98
Loans (2)(3)(4):
Residential mortgage loans		337,564		15,211		6.02			347,071		15,539		5.99
Construction		93,068		4,862		6.98			149,505		8,010		7.16
Commercial Loans		1,437,933		65,682		6.11			1,301,875		62,345		6.40
Agricultural Loans		381,217		18,124		6.36			359,144		14,948		5.56
Loans to state & political subdivisions		72,349		2,622		4.85			53,004		1,549		3.91
Other loans		83,061		4,063		6.54			94,947		5,118		7.21
Loans, net of discount		2,405,192		110,564		6.15			2,305,546		107,509		6.23
Total interest-earning assets		2,938,103		124,498		5.67			2,820,922		118,807		5.63
Cash and due from banks		9,492							9,734
Bank premises and equipment		20,754							21,700
Other assets		199,381							179,430
Total non-interest earning assets		229,627							210,864
Total assets		3,167,730							3,031,786
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Business Interest Checking		28,197		192		0.91			18,881		132		0.93
NOW accounts		713,358		9,959		1.87			716,279		11,498		2.15
Savings accounts		290,468		1,027		0.47			288,467		1,003		0.46
Money market accounts		458,465		8,965		2.61			442,024		9,463		2.86
Certificates of deposit		540,350		14,096		3.49			473,565		13,148		3.71
Total interest-bearing deposits		2,030,838		34,239		2.25			1,939,216		35,244		2.43
Other borrowed funds		344,060		9,893		3.85			332,310		10,983		4.42
Total interest-bearing liabilities		2,374,898		44,132		2.48			2,271,526		46,227		2.72
Demand deposits		387,663							385,704
Other liabilities		41,080							40,794
Total non-interest-bearing liabilities		428,743							426,498
Stockholders’ equity		364,089							333,762
Total liabilities & stockholders’ equity		3,167,730							3,031,786
Net interest income				80,366							72,580
Net interest spread (5)						3.19	%						2.91	%
Net interest income as a percentage of average interest-earning assets						3.66	%						3.44	%
Ratio of interest-earning assets to interest-bearing liabilities						124	%						124	%

(1)	Averages are based on daily averages.

(2)	Includes loan origination and commitment fees.

(3)	Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21%.

(4)	Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.

(5)	Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

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	Analysis of Average Balances and Interest Rates Three Months Ended
	September 30, 2026							September 30, 2025
(dollars in thousands)	Average Balance (1) $		Interest $		Average Rate %			Average Balance (1) $		Interest $		Average Rate %
ASSETS
Short-term investments:
Interest-bearing deposits at banks		18,504		65		1.37			19,597		90		1.82
Total short-term investments		18,504		65		1.37			19,597		90		1.82
Interest bearing time deposits at banks		3,189		23		2.86			3,820		29		3.01
Investment securities:
Taxable		406,924		3,874		3.81			381,036		3,033		3.18
Tax-exempt (3)		137,258		1,294		3.77			110,638		865		3.13
Total investment securities		544,182		5,168		3.80			491,674		3,898		3.17
Loans (2)(3)(4):
Residential mortgage loans		337,890		5,266		6.18			343,920		5,227		6.03
Construction		98,355		1,717		6.93			120,492		2,122		6.99
Commercial Loans		1,459,127		22,409		6.09			1,339,367		22,204		6.58
Agricultural Loans		394,077		6,185		6.23			362,260		5,252		5.75
Loans to state & political subdivisions		83,424		1,063		5.06			52,248		514		3.90
Other loans		122,955		2,007		6.48			66,908		1,203		7.13
Loans, net of discount		2,495,828		38,647		6.14			2,285,195		36,522		6.34
Total interest-earning assets		3,061,703		43,903		5.69			2,800,286		40,539		5.74
Cash and due from banks		9,713							9,912
Bank premises and equipment		20,647							21,718
Other assets		207,077							187,100
Total non-interest earning assets		237,437							218,730
Total assets		3,299,140							3,019,016
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Business Interest Checking		30,338		69		0.90			20,624		46		0.88
NOW accounts		715,981		3,373		1.87			701,732		3,702		2.09
Savings accounts		291,589		352		0.48			284,316		327		0.46
Money market accounts		468,532		3,229		2.73			459,993		3,257		2.81
Certificates of deposit		541,443		4,751		3.48			458,402		4,169		3.61
Total interest-bearing deposits		2,047,883		11,774		2.28			1,925,067		11,501		2.37
Other borrowed funds		447,373		4,383		3.89			321,632		3,613		4.46
Total interest-bearing liabilities		2,495,256		16,157		2.57			2,246,699		15,114		2.67
Demand deposits		392,998							394,863
Other liabilities		38,939							37,587
Total non-interest-bearing liabilities		431,937							432,450
Stockholders’ equity		371,947							339,867
Total liabilities & stockholders’ equity		3,299,140							3,019,016
Net interest income				27,746							25,425
Net interest spread (5)						3.12	%						3.07	%
Net interest income as a percentage of average interest-earning assets						3.60	%						3.60	%
Ratio of interest-earning assets to interest-bearing liabilities						123	%						125	%

(1)	Averages are based on daily averages.

(2)	Includes loan origination and commitment fees.

(3)	Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21%.

(4)	Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.

(5)	Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

Index

Tax exempt revenue is shown on a tax-equivalent basis (non-GAAP) for proper comparison using a federal statutory income tax rate of 21% for the three and nine months ended September 30, 2026 and 2025. For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company’s Federal statutory rate during the corresponding period. The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the periods ended September 30, 2026 and 2025 (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2026		2025		2026		2025
Interest and dividend income from investment securities and interest bearing deposits at banks (non-tax adjusted)	$	4,984	$	3,836	$	13,171	$	10,816
Tax equivalent adjustment		272		181		763		482
Interest and dividend income from investment securities and interest bearing deposits at banks (tax equivalent basis)	$	5,256	$	4,017	$	13,934	$	11,298

Interest and fees on loans (non-tax adjusted)	$	38,430	$	36,418	$	110,025	$	107,201
Tax equivalent adjustment		217		104		539		308
Interest and fees on loans (tax equivalent basis)	$	38,647	$	36,522	$	110,564	$	107,509

Total interest income	$	43,414	$	40,254	$	123,196	$	118,017
Total interest expense		16,157		15,114		44,132		46,227
Net interest income		27,257		25,140		79,064		71,790
Total tax equivalent adjustment		489		285		1,302		790
Net interest income (tax equivalent basis)	$	27,746	$	25,425	$	80,366	$	72,580

The following table shows the tax-equivalent effect of changes in volume and rate on interest income and expense (in thousands):

	Three months ended September 30, 2026 vs 2025 (1)									Nine months ended September 30, 2026 vs 2025 (1)
	Change in Volume			Change in Rate			Total Change			Change in Volume			Change in Rate			Total Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks	$	(5	)	$	(20	)	$	(25	)	$	(25	)	$	(81	)	$	(106	)
Interest bearing time deposits at banks		(5	)		(1	)		(6	)		(7	)		(1	)		(8	)
Investment securities:
Taxable		216			625			841			(141	)		1,556			1,415
Tax-exempt		231			198			429			648			687			1,335
Total investments		447			823			1,270			507			2,243			2,750
Loans:
Residential mortgage loans		(87	)		126			39			(429	)		101			(328	)
Construction		(387	)		(18	)		(405	)		(2,953	)		(195	)		(3,148	)
Commercial Loans		1,159			(954	)		205			5,957			(2,620	)		3,337
Agricultural Loans		481			452			933			958			2,218			3,176
Loans to state & political subdivisions		367			182			549			648			425			1,073
Other loans		903			(99	)		804			(605	)		(450	)		(1,055	)
Total loans, net of discount		2,436			(311	)		2,125			3,576			(521	)		3,055
Total Interest Income		2,873			491			3,364			4,051			1,640			5,691
Interest Expense:
Interest-bearing deposits:
Business Interest Checking		22			1			23			64			(4	)		60
NOW accounts		77			(406	)		(329	)		(47	)		(1,492	)		(1,539	)
Savings accounts		9			16			25			7			17			24
Money Market accounts		64			(92	)		(28	)		376			(874	)		(498	)
Certificates of deposit		722			(140	)		582			1,658			(710	)		948
Total interest-bearing deposits		894			(621	)		273			2,058			(3,063	)		(1,005	)
Other borrowed funds		1,144			(374	)		770			408			(1,498	)		(1,090	)
Total interest expense		2,038			(995	)		1,043			2,466			(4,561	)		(2,095	)
Net interest income	$	835		$	1,486		$	2,321		$	1,585		$	6,201		$	7,786

Tax equivalent net interest income increased from $72,580,000 for the nine month period ended September 30, 2025 to $80,366,000 for the nine month period ended September 30, 2026, an increase of $7,786,000. This increase was a result of an increase of $1,585,000 due to a increase in volume as average interest-earning assets increased $117,181,000 due to organic loan growth throughout our market areas and investment purchases. As a result of the lower market interest rates, the yield on average interest bearing liabilities decreased 24 basis points from 2.72% to 2.48% resulting in a decrease in interest expense of $4,561,000. The tax equivalent net interest margin increased from 3.44% for the first nine months of 2025 to 3.66% for the comparable period in 2026. The increase was primarily caused by the decrease in the cost of interest-bearing liabilities due to lower market interest rates in 2026 compared to 2025.

Index

Total tax equivalent interest income for the 2026 nine month period increased $5,691,000 as compared to the 2025 nine month period. This increase was a result of an increase of $4,051,000 due to a increase in volume as average interest-earning assets increased $117,181,000. The yield on interest earning assets increased from 5.63% to 5.67% resulting in an increase in interest income of $1,640,000.

Tax equivalent investment income for the nine months ended September 30, 2026 increased $2,750,000 over the same period last year. The primary cause of the increase was due to the increase in yield on investment securities of 61 basis points to 3.59%.

•

The average balance of taxable securities decreased $6,374,000, which resulted in a decrease in investment income of $141,000. The yield on taxable securities increased 55 basis points from 3.01% to 3.56% as a result of lower yielding securities maturing and purchases made in a higher market rate environment. This resulted in an increase in investment income of $1,556,000.

•

The average balance of tax-exempt securities increased $26,343,000, which resulted in an increase in investment income of $648,000. The yield on tax-exempt securities increased 77 basis points from 2.90% to 3.67%. This resulted in an increase in investment income of $687,000. For a discussion of the Company’s current investment strategy, see “Financial Condition – Investments”.

Total loan interest income increased $3,055,000 for the nine months ended September 30, 2026 compared to the same period last year, as a result of higher volume.

•

Interest income on residential mortgage loans decreased $328,000. The change due to rate was an increase of $101,000 as the average yield on residential mortgages increased from 5.99% to 6.02%. The average balance of residential mortgage loans decreased $9,507,000. This resulted in a decrease of $429,000 on total interest income due to volume.

•

The average balance of construction loans decreased $56,437,000 as a result of projects in our Delaware market and the southeast Pennsylvania market being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $2,953,000 on total interest income due to volume. The change due to rate was a decrease of $195,000 as the average yield on construction loans decreased from 7.16% to 6.98% as a result of a decrease in market interest rates in 2025 and the first half of 2026.

•

The average balance of commercial loans increased $136,058,000 from a year ago. The growth was primarily attributable to completed construction projects converting to permanent financing and growth in our Delaware and south central Pennsylvania markets. This had a positive impact of $5,957,000 on total interest income due to volume. The yield decreased 0.29% to 6.11% as a result of a decrease in market interest rates in 2025 and the first half of 2026, which decreased loan interest income $2,620,000.

•

Interest income on agricultural loans increased $3,176,000 from 2025 to 2026. The yield increased 80 basis points to 6.36% as a result of lower yielding loans maturing and repricing at higher rates, which increased income $2,218,000, $683,000 of which was due to the pay-off of a loan in the first quarter of 2026 that was previously on non-accrual status. The average balance of agricultural loans increased $22,073,000 from a year ago, resulting in an increase in interest income of $958,000.

•

The average balance of loans to state and political subdivisions increased $19,345,000 from a year ago. The growth was primarily attributable to industrial development loans originated in 2026. This had a positive impact of $648,000 on total interest income due to volume. The yield increased 0.94% to 4.85% as a result of the originations in 2026, which increased loan interest income $425,000.

•

The average balance of other loans decreased $11,886,000 as a result of a decrease in the average balance of student loans held for sale and is due to the timing of sales in first quarter of 2026 compared to 2025. This resulted in a decrease of $605,000 on total interest income due to volume. The average yield of other loans decreased 67 basis points to 6.54% as a result of a decrease in market interest rates in 2025 and the first half of 2026 resulting in a decrease in income of $450,000.

Index

Total interest expense decreased $2,095,000 for the nine months ended September 30, 2026 compared with the same period last year as a result of a decrease in rate on interest-bearing liabilities. Interest expense increased $2,466,000 due to volume as a result of an increase in interest bearing liabilities of $103,372,000. The average rate paid on interest-bearing liabilities decreased from 2.72% to 2.48%. The decrease was driven by the Federal Reserve cutting interest rate in the second half of 2025, which caused interest expense to decrease $4,561,000.

•

The average balance of interest bearing deposits increased $91,622,000 from September 30, 2025 to September 30, 2026. The increase was due to organic growth across all regions of the Company’s market areas. The effect of these volume increases was an increase in interest expense of $2,058,000. The average rate paid on interest bearing deposits was 2.25% for the first nine months of 2026 and 2.43% for the comparable period in 2025. This resulted in a decrease in interest expense of $3,063,000. The decrease was due to the Federal Reserve decreasing the Federal funds target interest rate during the second half of 2025.

•

The average balance of other borrowed funds increased $11,750,000. This resulted in an increase in interest expense of $408,000. There was a decrease in the average rate paid on other borrowed funds from 4.42% to 3.85% due to the interest rate decreases by the Federal Reserve in the second half of 2025 that decreased borrowings costs, resulting in a decrease in interest expense of $1,498,000.

Tax equivalent net interest income for the three months ended September 30, 2026 was $27,746,000 which compares to $25,425,000 for the same period last year. This represents an increase of $2,321,000, or 9.1% and was primarily caused by an increase in the volume of interest-earning assets due to organic growth in loans in 2026.

Total tax equivalent interest income was $43,903,000 for the three month period ended September 30, 2026, compared to $40,539,000 for the comparable period last year, an increase of $3,364,000. This increase was a result of an increase of $2,873,000 due to a change in volume as average interest-earning assets increased $261,417,000 due to organic loan growth and investment purchases. As a result of lower yielding investments maturing and investment security purchases, the yield on average investment securities increased 63 basis points from 3.17% to 3.80%, which contributed to an overall increase in interest income of $491,000.

Tax equivalent investment income for the three months ended September 30, 2026 increased $1,270,000 over the same period last year. The primary cause of the increase was due to the increase in yield on investment securities of 63 basis points to 3.80%.

•

The average balance of taxable securities increased $25,888,000, which resulted in an increase in investment income of $216,000. The yield on taxable securities increased 63 basis points from 3.18% to 3.81% as a result of lower yielding securities maturing and purchases made in a higher market rate environment. This resulted in an increase in investment income of $625,000.

•

The average balance of tax-exempt securities increased $26,620,000, which resulted in an increase in investment income of $231,000. The yield on tax-exempt securities increased 64 basis points from 3.13% to 3.77%. This resulted in an increase in investment income of $198,000.

Total loan interest income increased $2,125,000 for the three months ended September 30, 2026 compared to the same period last year, as a result of higher volume.

•

Interest income on residential mortgage loans increased $39,000. The change due to rate was an increase of $126,000 as the average yield on residential mortgages increased from 6.03% to 6.18%. The average balance of residential mortgage loans decreased $6,030,000. This resulted in a decrease of $87,000 on total interest income due to volume.

Index

•

The average balance of construction loans decreased $22,137,000 as a result of projects in our Delaware and southeast Pennsylvania markets being completed and the related construction loans either transferring to other portfolios or being paid off. This resulted in a decrease of $387,000 on total interest income due to volume. The change due to rate was a decrease of $18,000 as the average yield on construction loans decreased from 6.99% to 6.93% as a result of a decrease in market interest rates in the last quarter of 2025 and the first half of 2026.

•

The average balance of commercial loans increased $119,760,000 from a year ago. The growth was primarily attributable to completed construction projects converting to permanent financing and growth in our Delaware and south central Pennsylvania markets. This had a positive impact of $1,159,000 on total interest income due to volume. The yield decreased 49 basis points to 6.09% as a result of a decrease in market interest rates in the last quarter of 2025 and the first quarter of 2026, which decreased loan interest income $954,000.

•

Interest income on agricultural loans increased $933,000 from 2025 to 2026. The yield increased 48 basis points to 6.23% as a result of lower yielding loans maturing and repricing at a higher yield, which increased loan interest income $452,000. The average balance of agricultural loans increased $31,817,000 from a year ago, resulting in an increase in interest income of $481,000.

•

The average balance of loans to state and political subdivisions increased $31,176,000 from a year ago. The growth was primarily attributable to industrial development loans originated in 2026. This had a positive impact of $367,000 on total interest income due to volume. The yield increased 116 basis points to 5.06% as a result of the originations in 2026, which increased loan interest income $182,000.

•

The average balance of other loans increased $56,047,000 as a result of outstanding student loans. This resulted in an increase of $903,000 on total interest income due to volume. The average yield of other loans decreased 65 basis points to 6.48% due to the lower market rate environment in the first half of 2026, resulting in a decrease in income of $99,000.

Total interest expense increased $1,043,000 for the three months ended September 30, 2026 compared with the comparative period last year as a result of an increase in volume as interest-bearing liabilities increased $248,557,000, which caused interest expense to increase $2,038,000.

•

The average balance of interest bearing deposits increased $122,816,000 from September 30, 2025 to September 30, 2026. The increase was due to organic growth experienced in 2025 and 2026. The effect of these volume increases was an increase in interest expense of $894,000 due to increases in business interest checking, NOW accounts, savings accounts, money market and certificates of deposits. The average rate paid on interest bearing deposits was 2.28% for the three months ended September 30, 2026 and 2.37% for the comparable period in 2025. This resulted in a decrease in interest expense of $621,000, driven by decreases in NOW accounts, money market accounts and certificates of deposits. The decreased rates were due to the Federal Reserve decreasing interest rates during the second half of 2025.

•

The average balance of other borrowed funds increased $125,741,000. This resulted in an increase in interest expense of $1,144,000. There was a decrease in the average rate paid on other borrowed funds from 4.46% to 3.89% due to the interest rate decreases by the Federal Reserve that decreased borrowings costs resulting in a decrease in interest expense of $374,000.

Index

Provision for Credit Losses

For the nine month period ended September 30, 2026, we recorded a provision for credit losses of $1,000,000, which represents a decrease of $875,000 from the $1,875,000 provision recorded in the corresponding nine months of last year. The decrease in the provision is due to the updated loss driver analysis completed in the first quarter of 2026 offset by increases in qualitative factors related international and national economic conditions related to the Iran conflict and the impact it may have on agricultural loans due to higher diesel and fertilizer prices and an increase in the qualitative factor for changes in the volume and severity of past due loans for commercial relationships due to the increase in non-accrual loans. (see “Financial Condition – Allowance for Credit Losses and Credit Quality Risk”).

For the three months ended September 30, 2026, no provision was recorded, which represents a decrease of $500,000 from the $500,000 provision recorded in the corresponding three months of last year. The decrease in the provision for off-balance sheet items was due to a decrease in the reserve associated with the commitment for student loan lending. The on-balance sheet provision for the three months ended September 30, 2026 was impacted by the increase in non-accrual loans and the qualitative factors noted for the nine month period.

Non-interest Income

The following table shows the breakdown of non-interest income for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands):

	Three months ended September 30,				Change
	2026		2025		Amount			%
Service charges	$	1,677	$	1,598	$	79			4.9
Trust		191		186		5			2.7
Brokerage and insurance		623		761		(138	)		(18.1	)
Gains on loans sold		659		709		(50	)		(7.1	)
Equity security gains, net		258		34		224			658.8
Earnings on bank owned life insurance		665		363		302			83.2
Other		235		203		32			15.8
Total	$	4,308	$	3,854	$	454			11.8

	Nine months ended September 30,				Change
	2026		2025		Amount			%
Service charges	$	4,389	$	4,192	$	197			4.7
Trust		626		593		33			5.6
Brokerage and insurance		1,832		2,071		(239	)		(11.5	)
Gains on loans sold		1,545		1,720		(175	)		(10.2	)
Equity security gains, net		373		56		317			566.1
Earnings on bank owned life insurance		2,022		1,064		958			90.0
Other		1,225		1,250		(25	)		(2.0	)
Total	$	12,012	$	10,946	$	1,066			9.7

Non-interest income for the nine months ended September 30, 2026 totaled $12,012,000, an increase of $1,066,000 when compared to the same period in 2025. For the three months ended September 30, 2026, non-interest income increased $454,000 to $4,308,000. During the first nine months of 2026, net equity security gains amounted to $373,000 as a result of market gains associated with general banking stock gains compared with a $56,000 gain in the comparable 2025 period associated with market conditions for that period. There were no sales of available for sale securities during the first nine months of 2026 or 2025.

The decrease in gains on loans sold for the three and nine month periods ended September 30, 2026 compared to 2025 is attributable to a decrease in volume and lower market prices on the loans sold in 2026 compared to 2025. The increase in earnings on bank owned life insurance for the three and nine month periods is due to purchasing $22.0 million of additional insurance in January of 2026 and death benefits received in the second quarter of 2026 upon the passing of a former employee. The decrease in brokerage and insurance commissions for the nine month period was due to the resignation of a broker in the third quarter of 2025.

Index

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands):

	Three months ended September 30,				Change
	2026		2025		Amount			%
Salaries and employee benefits	$	10,633	$	9,924	$	709			7.1
Occupancy		1,241		1,320		(79	)		(6.0	)
Furniture and equipment		288		273		15			5.5
Professional fees		531		493		38			7.7
FDIC insurance		420		395		25			6.3
Pennsylvania shares tax		430		430		-			-
Amortization of intangibles		92		113		(21	)		(18.6	)
Software expenses		536		457		79			17.3
OREO expenses		422		6		416			6,933.3
Other		2,431		2,673		(242	)		(9.1	)
Total	$	17,024	$	16,084	$	940			5.8

	Nine months ended September 30,				Change
	2026		2025		Amount			%
Salaries and employee benefits	$	31,181	$	30,189	$	992			3.3
Occupancy		3,942		3,858		84			2.2
Furniture and equipment		911		856		55			6.4
Professional fees		1,599		1,535		64			4.2
FDIC insurance		1,185		1,340		(155	)		(11.6	)
Pennsylvania shares tax		1,147		1,054		93			8.8
Amortization of intangibles		303		367		(64	)		(17.4	)
Software expenses		1,420		1,342		78			5.8
OREO expenses		812		198		614			310.1
Other		7,992		7,820		172			2.2
Total	$	50,492	$	48,559	$	1,933			4.0

Non-interest expenses increased $1,933,000, or 4.0% for the nine months ended September 30, 2026 compared to the same period in 2025. Salaries and employee benefits increased $992,000 or 3.3%. Full time equivalent employees (FTE) increased 10.1 or 2.7% when comparing 2026 to 2025. This increase in headcount in addition to merit increases resulted in payroll and payroll taxes increasing by $939,000. Due to actuarial assumptions, post retirement benefits decreased $47,000. As a result of the decrease in brokerage and insurance commissions due to the resignation of a broker in the third quarter of 2025, commission expense decreased $182,000. Health insurance associated expenses have increased $247,000 due to higher claims and stop loss insurance rates.

The increase in OREO expenses for the three and nine month periods is due to legal fees and real estate taxes associated with non-accrual loans and foreclosed properties. The decrease in FDIC expense for the nine month periods presented is due to an increase in the Bank’s leverage ratio in 2026 compared to 2025. The decrease in other expenses for the three month period ended September 30, 2026 is due to a recovery of amounts previously charged-off in the first quarter of 2026.

Provision for Income Taxes

The provision for income taxes was $7,100,000 for the nine month period ended September 30, 2026 compared to $6,213,000 for the same period in 2025. The increase is primarily attributable to the increase in income before the provision for income taxes of $7,282,000 for the comparable periods due increase in net interest income after the provision for credit losses. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate. Our effective tax rate was 17.9% and 19.2% for the first nine months of 2026 and 2025, respectively, compared to the federal statutory rate of 21%.

Index

For the three months ended September 30, 2026, the provision for income taxes was $2,620,000 compared to $2,405,000 for the same period in 2025. The increase is primarily attributable to the increase in income before the provision for income taxes of $2,131,000 for the comparable periods due to the increase in net interest income. Our effective tax rate was 18.0% and 19.4% for the three months ended September 30, 2026 and 2025, respectively.

We are invested in eight limited partnerships that have established low-income housing projects in our market areas, with our most recent investments made in the second quarter of 2026. We are currently recognizing credits on three projects and expect to recognize credits on the most recent investment in 2027. The remaining four partnership credits are fully utilized as of December 31, 2024. We anticipate recognizing an aggregate of $7.1 million of tax credits over the next 11 years.

Financial Condition

Total assets were $3.41 billion at September 30, 2026, an increase of $348.5 million from $3.06 billion at December 31, 2025, due primarily to an increase in investments and loans. Cash and cash equivalents decreased $6.9 million to $27.4 million. Available for sale securities increased $32.8 million. Loans held for sale increased $169.1 million, while net loans increased $115.4 million. Total deposits increased $132.4 million to $2.51 billion since year-end 2025, while borrowed funds increased $203.0 million to $512.5 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $27.4 million at September 30, 2026 compared to $34.3 million at December 31, 2025. The decrease is due to a decrease in the cash held at the Federal Reserve. Management actively measures and evaluates the Company’s liquidity position through our Asset–Liability Committee and believes the Company’s liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources including the Bank’s core deposits, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year. Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.

Investments

The following table shows the composition of the investment portfolio (including debt and equity securities) as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	September 30, 2026				December 31, 2025
	Amount		%		Amount		%
Debt securities:
U. S. Agency securities	$	47,004		9.8	$	49,755		11.1
U. S. Treasury notes		57,459		12.0		82,654		18.5
Obligations of state & political subdivisions		126,093		26.2		115,886		26.0
Corporate obligations		4,891		1.0		11,297		2.5
Mortgage-backed securities in government sponsored entities		242,124		50.4		185,149		41.5
Equity securities		2,951		0.6		1,815		0.4
Total	$	480,522		100.0	$	446,556		100.0

Index

	September 30, 2026/ December 31, 2025 Change
	Amount			%
Debt securities:
U. S. Agency securities	$	(2,751	)		(5.5	)
U. S. Treasury notes		(25,195	)		(30.5	)
Obligations of state & political subdivisions		10,207			8.8
Corporate obligations		(6,406	)		(56.7	)
Mortgage-backed securities in government sponsored entities		56,975			30.8
Equity securities		1,136			62.6
Total	$	33,966			7.6

Our investment portfolio increased by $34.0 million, or 7.6%, from December 31, 2025 to September 30, 2026. During 2026, we purchased $87.9 million of mortgage-backed securities in U.S government sponsored entities and $21.2 million of state and political subdivision bonds. We experienced $23.4 million of principal repayments and $37.6 million of calls and maturities. As a result of increases in market interest rates, the unrealized loss on the available for sale investment portfolio increased $15.3 million. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the nine month period ended September 30, 2026 yielded 3.59%, compared to 2.98% in the comparable period in 2025, on a tax equivalent basis.

The investment strategy for 2026 has been to utilize cashflows from the investment portfolio to repurchase investments, as well as to engage in a leverage investment strategy to purchase primarily in mortgage backed and municipal securities. This strategy has focused on increasing the yield of the investment portfolio as investment yields are near the top of the trading range compared to recent historical averages. We continually monitor interest rate trading ranges and seek to time investment security purchases when rates are in the top third of the trading range. The Company believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, including a rising rate environment, while providing sufficient cashflows to meet liquidity needs.

Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis. Through active balance sheet management and analysis of the investment portfolio, the Company believes it maintains sufficient liquidity to satisfy depositor withdrawal requirements and various credit needs of its customers.

Loans Held for Sale - Residential Mortgages

Loans held for sale-residential mortgages increased $3.2 million to $12.6 million as of September 30, 2026 from December 31, 2025 due to the third quarter typically having more residential real estate sales than the fourth quarter. For loans sold on the secondary market, the Company recognizes fee income for servicing certain sold loans, which is included in non-interest income.

Loans Held for Sale - Student Loans

Loans held for sale – student loans increased $165.9 million to $245.3 million as of September 30, 2026 from December 31, 2025 due to the seasonal nature of the student loan portfolio held for sale as the first semester of college typically starts in third quarter of the fiscal year. The decrease in proceeds from sales in 2026 compared to 2025 is due to timing of sales, which occurred in the third quarter of 2025 and are projected to occur in the fourth quarter of 2026.

Index

Loans

The following table shows the composition of the loan portfolio as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	September 30, 2026					December 31, 2025
	Amount			%		Amount			%
Real estate:
Residential	$	336,190			14.1	$	340,972			15.0
Commercial		1,276,050			53.4		1,218,514			53.6
Agricultural		370,505			15.5		347,448			15.3
Construction		103,498			4.3		93,965			4.1
Consumer		8,597			0.4		8,859			0.4
Other commercial loans		178,977			7.5		179,166			7.9
Other agricultural loans		31,323			1.3		30,247			1.3
State & political subdivision loans		82,556			3.5		52,100			2.4
Total loans		2,387,696			100.0		2,271,271			100.0
Less allowance for loan losses		(23,786	)				(22,806	)
Net loans	$	2,363,910				$	2,248,465

	September 30, 2026/ December 31, 2025 Change
	Amount			%
Real estate:
Residential	$	(4,782	)		(1.4	)
Commercial		57,536			4.7
Agricultural		23,057			6.6
Construction		9,533			10.1
Consumer		(262	)		(3.0	)
Other commercial loans		(189	)		(0.1	)
Other agricultural loans		1,076			3.6
State & political subdivision loans		30,456			58.5
Total loans	$	116,425			5.1

Lending efforts have historically been focused in north central Pennsylvania, the south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster, the central Pennsylvania counties of Lycoming, Clinton and Centre, and southern New York. In Delaware, our activity is centered around the cities of Wilmington and Dover, Delaware. We have a limited service branch office in Union County that is staffed by a lending team to primarily support agricultural opportunities in central Pennsylvania and a loan production office in Georgetown, Delaware to also support our agricultural initiative. In June 2023, we completed the HVBC acquisition, which expanded our markets into south east Pennsylvania, including the counties of Montgomery, Bucks and Philadelphia. It also includes a Mortgage production office in Mount Laurel, New Jersey. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our lending teams have with their customers and our lenders expertise in certain areas, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank’s website. The Bank offers a variety of loans although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans. All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors.

Loan activity has increased in 2026 with growth experienced across most markets even after a large pay-off in our Delaware market.

Index

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. As of September 30, 2026, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 293.4% of consolidated risk based capital. Construction, land and land development loans represented 32.0% of consolidated risk based capital as of September 30, 2026. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional equity capital and may dilute shareholder returns. The Company has an extensive Capital Policy and Capital Plan, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. The Company continues to refine information reviewed related to commercial real estate and to implement additional monitoring and testing of commercial real estate loans. As of September 30, 2026, management believes that it has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.

Given the significance of commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by owner occupied status and by non-owner occupied status as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	Owner Occupied					Non-Owner Occupied					Total
Commercial Real Estate	Amount		%			Amount		%			Amount		%
Multifamily Rental	$	-		0.00	%	$	194,825		15.27	%	$	194,825		15.27	%
Residential Rental and Speculation		6,586		0.52	%		182,096		14.27	%		188,682		14.79	%
Retail		44,624		3.50	%		124,007		9.72	%		168,631		13.22	%
Mixed Use		13,613		1.07	%		101,193		7.93	%		114,806		9.00	%
Hotel/Motel		-		0.00	%		100,295		7.86	%		100,295		7.86	%
Industrial/Flex/Warehouse		26,397		2.07	%		72,434		5.68	%		98,831		7.75	%
Office		13,787		1.08	%		85,004		6.66	%		98,791		7.74	%
Specialty		52,597		4.12	%		24,681		1.93	%		77,278		6.06	%
Land		2,753		0.22	%		56,227		4.41	%		58,980		4.62	%
Student Housing		-		0.00	%		53,063		4.16	%		53,063		4.16	%
Amusement/Entertainment		25,017		1.96	%		796		0.06	%		25,813		2.02	%
Self Storage		1,084		0.08	%		23,713		1.86	%		24,797		1.94	%
Schools/Higher Ed/Vocational		6,376		0.50	%		12,883		1.01	%		19,259		1.51	%
Food and beverage		17,591		1.38	%		1,201		0.09	%		18,792		1.47	%
Medical office		8,647		0.68	%		7,262		0.57	%		15,909		1.25	%
Other		1,796		0.14	%		4,710		0.37	%		6,506		0.51	%
Senior Living		515		0.04	%		5,737		0.45	%		6,252		0.49	%
Healthcare/Hospitals		4,540		0.36	%		-		0.00	%		4,540		0.36	%
Total	$	225,923		17.70	%	$	1,050,127		82.30	%	$	1,276,050		100.00	%

Index

	December 31, 2025
	Owner Occupied					Non-Owner Occupied					Total
Commercial Real Estate:	Amount		%			Amount		%			Amount		%
Residential Rental and Speculation	$	7,636		0.63	%	$	185,033		15.19	%	$	192,669		15.81	%
Multifamily Rental		-		0.00	%		185,860		15.25	%		185,860		15.25	%
Retail		41,287		3.39	%		123,523		10.14	%		164,810		13.53	%
Mixed Use		14,699		1.21	%		87,757		7.20	%		102,456		8.41	%
Hotel/Motel		-		0.00	%		98,063		8.05	%		98,063		8.05	%
Office		14,224		1.17	%		67,660		5.55	%		81,884		6.72	%
Industrial/Flex/Warehouse		21,865		1.79	%		57,323		4.70	%		79,188		6.50	%
Specialty		51,019		4.19	%		24,785		2.03	%		75,804		6.22	%
Land		2,425		0.20	%		55,709		4.57	%		58,134		4.77	%
Student Housing		-		0.00	%		52,797		4.33	%		52,797		4.33	%
Amusement/Entertainment		30,632		2.51	%		837		0.07	%		31,469		2.58	%
Self Storage		479		0.04	%		24,166		1.98	%		24,645		2.02	%
Schools/Higher Ed/Vocational		6,918		0.57	%		13,187		1.08	%		20,105		1.65	%
Food and beverage		14,999		1.23	%		1,221		0.10	%		16,220		1.33	%
Medical office		8,636		0.71	%		7,521		0.62	%		16,157		1.33	%
Healthcare/Hospitals		6,748		0.55	%		-		0.00	%		6,748		0.55	%
Senior Living		-		0.00	%		6,529		0.54	%		6,529		0.54	%
Other		2,351		0.19	%		2,625		0.22	%		4,976		0.41	%
Total	$	223,918		18.38	%	$	994,596		81.62	%	$	1,218,514		100.00	%

The following table provides a breakdown of our construction loan portfolio by collateral type as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	September 30, 2026					December 31, 2025
Construction	Amount		%			Amount		%
Residential	$	37,897		36.62	%	$	32,732		34.83	%
Agricultural and land		21,845		21.11	%		10,432		11.10	%
Industrial/Flex/Warehouse		16,901		16.33	%		19,586		20.84	%
Multifamily		9,695		9.37	%		24,844		26.44	%
Senior Living		3,949		3.82	%		-		0.00	%
Specialty		3,432		3.32	%		398		0.42	%
Hotel/Motel		2,585		2.50	%		-		0.00	%
Office		2,583		2.50	%		3,148		3.35	%
Food and beverage		1,464		1.41	%		1,519		1.62	%
Student Housing		1,192		1.15	%		-		0.00	%
Amusement/Entertainment		742		0.72	%		-		0.00	%
Mixed Use		497		0.48	%		558		0.59	%
Self Storage		475		0.46	%		476		0.51	%
Other		143		0.14	%		122		0.13	%
Retail		98		0.09	%		150		0.16	%
Total	$	103,498		100.00	%	$	93,965		100.00	%

The Company obtains an independent appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio (“LTV”). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at September 30, 2026 and December 31, 2025(dollars in thousands):

Index

	September 30, 2026								December 31, 2025
LTV Range	Number of Loans		Amount		%			LTV Range	Number of Loans		Amount		%
0%-25%		908	$	168,175		13.18	%	0%-25%		832	$	177,207		14.54	%
25.01%-50%		599		460,028		36.05	%	25.01%-50%		550		387,019		31.76	%
50.01%-60%		293		217,924		17.08	%	50.01%-60%		289		226,199		18.56	%
60.01%-70%		326		267,666		20.98	%	60.01%-70%		340		273,932		22.48	%
70.01%-75%		113		120,097		9.41	%	70.01%-75%		132		117,272		9.62	%
75.01%-80%		54		34,533		2.71	%	75.01%-80%		44		30,080		2.47	%
>80%		6		7,627		0.60	%	>80%		5		6,805		0.56	%
Total		2,299	$	1,276,050		100.00	%	Total		2,192	$	1,218,514		100.00	%

While the Company lends to companies that service companies that explore for natural gas in our market area, the Company has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company are to service industry customers which include trucking companies, stone quarries and other support businesses, favoring customers that have had a relationship with the Company prior to supporting the exploration for natural gas. We also have originated loans to businesses and individuals for restaurants, hotels and rental apartments that have been developed and expanded to meet the housing and living needs of the gas industry workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include more stringent loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

Allowance for Credit Losses - Loans

The allowance for credit losses - loans is maintained at a level which, in management’s judgment, is adequate to absorb losses in the loan portfolio. The provision for credit losses - loans is charged against current income. Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance. The allowance for credit losses - loans was $23,786,000 or 1.00% of total loans as of September 30, 2026 and December 31, 2025. The $980,000 increase is a result of a $1,088,000 provision for credit losses – loans plus net charge-offs of $108,000. The following table shows the distribution of the allowance for credit losses - loans and the percentage of loans compared to total loans by loan category as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	September 30, 2026				December 31 2025
	Amount		%		Amount		%
Real estate loans:
Residential	$	2,607		14.1	$	3,112		15.0
Commercial		11,702		53.4		10,017		53.6
Agricultural		4,685		15.5		4,841		15.3
Construction		1,021		4.3		916		4.1
Consumer		598		0.4		1,201		0.4
Other commercial loans		2,645		7.5		2,534		7.9
Other agricultural loans		218		1.3		115		1.3
State & political subdivision loans		121		3.5		55		2.4
Unallocated		189		N/A		15		N/A
Total allowance for loan losses	$	23,786		100.0	$	22,806		100.0

Index

The following table provides information related to credit loss experience and loan quality for the nine months ended September 30, 2026 and the year ended December 31, 2025 (dollars in thousands).

September 30, 2026	Credit Loss Expense (Benefit)			Net (charge- offs) Recoveries			Average Loans		Ratio of net (charge-offs) recoveries to Average loans			Allowance to total loans			Non- accrual loans as a percent of loans			Allowance to total non- accrual loans
Real estate:
Residential	$	(517	)	$	12		$	337,899		0.00	%		0.78	%		1.11	%		69.91	%
Commercial		1,685			-			1,258,059		0.00	%		0.92	%		2.54	%		36.05	%
Agricultural		(156	)		-			350,766		0.00	%		1.26	%		0.62	%		202.81	%
Construction		105			-			93,068		0.00	%		0.99	%		0.92	%		107.36	%
Consumer		(588	)		(15	)		8,456		(0.18	%)		6.96	%		5.73	%		121.30	%
Other commercial loans		216			(105	)		179,874		(0.06	%)		1.48	%		3.70	%		39.92	%
Other agricultural loans		103			-			30,451		0.00	%		0.70	%		1.60	%		43.43	%
State & political subdivision loans		66			-			72,349		0.00	%		0.15	%		0.00	%	NA
Unallocated		174			-			-	NA			NA			NA			NA
Total	$	1,088		$	(108	)	$	2,330,922		0.00	%		1.00	%		1.97	%		50.53	%

December 31, 2025
Real estate:
Residential	$	1,172		$	-		$	346,313		0.00	%		0.91	%		1.01	%		90.39	%
Commercial		883			(40	)		1,153,166		0.00	%		0.82	%		0.94	%		87.13	%
Agricultural		1,312			-			334,201		0.00	%		1.39	%		0.62	%		225.69	%
Construction		(486	)		-			135,920		0.00	%		0.97	%		0.55	%		177.52	%
Consumer		149			(286	)		8,797		(3.25	%)		13.56	%		8.69	%		155.97	%
Other commercial loans		(777	)		(455	)		167,670		(0.27	%)		1.41	%		4.37	%		32.37	%
Other agricultural loans		(18	)		-			28,679		0.00	%		0.38	%		1.33	%		28.54	%
State & political subdivision loans		(6	)		-			52,730		0.00	%		0.11	%		0.00	%	NA
Unallocated		(341	)		-			-	NA			NA			NA			NA
Total	$	1,888		$	(781	)	$	2,314,776		(0.03	%)		1.00	%		1.17	%		85.73	%

The credit loss expense for the first nine months of 2026 was driven by the economic forecast, the annual update of the loss driver analysis, as well as qualitative factors associated with the Iran conflict and the increase in non-accrual and classified loans. The updated loss driver analysis includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed year of 2025.

The Company believes it utilizes a disciplined and thorough loan review process based upon its internal loan policy approved by the Company’s Board of Directors. The purpose of the review is to assess credit quality, analyze delinquencies, identify problem loans, evaluate potential charge-offs and recoveries, and assess general overall economic conditions in the markets served. An external independent loan review is performed on our commercial portfolio at least semi-annually for the Company. The external consultant is engaged to 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3) selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our underwriting process and loan grading system is evaluated.

Management believes it uses the best information available to make such determinations and that the allowance for credit losses - loans is adequate as of September 30, 2026. However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination. A prolonged downturn in the economy, changes in the economies of various segments of our agricultural and commercial portfolios, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, credit loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank’s allowance for credit losses. The banking agencies could require the recognition of additions to the allowance for credit losses - loans based upon their judgment of information available to them at the time of their examination.

Index

On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports. Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list. The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include. Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan from the watchlist. In certain cases, loans may be placed on non-accrual status or charged-off based upon management’s evaluation of the borrower’s ability to pay. All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans, other commercial loans and other agricultural loans, on non-accrual are evaluated quarterly for impairment.

See also “Note 5 – Loans and Related Allowance for Credit Losses - Loans” to the consolidated financial statements.

The following table is a summary of our non-performing assets as of September 30, 2026 and December 31, 2025.

(dollars in thousands)	September 30, 2026		December 31, 2025
Non-performing loans:
Non-accruing loans	$	47,072	$	26,602
Accrual loans - 90 days or more past due		11		229
Total non-performing loans		47,083		26,831
Foreclosed assets held for sale		4,461		2,358
Total non-performing assets	$	51,544	$	29,189

The following table identifies amounts of loans contractually past due 30 to 90 days and non-performing loans by loan category, as well as the change from December 31, 2025 to September 30, 2026 in non-performing loans (in thousands). Non-performing loans include accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans. Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management’s assessment of its ultimate ability to collect principal and interest.

	September 30, 2026								December 31, 2025
			Non-Performing Loans								Non-Performing Loans
(in thousands)	30 - 89 Days Past Due Accruing		90 Days Past Due Accruing		Non- accrual		Total Non- Performing		30 - 89 Days Past Due Accruing		90 Days Past Due Accruing		Non- accrual		Total Non- Performing
Real estate:
Residential	$	1,607	$	7	$	3,729	$	3,736	$	3,168	$	151	$	3,443	$	3,594
Commercial		1,060		-		32,461		32,461		4,394		-		11,497		11,497
Agricultural		1,308		-		2,310		2,310		1,178		55		2,145		2,200
Construction		-		-		951		951		-		-		516		516
Consumer		69		1		493		494		309		15		770		785
Other commercial loans		296		3		6,626		6,629		203		8		7,828		7,836
Other agricultural loans		356		-		502		502		17		-		403		403
Total nonperforming loans	$	4,696	$	11	$	47,072	$	47,083	$	9,269	$	229	$	26,602	$	26,831

Index

	Change in Non-Performing Loans September 30, 2026 /December 31, 2025
(in thousands)	Amount			%
Real estate:
Residential	$	142			4.0
Commercial		20,964			182.3
Agricultural		110			5.0
Construction		435			84.3
Consumer		(291	)		(37.1	)
Other commercial loans		(1,207	)		(15.4	)
Other agricultural loans		99			24.6
Total nonperforming loans	$	20,252			75.5

Nonperforming loans increased $20.3 million during the first nine months of 2026. The increase from December 31, 2025 is primarily due to ten commercial real estate loan relationships and one construction real estate loan relationship, that total approximately $21.4 million, being placed on non-accrual status during the first half of 2026 due to becoming more than 90 days past due. All non-performing commercial, agricultural and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter end. In addition, non-performing residential loans with a balance in excess of $150,000 are individually evaluated. The specific reserves for these non-performing loans as of September 30, 2026 and December 31, 2025 was $1,136,000 and $1,039,000, respectively. In addition, the Bank policy is to reserve 100% of all non-performing medical student loans acquired through the HVBC acquisition that are held for investment. The reserve for these loans was $543,000 and $770,000 as of September 30, 2026 and December 31, 2025, respectively.

Management believes that the allowance for credit losses - loans at September 30, 2026 was adequate at that date, which was based on the following factors:

•

Specific reserves for non-performing loans total $1,679,000.

•

The Company has a history of low charge-offs, which were 0.00% of average loans on an annualized basis for 2026 and 0.03% for 2025.

Bank Owned Life Insurance

The Company owns bank owned life insurance policies to offset future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits. As of September 30, 2026, and December 31, 2025, the cash surrender value of the life insurance was $75.1 million and $51.5 million, respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. The amounts recorded as non-interest income totaled $2,022,000 and $1,064,000 for the nine month periods ended September 30, 2026 and 2025, respectively. During the nine months of 2026 and 2025, the Company received proceeds of $393,000 and $272,000, respectively, which included death benefits of $137,000 during 2026 on a former employee of the Company. During the first quarter of 2026, the Bank purchased $22.0 million of additional bank owned life insurance policies. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers’ credit ratings.

The Company policies that were purchased directly from insurance companies and acquired as part of the HVBC acquisition are structured so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy. Under these agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds. The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of an acquisition in 2015 provide a fixed split-dollar benefit for the beneficiary’s estate, which is dependent on several factors including whether the covered individual was a former Director of First National Bank of Fredericksburg (“FNB”) or a former employee of FNB and their salary level. As of September 30, 2026 and December 31, 2025, included in other liabilities on the Consolidated Balance Sheet was a liability of $541,000 and $529,000, respectively, for the obligation under the split-dollar benefit agreements.

Index

Premises and Equipment

Premises and equipment decreased $429,000 to $20,569,000 as of September 30, 2026 from December 31, 2025 as a result of depreciation.

Other Assets

Other assets increased $8.0 million to $61.1 million as of September 30, 2026 from December 31, 2025. The primary drivers of the increase were an increase of $5,950,000 in FHLB stock due to an increase in outstanding borrowings.

Deposits

The following table shows the composition of deposits as of September 30, 2026 and December 31, 2025 (dollars in thousands):

	September 30, 2026				December 31, 2025
	Amount		%		Amount		%
Non-interest-bearing deposits	$	509,898		20.3	$	516,657		21.7
Interest bearing demand deposits		29,219		1.2		25,576		1.1
NOW accounts		612,560		24.4		593,825		25.0
Savings deposits		286,774		11.4		286,554		12.1
Money market deposit accounts		488,862		19.5		480,509		20.2
Certificates of deposit		582,065		23.2		473,858		19.9
Total	$	2,509,378		100.0	$	2,376,979		100.0

	September 30, 2026/ December 31, 2025 Change
	Amount			%
Non-interest-bearing deposits	$	(6,759	)		(1.3	)
Interest bearing demand deposits		3,643			14.2
NOW accounts		18,735			3.2
Savings deposits		220			0.1
Money market deposit accounts		8,353			1.7
Certificates of deposit		108,207			22.8
Total	$	132,399			5.6

Deposits increased $132.4 million since December 31, 2025. The increase in deposits was driven by an increase in certificates of deposits as customers look to maximize their interest return, which continues the pattern of customer funds being transferred to higher-yielding investment alternatives. Brokered deposits totaled $40.0 million and $60.0 million as of September 30, 2026 and December 31, 2025, respectively. At September 30, 2026, the Bank estimates that balances held by customers in excess of the FDIC insurance limit ($250,000 per insured account) totaled $1.22 billion, or 48.7% of the Bank’s total deposits. Included in this balance are balances held through Intrafi, which provides customers with additional FDIC insurance, as well as deposits collateralized by securities or letters of credit (almost exclusively municipal deposits). The total of these items was $736.8 million, or 29.4% of the Bank’s total deposits, as of September 30, 2026.

Borrowed Funds

Borrowed funds were $512.5 million and $309.4 million as of September 30, 2026 and December 31, 2025, respectively. The increase in borrowed funds was due to the increase in investments, student loans held for sale, loans and bank owned life insurance exceeding deposit growth through September 30, 2026.

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The Company’s current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a rising market interest rate environment. The Company’s daily cash requirements or short-term investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.

Other liabilities

Other liabilities decreased $2.0 million to $30.8 million as of September 30, 2026 from December 31, 2025. The primary driver of the decrease was a decrease in escrow payables as of September 30, 2026 compared to December 31, 2025.

Stockholders’ Equity

We evaluate stockholders’ equity in relation to total assets and the risks associated with those assets. The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb unforeseen losses. For these reasons, capital adequacy has been, and will continue to be, of paramount importance to the Company. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.

Total stockholders’ equity was $351,287,000 at September 30, 2026 compared to $338,051,000 at December 31, 2025, an increase of $13,236,000, or 3.9%. Excluding accumulated other comprehensive loss, stockholders’ equity increased $25,383,000, or 7.2%. The accumulated comprehensive loss increased $12,147,000, which was primarily the result of the decrease in fair value of the Company’s available for sale investment portfolio caused by the increase in longer term market interest rates in the third quarter of 2026. For the first nine months of 2026, the Company had net income of $32,484,000 and declared cash dividends of $7,306,000, or $1.52 per share, representing a cash dividend payout ratio of 22.5%.

All of the Company’s debt investment securities are classified as available-for-sale, making this portion of the Company’s balance sheet more sensitive to the changing market value of investments due to changes in market interest rates. As a result of the decrease in longer term market interest rates, accumulated other comprehensive loss increased approximately $12,147,000 from December 31, 2025.

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Company’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 the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the “CBLR”) framework for determining its capital adequacy. Under the CBLR framework a qualifying community bank is considered well-capitalized if its leverage ratio (Tier 1 capital divided by average total consolidated assets) exceeds 8%. There is a four quarter grace period for a qualifying community bank to return to greater than 8% as long as the CBLR is greater than 7%. An institution that has spent eight or more of the previous twenty quarters within the grace period may not use the grace period in the current quarter. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At September 30, 2026 and December 31, 2025, the Bank leverage ratio under the CBLR framework was 9.30% and 9.54%, respectively, which meet the requirement to be considered “well-capitalized” under the CBLR at those dates.

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Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs but are not recorded on the Company’s balance sheet. The contractual amount of financial instruments with off-balance sheet risk was as follows at September 30, 2026 and December 31, 2025 (in thousands):

	September 30, 2026		December 31, 2025
Commitments to extend credit	$	519,178	$	503,969
Standby letters of credit		12,590		11,612
	$	531,768	$	515,581

Allowance for Credit Losses - Off-Balance Sheet credit Exposure	$	1,075	$	1,163

We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one-time point of sale (non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at September 30, 2026 and December 31, 2025 was $12,068,000 and $12,207,000, respectively. The Company reserves the right to discontinue this service without prior notice.

Liquidity

Liquidity is a measure of the Company’s ability to efficiently meet normal cash flow requirements of both borrowers and depositors. To maintain proper liquidity, we use funds management policies, which include liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders. Liquidity is needed to meet depositors’ withdrawal demands, extend credit to meet borrowers’ needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company’s historical activity in this area can be seen in the Consolidated Statement of Cash Flows. The most important source of funds is core deposits. Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management. Other sources of funding include brokered certificates of deposit and the sale of loans or investments, if needed.

The Company’s use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is presented. Other uses of funds include purchasing stock from the Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures. Capital expenditures (including software purchases), during the first nine months of 2026 were $646,000 compared to $1,225,000 during the same time period in 2025.

Short-term debt from the FHLB supplements the Bank’s availability of funds. The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB. The Bank had a maximum borrowing capacity at the FHLB of approximately $1.12 billion, of which $734.5 million was outstanding, at September 30, 2026. The Bank also has two federal funds lines with third party providers for $34.0 million as of September 30, 2026, which are unsecured and were undrawn upon as of September 30, 2026. The Company also has a borrower in custody line with the Federal Reserve Bank of approximately $11.1 million, which also was not drawn upon as of September 30, 2026. The Company has a $15.0 million line of credit with a New York community bank, which also was not drawn upon as of September 30, 2026. The Company is not in compliance with one of the covenants associated with the $15.0 million line as of September 30, 2026, as nonperforming assets exceed 1.50% of total loans and OREO. As a result, the Company may not be able to utilize the line and the line maybe called. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.

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Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Citizens Financial Services, Inc. is responsible for paying any dividends declared to its shareholders. Citizens Financial also has repurchased shares of its common stock. Citizens Financial Services, Inc.’s primary source of income is dividends received from the Bank. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, unless the dividend to be declared by the Bank’s Board of Directors does not exceed the total of: (i) the Bank’s net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus. The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend. At September 30, 2026, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of approximately $6.6 million.

Interest Rate and Market Risk Management

The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.

Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, because we have no trading portfolio, we are not subject to trading risk. At September 30, 2026, the Company has equity securities that represent only 0.09% of its total assets and, therefore, equity risk is not significant.

The primary components of interest-sensitive assets include adjustable-rate loans and investments, loan repayments, investment maturities and money market investments. The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit and short-term borrowings. Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive (except for the top-tier money market investor accounts, typically held by local governments, which are paid current market interest rates).

Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on our Company’s net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. We have not experienced the kind of earnings volatility that might be indicated from gap analysis.

The Company currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Company’s risk exposure. In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds on mortgage loans and mortgage securities. Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of September 30, 2026 (dollars in thousands):

Index

Changes in Rates	Prospective One-Year Net Interest Income		Change In Prospective Net Interest Income			% Change In Prospective Net Interest Income
-300 Shock		123,011		8,434			7.36
-200 Shock		118,886		4,309			3.76
-100 Shock		116,293		1,716			1.50
Base		114,577		-			-
+100 Shock		112,544		(2,033	)		(1.77	)
+200 Shock		110,014		(4,563	)		(3.98	)
+300 Shock		107,592		(6,985	)		(6.10	)
+400 Shock		105,139		(9,438	)		(8.24	)

The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure. Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. The changes in net interest income disclosed in the above table are in line with Company policy for interest rate risk.

Item 3-Quantitative and Qualitative Disclosure about Market Risk

In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary. Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q. Management and a committee of the Board of Directors manage interest rate risk (see also “Interest Rate and Market Risk Management”).

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes to Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II ‑ OTHER INFORMATION

Item 1 ‑ Legal Proceedings

Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company. Any pending proceedings are ordinary, routine litigation incidental to the business of the Company and its subsidiaries. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiaries by government authorities.

Item 1A – Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1.A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition or future results. At September 30, 2026, the risk factors of the Company have not changed materially from those reported in our 2025 Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2 – Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares (or units Purchased)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)

7/1/26 to 7/31/26		-		-		-		200,000
8/1/26 to 8/31/26		-		-		-		200,000
9/1/26 to 9/30/26		-		-		-		200,000
Total		-		-		-		200,000

(1)

On February 18, 2026, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 200,000 shares at an aggregate purchase price not to exceed $15.0 million over a period of 36 months from April 22, 2026 and ending on April 22, 2029. Under the stock repurchase program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Additionally, during the quarter ended September 30, 2026, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the Amended and Restated First Citizens Community Bank Annual Incentive Plan. Additionally, during the quarter ended September 30, 2026, certain employees resigned from the Company and forfeited unvested restricted shares awarded to them through the Amended and Restated First Citizens Community Bank Annual Incentive Plan.

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

Item 4 – Mine Safety Disclosure

Not applicable.

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Item 5 ‑ Other Information

During the three months ended September 30, 2026, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408 of SEC Regulation S-K).

Item 6 ‑ Exhibits

(a) The following documents are filed as a part of this report:

3.1	Restated Articles of Incorporation of Citizens Financial Services, Inc. ⁽¹⁾

3.2	Articles of Amendment of Restated Articles of Incorporation of Citizens Financial Services, Inc. ⁽²⁾

3.3	Bylaws of Citizens Financial Services, Inc.⁽³⁾

3.4	Amendment No. 1 to Amended and Restated Bylaws of Citizens Financial Services, Inc. ⁽⁴⁾

4.1	Form of Common Stock Certificate. ⁽⁵⁾

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2026, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows (unaudited) and (vi) related notes (unaudited).

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018.

⁽²⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on April 26, 2021.

⁽³⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on December 17, 2020.

⁽⁴⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on November 23, 2022

⁽⁵⁾ Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Commission on March 9, 2023.

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Signatures

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.

	Citizens Financial Services, Inc.
	(Registrant)

November 5, 2026	/s/ Randall E. Black
	By: Randall E. Black
	President and Chief Executive Officer
	(Principal Executive Officer)

November 5, 2026	/s/ Stephen J. Guillaume
	By: Stephen J. Guillaume
	Chief Financial Officer
	(Principal Financial and Accounting Officer)