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Item 8. Financial Statements and Supplementary Data

2026-03-30 compared with 2025-03-26 · 436 added, 362 removed, 1261 unchanged (39% of the section changed)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Keystone Corporation and Subsidiary (“Company”) as of December 31, 2024 and 2023, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

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.

We have audited the accompanying consolidated balance sheets of First Keystone Corporation (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024, and the consolidated 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.

Basis for Opinion

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

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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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(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Qualitative Factors

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans – Qualitative Factor Adjustments

Critical Audit Matter Description

As described in Note 1, 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 Company’s ACL is calculated by collectively evaluating and individually evaluating loans.

The Company collectively evaluates applicable loans based on segments according to their homogeneous characteristics, aligned with the segmentation of the FDIC Bank Call Report.

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

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.

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.

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

The Company has contracted with a third-party vendor to assist in developing models for the ACL related to the Company’s loan portfolio.

The Company 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.

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

Reasonable and supportable forecasts may extend over the entire contractual term of a loan or a period shorter than the contractual term.

Reasonable and supportable forecasts may vary by portfolio segment or individual forecast input.

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

We identified the qualitative factor component of the ACL on loans collectively evaluated for credit loss as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

How the Critical Audit Matter was Addressed in the Audit

The primary procedures we performed to address this critical audit matter included:

● Evaluating the appropriateness of management’s methodology for estimating the ACL on loans.

● Testing of the completeness and accuracy of data used by management in determining qualitative factor adjustments.

● Evaluating the reasonableness of management’s judgments related to the qualitative loss factors to determine if the loss factors are calculated in accordance with management’s policies and were consistently applied from the point of adoption to year end.

The Company’s allowance for credit losses (ACL) on loans was $9.4 million at December 31, 2025.

As more fully described in Note 1 and Note 3, the ACL represents management’s estimate of expected credit losses over the contractual terms of the Company’s loan portfolio as of the balance sheet date.

The Company estimates the quantitative component of the ACL for collectively evaluated loans using the Weighted Average Remaining Maturity (“WARM”) method, which applies an average annual historical net charge off rate to loan pools over their weighted average remaining life.

Management then applies qualitative factor adjustments, by portfolio segment, to reflect information not otherwise captured in the quantitative estimate, including changes in economic and business conditions, portfolio trends, and other internal and external factors.

We identified the qualitative factor adjustments to the ACL for collectively evaluated loans as a critical audit matter because determining the direction and magnitude of these segment level adjustments involves especially subjective judgments and estimation uncertainty, including judgments about current conditions and forward-looking information, and required significant auditor judgment to evaluate whether the adjustments were reasonable and supported by relevant internal and external information.

How We Addressed the Critical Audit Matter in our Audit

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

Our audit procedures related to this critical audit matter included the following, among others:

● Evaluating the appropriateness of management’s qualitative framework, including whether qualitative adjustments were designed to capture factors not already incorporated in the quantitative WARM estimate and whether the framework was applied by portfolio segment consistent with the Company’s policy.

● Testing the completeness and accuracy of key portfolio data used by management to develop qualitative factor adjustments (e.g., delinquency/nonaccrual, concentrations).

● Evaluating the reasonableness of the direction and magnitude of qualitative adjustments, by segment, by comparing management’s rationale to relevant internal credit risk indicators and external information used by management to support adjustments.

● Assessing consistency of qualitative factor application period over period, including evaluating whether changes in qualitative adjustments were supported by changes in portfolio performance indicators and external conditions.

/s/ Baker Tilly US, LLP

We have served as the Company’s auditor since 2018.

Iselin, New Jersey

Milwaukee, Wisconsin

March 30, 2026

We have served as the Company’s auditor since 2018.

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

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Restricted investment in bank stocks, at cost

Loans held for investment

Loans held for sale

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Net interest income

Provision (credit) for credit losses

Provision for credit losses

Net interest income after provision for credit losses

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Net gains on sales of mortgage loans

Net securities gains (losses)

Net securities gains

Gains from life insurance proceeds

Total non-interest income

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Total non-interest expense

(Loss) Income before income tax (benefit) expense

Income tax (benefit) expense

NET (LOSS) INCOME

Income (loss) before income tax (benefit) expense

Income tax expense (benefit)

NET INCOME (LOSS)

PER SHARE DATA

Net (loss) income per share:

Net income (loss) per share:

Dividends per share

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FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

Net (loss) income

Other comprehensive income (loss):

Net income (loss)

Other comprehensive income:

Unrealized net holding gains on debt securities available-for-sale arising during the period, net of income taxes of $( 1,865 ) and $( 423 ), 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.

(b) Income tax amounts are included in income tax expense on the consolidated statements of income.

Fair value adjustment on cash flow derivatives, net of income taxes of $ 219 and $( 606 ), respectively

Total other comprehensive income

Total comprehensive income (loss)

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

(b) Income tax amounts are included in income tax expense (benefit) on the consolidated statements of income.

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

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Stockholders’

Income (Loss)

Shares Issued

Balance at January 1, 2024

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:

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

Net income (loss)

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

Provision for credit losses on loans

Release of credit losses on unfunded commitments

Goodwill impairment

Depreciation and amortization

Net premium amortization on securities

Deferred income tax (benefit) expense

Common stock issued

Net (discount accretion) premium amortization on securities

Deferred income tax benefit

Net gains on sales of mortgage loans

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Originations of mortgage loans originated for sale

Net securities (gains) losses

Decrease (increase) in accrued interest receivable

Net securities gains

(Increase) decrease in accrued interest receivable

Increase in cash surrender value of bank owned life insurance

Gain from bank-owned life insurance proceeds

Net losses on disposals of premises and equipment

(Increase) Decrease in other assets

Decrease (increase) in other assets

Amortization of investment in low-income housing partnerships

(Decrease) increase in accrued interest payable

Decrease in other liabilities

Increase (decrease) in accrued interest payable

(Decrease) increase in other liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of equity securities and debt securities available-for-sale

Proceeds from maturities and redemptions of debt securities available-for-sale

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Net change in restricted investment in bank stocks

Net increase in loans

Net increase in loans originated as held for investment

Proceeds from bank-owned life insurance

Purchase of premises and equipment

Purchase of investment in real estate venture

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits

Net (decrease) increase in short-term borrowings

Repayment of finance lease obligations

Net increase in deposits

Net increase (decrease) in short-term borrowings

Proceeds from long-term borrowings

Repayment of long-term borrowings

Dividends paid

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Dividends paid, net of reinvestment

NET CASH PROVIDED BY FINANCING ACTIVITIES

INCREASE IN CASH AND CASH EQUIVALENTS

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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

Common stock subscription receivable

Right-of-use assets obtained in exchange for lease liabilities

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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 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 CODM also considers other components reported on the consolidated financial statements of income including interest income, interest expense, non-interest income, and non-interest expense as part of this evaluation of financial performance.

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.

The measure of segment assets is reported on the consolidated balance sheets as total assets at December 31, 2025 and 2024.

Significant Concentrations of Credit Risk

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The inherent risks associated with lending activities are mitigated by adhering to established underwriting practices and policies, as well as portfolio diversification and thorough monitoring of the loan portfolio.

It is management’s opinion that the investment and loan portfolios were well balanced at December 31, 2024, to the extent necessary to avoid any significant concentrations of credit risk.

It is management’s opinion that the investment and loan portfolios were well balanced at December 31, 2025 and 2024, to the extent necessary to avoid any significant concentrations of credit risk.

Use of Estimates

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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.

Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the debt security.

The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses.

Consideration is given to (1) the financial condition and near-term prospects of the issuer, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values.

Consideration is given to (1) the financial condition and near-term prospects of the issuer, (2) the outlook for receiving the contractual cash flows of the investments, (3) the extent to which the fair value has been less than cost, (4) the Corporation’s intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) credit ratings, (6) third party guarantees, and (7) collateral values.

In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the debt securities.

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All other debt securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value.

As of December 31, 2025 and 2024, there were no credit losses recorded in relation to debt securities available-for-sale.

The credit loss component would be recognized as credit loss expense (or reversal) through the provision for credit losses and the creation of an allowance for credit losses.

Losses would be charged against the allowance if management believes the debt security available-for-sale to be uncollectable or when either criteria regarding the intent or requirement to sell is met (e.g.

the Corporation intends to sell or determines it is more-likely-than-not that it will be required to sell the security prior to recovering the security’s fair value).

The Corporation made a policy election to exclude accrued interest receivable from the unamortized cost basis of debt securities available-for-sale.

Accrued interest receivable on debt securities available-for-sale is reported as a component of accrued interest receivable on the Corporation’s consolidated balance sheets and totaled $ 2,068,000 and $ 2,142,000 at December 31, 2025 and 2024, respectively.

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

Equity Securities

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.

In accordance with ASC 321-10, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported on the consolidated statements of income.

Equity securities without readily determinable fair values are measured at cost, adjusted for observable price changes and impairments, if any.

Management evaluates equity securities for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Equity securities without readily determinable fair values are generally evaluated for impairment under FASB ASC 321, Equity Securities.

In determining impairment under the FASB ASC 321 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the equity security or more likely than not will be required to sell the equity security before its anticipated recovery.

Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in earnings.

Equity securities without readily determinable fair values are measured at cost less any determined impairment, plus or minus any observable price changes in orderly transactions for the same or similar securities, in accordance with ASC 321, Equity Securities .

Management evaluates equity securities without readily determinable fair values for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

In determining impairment under the ASC 321 model, management considers many factors, including but not limited to (1) an offer to purchase the security at a fair value that is less than cost/carrying value, (2) the financial condition and near-term prospects of the issuer, including any significant deterioration, (3) any adverse changes in the issuer’s industry, operating environment, or macroeconomic conditions, and (4) whether the entity has the intent to sell the equity security or more likely than not will be required to sell the equity security before its anticipated recovery.

The assessment of whether an impairment exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

If an impairment loss on an equity security is considered to exist, a loss in the amount of the difference between the cost and fair value of the security is recognized.

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.

If an impairment loss on an equity security is considered to exist, an impairment loss equal to the amount by which the carrying value exceeds the estimated fair value is recorded.

Once the impairment is recorded, the new carrying value 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.

As of December 31, 2025 and 2024 no impairment was recorded in relation to equity securities.

Fair Value of Financial Instruments

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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.

Commitments and Contingencies

At the inception of an agreement, the Corporation determines if an arrangement is a lease or contains a lease component in accordance with ASC 842.

Leases are classified as either operating or finance based upon various criteria.

Right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the estimated present value of the fixed lease payments over the term of the lease.

The lease term begins on the date the lessor makes the asset available to the Corporation and includes any renewal periods that the Corporation is reasonably certain to exercise.

Operating lease liabilities are amortized to operating expenses on a straight-line basis over the appropriate lease term(s) and related lease liabilities and right-of-use assets are reduced over the respective lease terms using the effective interest method.

Finance lease liabilities are amortized using the effective interest method, with related interest reported as interest expense in premises and equipment in the consolidated balance sheets.

Finance right-of-use assets are amortized to operating expenses on a straight-line basis over the lesser of the designated lease term or the useful life of the asset.

None of the Corporation’s leases contain an implicit rate;

therefore, the Corporation’s incremental borrowing rate is applied for each of the leases.

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.

The Corporation enters into derivative transactions to manage its exposure to interest rate risk associated with changes in the fair value of certain assets and liabilities and the variability of future cash flows.

ASC Topic 815, Derivatives and Hedging (“ASC 815”), requires all derivative instruments to be recorded in the Consolidated Balance Sheets as either assets or liabilities measured at fair value.

The accounting for changes in the fair value of derivative instruments depends on whether the derivative is designated and qualifies as part of a hedging relationship and on the type of hedging relationship.

On the date a derivative contract is entered into, the Corporation designates the derivative as either a cash flow or fair value hedge based on the following criteria:

Cash Flow Hedges:

Derivatives are designated as cash flow hedges when they are used to manage exposure to variability in expected future cash flows related to forecasted transactions on variable rate financial instruments.

The Corporation utilizes interest rate swap agreements as part of its hedging strategy by exchanging a notional amount equal to the principal amount of the related assets or liabilities in exchange for fixed-rate interest based on benchmarked interest rates.

Fair Value Hedges:

Derivatives are designated as fair value hedges when they are used to mitigate exposure to changes in the fair value of certain financial assets, liabilities, or firm commitments attributable to a particular risk, such as interest rate risk.

Fair value hedges include interest rate swap agreements on fixed rate instruments.

Fair value hedges:

changes in the fair value of the derivative instrument and the related changes in the fair value of the hedged asset or liability attributable to the hedged risk are recognized in the Consolidated Statements of Income.

The adjustment attributable to the hedged risk is recorded as a basis adjustment to the carrying amount of the hedged item.

Cash flow hedges:

the effective portion of changes in the fair value of the derivative instrument is recorded in other comprehensive income (loss) and subsequently reclassified into earnings in the period or periods during which the hedged forecasted transaction affects earnings.

The Corporation formally documents all hedging relationships, including the risk management objectives and strategies for undertaking the hedges, and assesses both at hedge inception and on an ongoing basis whether designated hedging relationships are highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk.

Any gains or losses related to derivatives are included in operating activities as changes in other assets or other liabilities, as applicable, in the Corporation’s consolidated statements of cash flows.

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.

The Corporation’s derivatives are governed by an enforceable master netting arrangement in which the Corporation has the right to offset all exposures with the related counterparty.

Either counterparty to the master netting arrangement can request to settle all derivative contracts through a single payment upon default on or termination of any one contract.

The Corporation elects to offset the derivative assets and liabilities under master netting arrangements for presentation on the consolidated balance sheets where a right of setoff exists.

Restricted Investment in Bank Stocks

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.

The Corporation is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Atlantic Community Bankers Bank (“ACBB”) systems and therefore is required to own a certain amount of restricted stock at each entity, based on the level of borrowings and other factors.

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.

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

Both cash and stock dividends are reported as other income on the consolidated statements of income.

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 2025 or 2024.

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

The Corporation’s loan portfolio is segmented into two categories:

Loans Held for Sale and Loans Held for Investment, as presented on the Corporation’s consolidated balance sheets.

Loans held for sale consist of residential real estate loans originated for sale in the secondary market.

Credit risk associated with such loans is mitigated by entering into sales commitments with third-party investors to purchase the loans upon origination.

Residential mortgage loans held for sale are carried at the lower of cost or market on an aggregate basis determined by independent pricing from appropriate federal or state agency investors.

These loans are sold without recourse.

The Corporation retains the right to service these loans after they are sold.

Loans held for sale amounted to $ 1,140,000 and $ 737,000 at December 31, 2025 and 2024, respectively.

Loans held for investment represent loans that the Corporation has the intent and ability to hold until maturity or payoff or for the foreseeable future.

These loans are reported at their stated 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:

The loans held for investment 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.

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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.

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

Residential mortgage loans held for sale are carried at the lower of cost or market on an aggregate basis determined by independent pricing from appropriate federal or state agency investors.

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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

The Corporation originates commercial and industrial loans principally to businesses located in its primary market area and surrounding areas.

These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment, inventory and accounts receivable.

These loans are used for various business purposes, which include short-term loans

and lines of credit to finance machinery and equipment, inventory and accounts receivable.

Generally, the maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.

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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, 2024, the Corporation's balance of GGLs

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

As of December 31, 2025, the Corporation's balance of GGLs was $ 3,902,000 , compared to $ 4,306,000 at December 31, 2024.

Consumer Lending

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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 Corporation 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 require an individual evaluation based on the Corporation’s analysis of the cash flows or collateral estimated at fair value less cost to sell to determine if a specific allocation is required for the loan under the allowance for credit losses and/or if a charge-off is required.

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

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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.

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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 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.

present the net amount expected to be collected on the loan portfolio.

All 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.

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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 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 ASC 326 Financial Instruments – Credit Losses .

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.

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.

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

Reasonable and supportable forecasts may extend over the entire contractual term of a loan or a period shorter than the contractual term.

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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 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.

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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.

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

Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Loans for which individual evaluation has been deemed necessary are then analyzed to determine if a reserve is required for the loan.

A loan would be individually evaluated under the following circumstances (a) if it is on non-accrual status, (b) if a distressed loan is determined to be collateral dependent, or (c) if the Corporation has other concerns regarding the viability of the loan.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Once identified as impaired, the loans are measured individually for impairment based on one of the following methods:

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

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.

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 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.

Once identified as a loan requiring individual evaluation, the loan is analyzed based on the fair market value of the underlying collateral.

Loans that have been individually evaluated for expected credit losses may have a portion of the reserve allocated to cover the calculated collateral deficiency or the amount of the collateral deficiency may be charged off.

Loans individually evaluated for expected credit losses may have zero specific allocation if the evaluation/analysis shows that no collateral deficiency exists for the loan and no loss is expected.

Enhanced disclosure requirements are required for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty under ASC 326-20, Loan Modifications Experiencing Financial Difficulty .

In accordance with ASC 326-20, 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.

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

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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.

Factors considered by

management when evaluating whether expectations of zero credit loss are appropriate may include, but are not limited to:

Factors considered by management when evaluating whether expectations of zero credit loss are appropriate may include, but are not limited to:

1) a long history of zero credit loss;

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Similarly, the guaranteed portion of an SBA loan purchased on the secondary market through the SBA’s fiscal and transfer agent would likely have zero credit loss expectations because these financial assets are unconditionally guaranteed by the U.S.

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.

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

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.

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The cost and accumulated depreciation of the premises and equipment retired or sold are eliminated from the property accounts at the time of retirement or sale, and the resulting gain or loss is reflected in current operations.

Interest on deposits is accrued and charged to expense monthly and is paid or credited in accordance with the terms of the associated deposit accounts.

Service Charges and Fees on Deposits

Service charges and fees on deposits consist of monthly fees for various retail and business checking accounts and insufficient funds fees charged to customers when account balances are overdrawn beyond available funds.

Service charges and fees on deposits are included in non-interest income on the consolidated statements of income.

See Note 18 – Revenue Recognition for additional information.

ATM Fees and Debit Card Income

ATM fees and debit card income which are included in non-interest income on the consolidated statements of income consist predominantly of interchange fees from debit card transactions.

Interchange fees are recognized in relation to the acceptance and settlement of debit card transactions, both point-of-sale and ATM, on debit cards issued by the Corporation to consumer and business customers with checking, savings, or money market deposit accounts.

ATM fees and debit card income also includes surcharges that are assessed by the Corporation for non-customer usage of the Corporation’s ATMs.

See “Interchange Fees and Surcharges” under Note 18 – Revenue Recognition for additional information.

Short and Long-term Borrowings

In order to support working capital and liquidity needs and other general corporate purposes, as well as to support seasonal fluctuations in other major portfolio balances as needed, the Corporation utilizes short-term borrowings, including federal funds purchased, securities sold under agreements to repurchase, borrowings on the Federal Discount Window and Federal Home Loan Bank advances.

These borrowings generally represent overnight borrowings or borrowings with terms of less than thirty days.

The Corporation’s long-term borrowings may be used to fund loan or investment purchase strategies or may be used similar to short-term borrowings in order to support capital and liquidity needs or to support seasonal fluctuations in other major portfolio balances.

The Corporation’s long-term borrowings consist of fixed-interest advances from the Federal Home Loan Bank with maturities of greater than one year.

Irrevocable letters of credit may also be issued to a customer/beneficiary by the Federal Home Loan Bank 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 letters of credit, when drawn upon, would classify as long-term borrowings.

Subordinated Debt

Subordinated debt is recorded at amortized cost, which includes the principal amount outstanding, net of unamortized debt issuance costs and discounts.

Debit issuance costs are capitalized and amortized over the term of the related debt using the effective interest method.

Interest expense on subordinated debt is recognized on an accrual basis and recorded in interest expense on the consolidated statements of income.

See Note 8 – Subordinated Debentures for more information related to the Corporation’s subordinated debt.

Mortgage Servicing Rights

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The amount of servicing income earned was $ 190,000 and $ 200,000 at December 31, 2025 and 2024, 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.

Amortization recognized in relation to mortgage servicing rights was $ 64,000 and $ 72,000 at December 31, 2025 and 2024, respectively.

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

Gains or losses on sales of mortgage loans are recognized based on the differences between the selling price and the carrying value of the related mortgage loans sold.

Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank Owned Life Insurance

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The related expense for this benefit agreement amounted to $ 0 in 2025 and $ 1,000 in 2024.

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.

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.

The amount of tax credits allocated to the Corporation were $ 840,000 in 2025 and 2024, and the amortization of the investments in the limited partnerships were $ 819,000 in 2025 and 2024.

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.

Such goodwill represents the excess cost of the acquired assets relative to the assets fair value at the dates of acquisition.

During the first quarter of 2008, $ 152,000 of liabilities related to the Pocono acquisition were recorded as a purchase accounting adjustment resulting in an increase in the excess purchase price.

The amount was comprised of the finalization of severance agreements and contract terminations related to the acquisition.

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

Management performs an annual evaluation for impairment.

Any impairment of goodwill results in a charge to income.

The Corporation periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired.

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.

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.

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

The assumptions used in the impairment test of goodwill are susceptible to change based on changes in economic conditions and other factors, including our stock price.

Any change in the assumptions utilized to determine the carrying value of goodwill could adversely affect our results of operations.

Due primarily to the decrease in the Corporation’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, 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 full goodwill impairment charge of $ 19,133,000 effective March 31, 2024.

Goodwill totaled $ 0 at December 31, 2025 and 2024.

Foreclosed Assets Held for Resale

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Revenues derived from and costs to maintain the assets and subsequent gains and losses on sales are included in non-interest expense on the consolidated statements of income.

The Corporation accounts for income taxes in accordance with income tax accounting guidance FASB ASC Topic 740, Income Taxes.

There were no foreclosed assets held for resale as of December 31, 2025 or 2024.

The Corporation accounts for income taxes in accordance with income tax accounting guidance ASC Topic 740, Income Taxes.

Current income tax accounting guidance results in two components of income tax expense:

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

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period.

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.

Salaries and Employee Benefits

The Corporation provides a range of benefits to its employees which include salaries, bonuses, incentive awards, and post-employment benefits.

Employee compensation, which includes wages/salaries and paid time off, are recognized as expense on an accrual basis for the period in which the employee renders the service or utilizes paid time off.

Accruals are recorded for bonuses and incentives when the Corporation has the obligation to pay (if established criteria have been met) and a reliable estimate can be obtained.

Salaries and employee benefits are included as non-interest expense on the Corporation’s consolidated statements of income.

The Corporation maintains a 401k plan which has a combined tax qualified savings feature and profit sharing feature for the benefit of its employees.

The Corporation also has non-qualified deferred compensation agreements applicable to retired officers.

See Note 10 – Employee Benefit Plans and Deferred Compensation Agreements for more information regarding the Corporation’s 401k plan and deferred compensation agreements.

Earnings (Losses) Per Share

Basic earnings (losses) per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.

Diluted earnings (losses) per share 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, 2025 and 2024, there were no potential dilutive common shares outstanding.

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(In thousands, except earnings per share)

Net (loss) income

Net income (loss)

Weighted-average common shares outstanding

Basic and diluted (losses) earnings per share

Basic and diluted earnings (losses) per share

Treasury Stock

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Trust Department income is generally recognized on a cash basis and is not materially different than if it were reported on an accrual basis (see Table 5 – Non-Interest Income for details).

See Note 18 – Revenue Recognition for additional information.

Comprehensive Income (Loss)

The Corporation is required to present accumulated other comprehensive income (loss) in a full set of general-purpose financial statements for all periods presented.

Accumulated other comprehensive income (loss) is comprised of net unrealized holding (losses) gains on the debt securities available-for-sale and derivative portfolios.

Accumulated other comprehensive income (loss) is comprised of net unrealized holding (losses) gains on the debt securities available-for-sale and unrealized (losses) gains on cash flow hedges in the derivative portfolio.

The Corporation has elected to report these effects on the consolidated statements of comprehensive income (loss).

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It is the Corporation’s policy to expense advertising costs in the period in which they are incurred.

Recent Accounting Standards Updates:

In January of 2024, the Corporation adopted ASU No.

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.

Recent Accounting Standards Updates (“ASU”):

In January of 2024, the Corporation adopted ASU 2023-07 , Segment Reporting-Improvements to Reportable Segment Disclosures (Topic 280) .

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

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

The Corporation 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.

2023-09, Income Taxes (Topic 740):

In 2025, the Corporation adopted ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

ASU 2023-09 requires enhanced income tax disclosures related to the rate reconciliation and information related to income taxes paid.

The ASU was issued to enhance transparency and decision usefulness of income tax disclosures.

The standard requires:

consistent categories and greater disaggregation of information in the rate reconciliation, and 2.

income taxes paid, net of refunds received, disaggregated by jurisdiction based on an established threshold.

The amendments in this ASU will be applied on a prospective basis and retrospective application is permitted.

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, 2024.

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

The Corporation is currently evaluating the provisions of ASU 2023-09 and does not expect the adoption of the standard to have a material impact on the Corporation’s financial statements.

Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over assets has been surrendered.

ASU 2023-09 required enhanced income tax disclosures related to the rate reconciliation and information related to income taxes paid.

This ASU was issued to enhance transparency and decision usefulness of income tax disclosures.

The standard required:

(1) consistent categories and greater disaggregation of information in the rate reconciliation, and (2) income taxes paid, net of refunds received, disaggregated by jurisdiction based on an established threshold.

The Corporation adopted the provisions of the ASU prospectively, being applied only to transactions for the fiscal year ended December 31, 2025 and beyond.

This ASU did not have a material impact on the Corporation’s consolidated financial statements.

See Note 9 – Income Taxes for further analysis.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

ASU 2024-03 requires disclosure of specified information about certain costs and expenses in the notes to the financial statements.

The amendments in this update are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

The requirements will be applied prospectively with the option for retrospective application.

Early adoption is permitted.

The Corporation is currently evaluating the impact that the new guidance will have on the Corporation’s consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets.

ASU 2025-05 amends the guidance in ASC 326 to simplify the estimation of credit losses on current accounts receivable and current contract assets arising from transactions accounted for under ASC 606.

The amendments in this update are effective for public business entities for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual periods.

The Corporation is currently evaluating the impact that the new guidance will have on the Corporation’s consolidated financial statements.

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815):

Hedge Accounting Improvements.

This ASU amends certain aspects of the hedge accounting guidance to better reflect an entity’s risk management activities.

The amendments in this update are effective for public business entities for annual and interim reporting periods beginning after December 15, 2026.

The Corporation is currently evaluating the impact that the new guidance will have on the Corporation’s consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements.

This ASU clarifies the current interim disclosure requirements under US GAAP and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on an entity has occurred since the previous year-end.

The amendments in this update are effective for public business entities for annual and interim reporting periods beginning after December 15, 2027.

Off-Balance Sheet Financial Instruments

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Debt Securities

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

There was no allowance for credit losses for debt securities available-for-sale recorded as of the years ended December 31, 2025 and 2024;

therefore, it is not present in the table below.

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale were as follows at December 31, 2024 and 2023:

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale, along with the cumulative basis adjustments for fair value hedges, were as follows at December 31, 2025 and 2024:

Debt Securities Available-for-Sale

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Corporate debt securities

Debt securities available-for-sale with an aggregate fair value of $ 251,961,000 at December 31, 2024 and $ 249,114,000 at December 31, 2023, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $ 192,671,000 at December 31, 2024 and $ 182,050,000 at December 31, 2023.

Debt securities available-for-sale with an aggregate fair value of $ 214,422,000 at December 31, 2025 and $ 251,961,000 at December 31, 2024, were pledged to secure public funds, trust funds, securities sold under agreements

to repurchase and the Federal Discount Window aggregating $ 170,661,000 at December 31, 2025 and $ 192,671,000 at December 31, 2024.

The amortized cost and fair value of securities, by contractual maturity, are shown below at December 31, 2025.

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Nelnet Student Loan Trust

Navient Student Loan Trust

(Dollars in thousands)

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Sallie Mae Bank

Velocity Commercial Capital

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.

Gross gains realized on these sales were $ 0 and $ 447,000 respectively.

Gross losses on these sales were $ 0 and $ 348,000 respectively.

There were no proceeds from sales of Debt Securities Available-For-Sale during 2025 and 2024.

Therefore, there were no gains or losses realized during these periods.

The summary below shows the gross unrealized losses and fair value of the Corporation’s debt securities, aggregated by investment category, of which individual securities have been in a continuous unrealized loss position for less than 12 months or 12 months or more as of December 31, 2025 and 2024:

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There were 167 individual debt securities in an unrealized loss position as of December 31, 2024, with their combined decline in value representing 7.36 % of the debt securities portfolio.

The Corporation made a policy election to exclude accrued interest receivable from the amortized cost basis of debt securities available for sale.

Accrued interest receivable on debt securities available for sale is reported as a component of accrued interest receivable on the Corporation’s consolidated balance sheet and totaled $ 2,142,000 as of December 31, 2024.

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, 2025, 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.

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NOTE 3 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents outstanding balances by loan class prior to allocation of net deferred fees and costs, as well as the balance of total loans held for investment after allocation of net deferred fees and costs and net loans after allocation of the allowance for credit losses as of December 31, 2025 and 2024.

(Dollars in thousands)

Commercial and Industrial

State and Political Subdivisions

Net Deferred Fees and Costs

Total Loans Held for Investment

Loans Held for Sale

Allowance for Credit Losses

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, 2025 and 2024.

As of December 31, 2024:

December 31, 2025:

(Dollars in thousands)

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8 Substandard

Unearned discount