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Item 8. Financial Statements and Supplementary Data

2025-03-26 compared with 2024-03-29 · 400 added, 482 removed, 1223 unchanged (42% of the section changed)

6 unchanged sentences

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2023, due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses.

Our opinion is not modified with respect to this matter.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

We draw attention to Note 1 of the financial statements, which discusses the full impairment of goodwill which occurred during the quarter ended March 31, 2024.

Our opinion is not modified in respect of this matter.

Critical Audit Matter

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Management’s periodic evaluation of the adequacy of the ACL is based on specific expectations for the future economic environment that are incorporated in the projection, with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast.

Management also considers the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may impact the

borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral (if the loan is collateral dependent), composition of the loan portfolio, and other relevant factors.

Management also considers the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may impact the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral (if

the loan is collateral dependent), composition of the loan portfolio, and other relevant factors.

This evaluation is inherently subjective as it requires material estimates based on management’s judgment regarding the projection of expected credit losses over the contractual lifetime of the loans.

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Net interest income

Credit for credit losses

Net interest income after credit for credit losses

Provision (credit) for credit losses

Net interest income after provision for credit losses

NON-INTEREST INCOME

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ATM fees and debit card income

Net gains (losses) on sales of mortgage loans

Net securities losses

Net gains on sales of mortgage loans

Net securities gains (losses)

Total non-interest income

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Data processing fees

Goodwill impairment

Total non-interest expense

Income before income tax expense

Income tax expense

(Loss) Income before income tax (benefit) expense

Income tax (benefit) expense

NET (LOSS) INCOME

PER SHARE DATA

Net income per share:

Net (loss) income per share:

Dividends per share

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FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in thousands)

Other comprehensive loss:

Unrealized net holding gains (losses) on debt securities available-for-sale arising during the period, net of income tax expense (benefit) of $ 947 and $( 10,027 ), respectively

Less reclassification adjustment for net (gains) losses included in net income, net of income tax benefit (expense) of $( 21 ) and $ 153 , respectively (a) (b)

Fair value adjustment on derivatives, net of income tax benefit (expense) of $( 950 ) and $ 0 , respectively

Total other comprehensive loss

Total Comprehensive Income (Loss)

Net (loss) income

Other comprehensive income (loss):

Unrealized net holding gains on debt securities available-for-sale arising during the period, net of income taxes of $ 423 and $ 947 , respectively

Less reclassification adjustment for net gains included in net income, net of income taxes of $ 0 and $( 21 ), respectively (a) (b)

Fair value adjustment on derivatives, net of income taxes of $( 612 ) and $( 950 ), respectively

Total other comprehensive income (loss)

Total comprehensive (loss) income

(a) Gross amounts are included in net securities (losses) gains on the consolidated statements of income in non-interest income.

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Balance at January 1, 2023

Cumulative effect of adoption of ASU No.

Other comprehensive loss, net of taxes

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Balance at December 31, 2023

Cumulative effect of adoption of ASU No.

Other comprehensive loss, net of taxes

Other comprehensive income, net of taxes

Issuance of common stock under dividend reinvestment plan

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CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

Credit for credit losses on loans

Net (loss) income

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision (credit) for credit losses on loans

Credit for credit losses on unfunded commitments

Goodwill impairment

Depreciation and amortization

Net premium amortization on securities

Deferred income tax expense

Deferred income tax (benefit) expense

Common stock issued

Net (gains) losses on sales of mortgage loans

Net gains on sales of mortgage loans

Proceeds from sales of mortgage loans originated for sale

Originations of mortgage loans originated for sale

Net securities losses

Increase in accrued interest receivable

Net securities (gains) losses

Decrease (increase) in accrued interest receivable

Increase in cash surrender value of bank owned life insurance

Net losses on disposals of premises and equipment

Decrease (increase) in other assets

(Increase) Decrease in other assets

Amortization of investment in low-income housing partnerships

Increase in accrued interest payable

(Decrease) increase in other liabilities

(Decrease) increase in accrued interest payable

Decrease in other liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES

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Purchases of debt securities available-for-sale

Net decrease in time deposits with other banks

Net change in restricted investment in bank stocks

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Purchase of investment in real estate venture

NET CASH USED IN INVESTING ACTIVITIES

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

Net decrease in deposits

Net increase in short-term borrowings

Net increase (decrease) in deposits

Net (decrease) increase in short-term borrowings

Repayment of finance lease obligations

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Dividends paid

NET CASH PROVIDED BY FINANCING ACTIVITIES

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING

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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

Purchased securities settling after year-end

Loans transferred from held for sale to held for investment portfolio

Common stock subscription receivable

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As such, discrete financial information is not available and segment reporting would not be meaningful.

Segments are components of a Company that have discrete financial information available and are regularly evaluated by a chief operating decision maker (CODM) to assess performance and decide how resources are allocated.

Substantially all of the Corporation’s operations occur through the Bank and involve the delivery of loan and deposit products to customers.

Management makes operating decisions and assesses performance based on an ongoing review of its banking operation, which constitutes the Corporation’s only operating segment for financial reporting purposes.

The Corporation’s one reportable segment is determined by our Chief Executive Officer, who is designated the CODM, based upon information provided about the Corporation’s products and services offered, primarily community banking operations.

Our CODM manages business activities on a consolidated basis and uses consolidated net income, as reported on the consolidated financial statements of income, to evaluate financial performance, allocate resources, and monitor budget versus actuals.

The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

The measure of segment assets is reported on the consolidated statement of financial condition as total assets at December 31, 2024 and 2023.

Significant Concentrations of Credit Risk

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant changes include the determination of allowance for securities losses, the assessment of possible impairment of equity securities, the determination of the allowance for credit losses, the assessment of goodwill for possible impairment, and the valuation of deferred taxes.

Subsequent Events

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Debt securities not classified as Held-to-Maturity are included in the Available-for-Sale category and are carried at fair value.

The amount of any unrealized gain or loss, net of the effect of deferred income taxes, is reported as accumulated other comprehensive loss (AOCI) in the consolidated balance sheets and consolidated statements of changes in stockholders’ equity.

The amount of any unrealized gain or loss, net of the effect of deferred income taxes, is reported as accumulated other comprehensive loss (AOCL) in the consolidated balance sheets and consolidated statements of changes in stockholders’ equity.

Management’s decision to sell Available-for-Sale securities is based on changes in economic conditions controlling the sources and applications of funds, terms, availability of and yield of alternative investments, interest rate risk and the need for liquidity.

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The municipal securities consist of general obligations and revenue bonds.

Asset-backed securities consist of private (non-agency) student loan pools backed by the

Federal Family Education Loan Program (“FFELP”) which carry a 97% federal government guarantee.

Asset-backed securities consist of private (non-agency) student loan pools backed by the Federal Family Education Loan Program (“FFELP”) which carry a 97% federal government guarantee.

Corporate debt securities consist of senior debt and subordinated debt holdings.

Available-for-sale debt securities are required to be individually evaluated for impairment in accordance with ASC 326, Financial Instruments – Credit Losses.

Debt securities available-for-sale are required to be individually evaluated for impairment in accordance with ASC 326, Financial Instruments – Credit Losses.

Management evaluates debt securities for impairment where there has been a decline in fair value below the amortized cost basis of a debt security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

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Equity Securities

In accordance with ASC 825-10, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

In accordance with ASC 825-10, Financial Instruments - Overall, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

Equity securities without readily determinable fair values are recorded at cost less impairment, if any.

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Once the impairment is recorded, this becomes the new cost basis of the equity security and cannot be adjusted upward if there is a subsequent recovery in the fair value of the security.

Fair Value of Financial Instruments

The techniques used to determine fair value are significantly affected by the assumptions used, including assumptions for interest rates, credit losses, prepayment speeds, and estimates of future cash flows.

The derived fair value estimates cannot be substantiated by comparison to independent markets, and, in many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidelines clarify that if there has been a significant decrease in volume and level of activity for an asset or liability, the transaction may not be considered orderly.

A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

The Corporation uses valuation methodologies to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP.

Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial.

Derivative Instruments and Hedging Activities

The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.

The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts principally related to the Corporation’s assets and borrowings.

The Corporation has elected to use hedge accounting and records all derivatives on the balance sheet at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

Restricted Investment in Bank Stocks

The Corporation owns restricted stock investments in the Federal Home Loan Bank of Pittsburgh (“FHLB-Pittsburgh”) and Atlantic Community Bankers Bank (“ACBB”).

These investments do not have a readily determinable fair value because their ownership is restricted and they can be sold back only to the FHLB-Pittsburgh, ACBB or to another member institution.

The Corporation owns restricted stock investments in the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Atlantic Community Bankers Bank (“ACBB”).

These investments do not have a readily determinable fair value because their ownership is restricted and they can be sold back only to the FHLB, ACBB or to another member institution.

Therefore, these investments are carried at cost.

At December 31, 2023, the Corporation held $ 10,850,000 in stock of FHLB-Pittsburgh and $ 35,000 in stock of ACBB.

At December 31, 2022, the Corporation held $ 7,101,000 in stock of FHLB-Pittsburgh and $ 35,000 in stock of ACBB.

At December 31, 2024, the Corporation held $ 8,949,000 in stock of FHLB and $ 35,000 in stock of ACBB.

At December 31, 2023, the Corporation held $ 10,850,000 in stock of FHLB and $ 35,000 in stock of ACBB.

Management evaluates the restricted investment in bank stocks for impairment on a quarterly basis.

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Based on the analysis of these factors, management determined that no impairment charge was necessary related to the restricted investment in bank stocks during 2024 or 2023.

Net loans are stated at their outstanding recorded investment, net of deferred fees and costs, unearned income

and the allowance for credit losses.

Interest on loans is recognized as income over the term of each loan, generally, by

the accrual method.

Loan origination fees and certain direct loan origination costs have been deferred with the net

amount amortized using the straight line method or the interest method over the contractual life of the related loans as an

interest yield adjustment.

Net loans are stated at their outstanding recorded investment, net of deferred fees and costs, unearned income and the allowance for credit losses.

Interest on loans is recognized as income over the term of each loan, generally, by the accrual method.

Loan origination fees and certain direct loan origination costs have been deferred with the net amount amortized using the straight line method or the interest method over the contractual life of the related loans as an interest yield adjustment.

The loans receivable portfolio is segmented into the following segments:

Real Estate (including both

commercial and residential loans), Agricultural, Commercial and Industrial, Consumer, and State and Political

Subdivisions.

Real Estate (including both commercial and residential loans), Agricultural, Commercial and Industrial, Consumer, and State and Political Subdivisions.

Real Estate Lending

The Corporation engages in real estate lending to commercial borrowers in its primary market area and

surrounding areas.

The commercial component of the Corporation’s Real Estate portfolio is secured primarily by

commercial retail space, commercial office buildings, residential housing and hotels.

Generally, these loans have terms that do not exceed twenty years , have loan-to-value ratios of up to eighty percent of the value of the collateral property,

and are typically supported by personal guarantees of the borrowers.

In underwriting these loans, the Corporation performs a thorough analysis of the financial condition of the

borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan.

The Corporation engages in real estate lending to commercial borrowers in its primary market area and surrounding areas.

The commercial component of the Corporation’s Real Estate portfolio is secured primarily by commercial retail space, commercial office buildings, residential housing and hotels.

Generally, these loans have terms that do not exceed twenty years , have loan-to-value ratios of up to eighty percent of the value of the collateral property, and are typically supported by personal guarantees of the borrowers.

In underwriting these loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan.

The value of the property is determined by either independent appraisers or internal evaluations performed by Bank officers.

Real estate loans secured by commercial properties generally present a higher level of risk than loans secured by residential real estate.

Repayment of loans secured by commercial real estate is typically dependent upon the

successful operation of the related real estate project and/or the effect of the general economic conditions on income producing properties.

Repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project and/or the effect of the general economic conditions on income producing properties.

The residential component of the Corporation’s Real Estate portfolio is comprised of one-to-four family residential mortgage loan originations, home equity term loans and home equity lines of credit.

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The Corporation offers fixed-rate mortgage loans with terms up to a maximum of thirty years for both permanent structures and those under construction.

Loans with terms of thirty

years are normally held for sale and sold without recourse;

Loans with terms of thirty years are normally held for sale and sold without recourse;

most of the residential mortgages held in the Corporation’s residential real estate portfolio have maximum terms of twenty years .

Generally, the majority of the Corporation’s

residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with private mortgage insurance at ninety-five percent or less.

Home equity term loans are secured by the borrower’s primary residence and

typically have a maximum loan-to-value of eighty percent and a maximum term of fifteen years .

In general, home equity

lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of eighty percent and a maximum term of twenty years .

Generally, the majority of the Corporation’s residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with private mortgage insurance at ninety-five percent or less.

Home equity term loans are secured by the borrower’s primary residence and typically have a maximum loan-to-value of eighty percent and a maximum term of fifteen years .

In general, home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of eighty percent and a maximum term of twenty years .

In underwriting one-to-four family residential mortgage loans, the Corporation evaluates the borrower’s ability to make monthly payments, the borrower’s prior loan repayment history and the value of the property securing the loan.

The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial conditions and credit background.

A majority of the properties securing residential real estate loans made by the

Corporation are appraised by independent appraisers.

A majority of the properties securing residential real estate loans made by the Corporation are appraised by independent appraisers.

The Corporation generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance and fire and property insurance, including flood insurance, if applicable.

Residential mortgage loans, home equity term loans and home equity lines of credit generally present a lower

level of risk than consumer loans because they are secured by the borrower’s primary residence.

Residential mortgage loans, home equity term loans and home equity lines of credit generally present a lower level of risk than consumer loans because they are secured by the borrower’s primary residence.

Risk is increased when the Company is in a subordinate position, especially to another lender, for the loan collateral.

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These loans originate from customers within the Corporation’s primary market area or the surrounding areas.

In underwriting agricultural loans, an analysis is performed regarding the borrower’s ability to repay the loan,

the borrower’s capital and collateral, and the past, present, and future cash flows of the borrower, as well as the

agricultural industry as a whole.

In general, these loans would be secured by cropland, pastureland, orchardland, or

timberland that is committed to ongoing management and agricultural production, with a maximum loan-to-value ratio of 70 % and a maximum term of ten years .

In underwriting agricultural loans, an analysis is performed regarding the borrower’s ability to repay the loan, the borrower’s capital and collateral, and the past, present, and future cash flows of the borrower, as well as the agricultural industry as a whole.

In general, these loans would be secured by cropland, pastureland, orchardland, or timberland that is committed to ongoing management and agricultural production, with a maximum loan-to-value ratio of 70 % and a maximum term of ten years .

Commercial and Industrial Lending

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Commercial and industrial loans are generally secured with short-term assets;

however, in many cases,

additional collateral such as real estate is provided as additional security for the loan.

Loan-to-value maximum

thresholds have been established by the Corporation and are specific to the type of collateral.

however, in many cases, additional collateral such as real estate is provided as additional security for the loan.

Loan-to-value maximum thresholds have been established by the Corporation and are specific to the type of collateral.

Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, business financial statements, collateral appraisals or internal evaluations, etc.

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Government) on all principal and the balance of interest accruing through ninety days beyond the date that demand is made to the originating bank for repurchase of the loan.

As of December 31, 2023, the Company's balance of GGLs was $ 4,470,000 , compared to $ 4,631,000 at December 31, 2022.

As of December 31, 2024, the Corporation's balance of GGLs

was $ 4,306,000 , compared to $ 4,470,000 at December 31, 2023.

Consumer Lending

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Consumer loan terms vary according to the type and value of collateral and creditworthiness of the borrower.

underwriting personal loans, a thorough analysis is performed regarding the borrower’s willingness and financial ability to repay the loan as agreed.

In underwriting personal loans, a thorough analysis is performed regarding the borrower’s willingness and financial ability to repay the loan as agreed.

The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial condition and credit background.

Consumer loans may entail greater credit risk than residential real estate loans, particularly in the case of

personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.

In such cases, repossessed collateral for a defaulted personal loan may not provide an adequate source of

repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

addition, personal loan collections are dependent on the borrower’s continuing financial stability and therefore, are more likely to be affected by adverse personal circumstances.

Furthermore, the application of various federal and state laws,

including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Consumer loans may entail greater credit risk than residential real estate loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.

In such cases, repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

In addition, personal loan collections are dependent on the borrower’s continuing financial stability and therefore, are more likely to be affected by adverse personal circumstances.

Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

State and Political Subdivisions Lending

The Corporation, from time to time, may originate loans to state and political subdivisions that are within the

Corporation’s primary market area or surrounding areas.

The Corporation, from time to time, may originate loans to state and political subdivisions that are within the Corporation’s primary market area or surrounding areas.

These loans may be either taxable or tax-free.

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The risk associated with these types of loans is considerably less than commercial loan transactions.

is based on the full faith, credit, and ability of the borrowing entity to tax and then collect the payments.

Delinquency or

loss on these types of loans is de minimus.

Repayment is based on the full faith, credit, and ability of the borrowing entity to tax and then collect the payments.

Delinquency or loss on these types of loans is de minimus.

Delinquent Loans

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Delinquent notices are generated automatically when a loan is 10 or 15 days past-due, depending on loan type.

Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance

exists for improvement in the status of the loan.

Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance exists for improvement in the status of the loan.

Past-due loans are continually evaluated with the determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

Commercial and industrial loans and real estate loans issued for commercial purpose are charged off in whole or in part when they become sufficiently delinquent based upon the terms of the underlying loan contract and when a

collateral deficiency exists.

Because all or part of the contractual cash flows are not expected to be collected, the loan is considered to be impaired, and the Company estimates the impairment based on its analysis of the cash flows or

collateral estimated at fair value less cost to sell.

Because all or part of the contractual cash flows are not expected to be collected, the loan is considered to be impaired, and the Corporation estimates the impairment based on its analysis of the cash flows or collateral estimated at fair value less cost to sell.

Should a GGL default, demand is made to the originating bank for repurchase of the loan.

If the originating bank does not repurchase the loan, demand for repurchase is then made to the

appropriate government agency which has provided the guarantee for the loan.

If the originating bank does not repurchase the loan, demand for repurchase is then made to the appropriate government agency which has provided the guarantee for the loan.

Real estate loans issued for residential purposes and consumer loans are charged off when they become sufficiently delinquent based upon the terms of the underlying loan contract and when the value of the underlying collateral is not sufficient to support the loan balance and a loss is expected.

At that time, the amount of estimated collateral deficiency, if any, is charged off for loans secured by collateral, and all other loans are charged off in full.

At that time, the amount of estimated

collateral deficiency, if any, is charged off for loans secured by collateral, and all other loans are charged off in full.

Loans with collateral are written down to the estimated fair value of the collateral less cost to sell.

Existing loans in which the borrower has declared bankruptcy are considered on a case by case basis to

determine whether repayment is likely to occur (e.g.

reaffirmation by the borrower with demonstrated repayment

Existing loans in which the borrower has declared bankruptcy are considered on a case by case basis to determine whether repayment is likely to occur (e.g.

reaffirmation by the borrower with demonstrated repayment ability).

Otherwise, loans are charged off in full or written down to the estimated fair value of collateral less cost to sell.

Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the

contractual payment of principal or interest has become 90 days past due or management has serious doubts about

further collectability of principal or interest.

A loan may remain on accrual status if it is well secured (or supported by a

strong guarantee) and in the process of collection.

Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest.

A loan may remain on accrual status if it is well secured (or supported by a strong guarantee) and in the process of collection.

When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against interest income.

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that is, payments are still being received.

Generally, the payments

are applied to principal.

Generally, the payments are applied to principal.

These loans remain under constant scrutiny, and if performance continues, interest income may be recorded on a cash basis based on management's judgment regarding the collectability of principal.

Allowance for Credit Losses

Allowance for Credit Losses - Loans

The allowance for credit losses (“ACL”) is an estimate of losses arising from borrowers’ inability to make loan payments as required, which is calculated via a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio.

The Corporation completed a one-time adjustment to decrease the ACL at the adoption of ASU 2016-13 through retained earnings, but all subsequent adjustments will be established through provisions for credit losses charged against income.

The Corporation completed a one-time adjustment on January 1, 2023 to decrease the ACL at the adoption of ASU 2016-13, Financial Instruments – Credit Losses, through retained earnings, but all subsequent adjustments will be established through provisions for credit losses charged against income.

Loans deemed to be uncollectible are charged against the ACL and subsequent recoveries, if any, are credited to the allowance.

The ACL is maintained at a level estimated by management to be adequate to absorb potential loan losses.

such time as management can make or obtain a reasonable and supportable forecast.

Management also considers the

Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may impact the

borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral (if

the loan is collateral dependent), composition of the loan portfolio, and other relevant factors.

Management also considers the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may impact the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral (if the loan is collateral dependent), composition of the loan portfolio, and other relevant factors.

Modeling of the ACL uses sophisticated statistical techniques to arrive at reasonable and supportable forecasts of expected losses.

The Corporation has contracted with a third-party vendor to assist in developing models for the ACL related to the Corporation’s loan portfolio under Accounting Standards Update (“ASU”) 2016-13.

The Corporation has contracted with a third-party vendor to assist in developing models for the ACL related to the Corporation’s loan portfolio under ASU 2016-13.

The Corporation has opted to utilize the Weighted Average Remaining Maturity (“WARM”) method to calculate the ACL which uses an average annual charge-off rate.

This average annual charge-off rate contains loss content over several vintages and is

used as a foundation for estimating the credit loss content for loans by segmented pools at the balance sheet date and is used to determine a historical charge-off rate.

This average annual charge-off rate contains loss content over several vintages and is used as a foundation for estimating the credit loss content for loans by segmented pools at the balance sheet date and is used to determine a historical charge-off rate.

When estimating expected credit losses, the Corporation considers forward-looking information that is both reasonable, supportable, and relevant to assessing the collectability of cash flows.

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These forecasts may include data from internal sources, external sources, or a combination of both.

When the contractual term of a loan extends beyond the reasonable and supportable period, ASC Topic 326

requires reverting to historical loss information, or an appropriate proxy, for those periods beyond the reasonable and

supportable forecast period (often referred to as the reversion period).

When the contractual term of a loan extends beyond the reasonable and supportable period, ASC Topic 326 requires reverting to historical loss information, or an appropriate proxy, for those periods beyond the reasonable and supportable forecast period (often referred to as the reversion period).

The Corporation may revert to historical loss information for each individual forecast input or based on the entire estimate of loss.

Reversion to historical loss

information may be immediate, occur on a straight-line basis, or use any systematic/rational method.

Reversion to historical loss information may be immediate, occur on a straight-line basis, or use any systematic/rational method.

Management may apply different reversion techniques depending on the economic environment or applicable loan portfolio.

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These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses.

Changes in the

level of the Corporation’s ACL may not always be directionally consistent with changes in the level of qualitative factor adjustments due to the incorporation of reasonable and supportable forecasts in estimating expected losses.

considers qualitative factors that are relevant to the Corporation as of the reporting date, which may include but are not

1) changes in lending policies and procedures, including changes in underwriting standards and collection,

charge-off, and recovery practices not considered elsewhere;

2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the loan portfolio, including the

condition of various market segments;

Changes in the level of the Corporation’s ACL may not always be directionally consistent with changes in the level of qualitative factor adjustments due to the incorporation of reasonable and supportable forecasts in estimating expected losses.

Management considers qualitative factors that are relevant to the Corporation as of the reporting date, which may include but are not limited to:

1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere;

2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the loan portfolio, including the condition of various market segments;

3) changes in the nature and volume of the loan portfolio;

4) changes in the

experience, ability, and depth of management and other relevant staff;

5) changes in the volume and severity of past due

loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

4) changes in the experience, ability, and depth of management and other relevant staff;

5) changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

6) changes in the quality of the Corporation’s loan review system;

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8) the existence and effect of any concentrations of credit and changes in the level of such concentrations;

and 9) the effect of other external factors such as competition and legal and regulatory requirements on

the level of estimated credit losses in the Corporation’s existing loan portfolio.

and 9) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Corporation’s existing loan portfolio.

The Corporation’s ACL is calculated by collectively evaluating and individually evaluating loans.

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In accordance with ASC 326-20-30-2, the Corporation will evaluate individual loans for expected credit losses when the loans do not share similar risk characteristics with loans evaluated using the collective method.

may evaluate loans on an individual basis even when no specific expectation of collectability is in place.

Management may evaluate loans on an individual basis even when no specific expectation of collectability is in place.

Loans deemed to be impaired are specifically identified and measured for impairment.

A loan is deemed to be impaired when, based on

current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the loan agreement.

A loan is deemed to be impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the loan agreement.

Loans to be considered for impairment include all non-accrual loans or any other selected loans where full collection is unlikely.

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● The present value of expected cash flows, discounted at the loan’s effective interest rate (i.e.

contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or acquisition of the loan)

the contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or acquisition of the loan)

● The loan’s observable market price

● The fair value of the collateral if the loan is deemed to be collateral dependent.

A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the liquidation of the

underlying collateral and there are no other available and reliable sources of repayment.

will consider estimated costs to sell, on a discounted basis, in the measurement of impairment if these costs are expected to reduce the cash flows available to repay the loan.

Any portion of the recorded

investment for a collateral dependent loan (including any capitalized accrued interest, net deferred

loan fees or costs, and unamortized premium or discount) exceeding the fair value of the collateral that can be identified as uncollectible is deemed a confirmed loss and will be charged off against the

Loans that have been individually measured for impairment may have a portion of the allowance allocated to

cover the calculated amount of impairment as determined by the methods listed above, referred to as a specific

A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the liquidation of the underlying collateral and there are no other available and reliable sources of repayment.

Management will consider estimated costs to sell, on a discounted basis, in the measurement of impairment if these costs are expected to reduce the cash flows available to repay the loan.

Any portion of the recorded investment for a collateral dependent loan (including any capitalized accrued interest, net deferred loan fees or costs, and unamortized premium or discount) exceeding the fair value of the collateral that can be identified as uncollectible is deemed a confirmed loss and will be charged off against the ACL

Loans that have been individually measured for impairment may have a portion of the allowance allocated to cover the calculated amount of impairment as determined by the methods listed above, referred to as a specific allocation.

Loans individually evaluated for impairment may also have a zero specific allocation if the loans are deemed to have no impairment, or if the amount of the impairment will be charged off.

ASU 2022-02, Loan Modifications Experiencing Financial Difficulty, eliminated the accounting guidance for

Troubled Debt Restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and

restructurings by creditors when a borrower is experiencing financial difficulty.

In accordance with the new guidance,

the Corporation no longer evaluates loans with modifications made to borrowers experiencing financial difficulty individually for impairment, nor establishes a related specific reserve for such loans, but rather these loans are included in their respective portfolio segment and evaluated collectively for impairment to establish an allowance for credit

ASU 2022-02, Loan Modifications Experiencing Financial Difficulty , eliminated the accounting guidance for Troubled Debt Restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

In accordance with the new guidance, the Corporation no longer evaluates loans with modifications made to borrowers experiencing financial difficulty individually for impairment, nor establishes a related specific reserve for such loans, but rather these loans are included in their respective portfolio segment and evaluated collectively for impairment to establish an allowance for credit losses.

Any modifications of loans to borrowers experiencing financial difficulty that are classified as non-accrual or are otherwise designated as collateral dependent are individually evaluated for determination of expected credit losses.

There were no loan modifications made to borrowers experiencing financial difficulties during the year ended December 31, 2023.

Subsequent to the date of the financial statements, on January 20, 2024, a modification was completed on a loan totaling $ 9,455,000 to a borrower experiencing financial difficulty to allow a period of interest-only payments of six months.

The Corporation has no commitments to lend additional funds to the borrower.

The most common types of concessions granted upon modification of a loan to a borrower experiencing financial difficulties include:

(a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the

maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period

of interest-only payments, and (d) a reduction in the contractual payment amount for either a short period or for the

remaining term of the loan.

(a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, and (d) a reduction in the contractual payment amount for either a short period or for the remaining term of the loan.

A less common concession would be forgiveness of a portion of the loan’s principal.

so modified remain collectively evaluated for determination of expected credit losses, unless, during the process of

evaluation, it is determined that the loan should be placed on non-accrual status until the Corporation determines that future collection of principal and interest is reasonably assured or the loan is otherwise deemed to be collateral dependent.

There may be certain types of loans for which the expectation of credit loss is zero after evaluating historical loss information, making necessary adjustments for current conditions and reasonable and supportable forecasts, and

considering any collateral or guarantee arrangements that are not free-standing contracts.

Loans so modified remain collectively evaluated for determination of expected credit losses, unless, during the process of evaluation, it is determined that the loan should be placed on non-accrual status until the Corporation determines that future collection of principal and interest is reasonably assured or the loan is otherwise deemed to be collateral dependent.

Factors considered by

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2) full securitization by cash or cash equivalents;

3) high credit ratings from

rating agencies with no expected future downgrade;

3) high credit ratings from rating agencies with no expected future downgrade;

4) principal and interest payments that are guaranteed by the U.S.

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ASC Topic 326 introduces the concept of purchased credit deteriorated (“PCD”) assets.

PCD assets are acquired financial assets that, at acquisition, have experienced more-than-insignificant deterioration in credit quality

since origination, as determined by the Corporation’s assessment.

PCD assets are acquired financial assets that, at acquisition, have experienced more-than-insignificant deterioration in credit quality since origination, as determined by the Corporation’s assessment.

The Corporation does not possess loans classified as purchased credit deterioration at this time.

Should the Corporation acquire purchased loans, these loans will be evaluated to determine if they are PCD.

Should the Corporation purchase loans, these loans will be evaluated to determine if they are PCD.

A reserve for unfunded lending commitments is provided for possible credit losses on off-balance sheet credit exposures.

Off-balance sheet credit exposures primarily include undrawn portions of revolving lines of credit and

standby letters of credit.

Off-balance sheet credit exposures primarily include undrawn portions of revolving lines of credit and standby letters of credit.

The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and, if necessary, is recorded in other liabilities on the consolidated balance sheets.

As of December 31, 2024 and December 31, 2023, the amount of the reserve for unfunded lending commitments was $ 102,000 and $ 166,000 , respectively.

The Corporation made a policy election to exclude accrued interest receivable from the amortized cost basis of

Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Corporation’s consolidated balance sheet and totaled $ 2,476,000 and $ 1,941,000 as of December 31, 2023 and 2022, respectively.

The Corporation made a policy election to exclude accrued interest receivable from the amortized cost basis of loans.

Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Corporation’s consolidated balance sheets and totaled $ 2,575,000 and $ 2,476,000 as of December 31, 2024 and 2023, respectively.

Accrued interest receivable on loans is excluded from the estimate of credit losses.

The Corporation is subject to periodic examination by its federal and state examiners, and may be required by

such regulators to recognize additions to the ACL based on their assessment of credit information available to them at

the time of their examinations.

The Corporation is subject to periodic examination by its federal and state examiners, and may be required by such regulators to recognize additions to the ACL based on their assessment of credit information available to them at the time of their examinations.

The Corporation utilizes a risk grading matrix as a tool for managing credit risk in the loan portfolio and assigns an asset quality rating (risk grade) to all loans.

An asset quality rating is assigned using the guidance provided in the

Corporation’s loan policy.

An asset quality rating is assigned using the guidance provided in the Corporation’s loan policy.

Primary responsibility for assigning the asset quality rating rests with the credit department.

The asset quality rating is validated periodically by both an internal and external loan review process.

The commercial loan grading system focuses on a borrower’s financial strength and performance, experience and depth of management, primary and secondary sources of repayment, the nature of the business and the outlook for

the particular industry.

Primary emphasis is placed on financial condition and trends.

The grade also reflects current economic and industry conditions;

as well as other variables such as liquidity, cash flow, revenue/earnings trends,

management strengths or weaknesses, quality of financial information, and credit history.

as well as other variables such as liquidity, cash flow, revenue/earnings trends, management strengths or weaknesses, quality of financial information, and credit history.

The loan grading system for residential real estate secured and consumer loans focuses on the borrower’s credit score and credit history, debt-to-income ratio and income sources, collateral position and loan-to-value ratio.

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Risk Grade 1 – MINIMAL RISK through Risk Grade 6 – MANAGEMENT ATTENTION (Pass Grade Categories)

Risk is evaluated via examination of several attributes including but not limited to financial trends, strengths and weaknesses, likelihood of repayment when considering both cash flow and collateral, sources of repayment,

leverage position, management expertise, and repayment history.

At the low-risk end of the rating scale, a risk grade of 1 – Minimal Risk is the grade reserved for loans with

exceptional credit fundamentals and virtually no risk of default or loss.

At the low-risk end of the rating scale, a risk grade of 1 – Minimal Risk is the grade reserved for loans with exceptional credit fundamentals and virtually no risk of default or loss.

Loan grades then progress through escalating ratings of 2 through 6 based upon risk.

Risk Grade 2 – Modest Risk are loans with sufficient cash flows;

Risk Grade 3 –

Average Risk are loans with key balance sheet ratios slightly above the borrower’s peers;

Risk Grade 4 – Acceptable

Risk are loans with key balance sheet ratios usually near the borrower’s peers, but one or more ratios may be higher;

Risk Grade 5 – Marginally Acceptable are loans with strained cash flow, increasing leverage and/or weakening markets.

Risk Grade 3 – Average Risk are loans with key balance sheet ratios slightly above the borrower’s peers;

Risk Grade 4 – Acceptable Risk are loans with key balance sheet ratios usually near the borrower’s peers, but one or more ratios may be higher;

and Risk Grade 5 – Marginally Acceptable are loans with strained cash flow, increasing leverage and/or weakening markets.

Risk Grade 6 – Management Attention are loans with weaknesses resulting from declining performance trends and the borrower’s cash flows may be temporarily strained.

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Risk Grade 7 − SPECIAL MENTION (Non-Pass Category)

Assets in this category are adequately collateralized but have potential weakness which may, if not checked or

corrected, weaken the asset or inadequately protect the Corporation’s credit position at some future date.

The loans may

constitute increased credit risk, but not to the point of justifying a classification of substandard.

No loss of principal or

interest is envisioned, but risk is increasing beyond that at which the loan originally would have been granted.

Assets in this category are adequately collateralized but have potential weakness which may, if not checked or corrected, weaken the asset or inadequately protect the Corporation’s credit position at some future date.

The loans may constitute increased credit risk, but not to the point of justifying a classification of substandard.

No loss of principal or interest is envisioned, but risk is increasing beyond that at which the loan originally would have been granted.

Historically, cash flows are inconsistent;

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Generally, these assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Assets so classified must have “well-defined” weaknesses that jeopardize the full

liquidation of the debt.

These loans are characterized by the distinct possibility that the Corporation will sustain some loss if the

aggregate amount of substandard assets is not fully covered by the liquidation of the collateral used as security.

Assets so classified must have “well-defined” weaknesses that jeopardize the full liquidation of the debt.

These loans are characterized by the distinct possibility that the Corporation will sustain some loss if the aggregate amount of substandard assets is not fully covered by the liquidation of the collateral used as security.

Substandard loans have a high probability of payment default and require more intensive supervision by Corporation management.

Risk Grade 9 − DOUBTFUL (Non-Pass Category)

Generally, loans graded doubtful have all the weaknesses inherent in a substandard loan with the added factor that the weaknesses are pronounced to a point whereby the basis of current information, conditions, and values,

collection or liquidation in full is deemed to be highly improbable.

The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to strengthen the asset, its classification is

deferred until, for example, a proposed merger, acquisition, liquidation procedure, capital injection, perfection of liens on additional collateral and/or refinancing plan is completed.

Loans are graded doubtful if they contain weaknesses so

serious that collection or liquidation in full is questionable.

The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to strengthen the asset, its classification is deferred until, for example, a proposed merger, acquisition, liquidation procedure, capital injection, perfection of liens on additional collateral and/or refinancing plan is completed.

Loans are graded doubtful if they contain weaknesses so serious that collection or liquidation in full is questionable.

Premises and Equipment, net

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The amount of servicing income earned was $ 200,000 and $ 213,000 at December 31, 2024 and 2023, respectively.

Amortization recognized in relation to mortgage servicing rights was $ 72,000 and $ 88,000 at December 31, 2023 and 2022, respectively.

Amortization recognized in relation to mortgage servicing rights was $ 72,000 at both December 31, 2024 and 2023, respectively.

Both income and amortization are included in service charges and fees on the consolidated statements of income.

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The Corporation’s accrued liabilities for this benefit agreement as of December 31, 2024 and 2023 which are included in other liabilities in the Corporation’s consolidated balance sheets were $ 63,000 and $ 62,000 , respectively.

The related (expense) income for this benefit agreement amounted to $( 9,000 ) in 2023 and $ 3,000 in 2022.

The expense recognized in 2023 was the result of service costs associated with the benefit agreement.

The related expense for this benefit agreement amounted to $ 1,000 in 2024 and $ 9,000 in 2023.

The expense recognized in 2024 and 2023 was the result of service costs associated with the benefit agreement.

Investments in Low-Income Housing Partnerships

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Under the cost method, the Corporation recognizes tax credits as they are allocated and amortizes the initial cost of the investment over the period that the tax credits are allocated to the Corporation.

amount of tax credits allocated to the Corporation were $ 484,000 and $ 249,000 in 2023 and 2022, respectively, and the amortization of the investments in the limited partnerships were $ 231,000 and $ 225,000 in 2023 and 2022, respectively.

During 2021, the Corporation became a limited partner in a real estate venture with an initial investment of $ 435,000 .

In 2023 and 2022, capital contributions and other fees related to the project in the combined amount of $ 2,429,000 and $ 2,458,000 , respectively, were made in relation to the new real estate venture.

The new limited partnership began amortizing in December 2023.

The amount of tax credits allocated to the Corporation were $ 840,000 and $ 484,000 in 2024 and 2023, respectively, and the amortization of the investments in the limited partnerships were $ 819,000 and $ 231,000 in 2024 and 2023, respectively.

Goodwill resulted from the acquisition of the Pocono Community Bank in November 2007 and of certain fixed and operating assets acquired and deposit liabilities assumed of the branch of another financial institution in Danville, Pennsylvania, in January 2004.

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Goodwill is evaluated for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

The Corporation has evaluated the goodwill included in its consolidated balance sheet at December 31, 2023, and has determined there was no impairment as of that date.

In addition, the Corporation did not identify any impairment in 2022.

No assurance can be given that future impairment tests will not result in a charge to earnings.

Goodwill was evaluated for impairment at December 31, 2023, and it was determined that goodwill was not impaired.

Due primarily to the decrease in the Company’s stock price during the first quarter of 2024 as a triggering event, management evaluated the need for an interim goodwill impairment analysis.

The decrease prompted the Company to assess its goodwill utilizing a quantitative impairment test and determined, more likely than not, the fair value of the Company was less than the carrying amount as of March 31, 2024.

Based on the results of the impairment test, the Company recorded a goodwill impairment charge of $ 19,133,000 effective March 31, 2024.

Foreclosed Assets Held for Resale

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A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

The determination of whether or not a tax

position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

The Corporation recognizes interest and penalties on income taxes, if any, as a component of income tax expense in the consolidated statements of income.

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Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Corporation.

At December 31, 2023 and 2022, there were no potential common shares outstanding.

At December 31, 2024 and 2023, there were no potential dilutive common shares outstanding.

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

(In thousands, except earnings per share)

Net (loss) income

Weighted-average common shares outstanding

Basic and diluted earnings per share

Basic and diluted (losses) earnings per share

Treasury Stock

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In January of 2024, the Corporation adopted ASU No.

2016-13, Financial Instruments-Credit Losses (Topic

Measurement of Credit Losses on Financial Instruments.

2016-13 required financial assets measured at

amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is

deducted from the amortized cost basis.

The measurement of expected credit losses is based on relevant information

about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Corporation took steps to prepare for the implementation over the

past several years, such as:

forming an internal committee, gathering pertinent data, consulting with outside professionals, subscribing to a new software system, and running existing and new methodologies concurrently through the period of implementation.

The Corporation also completed a data and model validation analysis and prepared policies related to the adoption process.

The Corporation adopted the ASU’s provisions using the modified retrospective method and evaluated the impact the current expected credit loss (“CECL”) model had on the accounting for credit losses, and recognized a one-time, cumulative-effect adjustment to retained earnings at the beginning of the first reporting period in which the new standard became effective.

The cumulative-effect adjustment resulted in an increase to retained earnings of $ 768,000 , an additional reserve for unfunded commitments of $ 147,000 , a decrease in the

allowance for credit losses of $ 1,119,000 , and a decrease in deferred tax assets of $ 204,000 , as outlined in the table on

the next page.

There was no impact on the securities portfolio upon adoption.

This adoption method is considered a

change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.

January 1, 2023

As Reported Under ASU

2016-13 Adoption

Allowance For Credit Losses

Deferred Income Taxes

Other Liabilities

Retained Earnings

Effect on deferred tax assets related to the adjustment to the allowance for credit losses and reserve for unfunded lending commitments from the adoption of ASU 2016-13 using a 21 % tax rate

Adjustment to the reserve for unfunded lending commitments related to the adoption of ASU 2016-13

Adjustment to undistributed profits related to the adoption of ASU 2016-13

In January of 2023, the Corporation adopted ASU No.

2022-02, Financial Instruments-Credit Losses (Topic

Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance on troubled

debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhances disclosure requirements for

certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty.

also amended the guidance on “vintage disclosures” to require disclosure of current-period gross charge-offs by year of

The Corporation adopted the ASU’s provisions using the modified retrospective method in conjunction with

the CECL adoption.

The adoption of ASU 2022-02 did not have a material impact on the Corporation’s consolidated financial statements.

In March of 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-02, Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the

Proportional Amortization Method.

ASU 2023-02 allows for standardization of accounting methodology for tax credit equity investments when certain requirements are met.

The standard provides the ability for both current and

prospective tax credit investors to avoid the complexities of accounting for tax credits outside of the proportional

amortization method.

To qualify for the proportional amortization method, the following conditions must be met:

it is probable that the income tax credits allocable to the investor will be available, 2.

the investor does not have the ability to

exercise significant influence over the operating and financial policies of the underlying project, 3.

substantially all of the projected benefits are from income tax credits and other income tax benefits, 4.

the investor’s projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive, and 5.

the investor is a

limited liability investor in the limited liability entity for both legal and tax purposes and the investor’s liability is limited to its capital investment.

The amendments in this ASU will be applied either on a modified retrospective basis or a

retrospective basis.

The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2023.

Early adoption is permitted for all entities in any interim period.

The Corporation is currently evaluating the provisions of ASU 2023-02 and does not expect the adoption of the standard to have a material impact on the Corporation’s financial statements.

2023-07, Segment Reporting-Improvements to Reportable Segment Disclosures (Topic 280).

This ASU requires disclosure of incremental segment information on an annual basis for all public entities, including entities with one reportable segment.

Such incremental disclosures include information about significant segment expenses, how chief operating decision makers (CODM) measure a segment’s profit or loss, and qualitative information about how a CODM assesses segment performance.

The Company adopted the provisions of the ASU effective January 1, 2024.

As the Corporation has only one reportable segment (community banking segment), this ASU did not have a material effect on the Corporation’s consolidated financial statements.

In December of 2023, the FASB issued ASU No.

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Debt Securities

There was no allowance for credit losses for Available-For-Sale debt securities as of December 31, 2023;

There was no allowance for credit losses for debt securities available-for-sale as of December 31, 2024;

therefore, it is not present in the table below.

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Sallie Mae Bank

Velocity Commercial Capital

Nelnet Student Loan Trust

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Sallie Mae Bank

Nelnet Student Loan Trust

Navient Student Loan Trust

Proceeds from sales of investments in debt securities available-for-sale during 2024 and 2023 were $ 0 and $ 23,230,000 respectively.

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Accrued interest receivable on debt securities available for sale is excluded from the estimate of credit losses.

All debt securities available for sale in an unrealized loss position, as of December 31, 2023, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary.

Also, as part of our evaluation of our intent and ability to hold debt securities for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategies, cash flow needs, liquidity position, capital

adequacy and interest rate risk position.

We do not currently intend to sell the debt securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities.

All debt securities available for sale in an unrealized loss position, as of December 31, 2024, continue to perform as scheduled and the Corporation does not believe that there is a credit loss or that a provision for credit losses is necessary.

Also, as part of the Corporation’s evaluation of its intent and ability to hold debt securities for a period of time sufficient to allow for any anticipated recovery in the market, the Corporation considers its investment strategies, cash flow needs, liquidity position, capital adequacy and interest rate risk position.

The Corporation does not currently

intend to sell the debt securities within the portfolio and it is not more-likely-than-not that the Corporation will be required to sell the debt securities.

Management continues to monitor all of our debt securities with a high degree of scrutiny.

There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its debt securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

There can be no assurance that the Corporation will not conclude in future periods that conditions existing at that time indicate some or all of its debt securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

Equity Securities

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December 31, 2023

Net losses from market value fluctuations recognized during the period on equity securities

Net gains (losses) from market value fluctuations recognized during the period on equity securities

Net gains recognized during the period on equity securities sold during the period

Net losses recognized during the reporting period on equity securities still held at the reporting date

Net gains (losses) recognized during the reporting period on equity securities still held at the reporting date

The Corporation monitors the equity securities portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months.

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NOTE 3 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents the classes of the loan portfolio summarized by risk rating and year of origination and gross charge offs by loan portfolio summarized by year of origination as of December 31, 2023.

The following table presents the classes of the loan portfolio summarized by risk rating and year of origination and year-to-date gross charge offs by loan portfolio summarized by year of origination as of December 31, 2024 and 2023.

As of December 31, 2024:

(Dollars in thousands)

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Total Gross Charge Offs

State and Political Subdivision loans include loans categorized as tax-free in the amount of $ 26,181,000 as of December 31, 2023.

Commercial and Industrial loans include $ 4,470,000 of GGLs as of December 31, 2023.

Loans held for sale are included in the Real Estate loans category and carried a balance of $ 214,000 as of December 31, 2023.

The activity in the allowance for credit losses by loan class (post adoption of ASU No.

2016-13), is summarized below for the year ended December 31, 2023.

As of December 31, 2023:

(Dollars in thousands)

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Total Real Estate Loans

Agricultural:

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Total Agricultural Loans

Commercial and Industrial:

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Total Commercial and

Industrial Loans

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Total Consumer Loans

State and Political Subdivisions:

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Total State and Political Subdivision Loans

7 Special Mention

8 Substandard

Unearned discount

Net deferred loan fees and costs

Gross Charge Offs:

Commercial and Industrial

State and Political Subdivisions

Total Gross Charge Offs

State and Political Subdivision loans include loans categorized as tax-free in the amount of $ 22,147,000 as of December 31, 2024 and $$ 26,181,000 as of December 31, 2023.

Commercial and Industrial loans include $ 4,306,000 of GGLs as of December 31, 2024 and $ 4,470,000 of GGLs as of December 31, 2023.

Loans held for sale are included in the Real Estate loans category and amounted to$ 737,000 at December 31, 2024 and $ 214,000 as of December 31, 2023.

The activity in the allowance for credit losses by loan class is summarized below for the years ended December 31, 2024 and 2023.

(Dollars in thousands)

and Industrial

As of and for the year ended December 31, 2024:

Beginning balance January 1, 2024

Ending Balance

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

Reserve for Unfunded Lending Commitments

Loans Receivable:

Ending Balance

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

(Dollars in thousands)

and Industrial

As of and for the year ended December 31, 2023:

Allowance for Credit Losses:

15 unchanged sentences

evaluated for impairment

The Corporation’s activity in the allowance for credit losses on unfunded commitments for the year ended December 31, 2023 was as follows:

Gross charge-offs amounted to $ 938,000 at December 31, 2024, as compared to $ 57,000 at December 31, 2023.

The increased level of charge-offs for the year ended December 31, 2024 was mainly due to aggregate charge-offs of $ 741,000 that were completed during the third quarter of 2024 on four loans to a plastic processing company focused on non-post-consumer recycling, as the business ceased operations as a result of financial difficulties.

During the fourth quarter of 2024, a charge-off of $ 67,000 was also completed on an owner-occupied, non-farm, non-residential loan to a non-profit civic organization, as the non-profit no longer uses the property, along with a charge-off of $ 41,000 on a loan to an individual borrower secured by 1-4 family residential real estate.

The charge-offs contributed to the increased balance of net charge-offs in 2024 compared to 2023 but was not indicative of a significant change in asset quality in the overall loan portfolio.

See Table 11 – Analysis of Allowance for Credit Losses for further details.

The Corporation’s activity in the allowance for credit losses on unfunded commitments for the years ended December 31, 2024 and 2023 was as follows:

(Dollars in thousands)

Balance at December 31, 2022

Balance at January 1

CECL adoption adjustment

Credit for credit losses on unfunded commitments

Reserve for credit losses on unfunded commitments

Balance at December 31

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s individually evaluated loans are summarized below at December 31, 2023.

The following table presents outstanding balances by loan class prior to allocation of net deferred fees and costs, as well as the balance of net loans after allocation of net deferred fees and costs and the allowance for credit losses as of December 31, 2024 and 2023.

(Dollars in thousands)

Commercial and Industrial

State and Political Subdivisions

Net Deferred Fees and Costs

Allowance for Credit Losses

During the year ended December 31, 2024, four modifications were granted on loans to borrowers experiencing financial difficulty which carried a combined post modification recorded investment of $ 10,183,000 .

Two modifications of loans to borrowers experiencing financial difficulty were completed during the fourth quarter of 2024, one on a loan carrying a post modification recorded investment of $ 174,000 to extend the maturity date of the loan by six months and one on a loan carrying a post modification recorded investment of $ 434,000 to release a portion of the real estate collateral securing the loan.

One modification of a loan to a borrower experiencing financial difficulty was completed during the third quarter of 2024 to extend the maturity date of the loan by ten months .

The loan carried a post modification recorded investment of $ 120,000 .

One modification of a loan to a borrower experiencing financial difficulty was completed during the first quarter of 2024 and consisted of a payment modification which allowed a period of interest-only payments of six months.

The loan carried a post modification recorded investment of $ 9,455,000 .

There were no modifications granted on loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

The outstanding recorded investment of loans to borrowers experiencing financial difficulty was $ 10,193,000 at December 31, 2024.

There were no unfunded commitments on modified loans to borrowers experiencing financial difficulty as of December 31, 2024.

The following table presents the outstanding recorded investment of loans to borrowers experiencing financial difficulty as of December 31, 2024.

There were no loan modifications granted on loans to borrowers experiencing financial difficulty as of December 31, 2023.

(Dollars in thousands)

Modifications of Loans to Borrowers Experiencing Financial Difficulty:

At December 31, 2024, were no modifications of loans to borrowers experiencing financial difficulty that were not in compliance with the terms of their restructure.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding December 31, 2024, two loans experienced payment defaults during the year ended December 31, 2024.

The loan carrying a post modification recorded investment of $ 9,455,000 experienced a payment default during the first quarter of 2024 and the loan carrying a post modification outstanding recorded investment of $ 120,000 experienced a payment default during the fourth quarter of 2024.

Both loans were paid current as of December 31, 2024.

The following table presents information regarding modifications of loans to borrowers experiencing financial difficulty that were completed during the year ended December 31, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the year ended December 31, 2023.

(Dollars in thousands)

For the Year Ended December 31, 2024

Pre-Modification

Post-Modification

Commercial and Industrial

The following table provides detail regarding the types of loan modifications made for borrowers experiencing financial difficulty during the year ended December 31, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the year ended December 31, 2023.

For the Year Ended December 31, 2024

Commercial and Industrial

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s non-accrual loans are summarized below at December 31, 2024 and 2023.

(Dollars in thousands)

December 31, 2024

Commercial and Industrial

(Dollars in thousands)

December 31, 2023

Commercial and Industrial

The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs.

The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Corporation’s individually evaluated loans are summarized below for the years ended December 31, 2023.

The average recorded investment and interest income recognized for the Corporation’s non-accrual loans are summarized below for the years ended December 31, 2024 and 2023.

(Dollars in thousands)

1 unchanged sentence

Commercial and Industrial

Of the $ 24,000 in interest income recognized on individually evaluated loans for the year ended December 31, 2023, $ 0 in interest income was recognized with respect to non-accrual loans.

The following table presents the collateral-dependent loans by segment for the year ended December 31, 2023.

(Dollars in thousands)

Year Ended December 31, 2023

Commercial and Industrial

The following table presents the collateral-dependent loans by segment for the year ended December 31, 2024 and 2023.

(Dollars in thousands)

December 31, 2024

Commercial and Industrial

At December 31, 2023, there were no commitments to lend additional funds with respect to individually evaluated loans.

(Dollars in thousands)

December 31, 2023

Commercial and Industrial

At December 31, 2024 and 2023, there were no commitments to lend additional funds with respect to individually evaluated loans.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of December 31, 2024 and 2023 were as follows:

8 unchanged sentences

There were no foreclosed assets held for resale at December 31, 2024 or December 31, 2023.

Consumer mortgage loans secured by residential real estate for which the Corporation has entered into formal foreclosure proceedings but for which physical possession of the property has yet to be obtained amounted to $ 138,000 at December 31, 2023 and $ 41,000 at December 31, 2022.

These balances were not included in foreclosed assets held for resale at December 31, 2023 or December 31, 2022.

Consumer mortgage loans secured by residential real estate for which the Corporation entered into formal foreclosure proceedings but for which physical possession of the property has yet to be obtained amounted to $ 138,000 at December 31, 2023.

These balances were not included in foreclosed assets held for resale at December 31, 2023.

There were no consumer mortgage loans secured by residential real estate for which the Corporation entered into formal foreclosure proceedings but for which physical possession of the property has yet to be obtained as of December 31, 2024.

The following tables present the classes of the loan portfolio summarized by the past-due status at December 31, 2024 and 2023:

7 unchanged sentences

State and Political Subdivisions

2016-13 Disclosures:

For periods prior to the adoption of ASU No.

2016-13, when management deemed the collection of contractual cashflows was unlikely for a specific instrument (mainly non-accrual loans and TDRs, then referred to as impaired loans), a specific reserve was calculated under ASC 310-10.

Management further calculated a general reserve for performing assets under its previous methodology, following ASC 450-20 which utilized historical loss experience and qualitative factor adjustments to arrive at a calculated allowance for loan losses.

Upon adoption of ASU No.

2016-13, the classes of the loan portfolio were updated to match the segmentation used under the CECL model and have been updated from Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer to Real Estate, Agricultural, Commercial and Industrial, Consumer, and State and Political Subdivisions.

Comparative, pre-ASU No.

2016-13 adoption data has not been updated to reflect the new loan classes/segmentation utilized under the CECL model.

The following table presents the classes of the loan portfolio summarized by risk rating as of December 31, 2022:

Commercial and Industrial

Commercial Real Estate

7 Special Mention

8 Substandard

Add (deduct):

Unearned discount

Net deferred loan fees and costs

Residential Real Estate Including Home Equity

7 Special Mention

8 Substandard

Add (deduct):

Unearned discount

Net deferred loan fees and costs

7 Special Mention

8 Substandard

Add (deduct):

Unearned discount

Net deferred loan fees and costs

The activity in the allowance for loan losses by loan class (prior to adoption of ASU No.

2016-13), is summarized below for the year ended December 31, 2022.

(Dollars in thousands)

and Industrial

As of and for the year ended December 31, 2022:

Allowance for Loan Losses:

Beginning balance

Provision (Credit)

Ending Balance

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

Loans Receivable:

Ending Balance

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

The outstanding recorded investment of loans categorized as TDRs as of December 31, 2022 was $ 7,480,000 .

There were no unfunded commitments on TDRs at December 31, 2022.

During the year ended December 31, 2022, two loans with a combined post modification balance of $ 515,000 were modified as TDRs.

The loan modifications for the year ended December 31, 2022 consisted of two payment modifications.

The following table presents the outstanding recorded investment of TDRs at the dates indicated:

(Dollars in thousands)

Non-accrual TDRs

Accruing TDRs

At December 31, 2022, three commercial and industrial loans classified as TDRs with a combined recorded investment of $ 664,000 and five commercial real estate loans classified as TDRs with a combined recorded investment of $ 684,000 were not in compliance with the terms of their restructure.

Of the loans that were modified as TDRs within the twelve months preceding December 31, 2022, no loans experienced payment defaults during the year ended December 31, 2022.

The following table presents information regarding the loan modifications categorized as TDRs during the year ended December 31, 2022.

(Dollars in thousands)

Year Ended December 31, 2022

Pre-Modification

Post-Modification

Commercial Real Estate

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the year ended December 31, 2022 with the total number of each type of modification performed.

Year Ended December 31, 2022

Commercial Real Estate

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s impaired loans are summarized below at December 31, 2022.

(Dollars in thousands)

December 31, 2022

Commercial and Industrial

Commercial Real Estate

Residential Real Estate

At December 31, 2022, $ 7,480,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $ 0 at December 31, 2022.

The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs.

The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Corporation’s impaired loans are summarized below for the year ended December 31, 2022.

(Dollars in thousands)

Year Ended December 31, 2022

Commercial and Industrial

Commercial Real Estate

Residential Real Estate

Of the $ 309,000 in interest income recognized on impaired loans for the year ended December 31, 2022, $ 0 in interest income was recognized with respect to non-accrual loans.

NOTE 4 — PREMISES AND EQUIPMENT, NET

14 unchanged sentences

Total deposits

Total deposits decreased $ 13,060,000 to $ 980,439,000 as of December 31, 2023 due to decreases in non-interest bearing demand, interest bearing demand and savings accounts while time deposits increased due to higher rate

CD offerings in 2023.

The decrease in deposits was mainly the result of a $ 60,884,000 decrease in municipal deposits offset by an increase of $ 40,250,000 in brokered CDs, along with other normal fluctuations in deposits during 2023.

As of December 31, 2023 the Corporation had $ 65,250,000 in brokered deposits (CDs) as compared to $ 20,000,000 at December 31, 2022.

Total deposits increased $ 65,441,000 to $ 1,045,880,000 as of December 31, 2024 due to increases in non-interest bearing demand accounts, interest bearing demand accounts and time deposits while savings accounts decreased.

The overall increase in deposits was mainly the result of a $ 74,000,000 increase in time deposits.

As of December 31, 2024 the Corporation had $ 99,149,000 in brokered deposits (CDs) as compared to $ 65,250,000 at December 31, 2023, an increase of $ 33,899,000 .

The balance of retail CDs increased $ 40,093,000 from $ 227,776,000 at December 31, 2023 to $ 267,869,000 at December 31, 2024.

The following is a schedule reflecting classification and remaining maturities of time deposits at December 31, 2024:

11 unchanged sentences

Federal Home Loan Bank of Pittsburgh

At December 31, 2023, the maximum borrowing capacity of federal funds purchased and the Federal Discount Window was $ 15,000,000 and $ 8,547,000 , respectively.

At December 31, 2024, the maximum borrowing capacity of the Federal Discount Window and federal funds purchased was $ 16,733,000 and $ 15,000,000 , respectively.

Please refer to Note 7 ― Long-Term Borrowings for the Corporation’s maximum borrowing capacity at FHLB.

6 unchanged sentences

In addition, as the Corporation does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an

interest payment to the counterparty).

The collateral is held by a correspondent bank in the counterparty’s custodial account.

The counterparty has the right to sell or repledge the investment securities.

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements as of December 31, 2023 and 2022.

The following table presents the repurchase agreements subject to enforceable master netting arrangements as of December 31, 2024 and 2023.

(Dollars in thousands)

Gross Amounts Not Offset in the Consolidated Balance Sheet

of Liabilities

Offset in the

Balance Sheet

December 31, 2024

16 unchanged sentences

Due 2024, 1.68 %

Due 2026, 4.40 % to 4.92 %

2 unchanged sentences

The Corporation’s long-term borrowings consist of notes at fixed interest rates.

Upon any default, under the terms of a master agreement, FHLB may declare all indebtedness of the Corporation immediately due.

In addition, FHLB shall not be required to fund advances under any outstanding commitments.

Upon any default, under the terms of a master agreement, the FHLB may declare all indebtedness of the Corporation immediately due.

In addition, the FHLB shall not be required to fund advances under any outstanding commitments.

Irrevocable standby letters of credit may be issued to a customer/beneficiary by the FHLB on the Corporation’s behalf in order to secure public/municipal unit deposits, provide credit enhancement to certain transaction types, or to support payment obligations to third parties.

These irrevocable standby letters of credit are supported by an irrevocable and independent guarantee by the FHLB for the Corporation’s pledging obligation to secure public/municipal unit deposits which eliminates the need for the Corporation to pledge collateral in the amount necessary to secure these funds.

There were no irrevocable standby letters of credit which could be drawn on through FHLB’s close of business on December 31, 2023 or 2022.

There were no irrevocable standby letters of credit which could be drawn on through the FHLB’s close of

business on December 31, 2024 or 2023.

Any irrevocable standby letters of credit are issued as necessary in an amount appropriate to secure specific public/municipal unit deposits.

1 unchanged sentence

Principal qualifying assets are certain real estate mortgages and investment securities.

As of December 31, 2023, loans of $ 740,384,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $ 517,782,000 .

As of December 31, 2023, no securities were pledged as collateral to FHLB to secure FHLB loans and letters of credit.

As of December 31, 2024, loans of $ 746,271,000 were pledged to the FHLB which resulted in an FHLB maximum borrowing capacity of $ 521,112,000 .

As of December 31, 2024, no securities were pledged as collateral to the FHLB to secure FHLB loans and letters of credit.

NOTE 8 — SUBORDINATED DEBENTURES

8 unchanged sentences

NOTE 9 — INCOME TAXES

The current and deferred components of the income tax expense consisted of the following:

The current and deferred components of the income tax (benefit) expense consisted of the following:

(Dollars in thousands)

Income tax expense

The following is a reconciliation between the income tax expense and the amount of income taxes which would have been provided at the statutory rate of 21 %:

Income tax (benefit) expense

The following is a reconciliation between the income tax (benefit) expense and the amount of income taxes which would have been provided at the statutory rate of 21 %:

(Dollars in thousands)

3 unchanged sentences

Bank owned life insurance income

Goodwill impairment

Prior year tax adjustments

Income tax expense and rate

Income tax (benefit) expense and rate

The components of the net deferred tax asset at December 31, 2024 and 2023 are as follows:

2 unchanged sentences

Net unrealized losses on debt securities available-for-sale and derivatives

Allowance for loan losses

Allowance for credit losses

Provision for unfunded commitments

15 unchanged sentences

Mortgage servicing rights

Derivatives remeasurement

Net Deferred Tax Asset

1 unchanged sentence

The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain.

At December 31, 2023 and 2022, the Corporation had state net operating loss carryforwards, net of a valuation allowance, of $ 0 , which are available to offset future state taxable income, and expire at various dates through 2043 .

At December 31, 2024 and 2023, the Corporation had state net operating loss carryforwards, net of a valuation allowance of $ 0 , which would be available to offset future state taxable income, and expire at various dates through 2044 .

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is

dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

20 unchanged sentences

At December 31, 2024, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $ 1,400,000 and $ 1,920,000 , respectively, in the consolidated balance sheets.

Options to extend or terminate a lease may be included in our lease agreements.

When it is reasonably certain that we will exercise those options, the right-of-use asset and lease liability will reflect the renewal or termination option.

Options to extend or terminate a lease may be included in the Corporation’s lease agreements.

When it is reasonably certain that the Corporation will exercise those options, the right-of-use asset and lease liability will reflect the renewal or termination option.

No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components.

None of the leases contained an implicit rate;

therefore, our incremental borrowing rate was used for each of the leases.

therefore, the Corporation’s incremental borrowing rate was used for each of the leases.

The Corporation recognized total operating lease costs for the years ended December 31, 2024 and 2023 of $ 213,000 and $ 220,000 , respectively.

2 unchanged sentences

The equipment will continue to depreciate for an additional two years .

At December 31, 2023, right-of-use assets and lease liabilities were recorded related to this finance lease totaling $ 32,000 and $ 0 , respectively.

At December 31, 2024, right-of-use assets were recorded related to this finance lease totaling $ 29,000 .

Amounts recognized as right-of-use assets related to finance leases are included in premises and equipment, net in the accompanying consolidated balance sheets.

options to extend or terminate the lease are not applicable.

No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components.

The lease does not contain an implicit rate;

therefore, our incremental borrowing rate was used for the lease.

Total finance lease costs that were recognized by the Corporation for the years ended December 31, 2023 and 2022 were immaterial.

There were no finance lease costs that were recognized by the Corporation for the years ended December 31, 2024 and finance lease costs recognized during the year ended December 31, 2023 were immaterial.

Cash payments totaled $ 0 and $ 7,000 for the years ended December 31, 2024 and 2023, respectively.

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of December 31, 2023 and 2022.

The following table displays the weighted-average term and discount rates for operating leases outstanding as of December 31, 2024 and 2023.

Weighted-average term (years)

16 unchanged sentences

The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and cash payments principally related to specific assets and short-term wholesale funding positions.

The Corporation entered into four swap contracts effective September 20, 2023.

The Corporation entered into four swap contracts effective September 20, 2023 and one additional swap contract effective September 4, 2024.

Fair Values of Derivative Instruments on the Statement of Financial Condition

14 unchanged sentences

Other Liabilities

The following table presents the derivative liabilities subject to an enforceable master netting arrangement as of December 31, 2023 and 2022.

The following tables present the derivative assets and liabilities subject to an enforceable master netting arrangement as of December 31, 2024 and 2023.

Gross Amounts Not Offset in the Consolidated Balance Sheet

(Dollars in thousands)

Offset in the

Presented in the

Balance Sheet

December 31, 2024

December 31, 2023

Gross Amounts Not Offset in the Consolidated Balance Sheet

of Liabilities

(Dollars in thousands)

Offset in the

Presented in the

Balance Sheet

December 31, 2024

4 unchanged sentences

December 31, 2024:

Derivative Assets

Derivative Liabilities

Fair Value Hedges of Interest Rate Risk

1 unchanged sentence

The Corporation uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rates.

Interest rate swaps designated as fair

value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets.

As of December 31, 2023, the Corporation had a total of two interest rate swaps with a combined notional amount of $ 50,000,000 hedging fixed-rate available-for-sale debt securities.

As of December 31, 2023, and December 31, 2022, the following amounts were recorded on the balance sheet related to the cumulative basis adjustment for fair value hedges:

As of December 31, 2024, the Corporation had a total of two interest rate swaps with a combined notional amount of $ 50,000,000 hedging fixed-rate debt securities available-for-sale and one interest rate swap with a notional amount of $ 75,000,000 hedging fixed-rate loans.

As of December 31, 2024, and December 31, 2023, the following amounts were recorded on the balance sheets related to the cumulative basis adjustment for fair value hedges:

(Dollars in thousands)

2 unchanged sentences

Closed Portfolio Amount

Fixed Rate Loans

Available-for-sale - Municipals

3 unchanged sentences

Cumulative amount of fair value hedging adjustment included in the carrying amount of assets:

Fixed Rate Loans

Available-for-sale - Municipals

8 unchanged sentences

These interest rate products are designated as cash flow hedges.

As of December 31, 2023, the Corporation had a total of two interest rate swaps with a combined notional amount of $ 100,000,000 hedging specific short-term wholesale funding positions.

As of December 31, 2024, the Corporation had two interest rate swaps with a combined notional amount of $ 100,000,000 hedging specific short-term wholesale funding positions.

For derivatives designated as cash flow hedges, the gain or loss on the derivatives is recorded in other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

During the next twelve months, it is estimated that an additional $ 404,000 will be reclassified as a decrease to interest expense.

During the next twelve months, it is estimated that an additional $ 203,000 will be reclassified as interest expense.

Interest rate swaps designated as cash flow hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

as interest payments are made on the Corporation’s hedged variable rate short-term wholesale funding positions.

For cash flow hedges on the Corporation’s short-term wholesale funding positions, amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation’s hedged variable rate short-term wholesale funding positions.

During the year ended December 31, 2024, the Corporation reclassified $ 850,000 as a reduction in interest expense.

7 unchanged sentences

The Corporation also has agreements with its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well-capitalized institution, then the Corporation could be required to terminate its derivative positions with the counterparty.

As of December 31, 2023, the Corporation’s derivatives were in a net liability position resulting in the Corporation having collateral in the amount of $ 4,650,000 posted with the counterparty at December 31, 2023.

As of December 31, 2022, the Corporation had no derivatives in a net liability position and accordingly did not have to post any collateral.

As of December 31, 2024, the Corporation’s derivatives were in a net liability position resulting in the Corporation having collateral in the amount of $ 6,570,000 posted with the counterparty.

As of December 31, 2023, the Corporation’s derivatives were in a net liability position and accordingly the Corporation had collateral in the amount of $ 4,650,000 posted with the counterparty.

NOTE 13 — RELATED PARTY TRANSACTIONS

8 unchanged sentences

Deposits from certain officers, directors and immediate family members and/or their related companies held by the Bank amounted to $ 24,998,000 and $ 26,988,000 at December 31, 2024 and 2023, respectively.

Funds from certain officers, directors and immediate family members and/or their related companies held in the Trust Department amounted to $ 12,302,000 at December 31, 2024.

NOTE 14 — REGULATORY MATTERS

63 unchanged sentences

Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Corporation evaluates each customer’s

creditworthiness on a case-by-case basis.

The Corporation evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the borrower.

4 unchanged sentences

Financial Instruments with Concentrations of Credit Risk

The Corporation originates primarily commercial and residential real estate loans to customers predominately in the Corporation’s five county, Pennsylvania market area.

The Corporation originates primarily commercial and residential real estate loans to customers predominately in the Corporation’s primary, Pennsylvania market area.

The ability of the majority of the Corporation’s customers to honor their contractual loan obligations is dependent on the economy and real estate market in this area.

85 unchanged sentences

There were no transfers between valuation levels in 2024 and 2023.

Following the adoption of ASU No.

2016-13, at December 31, 2023, individually evaluated loans measured at fair value on a nonrecurring basis were as follows:

Individually evaluated loans measured at fair value on a nonrecurring basis as of December 31, 2024 and 2023 are as follows:

(Dollars in thousands)

2 unchanged sentences

Total individually evaluated loans

Prior to the adoption of ASU No.

2016-13, at December 31, 2022, impaired loans measured at fair value on a nonrecurring basis were as follows:

(Dollars in thousands)

Assets at December 31, 2023

Impaired loans:

Commercial Real Estate

Residential Real Estate

Total impaired loans

Individually evaluated loans:

Total individually evaluated loans

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

6 unchanged sentences

Quantitative Information about Level 3 Fair Value Measurements

2016-13 Adoption:

December 31, 2024

7 unchanged sentences

( 5 %) – ( 5 %)

2016-13 Adoption:

December 31, 2023

Impaired loans - collateral dependent

Individually evaluated loans - collateral dependent

Appraisal of collateral 1,3

3 unchanged sentences

( 5 %) – ( 5 %)

Impaired loans - other

Discounted cash flow

Discount rate

( 4 %) – ( 7 %)

Fair value is generally determined through independent appraisals or Certificates of Inspection of the underlying collateral, as defined by Bank regulators.

12 unchanged sentences

Accrued interest receivable

Derivative assets

FINANCIAL LIABILITIES:

26 unchanged sentences

Deposit related fees and service charges

Service charges and fees on deposits, which are included as liabilities in the consolidated balance sheets, consist of fees related to monthly fees for various retail and business checking accounts, automated teller machine (“ATM”) fees (charged for withdrawals by our deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds).

the Corporation’s deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds).

All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers.

The Corporation elected to adopt practical expedient related to incremental costs of obtaining deposit contracts.

The Corporation elected to adopt a practical expedient related to incremental costs of obtaining deposit contracts.

As such, any costs associated with acquiring the deposits, except for certificate of deposits (“CDs”) with maturities in excess of one year, are recognized as an expense within the non-interest expense in the consolidated statements of income when incurred as the amortization period of the deposit liabilities that otherwise would have been recognized is one year or less.

7 unchanged sentences

Wealth management fees are included within non-interest income in the consolidated statements of income.

As of December 31, 2023 and 2022, the fair value of trust

assets under management was $ 109,064,000 and $ 111,172,000 , respectively.

As of December 31, 2024 and 2023, the fair value of trust assets under management was $ 120,857,000 and $ 109,064,000 , respectively.

The costs of acquiring asset management customers are incremental and recognized within the non-interest expense of the consolidated statements of income.

10 unchanged sentences

In accordance with current accounting standards, goodwill is not amortized.

Goodwill totaled $ 19,133,000 at December 31, 2023 and December 31, 2022.

Goodwill totaled $ 0 at December 31, 2024 and $ 19,133,000 at December 31, 2023.

Impairment testing is performed on an annual basis, using either a qualitative or quantitative approach.

2 unchanged sentences

Goodwill was evaluated for impairment at December 31, 2023, and it was determined that goodwill was not impaired.

Management evaluated the need for an interim goodwill impairment analysis and determined that there were no triggering events or negative factors affecting goodwill since the previous test that would indicate goodwill was impaired as of December 31, 2023.

Due primarily to the decrease in the Company’s stock price during the first quarter of 2024 as a triggering event, management evaluated the need for an interim goodwill impairment analysis.

The decrease prompted the Corporation to assess its goodwill utilizing a quantitative impairment test and determined it was more likely than not the

fair value of the Corporation was less than the carrying amount as of March 31, 2024.

Based on the results of the impairment test, the Corporation recorded a goodwill impairment charge of $ 19,133,000 effective March 31, 2024.

NOTE 20 — PARENT COMPANY FINANCIAL INFORMATION

5 unchanged sentences

Prepaid expenses and other assets

(Receivable) advances from banking subsidiary

Receivable from banking subsidiary

Subordinated debentures

7 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

STATEMENTS OF INCOME

STATEMENTS OF (LOSS) INCOME

(Dollars in thousands)

1 unchanged sentence

Dividends from subsidiary bank

Net securities losses

Net securities gains (losses)

Interest on subordinated debt

3 unchanged sentences

INCOME TAX BENEFIT

EQUITY IN UNDISTRIBUTED EARNINGS OF BANKING SUBSIDIARY

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

EQUITY IN UNDISTRIBUTED (LOSSES) EARNINGS OF BANKING SUBSIDIARY

NET (LOSS) INCOME

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in thousands)

Years Ended December 31,

Other comprehensive loss:

Equity in other comprehensive loss of banking subsidiary

Total other comprehensive loss

Total Comprehensive Income (Loss)

Net (Loss) Income

Other comprehensive income (loss):

Equity in other comprehensive income (loss) of banking subsidiary

Total other comprehensive income (loss)

Total Comprehensive (Loss) Income

STATEMENTS OF CASH FLOWS

2 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net income to net cash provided by operating activities:

Losses on securities

Deferred income tax benefit

Equity in undistributed earnings of banking subsidiary

Increase in prepaid/accrued expenses and other assets/liabilities

(Gains) losses on securities

Deferred income tax expense (benefit)

Equity in undistributed losses (earnings) of banking subsidiary

(Decrease) increase in prepaid/accrued expenses and other assets/liabilities

Decrease in advances from banking subsidiary

7 unchanged sentences

NET CASH USED IN FINANCING ACTIVITIES

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data