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What changed in PEOPLES FINANCIAL SERVICES CORP.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of PEOPLES FINANCIAL SERVICES CORP.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+605 added−655 removedSource: 10-K (2026-03-16) vs 10-K (2025-03-28)

Top changes in PEOPLES FINANCIAL SERVICES CORP.'s 2025 10-K

605 paragraphs added · 655 removed · 443 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

119 edited+58 added−73 removed76 unchanged
Biggest changeCurrent rules, which implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act, call for the following capital requirements: ● A minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent; ● A minimum ratio of tier 1 capital to risk-weighted assets of 6 percent; ● A minimum ratio of total capital to risk-weighted assets of 8 percent; and ● A minimum leverage ratio of 4 percent. ​ The Company and the Bank’s actual capital ratios at December 31, 2024, and the minimum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum to be Well ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized under ​ ​ ​ ​ ​ ​ ​ Minimum For Capital ​ Prompt Corrective ​ ​ Actual ​ Adequacy Purposes ​ Action Provisions (Dollars in thousands, except percents) ​ Amount ​ Ratio ​ Amount ​ Ratio ​ Amount ​ Ratio Common equity Tier 1 capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ $ 399,461 ​ 10.16 % $ 176,971 4.50 % ​ NA ​ NA ​ Bank ​ 429,958 ​ 10.95 ​ 176,640 4.50 ​ $ 255,147 6.50 % Tier 1 capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ ​ 409,461 ​ 10.41 ​ ​ 235,962 6.00 ​ ​ NA ​ NA ​ Bank ​ 429,958 ​ 10.95 ​ 235,520 6.00 ​ ​ 314,027 8.00 ​ Total capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ 485,117 ​ 12.34 ​ 314,616 8.00 ​ ​ NA ​ NA ​ Bank ​ 472,614 ​ 12.04 ​ 314,027 8.00 ​ 392,534 10.00 ​ Tier 1 capital to average assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ 409,461 ​ 7.97 ​ 205,493 4.00 ​ ​ NA ​ NA ​ Bank ​ ​ 429,958 ​ 8.37 ​ ​ 205,431 4.00 ​ ​ 256,788 5.00 ​ NA = not applicable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In addition, the current rules provide for a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets.
Biggest changeThe Company and the Bank’s actual capital ratios at December 31, 2025, and the minimum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum to be Well ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized under ​ ​ ​ ​ ​ ​ ​ ​ Minimum For Capital ​ ​ Prompt Corrective ​ ​ Actual ​ ​ Adequacy Purposes ​ ​ Action Provisions (Dollars in thousands, except percents) ​ Amount ​ Ratio ​ ​ Amount ​ Ratio ​ ​ Amount ​ Ratio Common equity Tier 1 capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ $ 440,852 ​ 11.03 % ​ $ 179,784 4.50 % ​ ​ NA ​ NA ​ Bank ​ 520,587 ​ 13.06 ​ ​ 179,427 4.50 ​ ​ $ 259,172 ​ 6.50 % Tier 1 capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ ​ 450,852 ​ 11.28 ​ ​ ​ 239,712 6.00 ​ ​ ​ NA ​ NA ​ Bank ​ 520,587 ​ 13.06 ​ ​ 239,236 6.00 ​ ​ ​ 318,981 ​ 8.00 ​ Total capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ 571,887 ​ 14.31 ​ ​ 319,617 8.00 ​ ​ ​ NA ​ NA ​ Bank ​ 558,435 ​ 14.01 ​ ​ 318,981 8.00 ​ ​ 398,726 ​ 10.00 ​ Tier 1 capital to average assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ 450,852 ​ 8.84 ​ ​ 204,039 4.00 ​ ​ ​ NA ​ NA ​ Bank ​ ​ 520,587 ​ 10.22 ​ ​ ​ 203,726 4.00 ​ ​ ​ 254,658 ​ 5.00 ​ NA = not applicable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In addition, the current rules provide for a conservation buffer of 2.5 percent for common equity Tier 1 capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, and total risk-based capital to risk-weighted assets, thereby increasing the required capital ratios for each measure.
We are permitted to review all of the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings. Loan Approval Procedures and Authority .
We are permitted to review all the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings. Loan Approval Procedures and Authority .
USA Patriot Act of 2001 (the “Patriot Act”) and Anti-Money Laundering The Patriot Act contains anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.
Anti-Money Laundering The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.
In addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3 percent of the total loan amount. Loans which meet these criteria will be considered qualified mortgages, and as a result generally protect lenders from fines or litigation in the event of foreclosure.
In addition, to be considered a qualified mortgage, the points and fees paid by a consumer cannot exceed 3 percent of the total loan amount. Loans which meet these criteria will be considered qualified mortgages, and as a result generally protect lenders from fines or litigation in the event of foreclosure.
We have adhered and continue to adhere to credit policies, which management believes are sound. Our loan policies require verification of information provided by loan applicants as well as an assessment of their ability to repay for all loans. At no time have we made loans similar to those commonly referred to as “no doc” or “stated income” loans.
We have adhered and continue to adhere to credit policies, which management believes are sound. Our loan policies require verification of information provided by loan applicants as well as an assessment of their ability to repay all loans. At no time have we made loans similar to those commonly referred to as “no doc” or “stated income” loans.
An environmental report is obtained when there is a known possibility that hazardous materials may exist or have existed on the site, or the site may be or have been impacted by adjoining properties that handled hazardous materials. Our multi-family commercial real estate loans are secured by projects that include five or more nonowner-occupied residential units.
An environmental report is obtained when there is a known possibility that hazardous materials may exist or have existed on the site, or when the site may have been impacted by adjoining properties that handled hazardous materials. Our multi-family commercial real estate loans are secured by projects that include five or more nonowner-occupied residential units.
Item 1. Busines s. General Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned direct and indirect subsidiaries, including Peoples Security Bank and Trust Company and 1 st Equipment Finance, Inc.
Item 1. Busines s. General Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned direct and indirect subsidiaries, including Peoples Security Bank and Trust Company and 1 st Equipment Finance, Inc (1 st Equipment Finance”).
Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles.
Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles.
The regulators measure risk-adjusted assets, which include off-balance-sheet items, against both total qualifying capital, Common Equity Tier 1 capital, and Tier 1 capital. -18- Table of Contents ● “Common Equity Tier 1 Capital” includes common equity and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions, and retained earnings. ● “Tier 1,” or core capital, includes common equity, non-cumulative preferred stock and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions. ● “Tier 2,” or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for credit losses, subject to certain limitations and less restricted deductions.
The regulators measure risk-adjusted assets, which include off-balance-sheet items, against both total qualifying capital, Common Equity Tier 1 capital, and Tier 1 capital. ● “Common Equity Tier 1 Capital” includes common equity and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions, and retained earnings. ● “Tier 1,” or core capital, includes common equity, non-cumulative preferred stock and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions. ● “Tier 2,” or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for credit losses, subject to certain limitations and less restricted deductions.
Federal Home Loan Bank of Pittsburgh (“FHLB”) The Bank is a member of the Pittsburgh FHLB, which is one of 11 regional FHLBs that provide funding to their members for making housing loans as well as for affordable housing and community development loans. Each FHLB serves as a reserve, or central bank, for the members within its assigned region.
Federal Home Loan Bank of Pittsburgh (“FHLB”) The Bank is a member of the Pittsburgh FHLB, which is one of eleven regional FHLBs that provide funding to their members for making housing loans as well as for affordable housing and community development loans. Each FHLB serves as a reserve, or central bank, for the members within its assigned region.
All of the underlying loans were performing in accordance with their terms as of December 31, 2024. Multi-family residential and commercial real estate loans are offered with both adjustable and fixed interest rates. The terms of each multi-family residential and commercial real estate loan are negotiated on a case-by-case basis.
All of the underlying loans were performing in accordance with their terms as of December 31, 2025. Multi-family residential and commercial real estate loans are offered with both adjustable and fixed interest rates. The terms of each multi-family residential and commercial real estate loan are negotiated on a case-by-case basis.
On July 1, 2024 (the “Acquisition Date”), the Company completed the acquisition of FNCB Bancorp, Inc., a Pennsylvania corporation (“FNCB”), in accordance with the definitive Agreement and Plan of Merger dated as of September 27, 2023 (the “Merger Agreement”), by and among the Company and FNCB.
On July 1, 2024 (the “Acquisition Date”), the Company completed the acquisition of FNCB Bancorp, Inc., a Pennsylvania corporation (“FNCB”), in accordance with the definitive Agreement and Plan of Merger dated as of September 27, 2023, by and among the Company and FNCB.
Enforcement actions may include: ● the appointment of a conservator or receiver; ● the issuance of a cease and desist order; ● the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution affiliated parties; ● the issuance of directives to increase capital; ● the issuance of formal and informal agreements and orders; ● the removal of or restrictions on directors, officers, employees and institution-affiliated parties; and ● the enforcement of any such mechanisms through restraining orders or any other court actions.
Enforcement actions may include: ● the appointment of a conservator or receiver; -14- Table of Contents ● the issuance of a cease and desist order; ● the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution affiliated parties; ● the issuance of directives to increase capital; ● the issuance of formal and informal agreements and orders; ● the removal of or restrictions on directors, officers, employees and institution-affiliated parties; and ● the enforcement of any such mechanisms through restraining orders or any other court actions.
The Bank’s thirty-nine community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: products and services; operating processes; customer bases; delivery systems; and regulatory oversight. Accordingly, they are aggregated into a single operating segment. Merger with FNCB Bancorp, Inc.
The Bank’s forty community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: products and services; operating processes; customer bases; delivery systems; and regulatory oversight. Accordingly, they are aggregated into a single operating segment. Merger with FNCB Bancorp, Inc.
Those interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a third party, such that we minimize our net risk exposure resulting from such transactions. Our lending activity also exposes us to risks that any collateral we take as security is not adequate.
Those interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a third party, such that we minimize our net risk exposure resulting from such transactions. Our lending activity also exposes us to risks that any collateral we take as security is inadequate.
We have occasionally used policy approved brokers to generate wholesale deposits to supplement our deposit base. -12- Table of Contents Borrowings Borrowings may be used to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Borrowings from the FHLB of Pittsburgh typically are collateralized by a portion of our real estate loans.
We have occasionally used policy approved brokers to generate wholesale deposits to supplement our deposit base. Borrowings Borrowings may be used to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Borrowings from the FHLB of Pittsburgh typically are collateralized by a portion of our real estate loans.
Under Pennsylvania law, a bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in Pennsylvania must obtain permission from the Department of Banking.
Under Pennsylvania law, a bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in Pennsylvania must obtain permission from the Department of Banking to do so.
Moreover, certain amendments to the Bank Holding Company Act of 1956 provide that, to -16- Table of Contents further competition, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing of any service.
Moreover, certain amendments to the Bank Holding Company Act of 1956 provide that, to further competition, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing of any service.
We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2 times.
We generally require that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2 times.
Home equity lines of credit generally have draw periods with 20 year repayment periods. We generally do not make high loan-to-value loans (defined as loans with a loan-to-value ratio in excess of 80 percent) without private mortgage insurance. The maximum loan-to-value ratio we generally permit is 95 percent with private mortgage insurance.
Home equity lines of credit generally have draw periods with 20-year repayment periods. We generally do not make high loan-to-value loans (defined as loans with a loan-to-value ratio exceeding 80 percent) without private mortgage insurance. The maximum loan-to-value ratio we generally permit is 95 percent with private mortgage insurance.
While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly loan payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults.
While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increase in required monthly loan payment for borrowers with adjustable-rate loans in a rising interest rate environment could cause an increase in delinquencies and defaults.
This discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in law and regulation may have a material effect on our business and prospects.
This discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in laws and regulations may have a material effect on our business and prospects.
Each FHLB makes loans to members in accordance with policies and procedures established by the Board of Directors of the FHLB. As a member, each bank must purchase and maintain stock in the FHLB.
Each FHLB makes loans to members in accordance with policies and procedures established by the Board of Directors of the FHLB. Each member bank must purchase and maintain stock in the FHLB.
At December 31, 2024, nearly all of our multi-family commercial real estate and commercial real estate loans were secured by properties located within our market area.
At December 31, 2025, nearly all of our multi-family commercial real estate and commercial real estate loans were secured by properties located within our market area.
We offer two types of residential mortgage loans: fixed-rate loans, with terms of up to 30 years, and adjustable-rate loans, with interest rates and payments that adjust annually after an initial fixed period of one, three, five, ten or fifteen years.
We offer two types of residential mortgage loans: fixed-rate loans, with terms of up to 30 years, and adjustable-rate loans, with interest rates and payments that are adjusted annually after an initial fixed period of one, three, five, ten or fifteen years.
We also offer ATM access, debit and credit cards, online banking, active investment accounts, trust department services and other various lending, depository and related financial services. Our primary deposit products are savings and demand deposit accounts and certificates of deposit.
We also offer ATM access, debit and credit cards, online banking, active investment accounts, trust department -5- Table of Contents services and other various lending, depository and related financial services. Our primary deposit products are savings and demand deposit accounts and certificates of deposit.
In addition, some commercial loans adjust to a predetermined index plus a spread at the end of the initial fixed rate period, for a like period of time. To a lesser degree, we have entered into transactions with collars generally for periods of five years or less. Loan Originations . Loan originations come from a number of sources.
In addition, some commercial loans adjust to a predetermined index plus a spread at the end of the initial fixed rate period, for a like period. To a lesser degree, we enter into transactions with collars generally for periods of five years or less. Loan Originations . Loan originations come from a number of sources.
In addition to the FHLB, we have borrowing facilities with the Federal Reserve Bank and correspondent banks. The Bank is a member of the FHLB of Pittsburgh. The FHLB functions as a central bank providing credit for the Bank and other member financial institutions.
In addition to the FHLB, we have borrowing facilities with the Federal Reserve Bank and correspondent banks. -12- Table of Contents The Bank is a member of the FHLB of Pittsburgh. The FHLB functions as a central bank providing credit for the Bank and other member financial institutions.
FDICIA generally prohibits a depository institution from making any capital distributions including payment of a cash dividend or paying any management fees to its holding company, if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans.
A depository institution is generally prohibited from making any capital distributions including payment of a cash dividend or paying any management fees to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans.
If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and stop accepting deposits from correspondent banks.
If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized depository institutions may be subject to a number of other -16- Table of Contents requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and stop accepting deposits from correspondent banks.
We offer a variety of consumer loans, which represent 3.3 percent of our loan portfolio, including lines of credit, automobile loans and loans secured by savings accounts and certificates of deposit. We also offer unsecured loans.
We offer a variety of consumer loans, which represent 2.7 percent of our loan portfolio, including lines of credit, automobile loans and loans secured by savings accounts and certificates of deposit. We also offer unsecured loans.
The coverage ratio, the ACL as a percentage of nonperforming loans, is an industry ratio used to test the ability of the ACL account to absorb potential losses arising from nonperforming loans. The coverage ratio was 182.0 percent at December 31, 2024 and 442.6 percent at December 31, 2023.
The coverage ratio, the ACL as a percentage of nonperforming loans, is an industry ratio used to test the ability of the ACL account to absorb potential losses arising from nonperforming loans. The coverage ratio was 344.6 percent at December 31, 2025, and 182.0 percent at December 31, 2024.
Health & Safety. Our health and safety policies, procedures and guidelines mandate all tasks be conducted in a safe and efficient manner complying with all local, state and federal safety and health regulations, and special safety concerns.
Health & Safety. Our health and safety policies, procedures and guidelines mandate that all tasks be conducted in a safe and efficient manner, in compliance with all local, state and federal safety and health regulations, and special safety concerns.
Department of the Treasury, is responsible for helping to ensure that domestic entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. Holding Company Capital Requirements.
Department of the Treasury, is responsible for helping to ensure that domestic entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress.
We attempt to minimize this risk by not being exposed to loan concentrations of a single customer or a group of customers, the loss of any one or more of whom would have a materially adverse effect on our financial condition. One element of interest rate risk arises from our fixed rate loans in an environment of changing interest rates.
We attempt to minimize this risk by avoiding loan concentrations of a single customer or a group of customers, the loss of any one or more of whom would have a materially adverse effect on our financial condition. Interest rate risk arises from our fixed rate loans in an environment of changing or volatile interest rates.
We make available free of charge through the “Investor Relations” link on our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We also maintain an internet website at www.psbt.com, where we make available free of charge through the “Investor Relations” link on our internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We generate interest income from our loan and securities portfolios. Other income is generated primarily from merchant transaction fees and interchange income, trust and wealth management fees, fees generated from commercial loan interest rate swap transactions and service charges on deposit accounts. Our primary costs are interest paid on deposits and borrowings and general operating expenses.
Other income is generated primarily from merchant transaction fees and interchange income, ATM fee income, trust and wealth management fees, fees generated from commercial loan interest rate swap transactions and service charges on deposit accounts. Our primary costs are interest paid on deposits and borrowings and general operating expenses.
We have not engaged in sub-prime residential mortgage lending, which is defined as mortgage loans advanced to borrowers who do not qualify for market interest rates because of problems with their credit history. We focus our lending efforts within our market area.
We do not engage in sub-prime residential mortgage lending, which is defined as mortgage loans advanced to borrowers who do not qualify for market interest rates because of problems with their credit history. We focus our lending efforts within our market area. Commercial Real Estate Loans .
Such a bank holding company proposing to engage in other permissible nonbanking activities either de novo, or through the acquisition of an existing company, must provide prior notice to the FRB. For transactions that do not qualify for the post or expedited prior notice procedures, a bank holding company must file a notice for prior FRB approval.
Such a bank holding company proposing to engage in permissible nonbanking activities, through a new enterprise or through the acquisition of an existing company, must provide prior notice to the FRB. For transactions that do not qualify for the post or expedited prior notice procedures, a bank holding company must file a notice for prior FRB approval.
Pennsylvania law requires that each year the Bank set aside as surplus a sum equal to not less than 10 percent of its net earnings if surplus does not equal at least 100 percent of our capital stock.
Pennsylvania law requires the Bank to annually set aside as surplus a sum equal to not less than 10 percent of its net earnings if the surplus does not equal at least 100 percent of its capital stock.
At December 31, 2024, commercial equipment financing loans under our subsidiary 1 st Equipment Financing, Inc. totaled $179.1 million, or 4.5 percent, of our total loan portfolio. Equipment financing alternatives, include direct finance loans and leases and municipal leases, to businesses and governmental units within and outside our primary market area.
At December 31, 2025, commercial equipment financing loans under our subsidiary 1 st Equipment Finance, Inc. totaled $169.0 million, or 4.2 percent, of our total loan portfolio. Equipment financing alternatives include direct finance loans and leases and municipal leases, to businesses and governmental units within and outside our primary market area.
In addition, this loan segment includes purchased pools of secured loans. These loans are primarily secured by vehicles, machinery and equipment. -8- Table of Contents One-to-Four Family Residential Loans . Residential real estate loans comprise 13.8 percent of our loan portfolio.
In addition, this loan segment includes purchased pools of secured loans. Our equipment financing loans and leases are primarily secured by commercial vehicles, machinery and equipment. -8- Table of Contents One-to-Four Family Residential Loans . Residential real estate loans comprise 14.8 percent of our loan portfolio.
We provide a variety of commercial and retail banking services to business, non-profits, governmental, municipal agencies and professional customers, as well as retail customers, on a personalized basis. Our primary lending products are real estate, commercial and consumer loans.
We provide a variety of commercial and retail banking services to business, non-profits, governmental, municipal agencies and professional customers, as well as retail customers, on a personalized basis. Our primary lending products are commercial and residential real estate loans, commercial loans, including commercial equipment financing alternatives, indirect automobile loans and consumer loans.
Limits on Interstate Acquisitions and Mergers. Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition–the acquisition of a bank outside its home state–unless the bank holding company is both well capitalized and well managed.
Limits on Interstate Acquisitions and Mergers Bank holding companies are precluded from engaging in an interstate acquisition–the acquisition of a bank outside its home state–unless the bank holding company is both well capitalized and well managed.
Additionally, with certain exceptions, any person or entity proposing to acquire control through direct or indirect ownership of 25 percent or more of our voting securities is required to give 60 days’ written notice of the acquisition to the FRB, which may prohibit the transaction, and to publish notice to the public. -14- Table of Contents The Bank is regulated by the Department of Banking and the FDIC.
Additionally, with certain exceptions, any person or entity proposing to acquire control through direct or indirect ownership of 25 percent or more of our voting securities is required to give 60 days’ written notice of the acquisition to the FRB, which may prohibit the transaction, and to publish notice to the public.
In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule became effective May 1, 2022.
In addition, the rule requires a bank service provider to notify affected customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect its customers for four or more hours.
We are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with us, and not involving more than the normal risk of repayment.
We are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons which generally require that such credit extensions be made on substantially the same terms as are available to unaffiliated persons dealing with us, not involve more than the normal risk of repayment, and require approval of the Bank’s board of directors for certain transactions with affiliated persons.
Through this relationship, our clients have access to a wide array of financial and wealth management strategies, including services such as professional money management, retirement and education planning, and investment products including stocks, bonds, mutual funds, annuities and insurance products.
Through this relationship, our clients have access to a wide array of financial and wealth management strategies, including services such as professional money management, retirement and education planning, and investment products including stocks, bonds, mutual funds, annuities and insurance products. Our trust, wealth management and brokerage services are offered throughout our retail branch system.
In our market area, we expect continued competition from these financial institutions in the foreseeable future. With the continued acceptance of internet/digital banking including online account opening by our customers and consumers generally, competition for deposits has increased from institutions operating outside of our market area.
With the continued acceptance of internet/digital banking including online account opening by our customers and consumers generally, competition for deposits has increased from institutions operating outside of our market area.
At December 31, 2024 our borrowing capacity at the Federal Reserve related to this program was $621.5 million and there were no amounts outstanding. For additional information, see Note 12 “Short-term borrowings”.
At December 31, 2025, our borrowing capacity at the Federal Reserve related to this program was $349.0 million and there were no amounts outstanding. For additional information, see Note 12 “Short-term borrowings” and Note 13 “Long-term debt”.
In addition to these specific restrictions, bank regulatory agencies, in general, also have the ability to prohibit proposed dividends by a financial institution that would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice.
In addition to these specific restrictions, bank regulatory agencies can prohibit proposed dividends by a financial institution that would otherwise be permitted under applicable regulations if the regulator determines that the proposed dividend would constitute an unsafe or unsound practice.
Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution will be well capitalized and well managed. Limits on Interchange Fees.
Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution is well capitalized and well managed.
Pursuant to the Merger Agreement, on the Acquisition Date, FNCB merged with and into Peoples, with Peoples continuing as the surviving corporation, and immediately following the merger, FNCB Bank, a Pennsylvania-chartered bank (“FNCB Bank”), merged with and into Peoples Security Bank and Trust Company, with the Bank as the surviving institution (collectively, the “merger”).
Pursuant to the agreement and plan, on the July 1, 2024, FNCB merged with and into Peoples, with Peoples continuing as the surviving corporation, and immediately following the merger, FNCB Bank, a Pennsylvania-chartered bank (“FNCB Bank”), merged with and into the Bank, with the Bank as the surviving institution (collectively, the “merger”).
We offer a variety of deposit accounts with a range of interest rates and terms, including, among others: money market accounts; negotiable order of withdrawal (“NOW”) accounts; savings accounts; certificates of deposit; individual retirement accounts, and demand deposit accounts. These deposits are primarily obtained from areas surrounding our branch offices.
We offer a variety of deposit accounts with a range of interest rates and terms, including, among others: money market accounts; interest bearing checking products; savings accounts; certificates of deposit; individual retirement accounts, and non-interest-bearing demand deposit products. These deposits are primarily obtained from areas surrounding our community banking offices.
The Department of Banking may prohibit an institution over which it has supervisory authority from engaging in activities or investments that the agency believes constitute unsafe or unsound banking practices.
The Bank is regulated by the Pennsylvania Department of Banking and Securities and the FDIC. The Department of Banking may prohibit an institution over which it has supervisory authority from engaging in activities or investments that it believes constitute unsafe or unsound banking practices.
Permitted Non-Banking Activities A bank holding company that the FRB has determined to be well capitalized and well managed and that has well capitalized and well managed subsidiary banks may engage in certain nonbanking activities closely related to banking or managing or controlling banks, on a de novo basis, by providing notice to the FRB after commencing the activities.
Permitted Non-Banking Activities If a bank holding company and its subsidiary bank are each determined by the FRB to be well capitalized and well managed then they may engage in certain nonbanking activities closely related to banking or managing or controlling banks by providing notice to the FRB after commencing the activities.
We provide a comprehensive array of wealth management products and services to individuals, small businesses and nonprofit entities. These products and services include the following, among others: investment portfolio management; estate planning; annuities; business succession planning; insurances; retirement plan services; education funding strategies, and tax planning.
At December 31, 2025, the Bank had $468.5 million in trust assets under management. We provide a comprehensive array of wealth management products and services to individuals, small businesses and nonprofit entities. These products and services include investment portfolio management; estate planning; annuities; business succession planning; insurances; retirement plan services; education funding strategies, and tax planning, among others.
Mortgage origination activities are subject to Regulation Z, which implements the federal Truth-in-Lending Act (“TILA”). Certain provisions of Regulation Z require mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms.
Certain provisions of Regulation Z require mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay.
We are dedicated to providing a workplace for our employees in which they are treated with dignity, decency and respect; that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing our employees based on their individual results and performance; and recognizing and respecting all of the characteristics and differences that make each of our employees unique.
We are dedicated to providing a supportive workplace that treats our employees with dignity, decency and respect; that is inclusive, supportive, and free of any form of discrimination or harassment. We reward and recognize our employees based on their individual results and performance. We celebrate all the characteristics that make each of our employees unique and valuable team members.
Future Legislation Proposed legislation is introduced in almost every legislative session that would dramatically affect the regulation of the banking industry. We cannot predict if any such legislation will be adopted nor if adopted how it would affect our business.
For more information on our cybersecurity practices, see Item 1C. “Cybersecurity.” Future Legislation Proposed legislation is introduced in almost every legislative session that would affect the regulation of the banking industry. We cannot predict if any such legislation will be adopted or if adopted how it would affect our business.
At December 31, 2024, our maximum borrowing capacity with the FHLB was $1.7 billion of which $99.1 million was outstanding in borrowings and $487.8 million outstanding in the form of irrevocable standby letters of credit.
At December 31, 2025, our maximum borrowing capacity with the FHLB was $1.7 billion, of which $159.2 million was outstanding in borrowings including accrued interest payable, and $498.8 million in irrevocable standby letters of credit.
Commercial real estate loans also are originated for the acquisition and development of land, including development for residential use. Conditions of acquisition and development loans originated generally limit the number of model homes and homes built on speculation, and draws are scheduled against executed agreements of sale.
Conditions of acquisition and development loans originated generally limit the number of model homes and homes built on speculation, and draws are scheduled against executed agreements of sale. Commercial real estate loans for the acquisition and development of land are typically based upon the prime rate and secured overnight funding rate (“SOFR”).
These loans are secured by business assets other than real estate, such as business equipment and inventory, and, generally, are backed by personal guarantees of the owner or owners of the business.
These loans are typically priced at short-term fixed rates or variable rates based on the prime rate. These loans are secured by business assets other than real estate, such as business equipment and inventory, and, generally, are backed by personal guarantees of the owner or owners of the business.
Commercial real estate loans for developed real estate and for real estate acquisition and development are originated generally with loan-to-value ratios up to 75 percent, while loans for the acquisition of land are originated with a maximum loan to value ratio of 65 percent. -6- Table of Contents Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential mortgage loans.
Commercial real estate loans for developed real -6- Table of Contents estate and for real estate acquisition and development are generally originated with loan-to-value ratios up to 75 percent, while loans for the acquisition of land are originated with a maximum loan to value ratio of 65 percent.
Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy.
As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than residential real estate loans.
Loans secured by new and used automobiles are offered, primarily indirectly through dealerships. These loans have fixed interest rates and generally have terms up to seven years.
We offer loans secured by new and used automobiles. We primarily offer such loans indirectly, through partnerships with dealerships within our market area. These loans have fixed interest rates and generally have terms up to seven years.
Payment risk is a function of the economic climate in which our lending activities are conducted. Economic downturns in the economy generally or in a particular sector could cause cash flow problems for customers and make loan payments more difficult.
Economic downturns in the economy generally or in a particular sector could cause cash flow problems for customers and make loan payments more difficult.
We believe that our ACL was adequate to absorb probable credit losses at December 31, 2024. -11- Table of Contents The tables below present the individually evaluated loans of the ACL as well as the pooled loans portion which consist of both a quantitative and qualitative components of the ACL. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ ​ 2023 ​ (Dollars in thousands, except percents) ​ Amount ​ % ​ ​ Amount ​ % ​ Individually evaluated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ $ 325 0.78 % ​ $ 10 0.05 % Municipal ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 190 0.45 ​ ​ ​ ​ ​ Residential ​ ​ ​ ​ ​ 21 0.10 ​ Consumer ​ ​ ​ ​ ​ ​ ​ ​ ​ Equipment financing ​ ​ 434 ​ 1.04 ​ ​ ​ ​ ​ ​ ​ Total individually evaluated ​ 949 2.27 ​ ​ 31 0.15 ​ Pooled: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 5,679 13.59 ​ ​ 2,262 10.33 ​ Municipal ​ ​ 1,072 ​ 2.57 ​ ​ ​ 788 ​ 3.60 ​ Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 21,614 51.74 ​ ​ 14,132 64.54 ​ Residential ​ 4,924 11.79 ​ ​ 3,782 17.27 ​ Consumer ​ 2,540 6.08 ​ ​ 900 4.11 ​ Equipment financing ​ ​ 4,998 ​ 11.96 ​ ​ ​ ​ ​ ​ ​ Total pooled ​ 40,827 97.73 ​ ​ 21,864 99.85 ​ Total allowance for credit losses ​ $ 41,776 100.00 % ​ $ 21,895 100.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ December 31, 2023 (Dollars in thousands) ​ Quantitative ​ Qualitative ​ Total ​ Quantitative ​ Qualitative ​ Total Commercial and Industrial ​ $ 3,689 ​ $ 1,990 ​ $ 5,679 ​ $ 943 ​ $ 1,319 ​ $ 2,262 Municipal ​ ​ 461 ​ ​ 611 ​ ​ 1,072 ​ ​ 175 ​ ​ 613 ​ ​ 788 Commercial real estate ​ 7,918 ​ ​ 13,696 ​ ​ 21,614 ​ 2,992 ​ ​ 11,140 ​ ​ 14,132 Residential real estate ​ ​ 606 ​ ​ 4,318 ​ ​ 4,924 ​ ​ 621 ​ ​ 3,161 ​ ​ 3,782 Consumer ​ 1,946 ​ ​ 594 ​ ​ 2,540 ​ 491 ​ ​ 409 ​ ​ 900 Equipment financing ​ 930 ​ ​ 4,068 ​ ​ 4,998 ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 15,550 ​ $ 25,277 ​ $ 40,827 ​ $ 5,222 ​ $ 16,642 ​ $ 21,864 Sources of Funds Our primary source of funds is the cash flow provided by our financing activities, mainly deposit gathering.
We believe that our ACL was adequate to absorb probable credit losses at December 31, 2025. -11- Table of Contents The tables below present the individually evaluated loans of the ACL as well as the pooled loans portion which consist of both a quantitative and qualitative components of the ACL. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2025 ​ ​ December 31, 2024 ​ (Dollars in thousands, except percents) ​ Amount ​ % ​ ​ Amount ​ % ​ Individually evaluated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ $ 404 1.04 % ​ $ 325 0.78 % Municipal ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 451 1.16 ​ ​ ​ ​ ​ Residential ​ 78 0.20 ​ ​ 190 0.45 ​ Consumer ​ ​ ​ ​ ​ ​ ​ ​ ​ Equipment financing ​ ​ 399 ​ 1.02 ​ ​ ​ 434 ​ 1.04 ​ Total individually evaluated ​ 1,332 3.42 ​ ​ 949 2.27 ​ Pooled: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 5,632 14.44 ​ ​ 5,679 13.59 ​ Municipal ​ ​ 1,413 ​ 3.62 ​ ​ ​ 1,072 ​ 2.57 ​ Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 19,547 50.11 ​ ​ 21,614 51.74 ​ Residential ​ 4,885 12.52 ​ ​ 4,924 11.79 ​ Consumer ​ 1,759 4.51 ​ ​ 2,540 6.08 ​ Equipment financing ​ ​ 4,439 ​ 11.38 ​ ​ ​ 4,998 ​ 11.96 ​ Total pooled ​ 37,675 96.58 ​ ​ 40,827 97.73 ​ Total allowance for credit losses ​ $ 39,007 100.00 % ​ $ 41,776 100.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2025 ​ December 31, 2024 (Dollars in thousands) ​ Quantitative ​ Qualitative ​ Total ​ Quantitative ​ Qualitative ​ Total Commercial and Industrial ​ $ 3,244 ​ $ 2,388 ​ $ 5,632 ​ $ 3,689 ​ $ 1,990 ​ $ 5,679 Municipal ​ ​ 503 ​ ​ 910 ​ ​ 1,413 ​ ​ 461 ​ ​ 611 ​ ​ 1,072 Commercial real estate ​ 8,993 ​ ​ 10,554 ​ ​ 19,547 ​ 7,918 ​ ​ 13,696 ​ ​ 21,614 Residential real estate ​ ​ 542 ​ ​ 4,343 ​ ​ 4,885 ​ ​ 606 ​ ​ 4,318 ​ ​ 4,924 Consumer ​ 1,434 ​ ​ 325 ​ ​ 1,759 ​ 1,946 ​ ​ 594 ​ ​ 2,540 Equipment financing ​ 1,138 ​ ​ 3,301 ​ ​ 4,439 ​ 930 ​ ​ 4,068 ​ ​ 4,998 Total ​ $ 15,854 ​ $ 21,821 ​ $ 37,675 ​ $ 15,550 ​ $ 25,277 ​ $ 40,827 Sources of Funds Our primary source of funds is the cash flow provided by our financing activities, mainly deposit gathering.
Mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable to other assets under the capital rules. -19- Table of Contents Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions including: ​ ● limitations on its ability to pay dividends; or ● the issuance by the applicable regulatory authority of a capital directive to increase capital, and in the case of depository institutions, the termination of deposit insurance by the FDIC, as well as to the measures described under FDICIA as applicable to undercapitalized institutions.
Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions including: ​ ● limitations on its ability to pay dividends; or ● the issuance by the applicable regulatory authority of a capital directive to increase capital, and in the case of depository institutions, the termination of deposit insurance by the FDIC, among other measures applicable to undercapitalized institutions.
Loans secured by multi-family residential and commercial real estate generally involve a greater degree of credit risk than residential mortgage loans and carry larger loan balances.
We generally originate multi-family commercial and commercial real estate loans in amounts up to 75 percent of the appraised value of the property collateralizing the loan. Loans secured by multi-family residential and commercial real estate generally involve a greater degree of credit risk than residential mortgage loans and carry larger loan balances.
Brokered Deposits Section 29 of the Federal Deposit Insurance Act and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” On December 15, 2020, the FDIC issued rules to revise brokered deposit regulations in light of modern deposit-taking methods.
Brokered Deposits Section 29 of the Federal Deposit Insurance Act and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” In December 2020, the FDIC issued rules establishing a new framework for certain provisions of the “deposit broker” definition and amended the FDIC’s interest rate methodology calculating rates and rate caps.
If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.
If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments. Mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable to other assets under the capital rules.
Other laws tie the maximum amount that may be loaned to any one customer and its related interests to our capital levels. Other laws restrict or prohibit transactions between the Bank and its affiliates. Limitations on Dividends and Other Payments Our ability to pay dividends is largely dependent upon the receipt of dividends from the Bank.
Other laws tie the maximum amount that may be loaned to any one customer and its related interests, whether the customer is an affiliated or nonaffiliated person, to our capital levels. Other laws restrict or prohibit certain transactions between the Bank and its affiliates.
Further, subject to certain exceptions, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. -15- Table of Contents A bank holding company is required to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the FRB may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required.
A bank holding company is required to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the FRB may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required.
Other lending products include retail products such as one-to-four family residential mortgages, home equity loans, consumer and auto loans. We fund our loans, primarily, by offering deposits to individuals; commercial business customers; municipalities, school districts and other non-profit organizations. Our deposit products include certificates of deposit, money market accounts, savings accounts and various demand deposit accounts.
We fund our loans, primarily, by offering deposits to individuals; commercial business customers; municipalities, school districts and other non-profit organizations. Our deposit products include certificates of deposit, money market accounts, savings accounts and various demand deposit accounts. We generate interest income from our loan and securities portfolios.
The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cybersecurity incident has occurred.
Federal rules require a banking organization to notify their primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a computer-security incident may pose a threat to the stability of the U.S. financial system.
Our policies and procedures encompass all facilities and operations and addresses on-site emergencies, injuries and illnesses, evacuation procedures, cell phone usage and general safety rules. Benefits. We are committed to offering a competitive total compensation package. We regularly compare compensation and benefits with peer companies and market data, making adjustments as needed to ensure compensation stays competitive.
Our policies and procedures encompass all facilities and operations and addresses on-site emergencies, injuries and illnesses, evacuation procedures, information systems and personal device usage and general safety rules. Benefits. We are committed to offering a competitive total compensation package.
Our largest commercial real estate relationship with an aggregate total exposure of approximately $35.4 million as of December 31, 2024, is with a residential land development and construction company whose projects include one-to-four family residential land development and construction, multi-family commercial real estate, one-to-four family rental properties, self-storage facilities and golf courses.
Our largest commercial real estate relationship with an aggregate total exposure of approximately $41.4 million as of December 31, 2025, is with a real estate developer whose projects include multi-family commercial real estate, commercial land development and construction and tenant occupied commercial real estate.
We originate a variety of commercial real estate loans generally for terms up to 25 years and repayments based on an amortization schedule of up to 25 years. These loans are typically based on either the Federal Home Loan Bank borrowing rate or our own pricing criteria and adjust every three, five, seven or ten years.
These loans are typically based on either the Federal Home Loan Bank borrowing rate or our own pricing criteria and adjust every three, five, seven or ten years. Additionally, commercial real estate loans are originated for the acquisition and development of land, including development for residential use.
Certain Transactions by Insured Banks with their Affiliates There are statutory restrictions related to the extent bank holding companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their insured depository institution (i.e., banking) subsidiaries. In general, an “affiliate” of a bank includes the bank’s parent holding company and any subsidiary thereof.
A required capital injection may be called for at a time when the holding company does not have the resources to provide it. -15- Table of Contents Certain Transactions by Insured Banks with their Affiliates There are statutory restrictions related to the extent bank holding companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their insured depository institution (i.e., banking) subsidiaries.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur equipment finance activities through our wholly-owned subsidiary, 1 st Equipment Finance, Inc., expose us to a range of risks, including credit, operational, and collateral and/or residual value risks. Credit risk arises from the potential inability of borrowers to meet their payment obligations, which can be influenced by economic conditions, industry-specific downturns, or borrower-specific financial difficulties.
Biggest changeCredit risk arises from the potential inability of borrowers to meet their payment obligations, which can be influenced by economic conditions, industry-specific downturns, or borrower-specific financial difficulties. Operational risks include the potential for errors in documentation, underwriting, or asset/collateral management processes, which could affect our ability to enforce contracts or recover equipment.
Lending money is a significant part of the banking business and interest income on our loan portfolio is the principal component of our revenue. Our financial condition and results of operations are affected by the ability of our borrowers to repay their loans, and in a timely manner. Borrowers, however, do not always repay their loans.
Lending money is a significant part of the banking business and interest income on our loan portfolio is the principal component of our revenue. Our financial condition and results of operations are affected by the ability of our borrowers to repay their loans in a timely manner. Borrowers, however, do not always repay their loans.
If we are unable to access funding sufficient to support our business operations and growth strategies or are unable to access such funding on attractive terms, we may not be able to implement our business strategies which may negatively affect our financial performance. Unrealized Losses in Our Securities Portfolio Could Affect Liquidity.
If we are unable to access sufficient funding to support our business operations and growth strategies or if we are unable to access such funding on attractive terms, we may not be able to implement our business strategies which may negatively affect our financial performance. Unrealized Losses in Our Securities Portfolio Could Affect Liquidity.
Restrictions or regulatory actions of that kind could impede our access to funds that we may need to make payments on our obligations or dividend payments, if any. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
Restrictions or regulatory actions of that kind could impede access to funds that we may need to make payments on our obligations or dividend payments, if any. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
Furthermore, as we and other banks experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers (i) spread deposits among several different banks so as to maximize their amount of FDIC insurance, (ii) move deposits to larger banks (who may be considered “too big to fail”), or (iii) remove deposits from the banking system entirely.
Furthermore, as we and other banks experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers (i) spread deposits among several different banks to maximize their amount of FDIC insurance, (ii) move deposits to larger banks (who may be considered “too big to fail”), or (iii) remove deposits from the banking system entirely.
We account for goodwill and other intangible assets in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach.
We account for goodwill and other intangible assets in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using a two-step approach.
Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures. Risks Related to Information Security Our financial performance may suffer if our information technology is unable to keep pace with growth or industry developments.
Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures. Our financial performance may suffer if our information technology is unable to keep pace with growth or industry developments.
While there is no assurance that these transactions will occur, or that they will occur on terms favorable to us, future business acquisitions could be material to us, and the degree of success achieved in acquiring and integrating these businesses could have a material effect on the value of our common stock.
While there is no assurance that such transactions will occur, or that they will occur on terms favorable to us, future business acquisitions could be material to us, and the degree of success achieved in acquiring and integrating these businesses could have a material effect on the value of our common stock.
Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Company or its subsidiaries by virtue of the adoption of such policies and practices by the Federal Reserve and the FDIC.
Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Company or its subsidiaries by virtue of the adoption of policies and practices by the Federal Reserve and the FDIC.
These conditions include short-term and long-term interest rates, inflation, unemployment levels, consumer confidence and spending, fluctuations in both debt and equity capital markets, recession and the strength of the economy in the United States generally and, in particular, the Company’s market area.
These conditions include short-term and long-term interest rates, inflation, unemployment levels, consumer confidence and spending, fluctuations in both debt and equity capital markets, recession and the strength of the economy in the United States generally and the Company’s market area.
We report certain assets, including available for sale investment securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value.
We report certain assets, including available for sale investment securities, at fair value. For assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value.
A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.
A favorable business environment is characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.
In particular, the articles of incorporation and bylaws: classify our Board of Directors into three groups, so that shareholders elect only approximately one-third of the board each year; require our shareholders to give us advance notice to nominate candidates for election to the Board of Directors or to make shareholder proposals at a shareholders’ meeting; and require the affirmative vote of the holders of at least 75 percent of our common stock to approve amendments to our bylaws or to approve certain business combinations that have not received the support of two-thirds of our Board of Directors.
In particular, the articles of incorporation and bylaws: classify our Board of Directors into three groups, so that shareholders elect only approximately one-third of the board each year; require our shareholders to give us advance notice to nominate candidates for election to the Board of Directors or to make shareholder proposals at a shareholders’ -35- Table of Contents meeting; and require the affirmative vote of the holders of at least 75 percent of our common stock to approve amendments to our bylaws or to approve certain business combinations that have not received the support of two-thirds of our Board of Directors.
Future declines in real estate values in the region could also cause some of our mortgage and commercial real estate loans to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.
Future declines in real estate values in the region could also cause some of our mortgage and commercial real estate loans to be inadequately collateralized, which would expose us to a greater risk of loss if we sought to recover on defaulted loans by selling the real estate collateral.
Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of our lenders or market conditions were to change.
Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future if, among other things, the results of operations or financial condition of our lenders or market conditions were to change for us or our lenders.
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence in turn leading to an increase in deposit withdrawals, particularly among those with uninsured deposits.
These events have created, and may continue to create, significant disruption of the global economy, supply chains and financial and labor markets. If such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s business, financial condition and results of operations.
These events have created and may continue to create significant disruptions to the global economy, supply chains and financial and labor markets. If such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s business, financial condition and results of operations.
The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated recovery period. -29- Table of Contents Changes in the value of goodwill and intangible assets could reduce our earnings.
The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated recovery period. -28- Table of Contents Changes in the value of goodwill and intangible assets could reduce our earnings.
A significant and sustained decline in the company’s common stock price from changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as global pandemics or natural disasters) may necessitate taking charges in the future and could result in an impairment charge at a future date.
A significant and sustained decline in the company’s common stock price from changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates or other external factors (such as global pandemics, political instability and conflict, or natural disasters) may necessitate taking charges in the future and could result in an impairment charge at a future date.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental -36- Table of Contents investigations or actions, litigation, fines, sanctions, increased insurance cost and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, increased insurance cost and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
In addition to cybersecurity incidents or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, that are designed to disrupt key business services, such as customer-facing web sites.
In addition to cybersecurity incidents or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, -32- Table of Contents that are designed to disrupt key business services, such as customer-facing web sites.
Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions that affect savings levels and the amount of liquidity in the -28- Table of Contents economy, including government stimulus efforts in response to economic crises.
Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises.
Effective and competitive delivery of our products and services is increasingly dependent upon information technology resources and processes, both those provided internally as well as those provided through third party vendors. In addition to better serving customers, the effective use of technology increases efficiency and enables us to reduce costs.
Effective and competitive delivery of our products and services increasingly depends upon information technology resources and processes, both those provided internally as well as those provided through third party vendors. In addition to better serving customers, the effective use of technology increases efficiency and enables us to reduce costs.
An inability to raise funds through deposits, borrowings, the sale of securities or loans and other sources could have a substantial negative effect on our liquidity.
An inability to raise funds through deposits, borrowings, the sale of securities or loans and other sources would have a substantial negative effect on our liquidity.
As information security risks and cyber threats continue to evolve, we may be required to expend substantial resources to further enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
As information security risks and cyber threats continue to evolve, we will be required to expend substantial resources to further enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
Interest rate risk can also result from mismatches between the dollar amounts of repricing or maturing assets and liabilities and from mismatches in the timing and rates at which the assets and liabilities reprice.
Interest rate risk can also result from variances between the dollar amounts of repricing or maturing assets and liabilities and from variances in the timing and rates at which the assets and liabilities reprice.
A security is considered impaired if the fair value of the security is less than its amortized cost basis (excluding fair value hedge accounting adjustments from active portfolio layer method hedges).
A security is considered impaired if its fair value is less than its amortized cost basis (excluding fair value hedge accounting adjustments from active portfolio layer method hedges).
The Company actively monitors and manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that the Company will be able to avoid material adverse effects on net interest margin in all market conditions.
The Company actively monitors and manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that the Company will be able to avoid material adverse effects on net interest margin.
A failure in or breach of our operational or information security systems, or those of a third-party service provider, as a result of cybersecurity incidents or information security breaches or otherwise could have a material adverse effect on our business, damage our reputation, increase our costs and/or cause significant losses.
A failure in or breach of our operational or information security systems, or those of a third-party service provider, because of cybersecurity incidents or information security breaches or otherwise could have a material adverse effect on our business, damage our reputation, increase our costs and/or cause significant losses.
The Company’s profitability is dependent to a large extent on its net interest income, which is the difference between the interest income paid on its loans and investments and the interest the Company pays to third parties such as its depositors, lenders and debtholders. Changes in interest rates can impact profits and the fair values of certain assets and liabilities.
The Company’s profitability depends to a large extent on its net interest income, which is the difference between the interest income paid on its loans and investments and the interest the Company pays to third parties such as its depositors, lenders and debtholders. Consequently, changes in interest rates impact profits and the fair values of certain assets and liabilities.
Our access to funding sources in amounts adequate to finance our activities or the terms of which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general.
Our access to funding sources in amounts adequate to finance our activities or on the terms of which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally.
Additionally, as technology in the financial services industry changes and evolves, keeping pace becomes increasingly complex and expensive for us. -32- Table of Contents There can be no assurance that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to compete effectively.
Additionally, as technology in the financial services industry changes and evolves, keeping pace becomes increasingly complex and expensive for us. There can be no assurance that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to compete effectively.
Furthermore, because some of our employees are working remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment.
Furthermore, because some of our employees work remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment.
We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity.
We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities -27- Table of Contents including subordinated notes as additional sources of liquidity.
In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on attractive terms.
In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or -34- Table of Contents preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on attractive terms.
If an impairment charge is significant enough, it could affect our ability to pay dividends, which could materially adversely affect us and our ability to pay dividends to shareholders. Significant impairment charges could also negatively impact our regulatory capital ratios and result in us not being classified as “well-capitalized” for regulatory purposes.
If an impairment charge is significant enough, it could affect our ability to pay dividends. Significant impairment charges could also negatively impact our regulatory capital ratios and result in us not being classified as “well-capitalized” for regulatory purposes.
We rely heavily on our executive officers and employees. The loss of certain executive officers or employees could have an adverse effect on us because, as a community bank, the executive officers and employees typically have more responsibility than would be typical at a larger financial institution with more employees.
The loss of certain executive officers or employees could have an adverse effect on us because, as a community bank, the executive officers and employees typically have more responsibility than would be typical at a larger financial institution with more employees.
Our ability to access borrowings from the FHLB will be dependent upon whether and the extent to which we can provide collateral to secure FHLB borrowings. We may also look to federal funds purchased and brokered deposits, although the use of brokered deposits may be limited or discouraged by our banking regulators.
Our ability to access borrowings from the FHLB will depend on the extent to which we can provide collateral to secure FHLB borrowings. We may also look to federal funds purchased and brokered deposits, although the use of brokered deposits may be limited or discouraged by our banking regulators.
In particular, global economic markets have seen extensive volatility over the last several years owing to variety of factors, including high inflation, trade policies and tariffs, volatility in the capital markets, the failure of financial institutions, volatility in the housing market, interest and currency rate fluctuations, labor availability, supply chain disruptions, global pandemics and public health crises and the responses thereto, weather catastrophes and geopolitical instability, including shutdowns and threats of shutdowns of the U.S. federal government, -31- Table of Contents growing tensions between China and the U.S., the Russia-Ukraine war, conflict in the Middle East, and acts of terrorism.
Global economic markets have seen extensive volatility over the last several years owing to variety of factors, including high inflation, trade policies and tariffs, volatility in the capital -30- Table of Contents markets, the failure of financial institutions, volatility in the housing market, interest and currency rate fluctuations, labor availability, supply chain disruptions, global pandemics and public health crises and the responses thereto, weather catastrophes and geopolitical instability, including shutdowns and threats of shutdowns of the U.S. federal government, growing tensions between the U.S. and other nations, the Russia-Ukraine war, conflict in the Middle East, including the recent U.S. initiative against Iran, and acts of terrorism.
At December 31, 2024, we had approximately $526.3 million of securities available for sale. These securities are carried at fair value on our consolidated balance sheets. Unrealized gains or losses on these securities, that is, the difference between the fair value and the amortized cost of these securities, are reflected in stockholders’ equity, net of deferred taxes.
At December 31, 2025, we had approximately $512.6 million of securities available for sale. These securities are carried at fair value on our consolidated balance sheets. Unrealized gains or losses on these securities, that is, the difference between the fair value and the amortized cost of these securities, are reflected in stockholders’ equity, net of deferred taxes.
Information security risks have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties.
Information security risks have significantly increased in recent years, and are likely to continue to do so, in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties.
We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.
We cannot anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Our holding company is dependent for liquidity on payments from the Bank, which payments are subject to restrictions.
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of confidence and an increase in deposit withdrawals, particularly among customers with uninsured deposits. The liquidity of our holding company depends on payments from the Bank, which are subject to restrictions.
Commercial real estate loans totaled $2.3 billion at December 31, 2024 or 57.4 percent of our loan portfolio. The commercial real estate market poses risks of loss to us because of the concentration of commercial real estate loans in our loan portfolio, and the lack of diversity in risk associated with such a concentration.
Commercial real estate loans totaled $2.3 billion at December 31, 2025, or 56.9 percent of our loan portfolio. The commercial real estate market poses risks of loss to us because of the concentration of commercial real estate loans in our loan portfolio, and the lack of diversity in risk associated with such a concentration.
Risks Related to Our Common Stock Our ability to pay dividends or repurchase shares is subject to limitations. Our ability to pay dividends on or repurchase shares of our stock depends upon our receipt of dividends from the Bank. Additionally, our ability to pay dividends is limited by Pennsylvania corporate law and by federal banking regulations.
Our ability to pay dividends on or repurchase shares of our stock depends upon our receipt of dividends from the Bank. Additionally, our ability to pay dividends is limited by Pennsylvania corporate law and by federal banking regulations.
Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities.
Moreover, legislators and regulators in the United States may adopt or revise privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities.
This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level, such as with regard to mobile applications.
This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level.
As a state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code. Further, the Bank’s ability to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that the Bank will be able to pay dividends.
As a state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code. Further, the Bank’s ability to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements.
We rely on digital technologies, computer and email systems, software, and networks to conduct secure processing, transmission and storage of confidential information. In addition, to access our products and services, our customers may use personal smart phones, tablet PCs and other mobile devices that are beyond our control systems.
We rely on digital technologies, computer and email systems, software, and networks to conduct secure processing, transmission and storage of confidential information. In addition, to access our products and services, our customers may use devices that are beyond our control systems.
We make commercial and industrial, construction, commercial real estate and equipment financing loans, which present greater risks than other types of loans. As of December 31, 2024, approximately 82.9 percent of our loan portfolio consisted of commercial and industrial, construction, commercial real estate and equipment financing loans.
We make commercial and industrial, construction, commercial real estate and equipment financing loans, which present greater risks than other types of loans. As of December 31, 2025, approximately 77.5 percent of our loan portfolio consisted of commercial and industrial, construction, commercial real estate and equipment financing loans.
We rely on other financial services institutions through trading, clearing, counterparty, and other relationships. Our reliance on other financial services institutions exposes us to credit risk in the event of default by these institutions or counterparties. These losses could adversely affect our results of operations and financial condition.
The soundness of other financial services institutions may adversely affect our credit risk. We rely on other financial services institutions through trading, clearing, counterparty, and other relationships. Our reliance on other financial services institutions exposes us to credit risk in the event of default by these institutions or counterparties.
If an interruption were to continue for a significant period of time, it could have a material adverse effect on our business, financial condition or results of operations.
If an interruption were to continue for a significant period of time, or if a new vendor’s terms were less favorable to us, it could have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factor s. In addition to the other information set forth in this report, one should carefully consider the factors discussed below, which could materially affect our business, financial condition or future results. The risks described below are not the only risks that we face.
Item 1A. Risk Factor s. In addition to the other information set forth in this report, one should carefully consider the factors discussed below, which could materially affect our business, financial condition or future results.
The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as intellectual property, privacy, -31- Table of Contents consumer protection, employment, and other areas of laws impacted by the use of AI.
Deterioration in economic conditions in this market area, particularly in the industries on which this geographic area depend, or a general decline in economic conditions may adversely affect the quality of our loan portfolio (including the level of nonperforming assets, charge offs and provision for credit losses) and demand for our products and services, and, accordingly, our results of operations.
Deterioration in economic conditions in this market area, particularly in the industries on which this geographic area depends, or a general decline in economic conditions has previously adversely affected the quality of our loan portfolio (including the level of nonperforming assets, charge offs and provision for credit losses) and may adversely impact our loan quality in the future, as well as the demand for our products and services, and, accordingly, our results of operations.
As of December 31, 2024, our available for sale securities had an unrealized loss, net of taxes, of approximately $38.3 million. The fair value of our available for sale securities is subject to interest rate change, which would not affect recorded earnings, but would increase or decrease comprehensive income (loss) and stockholders’ equity.
As of December 31, 2025, our available for sale securities had an unrealized loss, net of taxes, of approximately $29.1 million. The fair value of our available for sale securities is subject to change based on prevailing interest rates, which would not affect recorded earnings, but would increase or decrease comprehensive income and stockholders’ equity.
Alternatively, an expansion of the money supply could make it easier for a borrower to obtain a loan from another financial institution at a lower interest rate, resulting in a payoff of that borrower’s higher rate loan with us, and which could have an adverse effect on our financial condition and results of operations.
Alternatively, an expansion of the money supply could make it easier for a borrower to obtain a loan from another financial institution at a lower interest rate, resulting in a payoff of that borrower’s higher rate loan with us, and which could have an adverse effect on our financial condition and results of operations. -33- Table of Contents The regulations issued by the CFPB have increased and may continue to increase our costs of operations.
Despite our efforts, we do and will experience loan and lease losses, and our financial condition and results of operations will be adversely affected. Our loans which were -26- Table of Contents between 30 and 89 days delinquent on December 31, 2024 totaled $14.1 million. Our nonperforming assets were approximately $23.0 million on December 31, 2024.
Despite our efforts, we do and will experience credit losses, and our financial condition and results of operations will be adversely affected. Our loans which were -25- Table of Contents between 30- and 89- days delinquent on December 31, 2025, totaled $15.5 million. Our nonperforming assets were approximately $12.1 million on December 31, 2025.
As a result, we will continue to make provisions for credit losses and to charge off additional loans in the future, which could materially adversely affect our financial conditions and results of operations.
As a result, we will continue to make provisions for credit losses and to charge off additional loans in the future, which could have a material adverse effect on our financial condition and results of operations.
Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Increases in FDIC insurance premiums may adversely affect our earnings.
Federal law permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
Our failure to pay dividends could have a material adverse effect on the market price of our common stock.
Our failure to pay dividends could have a material adverse effect on the market price of our common stock. Future issuances of our common stock could adversely affect the market price of our common stock and could be dilutive.
Moreover, these provisions could diminish the opportunities for shareholders to participate in certain tender offers, including tender offers at prices above the then-current market value of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation. -37- Table of Contents In addition, anti-takeover provisions in Pennsylvania law could make it more difficult for a third party to acquire control of us.
Moreover, these provisions could diminish the opportunities for shareholders to participate in certain tender offers, including tender offers at prices above the then-current market value of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation.
In addition, a significant portion of our loan portfolio is secured by real property. In the course of our business, we may foreclose, accept deeds in lieu of foreclosure, -30- Table of Contents or otherwise acquire real estate, and in doing so could become subject to environmental liabilities with respect to these properties.
In the course of our business, we may foreclose, accept deeds in lieu of foreclosure, or otherwise acquire real estate, and in doing so could become subject to environmental liabilities with respect to these properties.
Future issuances of our common stock could adversely affect the market price of our common stock and could be dilutive We may issue additional shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our common stock.
We may issue additional shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our common stock.
As of December 31, 2024, goodwill and intangible assets totaled $76.0 million and $34.2 million, respectively.
As of December 31, 2025, goodwill and intangible assets totaled $76.0 million and $27.7 million, respectively.
In addition, these acquisitions could require us to expend substantial cash or other liquid assets or to incur debt, which could cause us to become more susceptible to economic downturns and competitive pressures.
In addition, these acquisitions could require us to expend substantial cash or other liquid assets or to incur debt, which could cause us to become more susceptible to economic downturns and competitive pressures. Risks Related to Our Common Stock Our ability to pay dividends or repurchase shares is subject to limitations.
Models that the Company uses to forecast and plan for the impact of rising and falling interest rates may fail to consider the impact of competition and other conditions affecting loans and deposit cash flow assumptions. Periods of unusually low or volatile interest rates have a material effect on the Company’s earnings.
Models that the Company uses to forecast and plan for the impact of rising and falling interest rates may fail to consider the impact of competition and other conditions affecting loans, deposits and cash flow assumptions.
The Company’s business activities and earnings are affected by general business conditions in the United States and in the market area in which the Company operates.
Demand for the Company’s services is influenced by general economic and consumer trends beyond the Company’s control. The Company’s business activities and earnings are affected by general business conditions in the United States and in the market area in which the Company operates.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies or other digital assets.
For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks.
The determination of the ACL involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
If our ACL is inadequate, it may have a material adverse effect on our financial condition and results of operations. -26- Table of Contents The determination of the ACL involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
Rapid and unexpected volatility in interest rates creates additional uncertainty and potential for adverse financial effects. There can be no assurance that the Company will not be materially adversely affected by future changes in interest rates. Changes in interest rates could affect our investment values and impact comprehensive income and stockholders’ equity.
Rapid and unexpected volatility in interest rates creates additional uncertainty and potential for adverse financial effects. Future changes in interest rates may materially adversely affect our financial condition and results of operations. Changes in interest rates could affect our investment values and impact comprehensive income and stockholders’ equity.
Additional losses or regulatory requirements related to our commercial real estate loan concentration could materially adversely affect our business, financial condition and results of operations. At December 31, 2024 our portfolio included $179.1 million of equipment financing loans.
Additional losses or regulatory requirements related to our commercial real estate loan concentration could materially adversely affect our business, financial condition and results of operations. At December 31, 2025, our portfolio included $169.0 million of equipment financing loans and leases. Our equipment finance activities expose us to a range of risks, including credit, operational, and collateral and/or residual value risks.
We expect that our regulators will hold us responsible for deficiencies in our oversight and control of our third party relationships and in the performance of the parties with which we have these relationships.
Banking regulations require us to perform due diligence concerning our third-party vendors, to monitor ongoing relationships, and to maintain operational control. We expect that our regulators will hold us responsible for deficiencies in any oversight or loss of control of our third-party relationships and in the performance of the parties with which we have these relationships.
This could adversely affect the borrower’s earnings and ability to repay a loan, which could have an adverse effect on our financial condition and results of operations.
For example, a tightening of the money supply by the Federal Reserve could reduce borrower demand for our products and services or adversely affect the borrower’s earnings and ability to repay a loan, which could have an adverse effect on our financial condition and results of operations.
We or our third-party vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presents several potential risks and challenges to our business.
These losses could adversely affect our results of operations and financial condition. The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business. We or our third-party vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products.
As market interest rates have increased, we have experienced unrealized losses on our available for sale securities portfolio. Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity.
Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive loss in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available for sale securities portfolio.
Such increased funding obligations could have a material impact on our liquidity by reducing our cash flows. We need to continually attract and retain qualified personnel for our operations. Our ability to provide high-quality customer service and to operate efficiently and profitably is dependent on our ability to attract and retain qualified individuals for key positions within the organization.
We need to continually attract and retain qualified personnel for our operations. Our ability to provide high-quality customer service and to operate efficiently and profitably is dependent on our ability to attract and retain qualified individuals for key positions within the organization. We rely heavily on our executive officers and employees.
Furthermore, such economic conditions have produced downward pressure on share prices and on the availability of credit for financial institutions and corporations while also driving up interest rates, further complicating borrowing and lending activities. Consumers may increasingly decide not to use banks to complete their financial transactions, which could have a material adverse impact on our financial condition and operations.
Furthermore, such economic conditions have produced downward pressure on share prices and on the availability of credit for financial institutions and corporations while also driving up interest rates, further complicating borrowing and lending activities.
It may be difficult for us to replace some of our third party vendors, particularly vendors providing our core banking, credit card and debit card services, in a timely manner if they were unwilling or unable to provide us with these services in the future for any reason.
If these third-party relationships were to unexpectedly become impaired or cease, our operations could be interrupted. It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our core banking, credit card and debit card services, in a timely manner and the replacement could be on terms that are less favorable to us.
Our governing documents, Pennsylvania law, and current policies of our Board of Directors contain provisions which may reduce the likelihood of a change in control transaction that may otherwise be available and attractive to shareholders.
Accordingly, our shareholders bear the risk that future issuances of our securities will reduce the market price of the common stock and dilute their stock holdings in the Company. Our governing documents and Pennsylvania law contain provisions which may reduce the likelihood of a change in control transaction that may otherwise be available and attractive to shareholders.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThird parties and their employees are required to adhere to information security standards and best practices. The Bank includes in its contracts with third parties that third parties maintain confidentiality, security provisions and business continuity practices. Education and Awareness Peoples Security Bank and Trust Company employees are required to complete training on customer information protection at least annually.
Biggest changeThis program requires periodic risk assessments to be conducted throughout the term of the engagement. Third parties and their employees are required to adhere to -36- Table of Contents information security standards and best practices. The Bank includes in its contracts with third parties that third parties maintain confidentiality, security provisions and business continuity practices.
The Board of Directors is assisted by the Board Information Technology Committee (“IT Committee”) which regularly provides reports to the Board of Directors. The IT Committee is comprised of members with experience in managing cybersecurity risks.
The Board of Directors is assisted by the Information Technology Committee of the Bank’s Board of Directors (“IT Committee”) which regularly provides reports to the Board of Directors. The IT Committee is comprised of members with experience in managing cybersecurity risks.
The Bank’s leadership team and its Board of Directors engages in the management of this risk by participating in the information security and cybersecurity strategy and review process. Cyber and information security programs are designed around industry best practices.
The Bank’s leadership team and its Board of Directors engage in the management of this risk by participating in the information security and cybersecurity strategy and review process. Cyber and information security programs are designed around industry best practices.
The Chief Risk Officer and the Chief Information Officer report directly to the Board IT Committee and the Board. The Company’s CIO has over 30 years of experience in technology and cybersecurity, which includes 24 years in the financial services industry.
The Chief Risk Officer and the Chief Information Officer report directly to the IT Committee and the Board. The Company’s CIO has over 30 years of experience in technology and cybersecurity, which includes 26 years in the financial services industry.
For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, please refer to Item 1A Risk Factors. -39- Table of Contents Cybersecurity Governance Board of Director Oversight Our Board of Directors has ultimate oversight of cybersecurity risk.
For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, please refer to Item 1A Risk Factors. Cybersecurity Governance Board of Director Oversight Our Board of Directors has ultimate oversight of cybersecurity risk.
The Information Security Officer has over 20 years in the financial services industry with the last 14 years as a Risk Analyst and then Information Security. The Company’s Information Security department measures and reports on the quality of information and cyber risk management across all functions.
The Information Security Officer has over 20 years in the financial services industry with the last 16 years as a Risk Analyst and then Information Security. -37- Table of Contents The Company’s Information Security department measures and reports on the quality of information and cyber risk management across all functions.
Information security risk is reported by both the Information Security and Enterprise Risk departments through monthly management metric reporting working groups and multiple layers of quarterly risk committees to achieve an appropriate flow of information risk reporting to the Board.
Information security risk is reported by both the Information Security and Enterprise Risk departments through monthly management metric reporting working groups and multiple layers of quarterly risk committees to achieve an appropriate flow of information risk reporting to the Board. The risk committees include the Executive Risk Management Committee, the Management Information Technology Steering Committee and the IT Committee.
We provide additional information security advantages to our customers using our online banking systems and encourage the Bank’s digitally active business customers to take advantage of the cybersecurity and phishing training provided free of charge by the Bank.
Information security tips are provided on the Bank’s website for all customers to review. We provide additional information security advantages to our customers using our online banking systems and encourage the Bank’s digitally active business customers to take advantage of the cybersecurity and phishing training provided free of charge by the Bank.
The risk committees include the Executive Risk Management Committee, the Management Information Technology Steering Committee and the Information Technology Committee of the Board of Directors. In addition, we have an escalation process in place to inform senior management and Board of Directors of material cybersecurity issues.
In addition, we have an escalation process in place to inform senior management and the Board of Directors of any material cybersecurity issues.
They receive monthly training and testing on phishing emails and other timely information security topics. They are also required to abide by the Bank’s Code of Business Conduct and Ethics Policy. Annual review and acknowledgement of the employee’s information security responsibilities are required. Information security tips are provided on the Bank’s website for all customers to review.
Education and Awareness Bank employees are required to complete training on customer information protection at least annually. They receive monthly training and testing on phishing emails and other timely information security topics. They are also required to abide by the Bank’s Code of Business Conduct and Ethics Policy. Annual review and acknowledgement of the employee’s information security responsibilities are required.
The organization also utilizes several national and global third party advisors to ensure the appropriateness of the Bank’s security posture, effective operation of the cybersecurity discipline and proper assessment of risk.
The organization also utilizes several national and global third-party advisors to ensure the appropriateness of the Bank’s security posture, effective operation of the cybersecurity discipline and proper assessment of risk. Third-Party Risk Management The Bank has an established third-party information security risk management program that reviews and assesses third parties prior to engagement and throughout the third-party relationship.
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Third-Party Risk Management The Bank has an established third party information security risk management program that reviews and assesses third parties prior to engagement and throughout the third party relationship. This program requires periodic risk assessments to be conducted throughout the term of the engagement.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAll branches and ATM locations are equipped with closed circuit television monitoring. We consider our properties to be suitable and adequate for our current and immediate future purposes.
Biggest changeOur community banking offices and ATM locations are monitored through a variety of means including cameras, alarms, and other monitoring and anti-tampering solutions. We consider our properties to be suitable and adequate for our current and immediate future purposes.
We operate 39 full-service community banking offices located within the Allegheny, Bucks, Lackawanna, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York. Sixteen offices are leased and the balance are owned by the Bank. We lease several remote ATM locations throughout our market area.
We operate forty full-service community banking offices located within the Allegheny, Bucks, Lackawanna, Lancaster, Lebanon, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna and Wyoming Counties of Pennsylvania, Middlesex County of New Jersey and Broome County of New York. Sixteen offices are leased and the balance are owned by the Bank. We lease several remote ATM locations throughout our market area.
Item 2. Propertie s. Our corporate headquarters is located at 102 East Drinker Street, Dunmore, Pennsylvania, which houses executive offices, human resources and investor services divisions. Our operations division is located at 82 Franklin Avenue, Hallstead, Pennsylvania.
Item 2. Propertie s. Our corporate headquarters is located at 30 E D Preate Drive Moosic, Pennsylvania, which houses executive offices, human resources and investor services divisions as well as other administrative and operational teams. An additional operations division is located at 82 Franklin Avenue, Hallstead, Pennsylvania.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosure s. Not applicable. -40- Table of Contents Part I I
Biggest changeMine Safety Disclosure s. Not applicable. Part I I

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFor information on dividend restrictions on the Company and the Bank, refer to Part I, Item 1 “Supervision and Regulation – Limitations on Dividends and Other Payments” to this report and refer to the consolidated financial statements and notes to these statements filed at Item 8 to this report and incorporated in their entirety by reference under this Item 5.
Biggest changeFor information on dividend restrictions on the Company and the Bank, refer to Part I, Item 1 “Supervision and Regulation – Limitations on Dividends and Other Payments” to this report and refer to the consolidated financial statements and notes to these statements filed at Item 8 to this report and incorporated in their entirety by reference under this Item 5. -38- Table of Contents During the quarter ended December 31, 2025, we did not issue or sell any shares of our Common Stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the Securities Act.
BMI Banks Index. The cumulative total return on the stock or the index equals the total increase in value since December 31, 2019, assuming reinvestment of all dividends paid into the stock or the index.
BMI Banks Index. The cumulative total return on the stock or the index equals the total increase in value since December 31, 2020, assuming reinvestment of all dividends paid into the stock or the index.
There were no repurchases of our common stock during the three months ended December 31, 2024. -41- Table of Contents The following graph and table show the cumulative total return on the common stock of the Company over the last five years, compared with the cumulative total return of a broad stock market index (the Russell 2000 Index or “Russell 2000”), and the S&P U.S.
There were no repurchases of our common stock during the three months ended December 31, 2025. -39- Table of Contents The following graph and table show the cumulative total return on the common stock of the Company over the last five years, compared with the cumulative total return of a broad stock market index (the Russell 2000 Index or “Russell 2000”), and the S&P U.S.
The graph and table were prepared assuming that $100 was invested on December 31, 2019, in the common stock and the securities included in the indexes.
The graph and table were prepared assuming that $100 was invested on December 31, 2020, in the common stock and the securities included in the indexes.
Item 5. Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity Securities. As of March 3, 2025 there were approximately 7,782 holders of our common stock, $2.00 par value, including individual participants in security position listings.
Item 5. Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity Securities. As of March 2, 2026 there were approximately 9,767 holders of our common stock, $2.00 par value, including individual participants in security position listings.
BMI Banks Index 100.00 87.24 118.61 98.38 107.32 143.68 ​ Source: S&P Global Market Intelligence © 2025 ​ The stock performance graph and related table set forth above shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act. ​ -42- Table of Contents Item 6.
BMI Banks Index 100.00 135.97 112.77 123.02 164.70 211.47 ​ Source: S&P Global Market Intelligence © 2026 ​ The stock performance graph and related table set forth above shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act. ​ -40- Table of Contents Item 6.
The Board declared on January 31, 2025 a first quarter dividend of $0.6175 per share payable March 14, 2025.
The Board declared on January 30, 2026, a first quarter dividend of $0.6250 per share payable March 13, 2026.
Comparison of Five-Year Cumulative Total Returns Performance Graph of PEOPLES FINANCIAL SERVICES CORP ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index ​ 12/31/2019 ​ 12/31/2020 ​ 12/31/2021 ​ 12/31/2022 ​ 12/31/2023 ​ 12/31/2024 Peoples Financial Services Corp. 100.00 75.70 112.19 113.83 110.97 121.93 ​ Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 ​ S&P U.S.
Comparison of Five-Year Cumulative Total Returns Performance Graph of PEOPLES FINANCIAL SERVICES CORP ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index ​ 12/31/2020 ​ 12/31/2021 ​ 12/31/2022 ​ 12/31/2023 ​ 12/31/2024 ​ 12/31/2025 Peoples Financial Services Corp. ​ ​ ​ 100.00 ​ ​ ​ 148.20 ​ ​ ​ 150.37 ​ ​ ​ 146.59 ​ ​ ​ 161.07 ​ ​ ​ 161.09 ​ Russell 2000 Index 100.00 114.82 91.35 106.82 119.14 134.40 ​ S&P U.S.
Removed
During the quarter ended December 31, 2024, we did not issue or sell any shares of our Common Stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the Securities Act.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

196 edited+81 added−99 removed97 unchanged
Biggest changeIncome on tax-free investment securities and loans is adjusted to a tax-equivalent basis, a non-GAAP measure, using the prevailing federal statutory tax rate of 21.0 percent in 2024, 2023 and 2022. -65- Table of Contents Summary of net interest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, 2024 December 31, 2023 ​ ​ Average ​ Interest Income/ ​ Yield/ Average ​ Interest Income/ ​ Yield/ (Dollars in thousands, except percents) Balance Expense Rate Balance Expense Rate Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ $ 3,205,564 ​ $ 184,907 5.77 % $ 2,605,927 ​ $ 129,013 4.95 % Tax-exempt ​ 251,300 ​ ​ 9,309 3.70 ​ ​ 225,839 ​ ​ 7,124 3.15 ​ Total loans ​ ​ 3,456,864 ​ ​ 194,216 ​ 5.62 ​ ​ 2,831,766 ​ ​ 136,137 ​ 4.81 ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 529,649 ​ ​ 13,019 2.46 ​ ​ 468,403 ​ ​ 7,916 1.69 ​ Tax-exempt ​ 87,563 ​ ​ 1,962 2.24 ​ ​ 90,897 ​ ​ 2,003 2.20 ​ Total investments ​ ​ 617,212 ​ ​ 14,981 2.43 ​ ​ 559,300 ​ ​ 9,919 1.77 ​ Interest-bearing deposits ​ 9,434 ​ ​ 498 5.28 ​ ​ 6,373 ​ ​ 335 5.26 ​ Federal funds sold ​ ​ 78,698 ​ ​ 4,132 5.25 ​ ​ 98,535 ​ ​ 5,377 5.46 ​ Total interest-earning assets ​ 4,162,208 ​ 213,827 5.14 % 3,495,974 ​ 151,768 4.34 % Less: allowance for credit losses ​ 30,724 ​ ​ ​ ​ ​ ​ 24,377 ​ ​ ​ ​ ​ ​ Other assets ​ 362,130 ​ ​ ​ ​ ​ ​ 211,618 ​ ​ ​ ​ ​ ​ Total assets ​ $ 4,493,614 ​ ​ ​ ​ ​ ​ $ 3,683,215 ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market accounts ​ $ 621,993 ​ $ 29,643 4.77 % $ 714,940 ​ $ 22,686 3.17 % Interest-bearing demand and NOW accounts ​ 1,261,095 ​ ​ 23,674 1.88 ​ ​ 779,977 ​ ​ 15,586 2.00 ​ Savings accounts ​ 463,199 ​ ​ 4,625 1.00 ​ ​ 474,028 ​ ​ 994 0.21 ​ Time deposits less than $100 ​ 480,737 ​ ​ 18,124 3.77 ​ ​ 349,990 ​ ​ 13,344 3.81 ​ Time deposits $100 or more ​ 291,482 ​ ​ 11,868 4.07 ​ ​ 200,743 ​ ​ 5,951 2.96 ​ Total interest-bearing deposits ​ ​ 3,118,506 ​ ​ 87,934 2.82 ​ ​ 2,519,678 ​ ​ 58,561 2.32 ​ Short-term borrowings ​ 37,083 ​ ​ 2,031 5.48 ​ ​ 38,331 ​ ​ 1,920 5.01 ​ Long-term debt ​ 68,441 ​ ​ 3,317 4.85 ​ ​ 19,448 ​ ​ 842 4.33 ​ Subordinated debt ​ ​ 33,000 ​ ​ 1,774 5.38 ​ ​ 33,000 ​ ​ 1,774 5.38 ​ Junior subordinated debt ​ ​ 4,028 ​ ​ 415 10.30 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total borrowings ​ ​ 142,552 ​ ​ 7,537 5.29 ​ ​ 90,779 ​ ​ 4,536 5.00 ​ Total interest-bearing liabilities ​ 3,261,058 ​ ​ 95,471 2.93 % ​ 2,610,457 ​ ​ 63,097 2.42 % Noninterest-bearing deposits ​ 714,824 ​ ​ ​ ​ ​ ​ 698,749 ​ ​ ​ ​ ​ ​ Other liabilities ​ 106,970 ​ ​ ​ ​ ​ ​ 44,786 ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ 410,762 ​ ​ ​ ​ ​ ​ 329,223 ​ ​ ​ ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 4,493,614 ​ ​ ​ ​ ​ ​ $ 3,683,215 ​ ​ ​ ​ ​ ​ Net interest income/spread ​ ​ ​ ​ $ 118,356 2.21 % ​ ​ ​ $ 88,671 1.92 % Net interest margin (Non-GAAP) ​ ​ ​ ​ ​ ​ 2.84 % ​ ​ ​ ​ ​ 2.54 % Tax-equivalent adjustments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ ​ $ 1,955 ​ ​ ​ ​ ​ ​ $ 1,496 ​ ​ ​ Investments ​ ​ ​ ​ 412 ​ ​ ​ ​ ​ ​ 421 ​ ​ ​ Total adjustments ​ ​ ​ ​ $ 2,367 ​ ​ ​ ​ ​ ​ $ 1,917 ​ ​ ​ ​ Note: Average balances were calculated using average daily balances.
Biggest changeIncome on tax-free investment securities and loans is adjusted to a tax-equivalent basis, a non-GAAP measure, using the prevailing federal statutory tax rate of 21.0 percent in 2025, 2024 and 2023. -61- Table of Contents Summary of net interest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, 2025 ​ December 31, 2024 ​ ​ Average ​ Interest Income/ ​ Yield/ ​ Average ​ Interest Income/ ​ Yield/ (Dollars in thousands, except percents) ​ ​ ​ Balance ​ ​ ​ Expense ​ ​ ​ Rate ​ ​ ​ ​ Balance ​ ​ ​ Expense ​ ​ ​ Rate ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ $ 3,724,920 ​ $ 228,868 6.14 % ​ $ 3,205,564 ​ $ 184,907 5.77 % Tax-exempt ​ 273,373 ​ ​ 10,577 3.87 ​ ​ ​ 251,300 ​ ​ 9,309 3.70 ​ Total loans ​ ​ 3,998,293 ​ ​ 239,445 ​ 5.99 ​ ​ ​ 3,456,864 ​ ​ 194,216 ​ 5.62 ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 544,782 ​ ​ 17,604 3.23 ​ ​ ​ 529,649 ​ ​ 13,019 2.46 ​ Tax-exempt ​ 96,548 ​ ​ 2,582 2.67 ​ ​ ​ 87,563 ​ ​ 1,962 2.24 ​ Total investments ​ ​ 641,330 ​ ​ 20,186 3.15 ​ ​ ​ 617,212 ​ ​ 14,981 2.43 ​ Interest-bearing deposits ​ 9,871 ​ ​ 405 4.10 ​ ​ ​ 9,434 ​ ​ 498 5.28 ​ Federal funds sold ​ ​ 58,542 ​ ​ 2,424 4.14 ​ ​ ​ 78,698 ​ ​ 4,132 5.25 ​ Total interest-earning assets ​ 4,708,036 ​ $ 262,460 5.57 % ​ 4,162,208 ​ $ 213,827 5.14 % Less: allowance for credit losses ​ 41,399 ​ ​ ​ ​ ​ ​ ​ 30,724 ​ ​ ​ ​ ​ ​ Other assets ​ 402,931 ​ ​ ​ ​ ​ ​ ​ 362,130 ​ ​ ​ ​ ​ ​ Total assets ​ $ 5,069,568 ​ ​ ​ ​ ​ ​ ​ $ 4,493,614 ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market accounts ​ $ 958,516 ​ $ 27,884 2.91 % ​ $ 621,993 ​ $ 29,643 4.77 % Interest-bearing demand and NOW accounts ​ 1,205,926 ​ ​ 25,088 2.08 ​ ​ ​ 1,261,095 ​ ​ 23,674 1.88 ​ Savings accounts ​ 497,991 ​ ​ 1,530 0.31 ​ ​ ​ 463,199 ​ ​ 4,625 1.00 ​ Time deposits less than $100 ​ 371,339 ​ ​ 13,812 3.72 ​ ​ ​ 480,737 ​ ​ 18,124 3.77 ​ Time deposits $100 or more ​ 362,253 ​ ​ 12,860 3.55 ​ ​ ​ 291,482 ​ ​ 11,868 4.07 ​ Total interest-bearing deposits ​ ​ 3,396,025 ​ ​ 81,174 2.39 ​ ​ ​ 3,118,506 ​ ​ 87,934 2.82 ​ Short-term borrowings ​ 29,241 ​ ​ 1,287 4.40 ​ ​ ​ 37,083 ​ ​ 2,031 5.48 ​ Long-term debt ​ 118,612 ​ ​ 5,562 4.69 ​ ​ ​ 68,441 ​ ​ 3,317 4.85 ​ Subordinated debt ​ ​ 63,918 ​ ​ 4,967 7.77 ​ ​ ​ 33,000 ​ ​ 1,774 5.38 ​ Junior subordinated debt ​ ​ 8,087 ​ ​ 745 9.21 ​ ​ ​ 4,028 ​ ​ 415 ​ 10.30 ​ Total borrowings ​ ​ 219,858 ​ ​ 12,561 5.71 ​ ​ ​ 142,552 ​ ​ 7,537 5.29 ​ Total interest-bearing liabilities ​ 3,615,883 ​ ​ 93,735 2.59 % ​ ​ 3,261,058 ​ ​ 95,471 2.93 % Noninterest-bearing deposits ​ 898,043 ​ ​ ​ ​ ​ ​ ​ 714,824 ​ ​ ​ ​ ​ ​ Other liabilities ​ 57,651 ​ ​ ​ ​ ​ ​ ​ 106,970 ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ 497,991 ​ ​ ​ ​ ​ ​ ​ 410,762 ​ ​ ​ ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 5,069,568 ​ ​ ​ ​ ​ ​ ​ $ 4,493,614 ​ ​ ​ ​ ​ ​ Net interest income/spread ​ ​ ​ ​ $ 168,725 2.98 % ​ ​ ​ ​ $ 118,356 2.21 % Net interest margin (non-GAAP) ​ ​ ​ ​ ​ ​ 3.58 % ​ ​ ​ ​ ​ ​ 2.84 % Tax-equivalent adjustments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ ​ $ 2,221 ​ ​ ​ ​ ​ ​ ​ $ 1,955 ​ ​ ​ Investments ​ ​ ​ ​ 542 ​ ​ ​ ​ ​ ​ ​ 412 ​ ​ ​ Total adjustments ​ ​ ​ ​ $ 2,763 ​ ​ ​ ​ ​ ​ ​ $ 2,367 ​ ​ ​ ​ Note: Average balances were calculated using average daily balances.
Net charge-offs, as a percentage of average loans outstanding, equaled 0.10 percent in 2023 and 0.03 percent in 2022. Effective January 1, 2023 the Company adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The standard replaces the incurred loss methodology we previously used to maintain the allowance for loan losses.
Net charge-offs, as a percentage of average loans outstanding, equaled 0.03 percent in 2024 and 0.10 percent in 2023. Effective January 1, 2023, the Company adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The standard replaces the incurred loss methodology we previously used to maintain the allowance for loan losses.
Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Critical estimates that are particularly susceptible to material change within future periods relate to the determination of ACL, impairment of goodwill and business combination. Actual amounts could differ from those estimates.
Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Critical estimates that are particularly susceptible to material change within future periods relate to the determination of ACL and impairment of goodwill. Actual amounts could differ from those estimates.
The maturity distribution based on the carrying value and weighted-average, tax-equivalent yield of the investment debt security portfolio at December 31, 2024, is summarized as follows. The weighted-average yield, based on amortized cost, has been computed for tax-exempt state and municipals on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0 percent.
The maturity distribution based on the carrying value and weighted-average, tax-equivalent yield of the investment debt security portfolio at December 31, 2025, is summarized as follows. The weighted-average yield, based on amortized cost, has been computed for tax-exempt state and municipals on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0 percent.
At December 31, 2024, our noncore funds consisted of time deposits in denominations of $100 thousand or more, brokered deposits, short-term borrowings, and long-term and subordinated debt. Large denomination time deposits are particularly not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile.
At December 31, 2025, our noncore funds consisted of time deposits in denominations of $100 thousand or more, brokered deposits, short-term borrowings, and long-term and subordinated debt. Large denomination time deposits are particularly not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile.
It is defined as the risk that increases in general market interest rates will result in market value depreciation. A marked reduction in the value of the investment portfolio could subject us to liquidity strains and reduced earnings if we are unable or unwilling to sell these investments at a loss.
It is defined as the risk that increases in general market interest rates will result in market value depreciation. A marked reduction in the value of the investment portfolio could subject us to liquidity strains and reduction in earnings if we are unable or unwilling to sell investments at a loss.
As a result, changes in the velocity and magnitude of market rates can significantly influence the fair value of our portfolio. Specifically, the parts of the yield curve most closely related to our investments include the 2-year and 10-year U.S. Treasury security. The yield on the 2-year U.S. Treasury note affects the values of our U.S.
As a result, changes in the velocity and magnitude of market rates can significantly influence the fair value of our portfolio. Specifically, the parts of the yield curve most closely related to our investments include the 2-year and 10-year U.S. Treasury securities. The yield on the 2-year U.S. Treasury note affects the values of our U.S.
Loans are the most significant component of earning assets and they generate the greatest amount of revenue for us. Similar to the investment portfolio, there are risks inherent in the loan portfolio that must be understood and considered in managing the lending function. These risks include IRR, credit concentrations and fluctuations in demand.
Loans are the most significant component of earning assets and they generate the greatest amount of revenue. Similar to the investment portfolio, there are risks inherent in the loan portfolio that must be understood and considered in managing the lending function. These risks include IRR, credit concentrations and fluctuations in demand.
The Bank reported Tier 1 capital, Total capital and Leverage ratios of 10.95 percent, 12.04percent and 8.37 percent at December 31, 2024, and 13.30 percent, 14.12 percent and 9.34 percent at December 31, 2023. Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized at December 31, 2024.
The Bank reported Tier 1 capital, Total capital and Leverage ratios of 10.95 percent, 12.04 percent and 8.37 percent at December 31, 2024, and 13.30 percent, 14.12 percent and 9.34 percent at December 31, 2023. Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized at December 31, 2024.
At December 31, 2024, we completed a qualitative goodwill impairment test to determine if it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the Company is less than its carrying value, including goodwill, as described by the GAAP methodology.
At December 31, 2025, we completed a qualitative goodwill impairment test to determine if it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the Company is less than its carrying value, including goodwill, as described by the GAAP methodology.
Based on this analysis, we concluded it is more likely than not that the fair value of the Company, as of December 31, 2024, is higher than its carrying value, and, therefore, goodwill is not considered impaired and no further testing is required.
Based on this analysis, we concluded it is more likely than not that the fair value of the Company, as of December 31, 2025, is higher than its carrying value, and, therefore, goodwill is not considered impaired and no further testing is required.
We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to illustrate our reliance on noncore funds to fund our investments and loans maturing after 2024.
We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to illustrate our reliance on noncore funds to fund our investments and loans maturing after 2025.
Any impairment losses arising from such testing are reported in the income statement in the current period as a separate line item within operations. Goodwill totaled $76.0 million at December 31, 2024.
Any impairment losses arising from such testing are reported in the income statement in the current period as a separate line item within operations. Goodwill totaled $76.0 million at December 31, 2025.
Therefore, in order to make the net interest margin analysis more comparable, tax-exempt income and yields are reported in this analysis on a tax-equivalent basis using the prevailing federal statutory tax rate. Similar to all banks, we consider the maintenance of an adequate net interest margin to be of primary concern.
Therefore, in order to make the net interest margin analysis more comparable, tax-exempt income and yields are reported in this analysis on a tax-equivalent basis using the prevailing federal statutory tax rate. -58- Table of Contents Similar to all banks, we consider the maintenance of an adequate net interest margin to be of primary concern.
As of December 31, 2024 and December 31, 2023, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company.
As of December 31, 2025, and December 31, 2024, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company.
Changes in economic conditions and interest rates affect these risks which influence loan demand, the composition of the loan portfolio and profitability of the lending function. Overall, total loans increased $1.1 billion in 2024 to $4.0 billion at December 31, 2024 due primarily to the $1.2 billion in loans acquired in the FNCB merger.
Changes in economic conditions and interest rates affect these risks which influence loan demand, the composition of the loan portfolio and profitability of the lending function. -66- Table of Contents Overall, total loans increased $1.1 billion in 2024 to $4.0 billion at December 31, 2024 due primarily to the $1.2 billion in loans acquired in the FNCB merger.
Average interest-bearing liabilities grew $650.6 million to $3.3 billion in 2024 from $2.6 billion in 2023 resulting in a net increase in interest expense of $16.7 million. In addition, interest-bearing transaction accounts, including money -64- Table of Contents market, interest-bearing demand and NOW and savings accounts grew $377.3 million, which in aggregate caused a $5.8 million increase in interest expense.
Average interest-bearing liabilities grew $650.6 million to $3.3 billion in 2024 from $2.6 billion in 2023 resulting in a net increase in interest expense of $16.7 million. In addition, interest-bearing transaction accounts, including money market, interest-bearing demand and NOW and savings accounts grew $377.3 million, which in aggregate caused a $5.8 million increase in interest expense.
Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as global pandemics or natural disasters) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as pandemics, political instability and conflicts, or natural disasters) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
The Company applies the analysis to loans on a collective, or pooled basis for groups of loans which share similar risk characteristics, and will either assign loans to a different pool or evaluate a loan individually if its risk characteristics change and no longer align with its currently assigned pool of loans.
The Company applies the analysis to loans on a collective, or pooled basis -67- Table of Contents for groups of loans which share similar risk characteristics and will either assign loans to a different pool or evaluate a loan individually if its risk characteristics change and no longer align with its currently assigned pool of loans.
Total investment securities were $606.9 million at December 31, 2024, including $526.3 million of investment securities classified as available for sale, $78.2 million -44- Table of Contents classified as held to maturity, and $2.4 million in equity securities. Total deposits consisted of $935.5 million in noninterest-bearing deposits and $3.5 billion in interest-bearing deposits at December 31, 2024.
Total investment securities were $606.9 million at December 31, 2024, including $526.3 million of investment securities classified as available for sale, $78.2 million classified as held to maturity, and $2.4 million in equity securities. Total deposits consisted of $935.5 million in noninterest-bearing deposits and $3.5 billion in interest-bearing deposits at December 31, 2024.
Volatile deposits, time deposits $100 thousand or more, averaged $291.5 million in 2024, an increase of $90.7 million or 45.2 percent from $200.7 million in 2023. Our average cost of these funds increased 111 basis points to 4.07 percent in 2024, from 2.96 percent in 2023.
Volatile deposits, time deposits $100 thousand or more, averaged $291.5 million in 2024, an increase of $90.7 million or 45.2 percent from -68- Table of Contents $200.7 million in 2023. Our average cost of these funds increased 111 basis points to 4.07 percent in 2024, from 2.96 percent in 2023.
The increase in FTE net interest income was primarily the result of higher loan interest income due to increased volume and rates on new loans acquire d through the FNCB merger and an additional $9.0 million from accretion of purchase accounting marks on loans.
The increase in FTE net interest income was primarily the result of higher loan interest income due to increased volume and rates on new loans acquired through the FNCB merger and an additional $9.0 million from accretion of purchase accounting marks on loans.
Moreover, the inability to liquidate these assets could require us to seek alternative funding, which may further reduce profitability and expose us to greater risk in the future.
Moreover, the inability to liquidate these investments could require us to seek alternative funding, which may further reduce profitability and expose us to greater risk in the future.
Capital Adequacy: Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary supervisory actions for noncompliance. Our and the Bank’s risk-based capital ratios are strong and have consistently exceeded the minimum regulatory capital ratios required for adequately capitalized institutions.
Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary supervisory actions for noncompliance. The Company and the Bank’s risk-based capital ratios have consistently exceeded the minimum regulatory capital ratios required for adequately capitalized institutions.
We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis. -58- Table of Contents We maintain a contingency funding plan to address liquidity in the event of a funding crisis.
We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis. We maintain a contingency funding plan to address liquidity in the event of a funding crisis.
The projected impact of instantaneous changes in interest rates on our net interest income and economic value of equity at December 31, 2024, based on our simulation model, is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ ​ % Change in Changes in Interest Rates (basis points) ​ Net Interest Income ​ Economic Value of Equity ​ Metric Policy Metric Policy +400 (1.2) ​ (20.0) ​ 4.4 ​ (40.0) ​ +300 (0.9) ​ (20.0) ​ 3.7 ​ (30.0) ​ +200 (0.7) ​ (10.0) ​ 2.6 ​ (20.0) ​ +100 (0.2) ​ (10.0) ​ 1.9 ​ (10.0) ​ Static ​ ​ ​ ​ ​ ​ ​ ​ ​ -100 0.2 ​ (10.0) ​ (3.6) ​ (10.0) ​ -200 (0.5) ​ (10.0) ​ (9.3) ​ (20.0) ​ -300 (0.7) ​ (20.0) ​ (17.1) ​ (30.0) ​ -400 (0.3) ​ (20.0) ​ (29.1) ​ (40.0) ​ Our simulation model creates pro forma net interest income scenarios under various interest rate shocks.
The projected impact of instantaneous changes in interest rates on our net interest income and economic value of equity at December 31, 2025, based on our simulation model, is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2025 ​ ​ % Change in Changes in Interest Rates (basis points) ​ Net Interest Income ​ Economic Value of Equity ​ ​ ​ ​ Metric ​ ​ ​ Policy ​ ​ ​ Metric ​ ​ ​ Policy +400 ​ ​ ​ 1.2 ​ (20.0) ​ 2.4 ​ (40.0) +300 1.0 ​ (20.0) ​ 2.3 ​ (30.0) +200 0.7 ​ (10.0) ​ 1.8 ​ (20.0) +100 0.6 ​ (10.0) ​ 1.5 ​ (10.0) Static ​ ​ ​ ​ ​ ​ ​ ​ -100 (1.2) ​ (10.0) ​ (3.2) ​ (10.0) -200 (2.4) ​ (10.0) ​ (8.3) ​ (20.0) -300 (1.3) ​ (20.0) ​ (15.7) ​ (30.0) -400 0.6 ​ (20.0) ​ (29.4) ​ (40.0) Our simulation model creates pro forma net interest income scenarios under various interest rate shocks.
Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. -46- Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ After one but ​ After five but ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands, ​ Within one year ​ within five years ​ within ten years ​ After ten years ​ Total except percents) ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield U.S.
Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ After one but ​ After five but ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands, ​ Within one year ​ within five years ​ within ten years ​ After ten years ​ Total except percents) ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield ​ Amount ​ Yield U.S.
Our Leverage ratio, which equaled 7.97 percent at December 31, 2024 and 8.50 percent at December 31, 2023, exceeded the minimum of 4.0 percent for capital adequacy purposes.
Our Leverage ratio, which equaled 7.97 percent at December 31, 2024, and 8.50 percent at December 31, 2023, exceeded the minimum of 4.0 percent for capital -69- Table of Contents adequacy purposes.
Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The Asset Liability Committee (“ALCO”) is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Generally quarterly, ALCO reports on the status of liquidity and interest rate risk matters to the Company’s Board of Directors.
Interest rate risk is the risk of loss to future earnings due to changes in interest rates. ALCO is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Generally quarterly, ALCO reports on the status of liquidity and interest rate risk matters to the Company’s Board of Directors.
The decrease in 2024 was primarily due to lower pretax income and higher levels of tax adjustments such as tax-exempt interest income, investment tax credits and BOLI income. We utilize loans and investments in tax-exempt organizations to mitigate our tax burden, as interest revenue from these sources is not taxable by the federal government.
The decrease in 2024 was primarily due to lower pretax income and higher levels of tax adjustments such as tax-exempt interest income, investment tax credits and Bank Owed Life Insurance income. We utilize loans and investments in tax-exempt organizations to mitigate our tax burden, as interest revenue from these sources is not taxable by the federal government.
The effective tax rate in 2023 and 2022 was also influenced by the recognition of investment tax credits related to our limited partnership investments in elderly and low- to- moderate-income residential housing programs which allow us to mitigate our tax burden.
The effective tax rate in 2025 and 2024 was also influenced by the recognition of investment tax credits related to our limited partnership investments in elderly and low- to- moderate-income residential housing programs which allow us to mitigate our tax burden.
For the year ended December 31, 2023, cash and cash equivalents increased $149.5 million. Operating activities provided net cash of $33.9 million in 2024 and $33.3 million in 2023.
For the year ended December 31, 2023, cash and cash equivalents increased $149.5 million. Operating activities provided net cash of $34.7 million in 2024 and $33.3 million in 2023.
Treasury and government agency securities, whereas the 10-year U.S. Treasury note influences the value of tax-exempt and taxable state and municipal obligations. The net unrealized holding losses included in our available for sale investment portfolio were $49.0 million at December 31, 2024 compared to a loss of $51.5 million at December 31, 2023.
Treasury and government agency securities, whereas the 10-year U.S. Treasury note influences the value of tax-exempt and taxable state and municipal obligations. The net unrealized holding losses included in our available for sale investment portfolio were $29.2 million at December 31, 2025, compared to a loss of $49.0 million at December 31, 2024.
Model results at December 31, 2024 indicated a higher starting level of net interest income (“NII”) compared to the December 31, 2023 model as balance sheet growth from the merger with FNCB, a shift in balance sheet mix and lower -78- Table of Contents interest-bearing liability costs resulted in an increase to the balance sheet spread of 79 basis points.
Model results at December 31, 2025, indicated a higher starting level of net interest income (“NII”) compared to model results at December 31, 2024, as balance sheet growth from the merger with FNCB, a shift in balance sheet mix and -73- Table of Contents lower interest-bearing liability costs resulted in an increase to the balance sheet spread of 23 basis points.
With regard to managing our exposure to credit risk in light of general devaluations in real estate values, we have established maximum loan-to-value ratios for commercial mortgage loans not to exceed 80.0 percent of the appraised value. With regard to residential mortgages, customers with loan-to-value ratios in excess of 80.0 percent are generally required to obtain PMI.
To manage our exposure to credit risk and protect against general devaluations in real estate values, we have established maximum loan-to-value ratios for commercial mortgage loans not to exceed 80.0 percent of the appraised value. With regard to residential mortgages, customers with loan-to-value ratios in excess of 80.0 percent are generally required to obtain PMI.
For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for credit losses” in the Notes to Consolidated Financial Statements to this Annual Report which are incorporated in this item by reference.
For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for credit losses” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K which are incorporated in this item by reference.
For a further discussion on our ability to declare and pay dividends in the future and dividend restrictions, refer to the note entitled, “Regulatory matters,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
The Bank’s ability to pay dividends is subject to federal and state regulations. For a further discussion on our ability to declare and pay dividends in the future and dividend restrictions, refer to the note entitled, “Regulatory matters,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
Net income, adjusted for the effects of noncash expenses such as depreciation, amortization and accretion of tangible and intangible assets and investment securities, and the provision for credit losses, is the primary source of funds from operations. Net cash provided by financing activities equaled $142.0 million in 2023. Net cash provided by financing activities was $183.4 million in 2022.
Net income, adjusted for the effects of noncash expenses such as depreciation, amortization and accretion of tangible and intangible assets and investment securities, and the provision for credit losses, is the primary source of funds from operations. Net cash used by financing activities equaled $472.6 million in 2024. Net cash provided by financing activities was $142.0 million in 2023.
Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities.
Quantitative and Qualitative Disclosures About Market Ris k. Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities.
In an attempt to limit IRR and improve liquidity, we continually examine the maturity distribution and interest rate sensitivity of the loan portfolio. Fixed-rate loans represented 50.6 percent of the loan portfolio at December 31, 2024, compared to floating or adjustable-rate loans at 49.4 percent.
In an attempt to limit IRR and improve liquidity, we continually examine the maturity distribution and interest rate sensitivity of the loan portfolio. Fixed-rate loans represented 44.4 percent of the loan portfolio at December 31, 2025, compared to floating or adjustable-rate loans at 55.6 percent.
At December 31, 2024, our maximum borrowing capacity with the FHLB was $1.7 billion of which $99.1 million was outstanding in borrowings and $487.8 million outstanding in the form of irrevocable standby letters of credit. Depending upon deposit activity and loan growth in 2025, we may the utilize these credit arrangements.
At December 31, 2025, our maximum borrowing capacity with the FHLB was $1.7 billion of which $158.3 million was outstanding in borrowings and $498.8 million outstanding in the form of irrevocable standby letters of credit. Depending upon deposit activity and loan growth in 2026, we may utilize these credit arrangements.
Additionally, we utilize the investment portfolio to meet pledging requirements and reduce income taxes. At December 31, 2024, our portfolio included short-term U.S.
Additionally, we use the investment portfolio to meet pledging requirements and reduce income taxes. At December 31, 2025, our portfolio included short-term U.S.
The coverage ratio was 442.6 percent at December 31, 2023 and 664.5 percent at December 31, 2022. We believe that our allowance was adequate to absorb probable credit losses at December 31, 2023. Deposits: Our deposit base is the primary source of funds to support our operations.
The coverage ratio was 182.0 percent at December 31, 2024, and 442.5 percent at December 31, 2023. We believe that our allowance was adequate to absorb probable credit losses at December 31, 2024. Deposits: Our deposit base is the primary source of funds to support our operations.
Among other specific objectives, this comprehensive plan: (i) attempts to ensure that we and the Bank remain well capitalized under the regulatory framework for prompt corrective action; (ii) evaluates our capital adequacy exposure through a comprehensive risk assessment; (iii) incorporates periodic stress testing in accordance with the Federal Reserve Board’s Supervisory Capital Assessment Program (“SCAP”); (iv) establishes event triggers and action plans to ensure capital adequacy; and (v) identifies realistic and readily available alternative sources for augmenting capital if higher capital levels are required. -60- Table of Contents Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts.
Among other specific objectives, this comprehensive plan: (i) attempts to ensure that we and the Bank remain well capitalized under the regulatory framework for prompt corrective action; (ii) evaluates our capital adequacy exposure through a comprehensive risk assessment; (iii) incorporates periodic stress testing in accordance with the Federal Reserve Board’s Supervisory Capital Assessment Program (“SCAP”); (iv) establishes event triggers and action plans to ensure capital adequacy; and (v) identifies realistic and readily available alternative sources for augmenting capital if higher capital levels are required.
Item 7. Management’s Discussion and Analysi s of Financial Condition and Results of Operations. Management’s Discussion and Analysis 2024 versus 2023 Management’s Discussion and Analysis appearing on the following pages should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis 2024 versus 2023 contained in this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysi s of Financial Condition and Results of Operations. Management’s Discussion and Analysis 2025 versus 2024 Management’s Discussion and Analysis appearing on the following pages should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis 2024 versus 2023 contained in this Item 7.
Interest income on loans includes fees of $0.9 million in 2024, $0.4 million in 2023 and $1.9 million in 2022.
Interest income on loans includes fees of $0.9 million in 2025, $0.9 million in 2024 and $0.4 million in 2023.
For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for credit losses” in the Notes to Consolidated Financial Statements to this Annual Report which are incorporated in this item by reference.
For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the Note 1 entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for credit losses” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K which are incorporated in this item by reference.
Short-term borrowings averaged $1.2 million less and decreased interest expense $64 thousand while long-term debt averaged $49.0 million more and increased interest expense by $2.4 million comparing 2024 and 2023. Subordinated debt was unchanged, comparing 2024 and 2023. Junior subordinated debt averaged $4.0 million in 2024 and resulted in $0.4 million in 2024, compared to none in 2023.
Short-term borrowings averaged $1.2 million less and decreased interest expense $64 thousand while long-term debt averaged $49.0 million more and increased interest expense by $2.4 million comparing 2024 and 2023. Subordinated debt was unchanged, comparing 2024 and 2023.
Since 2014, our Board of Directors has adopted various common stock repurchase plans whereby we were authorized to repurchase shares of our outstanding common stock through open market purchases. During 2024 there were no shares repurchased.
Since 2014, our Board of Directors has adopted various common stock repurchase plans whereby we were authorized to repurchase shares of our outstanding common stock through open market purchases.
Other expenses, which consist of, professional fees and outside services, FDIC insurance and assessments, donations, other taxes, advertising, stationary and supplies, net gains on the sale of other real estate and all other expenses increased $5.6 million, due primarily to increased FDIC insurance assessments of $1.0 million, an $0.8 million write-down of a former branch office, higher check losses of $0.6 million and higher other expenses due to the larger financial institution.
Other expenses, which consist of, professional fees and outside services, FDIC insurance and assessments, donations, other taxes, advertising, stationary and supplies, net gains on the sale of other real estate and all other expenses increased $5.6 million comparing the years ended December 31, 2024 and 2023, due primarily to increased FDIC insurance assessments of $1.0 million, an $0.8 million write-down of a former community bank office, higher check losses of $0.6 million and higher other expenses due to the larger financial institution.
The Company anticipates meeting these obligations by utilizing on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its branch network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market. The Company may also use borrowings and brokered deposits to meet its obligations.
The Company anticipates meeting these obligations by using on-balance sheet liquidity and continuing to provide convenient depository and cash management services through its branch network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market.
Comparatively, our ratios equaled 12.1 percent and 4.7 percent at the end of 2023, which indicates an increased reliance on our noncore funds in 2024 with an improved ability to offset them with more liquid assets.
Comparatively, our ratios equaled 12.7 percent and 6.6 percent at the end of 2024, which indicates decreased reliance on our noncore funds in 2025 with an improved ability to offset them with more liquid assets.
Loans charged-off, net of recoveries equaled $1.1 million or 0.03 percent of average loans in 2024, compared to $2.9 million or 0.10 percent of average loans in 2023. Investment Portfolio: Primarily, our investment portfolio provides a source of liquidity needed to meet expected loan demand and generates a reasonable return in order to increase our profitability.
Loans charged-off, net of recoveries equaled $2.9 million or 0.07 percent of average loans in 2025, compared to $1.1 million or 0.03 percent of average loans in 2024. -42- Table of Contents Investment Portfolio: Our investment portfolio provides a source of liquidity to meet expected loan demand and generates a reasonable return in order to increase our profitability.
Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending December 31, 2025, would decrease 0.2 percent from model results using current interest rates.
Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the twelve months ending December 31, 2026, would increase 0.6 percent from model results using current interest rates.
At December 31, 2024 our borrowing capacity at the Federal Reserve related to this program was $476.0 million and there were no amounts outstanding. At December 31, 2024, eligible securities pledged at the FRB discount window totaled $145.5 million. For additional information, see Note 12 “Short-term borrowings”.
At December 31, 2025, our borrowing capacity at the Federal Reserve related to this program was $339.4 million and there were no amounts outstanding. At December 31, 2025, eligible securities pledged at the FRB discount window totaled $9.6 million. For additional information, see Note 12 “Short-term borrowings”.
As a final source of liquidity, we have available borrowing arrangements with various financial intermediaries, including the FHLB. At December 31, 2024, our maximum borrowing capacity with the FHLB was $1.7 billion of which $99.1 million was outstanding in borrowings and $487.8 million outstanding in the form of irrevocable standby letters of credit.
As a final source of liquidity, we have available borrowing arrangements with various financial intermediaries, including the FHLB. At December 31, 2025, our maximum borrowing capacity with the FHLB was $1.7 billion of which $658.6 million was outstanding in borrowings and letters of credit.
Occupancy and equipment expense increased $5.2 million to $22.3 million in 2024 from $17.1 million in 2023, due to higher technology costs related to system integration, increased account and transaction volumes, and increased facility expenses from the FNCB merger. -68- Table of Contents Acquisition related expenses totaled $16.2 million and $1.8 million in 2024 and 2023, respectively.
Occupancy and equipment expense increased $5.2 million to $22.3 million in 2024 from $17.1 million in 2023, due to higher technology costs related to system integration, increased account and transaction volumes, and increased facility expenses from the FNCB merger.
We reported net unrealized holding losses, included as a separate component of stockholders’ equity of $38.3 million, net of income taxes of $10.7 million, at December 31, 2024, and an unrealized holding loss of $40.3 million, net of income taxes of $11.3 million, at December 31, 2023.
We reported net unrealized holding losses, included as a separate component of stockholders’ equity of $22.8 million, net of income taxes of $6.4 million, at December 31, 2025, and an unrealized holding loss of $38.3 million, net of income taxes of $10.7 million, at December 31, 2024.
Taxable loans averaged $2.6 billion, while tax-exempt loans averaged $0.2 billion in 2023. The loan portfolio continues to play the prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 81.0 percent in 2023, an increase from 78.0 percent in 2022.
Loans averaged $3.5 billion in 2024, compared to $2.8 billion in 2023. Taxable loans averaged $3.2 billion, while tax-exempt loans averaged $0.3 billion in 2024. The loan portfolio continues to play the prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 83.1 percent in 2024, an increase from 81.0 percent in 2023.
For additional information, see Note 1 “Allowance for Credit Losses”. The ACL increased $19.9 million to $41.8 million at December 31, 2024, from $21.9 million at the end of 2023. During the twelve months ended December 31, 2024, net charge-offs were $1.1 million and the provision for credit losses totaled $19.1 million.
The ACL increased $19.9 million to $41.8 million at December 31, 2024, from $21.9 million at the end of 2023. During the year ended December 31, 2024, net charge-offs were $1.1 million and the provision for credit losses totaled $19.1 million.
Interest bearing deposits are comprised of 23.2 percent time deposits and 76.8 percent non-maturing deposits, compared with 23.8 percent time and 76.2 percent non-maturing at year end 2023.
Interest bearing deposits are comprised of 20.3 percent time deposits and 79.7 percent non-maturing deposits, compared with 23.2 percent time and 76.8 percent non-maturing at year end 2024.
We also utilize loans and investments in tax-exempt organizations to mitigate our tax burden, as interest revenue from these sources is not taxable by the federal government. The tax benefit of tax-exempt income was 3.3 percent of pre-tax income in 2023 and 3.1 percent in 2022.
We utilize loans and investments in tax-exempt organizations to mitigate our tax burden, as interest revenue from these sources is not taxable by the federal government. The tax benefit of tax-exempt income was 2.2 percent of pre-tax income in 2025 and 14.6 percent in 2024.
ACL The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit.
ACL The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost.
Amortization of intangible assets totaled $3.4 million in 2024 compared to $105 thousand and $363 thousand in 2023 and 2022, respectively. The increase was due primarily to amortization of the core deposit intangible created at the merger.
Acquisition related expenses totaled $16.2 million and $1.8 million in 2024 and 2023, respectively. -71- Table of Contents Amortization of intangible assets totaled $3.4 million in 2024 compared to $105 thousand and $363 thousand in 2023 and 2022, respectively. The increase was due primarily to amortization of the core deposit intangible created at the merger.
Additionally, our nonperforming assets as a percentage of total assets increased to 0.45 percent at December 31, 2024 from 0.13 percent at December 31, 2023, -49- Table of Contents and our nonperforming loans as a percentage of loans, net increased to 0.58 percent from 0.17 percent at December 31, 2023.
Nonperforming assets increased $18.1 million to $23.0 million at year-end 2024. Additionally, our nonperforming assets as a percentage of total assets increased to 0.45 percent at December 31, 2024, from 0.13 percent at December 31, 2023, and our nonperforming loans as a percentage of loans, net increased to 0.58 percent from 0.17 percent at December 31, 2023.
The current year includes an additional $14.3 million adjustment for non-PCD loans related to the merger with FNCB. In 2023, the Company transitioned to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), commonly referred to as CECL.
The current year includes an additional $14.3 million adjustment for non-PCD loans related to the merger with FNCB. In 2023, the Company transitioned to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), commonly referred to as CECL. The transition resulted in a decrease of $3.3 million to the ACL at adoption, and a net provision of $0.6 million.
Changes in economic conditions and interest rates affect these risks which influence loan demand, the composition of the loan portfolio and profitability of the lending function. Overall, total loans increased $119.8 million or 4.4 percent in 2023 to $2.8 billion at December 31, 2023.
Changes in economic conditions and interest rates affect these risks which influence loan demand, the composition of the loan portfolio and profitability of the lending function. Overall, total loans increased $73.4 million in 2025 to $4.1 billion at December 31, 2025, from $4.0 billion at December 31, 2024.
Management cannot ensure that charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be required, resulting in an adverse impact on operating results. The ACL increased $19.9 million to $41.8 million at December 31, 2024, from $21.9 million at the end of 2023.
Management cannot ensure that charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be required, resulting in an adverse impact on our financial condition and operating results. The ACL decreased $2.8 million to $39.0 million at December 31, 2025, from $41.8 million at the end of 2024.
At December 31, 2024, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 12.7 percent. Our net short-term noncore funding dependence ratio, noncore funds maturing within one year, less short-term investments to long-term assets equaled 6.6 percent.
At December 31, 2025, our net noncore funding dependence ratio, the difference between noncore -54- Table of Contents funds and short-term investments to long-term assets, was 11.2 percent. Our net short-term noncore funding dependence ratio, noncore funds maturing within one year, less short-term investments to long-term assets equaled 6.4 percent.
As a percentage of earning assets, average loans equaled 83.1 percent in 2024, an increase from 81.0 percent in 2023. -47- Table of Contents The tax-equivalent yield on our loan portfolio increased 81 basis points to 5.62 percent in 2024 from 4.81 percent in 2023 due to higher yields on new loan originations and loans assumed in the FNCB merger which included the impact of the accretion of purchase accounting marks.
The tax-equivalent yield on our loan portfolio increased 81 basis points to 5.62 percent in 2024 from 4.81 percent in 2023 due to higher yields on new loan originations and loans assumed in the FNCB merger which included the impact of the accretion of purchase accounting marks.
This type of funding is susceptible to withdrawal by the depositor as they are particularly price sensitive and are therefore not considered to be a strong source of liquidity.
This type of funding is susceptible to withdrawal by the depositor as they are particularly price sensitive and are therefore not considered to be a strong source of liquidity. Liquidity: We employ a number of analytical techniques in assessing the adequacy of our liquidity position.
Higher operating expenses of $38.9 million, including an increase of $14.4 million of acquisition related expenses, and an increased provision for credit losses of $18.6 million were partially offset by a $4.2 million increase in noninterest income.
Higher operating expenses of $38.9 million, including an increase of $14.4 million of acquisition related expenses, and an increased provision for credit losses of $18.6 million were partially offset by a $4.2 million increase in noninterest income. Net Interest Income : FTE net interest income, a non-GAAP measure, was $118.4 million in 2024 and $88.7 million in 2023.
Loans charged-off, net of recoveries equaled $2.9 million or 0.10 percent of average loans in 2023, compared to $0.5 million or 0.02 percent of average loans in 2022. Investment Portfolio: Investment securities decreased $85.1 million, to $483.9 million at December 31, 2023, from $569.0 million at December 31, 2022.
Loans charged-off, net of recoveries equaled $1.1 million or 0.03 percent of average loans in 2024, compared to $2.9 million or 0.10 percent of average loans in 2023. Investment Portfolio: Investment securities increased $123.0 million, to $606.9 million at December 31, 2024, from $483.9 million at December 31, 2023.
The ACL, as a percentage of loans, net of unearned income, was 0.77 percent at the end of 2023, 1.01 percent at the end of 2022, respectively. The coverage ratio, the ACL, as a percentage of nonperforming loans, is an industry ratio used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans.
The ACL, as a percentage of loans, net of unearned income, was 0.96 percent at December 31, 2025, and 1.05 percent at December 31, 2024. The coverage ratio, the ACL, as a percentage of nonperforming loans, is an industry ratio used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans.
The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the years ended 2024, 2023, and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands, except percents) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ended December 31 2024 ​ 2023 ​ 2022 ​ Efficiency ratio (non-GAAP): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense (GAAP) ​ $ 106,726 ​ ​ $ 67,820 ​ ​ $ 62,677 ​ Less: amortization of intangible assets expense ​ 3,367 ​ ​ 105 ​ ​ ​ 363 ​ Less: acquisition related expenses ​ ​ 16,200 ​ ​ ​ 1,816 ​ ​ ​ ​ ​ Noninterest expense adjusted (non-GAAP) ​ ​ 87,159 ​ ​ ​ 65,899 ​ ​ ​ 62,314 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ ​ 115,989 ​ ​ ​ 86,754 ​ ​ ​ 95,749 ​ Plus: taxable equivalent adjustment ​ ​ 2,367 ​ ​ ​ 1,917 ​ ​ ​ 1,901 ​ Noninterest income (GAAP) ​ ​ 18,336 ​ ​ ​ 14,133 ​ ​ ​ 11,845 ​ Less: net gains (losses) on equity securities ​ ​ 132 ​ ​ ​ (11) ​ ​ ​ (31) ​ Less: net gains (losses) on sale of available for sale securities ​ ​ 1 ​ ​ ​ 81 ​ ​ ​ (1,976) ​ Net interest income (FTE) plus noninterest income (non-GAAP) ​ $ 136,559 ​ ​ $ 102,734 ​ ​ $ 111,502 ​ Efficiency ratio (non-GAAP) ​ ​ 63.8 % ​ ​ 64.1 % ​ ​ 55.9 % ​ ​ Net Interest Income: Net interest income is the fundamental source of earnings for commercial banks.
The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the years ended 2025, 2024, and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands, except percents) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31 ​ ​ ​ 2025 ​ ​ ​ ​ ​ ​ 2024 ​ ​ 2023 ​ Efficiency ratio (non-GAAP): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense (GAAP) ​ $ 115,357 ​ ​ $ 106,726 ​ ​ $ 67,820 ​ Less: amortization of intangible assets expense ​ 6,397 ​ ​ 3,367 ​ ​ ​ 105 ​ Less: acquisition related expenses ​ ​ 236 ​ ​ ​ 16,200 ​ ​ ​ 1,816 ​ Noninterest expense adjusted (non-GAAP) ​ ​ 108,724 ​ ​ ​ 87,159 ​ ​ ​ 65,899 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ ​ 165,962 ​ ​ ​ 115,989 ​ ​ ​ 86,754 ​ Plus: taxable equivalent adjustment ​ ​ 2,763 ​ ​ ​ 2,367 ​ ​ ​ 1,917 ​ Noninterest income (GAAP) ​ ​ 21,727 ​ ​ ​ 18,336 ​ ​ ​ 14,133 ​ Less: net gains on equity securities ​ ​ 168 ​ ​ ​ 132 ​ ​ ​ (11) ​ Less: (Losses) gains on sale of available for sale securities ​ ​ (2,241) ​ ​ ​ ​ ​ ​ ​ ​ ​ Less: net gains on sale of fixed assets ​ ​ (74) ​ ​ ​ 1 ​ ​ ​ 81 ​ Net interest income (FTE) plus noninterest income (non-GAAP) ​ $ 192,599 ​ ​ $ 136,559 ​ ​ $ 102,734 ​ Efficiency ratio (non-GAAP) ​ ​ 56.5 % ​ ​ 63.8 % ​ ​ 64.1 % ​ ​ Net Interest Income: Net interest income is the fundamental source of earnings for commercial banks.
Review of Financial Performance: Net income for the twelve months ended December 31, 2023, totaled $27.4 million or $3.83 per diluted share, a 28.1 percent decrease when compared to $38.1 million or $5.28 per diluted share for the comparable period of 2022.
Review of Financial Performance: Net income for the twelve months ended December 31, 2024, totaled $8.5 million or $0.99 per diluted share compared to $27.4 million or $3.83 per diluted share for the comparable period of 2023.
Investment securities averaged $617.2 million and equaled 14.8 percent of average earning assets in 2024, compared to $559.3 million and 16.0 percent of average earning assets in 2023. The tax-equivalent yield on the investment portfolio increased 66 basis points to 2.43 percent in 2024 from 1.77 percent in 2023.
Investment securities averaged $641.3 million and equaled 13.6 percent of average earning assets in 2025, compared to $617.2 million and 14.8 percent of average earning assets in 2024. The tax-equivalent yield on the investment portfolio increased 72 basis points to 3.15 percent in 2025 from 2.43 percent in 2024.
We declared dividends of $2.06 per share in 2024, $1.64 per share in 2023, and $1.58 per share in 2022. The dividend payout ratio, dividends declared as a percent of net income, equaled 208.1 percent in 2024, 42.8 percent in 2023 and 29.9 percent in 2022.
We declared dividends of $2.47 per share in 2025, $2.06 per share in 2024, and $1.64 per share in 2023. The dividend payout ratio, dividends declared as a percentage of net income, equaled 41.6 percent in 2025, 212.9 percent in 2024 and 42.6 percent in 2023.
The tax-equivalent yield on earning assets was 5.14 percent in 2024 compared to 4.34 percent in 2023 resulting in an increase in interest income of $27.7 million. With the tax-equivalent yield on the investment portfolio increasing 66 basis points to 2.43 percent in 2024 from 1.77 percent in 2023, interest income increased $4.0 million.
With the tax-equivalent yield on the investment portfolio increasing 66 basis points to 2.43 percent in 2024 from 1.77 percent in 2023, interest income increased $4.0 million. The tax-equivalent yield on the loan portfolio increased 81 basis points to 5.62 percent in 2024 from 4.81 percent in 2023 and resulted in an increase to interest income of $24.7 million.
Brokered deposits in the amount of $256.5 million at December 31, 2024 and $261.0 million at December 31, 2023 are not included in time deposits more than $250,000. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2024 2023 Within three months ​ $ 70,276 ​ $ 23,740 ​ ​ After three months but within six months ​ 59,377 ​ 20,165 ​ ​ After six months but within twelve months ​ 42,404 ​ 64,582 ​ ​ After twelve months ​ 11,982 ​ 12,778 ​ ​ Total ​ $ 184,039 ​ $ 121,265 ​ ​ In addition to deposit gathering, we have a secondary source of liquidity through existing credit arrangements with the FHLB, FRB and other correspondents.
Brokered deposits in the amount of $152.2 million at December 31, 2025, and $256.5 million at December 31, 2024, are not included in time deposits more than $250,000. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ ​ ​ 2025 ​ ​ ​ 2024 ​ ​ ​ Within three months ​ $ 88,646 ​ $ 70,276 ​ ​ After three months but within six months ​ 101,852 ​ 59,377 ​ ​ After six months but within twelve months ​ 32,747 ​ 42,404 ​ ​ After twelve months ​ 6,704 ​ 11,982 ​ ​ Total ​ $ 229,949 ​ $ 184,039 ​ ​ In addition to deposit gathering, we have a secondary source of liquidity through existing credit arrangements with the FHLB, FRB and other correspondents.

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