EMYB 10-K & 10-Q changes, risk factors and insider trading

At December 31, 2024,2025, the Company maintained an available for sale securities portfolio of $280.8$341.9 million. The estimated fair value of the available for sale securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors. Shareholders' equity is increased or decreased by the amount of the change in the unrealized gain or loss (difference between the estimated fair value and the amortized cost) of the available for sale securities portfolio, net of the related tax expense or benefit, under the category of accumulated other comprehensive income (loss). During the year ended December 31, 2024,2025, we incurredgained other comprehensive lossesincome of $6.9$12.5 million related to net changes in unrealized holding losses in the available for sale investment securities portfolio. AAn increase in the estimated fair value of this portfolio would result in an increase in shareholders’ equity and an increase in book value per common share, while a decline in the estimated fair value of this portfolio would result in a decline in shareholders' equity,equity asand wella asdecrease in book value per common share. This decrease would occur even though the securities are not sold. The accumulated other comprehensive loss,loss does not impact the net income of the Company.

The majority of assets and liabilities of the Company are monetary in nature, and therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. The precise impact of inflation upon the Company is difficult to measure. Inflation may affect the purchasing activity and borrowing needs of consumers,consumers and businesses, thereby impacting the growth rate of the Company’s assets, as well as the expense paid on our deposits and borrowings. Inflation may also affect the general level of interest rates, which can have a direct bearing on the profitability of the Company.

Commercial business loans are typically affected by the borrowers' ability to repay the loans from the cash flows of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. The collateral securing the loans and leases often depreciates over time, is difficult to appraise and liquidateliquidate, and fluctuates in value based on the success of the business. If interest rates rise, the borrower's debt service requirement may increase, negatively impacting the borrower's ability to service their debt.

The FASB issued an accounting standard on the allowance for credit losses (“ACL”), which became effective for us beginning on January 1, 2023. This standard, referred to as CECL, requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. The allowance, in the judgment of management, is necessary to reserve for estimated credit losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; forecasts; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political, and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem credits and other factors, both within and outside of our control, may require an increase in the allowance. In addition, bank regulatory agencies periodically review our allowance for possible credit losses and may require an increase in the provision for possible credit losses or the recognition of further loan charge-offs, based on information unavailable to, or judgments different than those of, management. In addition, if charge-offs in future periods exceed the allowance, we may need additional provisions to increase the allowance for possible credit losses. Any increases in the allowance resulting from credit loss provisions will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our financial condition and results of operations.

Liquidity is essential to the Company’s business. The Company relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is its deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments. Further, the demand for deposits may be reduced due to a variety of factors such as negative trends in the banking sector, the level of and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers' disposable income, the monetary policy of the Federal Reserve Bank (“FRB”) or regulatory actions that decrease customer access to particular products. If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity. Other primary sources of funds consist of cash flows from operations, maturities of investment securities and/or loans and borrowings from the Federal Home Loan Bank (“ FHLB”) and/or FRB discount window. The Company also may borrow funds from third-party lenders, such as other financial institutions. The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company or the financial sector in general. Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on loans. While we have identified those accounting policies that are considered critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these standards could result in a decrease to net income and, possibly, capital and may have a material adverse effect on our financial condition and results of operations. From time to time, the Financial Accounting Standards Board (“FASB”) and the SEC issues changes to or updated interpretations of the financial accounting and reporting guidance that governs the preparation of our financial statements. These changes are beyond our control, can be difficult to predict, and could materially impact how we report our financial condition and results of operations. We could be required to apply new or revised guidance retrospectively, which may result in the revision of prior financial statements by material amounts. The implementation of new or revised guidance could also result in material adverse effects to our reported capital.

The Company’s assets increased by $47.9$96.2 million from $1.66 billion at December 31, 2023 to $1.70 billion at December 31, 2024.2024 to $1.80 billion at December 31, 2025. The increase was due to a $17.6$16.3 million increase in cash and cash equivalents, an increase of $14.7$61.1 million in securities available for sale, an increase of $22.9 million in net loans receivable, and an increase of $10.3$1.3 million in bank owned life insurance, offset by a decrease of $4.8$5.2 million in securitiesother available for sale.assets. The $17.6$16.3 million increase in cash and cash equivalents was due to an increase in deposits of $76.8$87.3 million, $31.6$64.7 million in principal pay downs on mortgage-backed securities and maturities within the securities available for sale portfolio, offsetan by a decreaseincrease in securities sold under agreement to repurchase of $10.3$5.0 million, offset by a decrease in short term borrowings of $19.4$15.6 million, the net loan growth of $14.7$22.9 million, and the purchase of $44.3$108.9 million in securities available for sale,sale. andThe the purchase of $9.0$61.1 million of bank owned life insurance policies in the first quarter of 2024. The $4.8 million decreaseincrease in securities available for sale was net of ana increasedecrease in unrealized losses of $8.8$15.9 million. The current unrealized loss position of the securities portfolio is due to the increase in market interest rates in response to economic conditions since purchase and not due to the credit quality of the investment portfolio.

Net loans receivable increased by $14.7$22.9 million to $1.28 billion at December 31, 2025, as compared to $1.26 billion at December 31, 2024, as compared to $1.24 billion at December 31, 2023.2024. The market continues to be very competitive and the Company is committed to maintaining a high-quality portfolio that returns a reasonable market rate. While the past and current economic and competitive conditions in the marketplace have created more competition for loans to creditworthy customers,customers theand less demand for commercial real estate financing or refinancing. The Company continues to expand its market presence and pipeline, and continues to focus on developing a reputation as being a market leader in both commercial and consumer/mortgage lending. Management believes that this combination of relationship building, cross marketing and responsible underwriting will translate into continued long-term growth of a portfolio of quality loans and core deposit relationships. The Company continues to monitor the interest rate exposure of its interest-bearing assets and liabilities. See the expanded discussion under the Financial Condition: Loans section below.

The Company’s net income decreasedincreased $2.2$3.3 million, or 17.5%,31.2%, to $13.7 million in 2025 from $10.4 million in 2024 from $12.7 million in 2023.2024. Basic and diluted earnings per share decreasedincreased to $1.79 in 2025, as compared to $1.37 in 2024, as compared to $1.67 in 2023.2024. The difference in net income for the year ended December 31, 20242025 and December 31, 20232024 resulted primarily from an increase in interest expense of $10.7 million, or 58.9%, due to the rate environment,income and an increase in non-interest expenses;income, offset, to a lesser degree,offset by an increase in interest income,expense, an increase in non-interest income,expenses, and aan increase in the creditprovision for credit losses.

Subsequent to the December 31, 20242025 balance sheet date, in January 2025,2026 the Company purchased nine (9) Treasury bonds and one (1) government agency bond totaling $33.7 million, in February 2025 the Company purchased six (6) Treasury bonds and two (2) government agency bonds and one (1) mortgage-backed security totaling $17.9$7.5 million,million and in MarchFebruary 20252026 the Company purchased two (2) Treasury bonds and one (21) governmentmortgage-backed agency bondssecurity totaling $14.8$7.0 million.. Also subsequent to year end, in January 2025 the Company paid off the FHLB short-term borrowings of $15.6 million, as described in Note 8.million.

Total interest income for the year ended December 31, 20242025 increased $7.8$6.5 million to $65.0$71.5 million, as compared to $57.2$65.0 million for the year ended December 31, 2023.2024. Average earning assets were $1.68 billion for the year ended December 31, 2025, as compared to $1.60 billion for the year ended December 31, 2024, as compared to $1.56 billion for the year ended December 31, 2023.2024. The tax equivalent yield on average earning assets was 4.28%, or an increase of 19 basis points, for the year ended December 31, 2025, compared to 4.09% for the year ended December 31, 2024, compared to 3.69% for the year ended December 31, 2023.2024.

Total interest expense for the year ended December 31, 20242025 increased $10.7$251 millionthousand to $28.8$29.0 million, as compared to $18.1$28.8 million for the year ended December 31, 2023.2024. Average interest bearing liabilities were $1.27 billion for the year ended December 31, 2025, as compared to $1.20 billion for the year ended December 31, 2024, as compared to $1.17 billion for the year ended December 31, 2023.2024. The yield on average interest bearing liabilities was 2.39%2.29%, andor 1.55%a decrease of 10 basis points, for the yearsyear ended December 31, 20242025, andcompared to 2.39% for the year ended December 31, 2023, respectively.2024. The Company’s overall cost of funds for the yearsyear ended December 31, 20242025 anddecreased 2023to was1.80% from 1.87% andfor 1.20%,the respectively.year ended December 31, 2024.

For the fourth quarter of 2024,2025, the Company’s overall cost of funds decreased to 1.91%1.75% from 1.98%1.81% for the third quarter of 2024, respectively.2025.

For additional information on ASC Topic 326, see Note 1 “Summary of Significant Accounting Policies.”.

For the year ended December 31, 2024,2025, the creditprovision for credit losses was $525$25 thousand, compared to the credit for credit losses of $178$525 thousand for the year ended December 31, 2023.2024. In the year ended December 31, 2024,2025, there were $152 thousand in charge-offs and no recoveries, compared to $11 thousand in charge-offs and $241 thousand in recoveries, compared to no charge-offs and $2 thousand in recoveries for the year ended December 31, 2023.2024. The provision (credit) provision for credit losses is a function of the allowance for credit loss methodology that the Company uses to determine the appropriate level of the allowance for inherent credit losses after net charge-offs have been deducted. See the discussion below under “Credit Risk and Loan Quality” regarding the Company’s considerations of its December 31, 20242025 allowance for credit loss levels. The allowance for credit losses is $12.2$12.0 million as of December 31, 2024,2025, which is 0.96%0.93% of total loans receivable, compared to $12.5$12.2 million or 0.99%0.96% of total loans receivable as of December 31, 2023.2024. Based principally on loan growth, economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Company’s market area, the allowance is believed to be adequate to absorb any losses expected in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Company has not participated in any sub-prime lending activity.

Total non-interest income was $3.2$3.3 million for the year ended December 31, 2024,2025, compared to $2.6$3.2 million for the same period in 2023.2024. The increase is, in part, attributable to an increase in bank owned life insurance of $576 thousand primarily due to the purchase of $9.0 million of new bank owned life insurance policies and the conversion of $2.0 million in previous BOLI policies to higher yielding BOLI products through a 1035 exchange transaction in the first quarter of 2024. Also, contributing to the increase in non-interest income is an increase of $15$19 thousand in debit card interchange feesfees, an increase of $10 thousand in bank owned life insurance, an increase of $29 thousand from the gain on the sale of other real estate owned, and an increase of $4 thousand in other service fees of $82 thousand primarily due to overdraft fees, wire fees, and certificate of deposit penalty fees. Offsetting this increase is a decrease in merchant and credit card processing fees of $39$66 thousand.

Non-interest expenses for the year ended December 31, 20242025 was $27.3$29.0 million, compared to $26.4$27.3 million for the year ended December 31, 2023.2024. The increase in non-interest expenses is, in part, attributable to a $474$857 thousand increase in salaries and employee benefits due to annual increases in salaries and benefits, incentives and bonuses, employee taxes, and health insurance cost, offset by an increase in deferred loan costs, a decrease in stock grant expense, and a decrease in non-qualified pension expense. Additional increases in non-interest expenses are attributable to an increase of $244$91 thousand in occupancy and equipment expenses due in part to an increase in rent expense, building maintenance, and utility expenses, and in depreciation expense, as well as an increase of $25$629 thousand in professionaldata fees,processing expenses due, in part, to the implementation of a new content management software and general ledger system and an increase in maintenance contracts, an increase of $33 thousand in FDIC insurance, an increase of $29$59 thousand in loan and real estate expenses, an increase of $51 thousand in charitable contributions, and an increase of $165$71 thousand in other expenses. The increase in other expenses was due, in part, to increases in bank shares tax, cash over and short, shareholder relations, and other operating expenses, offset by decreases in dispute and fraud losses on debit cards, wire fraud losses, check fraud losses, debit card production, and customer check printing. These increases in non-interest expenses were offset, in part, by a $58$81 thousand decrease in advertising and promotion expenses. The Company’s efficiency ratio wasimproved to 63.4% from 69.3% and 63.3% for the yearyears ending December 31, 20242025 and 2023,2024, respectively.

The provision for income taxes was $2.1$2.9 million and $2.8$2.1 million for December 31, 20242025 and December 31, 2023.2024, respectively. The effective rate on income taxes for the years ended December 31, 20242025 and 20232024 was 16.5%17.5% and 18.1%,16.5%, respectively. The decreaseincrease in the tax rate is, in part, the result of an increase in income on bank owned life insurance and the result of the change in the mix of taxable and tax free loans and investments.investments; offset by a slight increase in income on bank owned life insurance.

The Company’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Company intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is generally structured to provide maximum return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of mortgage-backed securities issued by FHLMC or FNMA, taxable and non-taxable municipal bonds, government agency bonds, and Treasury bonds. The Company holds no high-risk or direct internationally exposed securities or derivatives as of December 31, 2024.2025. The Company has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans. The current liquidity of the portfolio has been impacted by the increase in market interest rates.rates during 2022 and 2023. Selling of securities would not be expected as a primary source of short term liquidity given the unrealized losses currently in the portfolio.

The Company’s securities portfolio was $341.9 million at December 31, 2025, a $61.1 million increase from securities of $280.8 million at December 31, 2024, a $4.8 million decrease from securities of $276.1 million at December 31, 2023.2024. The decreaseincrease in the investment portfolio resulted from the purchase of twenty-five (25) Treasury bonds, seven (7) government agency bonds, and seven (7) mortgage-backed securities totaling $108.9 million and a decrease in unrealized losses of $15.9 million, offset by principal pay downs on mortgage-backed securities, the maturity of one (1) non-taxable municipal bond, the maturity of three (3) Treasurygovernment agency bonds, and the maturity of oneten (1) government agency bonds totaling $31.6 million, as well as an increase in unrealized losses of $8.8 million, offset by the purchase of seven (710) Treasury bonds and three (3) government agency bonds totaling $44.3$64.7 million. The carrying value of the securities portfolio as of December 31, 20242025 includes a net unrealized loss of $64.1$48.2 million, which is recorded as accumulated other comprehensive loss in stockholders’ equity net of income tax effect. This compares to a net unrealized loss of $55.3$64.1 million at December 31, 2023.2024. The current unrealized loss position of the securities portfolio is due to increasing market interest rates in 2022 through 2023 in response to economic conditions since initial purchase. Management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell securities in an unrealized loss position at December 31, 2024.2025. Further, management reviewed the Company's securities as of December 31, 20242025 and concluded there were no credit-related declines in fair value. The effective duration of the securities portfolio is approximately 5 to 6 years at December 31, 2024.2025. The Company remains focused on strategically assessing and managing the portfolio to address the unrealized losses.

The Company’s allowance for credit losses decreased slightly to $12.0 million at December 31, 2025 from $12.2 million at December 31, 2024 from $12.5 million at December 31, 2023.2024. At December 31, 20242025 and December 31, 2023,2024, the allowance for credit losses represented 0.96%0.93% and 0.99%0.96% of total loans receivable, respectively. The Company’s non-performing loans to total loans receivable were 0.04% at December 31, 2024, compared to 0.03% atboth December 31, 2023.2025 and December 31, 2024. At December 31, 2024,2025, approximately 95%97% of the Company’s loan portfolio is collateralized by real estate.

The aggregate balances on non-performing loans are included in the following table. At December 31, 2025, the Company had no foreclosed assets and no recorded investments in mortgage loans collateralized by residential real estate property in the process of foreclosure. At December 31, 2024, the Company had no foreclosed assets and had two (2) recorded investments in mortgage loans collateralized by residential real estate property in the process of foreclosure in the amount of $216 thousand. At December 31, 2023, the Company had no foreclosed assets and had one (1) recorded investment in a mortgage loan collateralized by residential real estate property in the process of foreclosure in the amount of $121 thousand.

In the year ended December 31, 2024,2025, there were $152 thousand in charge-offs and no recoveries, compared to $11 thousand in charge-offs and $241 thousand in recoveries, compared to no charge-offs and $2 thousand in recoveries for the year ended December 31, 2023.2024.

Our loan portfolio includes a large amount of commercial real estate loans. Management believes the commercial real estate loan portfolio is well-diversified. At December 31, 20242025 and 2023,2024, high volatility commercial real estate exposures were $11.0$3.5 million and $7.4$11.0 million, respectively. Commercial real estate loans are originated primarily within Lehigh and Northampton counties, are within the Company’s underwriting criteria, and generally include the guarantee of one or more of the borrowers’ affiliates. At December 31, 2024,2025, the Company’s office space portfolio included no exposure to properties in major metropolitan markets. Commercial real estate loans have drawn the attention of the regulators in recent years as a potential source of risk. The Company monitors these types of loans closely, obtaining updated appraisals on loans when required. As detailed in the Allowance for Credit Losses table, the Company had $136 thousand and no charge-offs in this category in 20242025 or 2023.2024, respectively. The Company believes it has taken the appropriate steps to implement appropriate risk management practices for its commercial real estate loan portfolio, which are subject to regulatory examination.

The Company adopted the ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326)” (“CECL”) on January 1, 2023. The cumulative effect from the adoption of CECL was a $188 thousand increase to the allowance for credit losses. Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of the Company and comparable institutions in the Company’s market area, management feels, as of December 31, 2024,2025, the allowance is adequate to absorb reasonably anticipated losses. The Company will continue to evaluate the allowance for credit losses as new information becomes available.

Total deposits at December 31, 20242025 were $1.55$1.64 billion, an increase of $76.8$87.3 million, or 5.2%,5.6%, from total deposits of $1.48$1.55 billion as of December 31, 2023.2024. The increase in the Company’s deposits was due to an increase of $22.7$5.8 million in non-interest bearing demand, an increase of $18.4$10.5 million in interest bearing demand, NOW and money market deposits, an increase of $5.8 million in savings deposits, and a $84.7$65.2 million increase in time deposits; offset by a decrease of $49.0 million in savings deposits. The shiftincrease from savings toin time deposits is primarily due to higher yielding rates on time deposits,rates, due to the competitive pressure and current rate environment. Included in the above mentioned increase was aan $39.3$8.9 million increase in non-interest bearing demand business deposits, offset by a $16.6$3.0 million decrease in non-interest bearing demand personal deposits. Included in total deposits at December 31, 2025 were personal deposits of $1.15 billion, business deposits of $397.1 million, and municipal deposits of $95.7 million. Included in total deposits at December 31, 2024 were personal deposits of $1.11 billion, business deposits of $351.9 million, and municipal deposits of $93.4 million. Included in total deposits at December 31, 2023 were personal deposits of $1.09 billion, business deposits of $293.6 million, and municipal deposits of $89.5 million. The estimated amount of uninsured assessable deposits, including related interest accrued and unpaid, at December 31, 20242025 and December 31, 20232024 was $514.1$554.9 million and $464.3$514.1 million, respectively.

At December 31, 2024,2025, the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $686.2$711.4 million, of which $670.4$711.2 million is available for borrowing at December 31, 20242025 due to an outstanding short-term FHLB advance of $15.6 million with an interest rate of 4.711% which matured and was repaid on January 2, 2025, as well as an outstanding letter of credit in amount of $160 thousand. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. There were no FHLB short-term or long term FHLB advances outstanding as of December 31, 2024.2025. There were $35.0$15.6 million short-term FHLB advances outstanding and no long-term FHLB advances outstanding as of December 31, 2023.2024. All FHLB borrowings are secured by qualifying assets of the Bank.

Total stockholders’ equity was $106.5$127.6 million as of December 31, 2024,2025, representing a net increase of $825$21.1 thousandmillion from December 31, 2023.2024. The increase in capital was the result of net income of $10.4$13.7 million, an increase in common stock of $35$30 thousand, and an increase in surplus of $556$421 thousand due to stock grants with compensation expense and employee stock purchases, offsetand bya an increasedecrease of $6.9$12.5 million in accumulated other comprehensive loss, offset by dividends paid of $3.2$3.7 million,million and treasury stock purchases of $72$1.9 thousand.million. The accumulated other comprehensive losses are excluded from both the Bank’s and the Company’s Tier 1 regulatory capital calculations.

This discussion and analysis provides an overview of the financial condition and results of operations of Embassy Bancorp, Inc. (the “Company”) as of MarchJune 31,30, 2026 and for the three and six months ended MarchJune 31,30, 2026 and 2025, respectively. This discussion should be read in conjunction with the preceding consolidated financial statements and related footnotes, as well as with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2025 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2026. Current performance does not guarantee and may not be indicative of similar performance in the future.

At MarchJune 31,30, 2026, the Company continued to be in a strong financial and operational condition. The Bank’s MarchJune 31,30, 2026 capital ratios exceeded the amounts required to be considered “well capitalized” as defined in applicable banking regulations. The Company’s ratio of non-performing loans to total loans at MarchJune 31,30, 2026 was 0.04%0.05% and the ratio of non-performing assets to total assets was 0.03%.0.04%. The Company had its most recent Community Reinvestment Act (“CRA”) examination in 2025 and received a “satisfactory” rating.

The Company’s assets increased by $41.4$58.5 million from $1.80 billion at December 31, 2025 to $1.84$1.86 billion at MarchJune 31,30, 2026. The increase was due to an increase of $29.0$20.1 million in cash and cash equivalents, an increase of $7.7$6.0 million in securities available for sale, and an increase of $4.6$28.7 million in net loans receivable. The $29.0$20.1 million increase in cash and cash equivalents was due to an increase in deposits of $41.6$53.4 million, an increase in securities sold under agreement to repurchase of $2.8 million, $21.9$33.0 million in principal pay downs on mortgage-backed securities, calls, and maturities within the securities available for sale portfolio, offset by the net loan growth of $4.6$28.7 million andmillion, the purchase of $34.3$39.3 million in securities available for sale.sale, and a decrease in securities sold under agreement to repurchase of $2.1 million. The $7.7$6.0 million increase in securities was net of an increase in unrealized losses of $4.9$695 million.thousand. The current unrealized loss position of the securities portfolio is due to the increase in market interest rates in response to economic conditions since purchase and not due to the credit quality of the investment portfolio.

The Company's deposits increased by $41.6$53.4 million from $1.64 billion at December 31, 2025 to $1.68$1.69 billion at MarchJune 31,30, 2026. The increase in deposits was due to an increase of $28.8$46.0 million in interestnon-interest bearing deposits and an increase of $12.7$7.4 million in non-interestinterest bearing deposits. The Company continues to seek deposits using a highly effective relationship building, sales and marketing effort, which serves to further increase the Company’s overall presence in the market it serves, along with deposit relationships developed as a result of cross-marketing efforts to its loan and other non-depository banking service customers. The Company’s success in attracting new deposit relationships is, in part, due to the increased usage of the Company’s online banking platform, competitively offered rates, and the continued convenience and efficiency of our branch network and branch personnel. The Company continues to take advantage of deposit opportunities created by mergers, name changes, competitive branch hour and service adjustments and/or branch closures in the Company’s market area, and by attracting new customers looking to relocate to a local, reputable community bank.

Net loans receivable remainedincreased relativelyby flat$28.7 atmillion from $1.28 billion at March 31, 2026 and December 31, 2025,2025 reflectingto an$1.31 actualbillion increaseat ofJune $4.630, million.2026. The market continues to be very competitive and the Company is committed to maintaining a high-quality portfolio that returns a reasonable market rate. While the past and current economic and competitive conditions in the marketplace have created more competition for loans to creditworthy customers, the Company continues to expand its market presence and pipeline, and continues to focus on developing a reputation as being a market leader in both commercial and consumer/mortgage lending. Management believes that this combination of relationship building, cross marketing and responsible underwriting will translate into continued long-term growth of a portfolio of quality loans and core deposit relationships. The Company continues to monitor the interest rate exposure of its interest-bearing assets and liabilities. See the expanded discussion under the Financial Condition: Loans section below.

Net income for the three months ended MarchJune 31,30, 2026 was $3.7$4.1 million, compared to net income for the three months ended MarchJune 31,30, 2025 of $2.9$3.4 million, an increase of $852$686 thousand, or 29.5%.20.0%. Basic and diluted earnings per share increased to $0.50$0.56 for the three months ended MarchJune 31,30, 2026, as compared to $0.38$0.45 for the three months ended MarchJune 31,30, 2025. The difference in net income for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 resulted primarily from an increase in interest income of $1.6$1.5 million, a decrease in interest expense of $47$164 thousand, a decrease of $27 thousand in the provision for credit losses, and an increase of $87$119 thousand in non-interest income, offset by an increase of $657$378 thousand in non-interest expenses.expenses and an increase of $562 thousand in the provision for credit losses.

Total interest income for the three months ended MarchJune 31,30, 2026 increased $1.6$1.5 million to $18.5$19.2 million, as compared to $16.9$17.7 million for the three months ended MarchJune 31,30, 2025. Average earning assets were $1.74$1.77 billion for the three months ended MarchJune 31,30, 20262026, as compared to $1.64$1.68 billion for the three months ended MarchJune 31,30, 2025. The tax equivalent yield on average earning assets was 4.34%4.39% for the firstsecond quarter of 2026 compared to 4.21%4.27% for the firstsecond quarter of 2025.

Total interest expense remainedfor relativelythe flatthree atmonths ended June 30, 2026 decreased $164 thousand to $7.1 million, as compared to $7.3 million for the three months ended MarchJune 31,30, 2026 and March 31, 2025, reflecting an actual decrease of $47 thousand.2025. Average interest bearing liabilities were $1.30$1.32 billion for the three months ended MarchJune 31,30, 2026 and $1.23$1.27 billion for the three months ended MarchJune 31,30, 2025. The yield on average interest bearing liabilities was 2.20%2.18% and 2.34%2.31% for the firstsecond quarter of 2026 and 2025, respectively. Over the past year the Company has experienced a consistent decrease in the cost of funds with reductions observed in each successive quarter. This downward trend reflects more favorable market conditions and strategic financial management. The Company’s cost of funds was 1.73%,1.69%, 1.75%, and 1.82% for the three months ended MarchJune 31,30, 2026, December 31, 2025, and MarchJune 31,30, 2025, respectively.

Net interest income for the three months ended MarchJune 31,30, 2026 was $11.4$12.1 million, compared to $9.8$10.4 million for the three months ended MarchJune 31,30, 2025. The increase in net interest income is, in part, the result of an increase in the average balances of taxable loans, an increase in the average balances of taxable and non-taxable investments, and an increase in the average balances of interest bearing deposits with banks, along with an increase in the rates of taxable and non-taxable loans and taxable investments. Also contributing to the increase in net interest income was a decrease in the average balance of savings accounts, along with a decrease in the rates of interest bearing demand deposits, NOW and money markets, savings, certificates of deposits, and securities sold under agreement to repurchase and other borrowings.repurchase. The increase in net interest income was offset by a decrease in the average balance of non-taxable loans, an increase in the average balance of interest bearing demand deposits, NOW and money markets, an increase in the average balance of certificates of deposit, and an increase in the average balance of securities sold under agreement to repurchase, along with a decrease in the rate of non-taxable investments, fed funds sold, and interest bearing deposits with banks. The Company’s net interest margin is 2.66%2.74% on a US GAAP basis and 2.70%2.77% on a tax equivalent (non-US GAAP) basis for the three months ended MarchJune 31,30, 2026, as compared to 2.43%2.50% on a US GAAP basis and 2.46%2.52% on a tax equivalent (non-US GAAP) basis for the three months ended MarchJune 31,30, 2025.

The tables below set forth average balances and corresponding yields for the corresponding periods ended MarchJune 31,30, 2026 and 2025, respectively:

(1)Yields on tax exempt assets have been calculated on a fully tax equivalent basis at a tax rate of 21% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

(3)Non-US GAAP net interest spread and net interest margin are calculated on a fully tax equivalent basis at a tax rate of 21% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

For the three months ended MarchJune 31,30, 2026, the provision for credit losses on loans was $63$375 thousand and the creditprovision for credit losses on unused commitments was $43$9 thousand, compared to provisioncredit for credit losses on loans of $56$165 thousand and the credit for credit losses on unused commitments of $9$13 thousand for the three months ended MarchJune 31,30, 2025. In the three months ended MarchJune 31,30, 2026 there were charge-offs of $6$15 thousand and no recoveries. In the three months ended MarchJune 31,30, 2025 there were nocharge-offs charge-offsof $152 thousand and no recoveries.

The provision for credit losses is a function of the allowance for credit loss methodology that the Company uses to determine the appropriate level of the allowance for inherent credit losses after net charge-offs have been deducted. See the discussion below under “Credit Risk and Loan Quality” regarding the Company’s considerations of its MarchJune 31,30, 2026 allowance for credit loss levels. The allowance for credit losses is $12.1$12.5 million as of MarchJune 31,30, 2026, which is 0.93%0.94% of total loans receivable, compared to $12.2$11.9 million or 0.96%0.93% of total loans receivable as of MarchJune 31,30, 2025. At December 31, 2025, the allowance for credit losses was $12.0 million, which represented 0.93% of total loans receivable. Based principally on loan growth, economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Company’s market area, the allowance is believed to be adequate to absorb any losses expected in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Company has not participated in any sub-prime lending activity.

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded commitments at a level that management believes is adequate to absorb probable losses. At MarchJune 31,30, 2026 and December 31, 2025, a $133$142 thousand and $176 thousand unfunded commitment reserve was reported, respectively, on the Consolidated Balance Sheets in other liabilities.

Total non-interest income was $716$1.1 thousandmillion for the three months ended MarchJune 31,30, 2026, compared to $629$936 thousand for the same period in 2025. The increase is, in part, attributable to an increase in bank owned life insurance of $37$32 thousand, an increase of $18$26 thousand in debit card interchange fees, and an increase in other service fees of $34$49 thousand primarily due to an increase in overdraft fees and certificate of deposit penaltywire fees.

Non-interest expenses increased $657$378 thousand from $6.9$7.4 million for the three months ended MarchJune 31,30, 2025 to $7.6$7.8 million for the three months ended MarchJune 31,30, 2026. The increase in non-interest expenses is, in part, attributable to a $277 thousand increase in salaries and employee benefits due to annual increases in salaries and bonuses, an increase in employer payroll taxes, an increase in contributions to retirement plans, and an increase in health insurance cost, offset by a decrease in stock grant expense and a decrease in non-qualified pension expense. Additional increases in non-interest expenses are attributable to an increase of $54$86 thousand in occupancy and equipment expenses in part due to an increase in rent, occupancy, utilities, and software depreciation, an increase of $219$83 thousand in data processing expenses due, in part,due to the implementation of a new content management software, costs associated with a new general ledger system, an increase in ATM network fees,support costs and an increase in maintenance contracts, an increase of $29$75 thousand in advertising and promotion expenses, an increase of $19$47 thousand in professional fees, an increase of $27 thousand in charitable contributions, and an increase of $74$51 thousand in other expenses primarily due to increases in operating expenses andexpenses, bank shares tax, offset by a decrease of $19 thousand in loan and realshareholder estate expense.relations. The Company’s efficiency ratio, a non-GAAP measure, was 62.2%59.1% and 66.0%65.2% for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

The provision for income taxes for the three months ended MarchJune 31,30, 2026 totaled $839$869 thousand, or 18.3%17.4% of income before taxes, compared to income taxes for the three months ended MarchJune 31,30, 2025 totaling $621$691 thousand, or 17.7%16.7% of income before taxes. The increase in the tax rate is, in part, the result of the change in the mix of taxable and tax free loans and investments, offset by an increase in income on bank owned life insurance.

The Company’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Company intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is structured to provide a return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of mortgage-backed securities issued by FHLMC or FNMA, taxable and non-taxable municipal bonds, government agency bonds, and Treasury bonds. The Company holds no high-risk or direct internationally exposed securities or derivatives as of MarchJune 31,30, 2026. The Company has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans. The current liquidity of the portfolio has been impacted by the increase in longer-term market interest rates over the prior quarter. Selling of securities would not be expected as a primary source of short term liquidity given the unrealized losses currently in the portfolio.

Total securities at MarchJune 31,30, 2026 were $349.6$347.9 million compared to $341.9 million at December 31, 2025. The increase in the investment portfolio resulted from the purchase of four (4) Treasury bonds, fourfive (45) government agency bonds, and fourfive (45) mortgage-backed securities totaling $34.3$39.3 million, offset by principal pay downs on mortgage-backed securities, the call of two (2) government agency bonds, the maturity of foursix (46) Treasury bonds, the maturity of three (3) mortgage-backed securities, and the maturity of one (1) mortgage-backedgovernment securityagency bond totaling $21.9$33.0 million, and an increase in unrealized losses of $4.9$695 million.thousand. The carrying value of the securities portfolio as of MarchJune 31,30, 2026 includes a net unrealized loss of $53.2$48.9 million, which is recorded as accumulated other comprehensive loss in stockholders’ equity net of income tax effect. This compares to a net unrealized loss of $48.2 million at December 31, 2025. The current unrealized loss position of the securities portfolio is due to increasing market interest rates during 2022 through 2023 in response to economic conditions since initial purchase. Management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, securities in an unrealized loss position at MarchJune 31,30, 2026. Further, management reviewed the Company's securities as of MarchJune 31,30, 2026 and concluded there were no credit-related declines in fair value. The effective duration of the securities portfolio is approximately 5 to 6 years at MarchJune 31,30, 2026. The Company remains focused on strategically assessing and managing the portfolio to address the unrealized losses, while remaining opportunistic in executing sales that preserve earnings and minimizing realized losses.

The loan portfolio comprises a major component of the Company’s earning assets. All of the Company’s loans are to domestic borrowers. Net loans receivable remainedwere relatively$1.31 flatbillion at June 30, 2026 and $1.28 billion at March 31, 2026 and December 31, 2025, reflectingrepresenting an actual increase of $4.6$28.7 million. The gross loan-to-deposit ratio decreased to 77%78% at MarchJune 31,30, 2026, compared to 79% at December 31, 2025. The Company’s loan portfolio at MarchJune 31,30, 2026 was comprised of residential real estate and consumer loans of $691.3$712.3 million, an increase of $3.0$24.0 million from December 31, 2025, and commercial loans of $603.6$607.0 million, an increase of $1.6$5.1 million from December 31, 2025. The Company has not originated, nor does it intend to originate, sub-prime mortgage loans.

The Company’s allowance for credit losses was $12.1$12.5 million and $12.0 million at MarchJune 31,30, 2026 and December 31, 2025, respectively, an increase of $57$417 thousand. At MarchJune 31,30, 2026 and December 31, 2025, the allowance for credit losses represented 0.93%0.94% and 0.93%, respectively, of total loans receivable. The Company’s non-performing loans to total loans receivable were 0.05% at June 30, 2026, compared to 0.04% at MarchJune 31,30, 2026, March 31, 2025,2025 and December 31, 2025. In the three months ended MarchJune 31,30, 2026 there were charge-offs of $6$15 thousand and no recoveries. In the three months ended MarchJune 31,30, 2025 there were charge-offs of $152 thousand and no recoveries. In the six months ended June 30, 2026 there were charge-offs of $21 thousand and no recoveries. In the six months ended June 30, 2025 there were charge-offs of $152 thousand and no recoveries. The aggregate balances of non-performing loans are included in the following table.

At MarchJune 31,30, 2026, approximately 97% of the Company’s loan portfolio is collateralized by real estate. Our loan portfolio includes a large amount of commercial real estate loans. Management believes the commercial real estate loan portfolio is well-diversified. At MarchJune 31,30, 2026 and December 31, 2025, high volatility commercial real estate exposures were $8.4$10.1 million and $3.5 million, respectively. Commercial real estate loans are originated primarily within Lehigh and Northampton counties, are within the Company’s underwriting criteria, and generally include the guarantee of one or more of the borrowers’ affiliates. At MarchJune 31,30, 2026, the Company’s office space portfolio included no exposure to properties in major metropolitan markets. Commercial real estate loans have drawn the attention of the regulators in recent years as a potential source of risk. The Company monitors these types of loans closely, obtaining updated appraisals on loans when required. As detailed in the Allowance for Credit Losses table, the Company had no charge-offs in this category in 2026. During the year ended December 31, 2025, the Company had $136 thousand in commercial real estate charge-offs. The Company believes it has taken the appropriate steps to implement appropriate risk management practices for its commercial real estate loan portfolio, which are subject to regulatory examination.

Company premises and equipment, net of accumulated depreciation, decreased $94$136 thousand from December 31, 2025 to MarchJune 31,30, 2026. This decrease is primarily due to depreciation on existing premises and equipment, offset by new purchases.

Total deposits at MarchJune 31,30, 2026 increased by $41.6$53.4 million to $1.68$1.69 billion from $1.64 billion at December 31, 2025. The increase in the Company’s deposits was due to an increase of $24.7$54.0 million in demand, NOW and money market deposits, an increase of $867 thousand in savings,deposits and an increase of $16.0$7.1 million in time deposits.deposits, offset by a decrease of $7.7 million in savings. Included in the above mentioned increase was a $12.1$39.1 million increase in non-interest bearing demand business deposits and a $626$6.9 thousandmillion increase in non-interest bearing demand personal deposits. Included in total deposits at MarchJune 31,30, 2026 were personal deposits of $1.15$1.14 billion, business deposits of $425.8$443.9 million, and municipal deposits of $110.6$108.5 million. Included in total deposits at December 31, 2025 were personal deposits of $1.15 billion, business deposits of $397.1 million, and municipal deposits of $95.7 million. The Company continues to see steady increases in new deposit accounts and customer relationships as bank mergers and sales of branches disrupt the local banking environment. The estimated amount of uninsured assessable deposits, including related interest accrued and unpaid, at MarchJune 31,30, 2026 and December 31, 2025 was $560.8$585.8 million and $554.9 million, respectively.

Liquidity represents the Company’s ability to meet the demands required for the funding of loans and to meet depositors’ requirements for use of their funds. The Company’s sources of liquidity are cash balances, due from banks, and federal funds sold. Cash and cash equivalents were $141.8$132.9 million at MarchJune 31,30, 2026, compared to $112.9 million at December 31, 2025.

Additional asset liquidity sources include principal and interest payments from the investment security and loan portfolios. Long-term liquidity needs may be met by selling unpledged securities available for sale, selling or participating loans, or raising additional capital. As noted above, selling of securities would not be a primary source of short term liquidity given the unrealized losses currently in the portfolio. At MarchJune 31,30, 2026, the Company had $349.6$347.9 million of available for sale securities, compared to $341.9 million at December 31, 2025. At MarchJune 31,30, 2026, the Bank had a maximum borrowing capacity for short-term and long-term FHLB advances of approximately $720.4$737.2 million, of which $720.2$737.1 million is available for borrowing at MarchJune 31,30, 2026. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. The Bank had an outstanding FHLB letter of credit in the amount of $160$172 thousand as of MarchJune 31,30, 2026. There were no FHLB short-term or long-term advances outstanding as of MarchJune 31,30, 2026 or December 31, 2025. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank has a federal funds line of credit with the ACBB of $10.0 million, of which none was outstanding at MarchJune 31,30, 2026 and December 31, 2025. Advances from this line are unsecured.

The Company has a revolving line of credit facility with the ACBB of $7.5 million, of which none was outstanding at MarchJune 31,30, 2026 and December 31, 2025. Advances from this line are unsecured.

The Company’s consolidated financial statements do not reflect the various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These off-balance sheet arrangements consist of unfunded loans and commitments, as well as lines of credit made under the same standards as on-balance sheet instruments. These unused commitments totaled $192.7$198.7 million and $198.0 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. At MarchJune 31,30, 2026 and December 31, 2025, there was a $133$142 thousand and $176 thousand allowance for credit losses required for off-balance sheet arrangements, respectively. At MarchJune 31,30, 2026 and December 31, 2025, the Company had letters of credit outstanding of $6.6$6.3 million and $6.7 million, respectively. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Company. Management is of the opinion that the Company’s liquidity is sufficient to meet its anticipated needs.

Total stockholders’ equity was $124.8$128.1 million as of MarchJune 31,30, 2026, representing a net decreaseincrease of $2.8$479 millionthousand from December 31, 2025. The decreaseincrease was the result of a $3.9 million increase in accumulated other comprehensive loss and treasury stock purchases of $3.0 million, offset by net income of $3.7$7.9 million, an increase in common stock of $17$18 thousand, and an increase in surplus of $342$394 thousand due to employee stock purchases and stock grants with compensation expense.expense, offset by a $549 thousand increase in accumulated other comprehensive loss, treasury stock purchases of $3.2 million, and dividends declared of $4.1 million. The accumulated other comprehensive loss is excluded from both the Bank’s and the Company’s Tier 1 regulatory capital calculations.

The Company’s tangible book value per share, calculated as total stockholders’ equity divided by outstanding common stock shares, was $16.83$17.29 and $16.90 at MarchJune 31,30, 2026 and December 31, 2025, respectively.

The regulations require that banks maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined in the regulations), and Tier 1 capital to average assets (as defined in the regulations). As of MarchJune 31,30, 2026, the Bank met the minimum requirements. In addition, the Bank’s capital ratios exceeded the amounts required to be considered “well capitalized” (as defined in the regulations.regulations).