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

We are exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. To combat against these attacks, policies and procedures are in place to prevent, limit, or ameliorate the effect or financial impact of the possible security breach of our information systems and we have insurance against some cyber-risks and attacks. Further, the Company may face unknown or contingent liabilities arising from cybersecurity incidents or data breaches that previously occurred at companies it acquires. Such incidents may not have been discovered, disclosed, or if previously discovered fully-remediated before closing, and the acquired company’s representations, warranties, and indemnities may be limited in scope, duration, or recoverability. As a result, the Company could incur costs or liabilities after an acquisition relating to regulatory investigations, litigation, remediation efforts, reputational harm, or customer and partner claims, which could adversely affect its business, financial condition, and results of operations. While we have not incurred any material losses related to cyber-attacks, nor are we aware of any specific or threatened cyber-incidents as of the date of this report, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks. Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence.

The increasing use of social media platforms presents new risks and challenges and our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely impact our business.

There has been a marked increase in theThe use of social media platforms, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allowallows individuals access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are continually evolving, which creates uncertainty and risk of noncompliance with regulations applicable to our business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or may be inaccurate. The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording us an opportunity for redress or correction.

As a result of past difficulties of the federal government to reach agreement over federal debt and issues connected with the debt ceiling, certain rating agencies placed the United States government's long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a rating downgrade. The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored enterprises in which the Company invests and receives lines of credit on negativea watchstable outlook and a downgrade of the United States government's credit rating would trigger a similar downgrade in the credit rating of these government-sponsored enterprises. Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government's credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on the Company’s financial condition and results of operations.

Dodd-Frank, like other financial industry reforms, has had and will continue to have a significant effect on our entire industry. Although it is difficult to predict with certainty the magnitude and extendextent of these effects at this time, we believe compliance with Dodd-Frank, its interpretive regulations, rules, and initiatives will negatively impact revenue and increase the cost of doing business. Additional expenses associated with compliance with the Act, currently and on an ongoing basis, are likely to continue and the effects of full implementation of the Act may limit our ability to pursue certain business opportunities.

The Company generated $20.8$28.2 million in net income in 2024,2025, or $4.89 earnings per share, ($4.86 diluted earnings per share) an increase of $7.4 million, or 36%, from $20.8 million, or $3.63 earnings per share, ($3.60 diluted earnings per share, an increase of $2.6 million, or 14%, from $18.2 million, or $3.19 diluted earnings per share,share) in 2023.2024. However, theThe Company’s net interest income performance has beenincreased reducedprimarily bydue assetto yieldsinterest beingincome outpacedgrowth. byThe themain increases of rates paid on deposits. During 2024, federal funds rates remained steady from prior periods until the third quarterdriver of the year.growth Inin Septemberinterest 2024,income was the average balance increase in the loan and lease portfolio along with improving yields on new originations. Interest expense increased to a lesser extent primarily due to increases in the volume of deposits which replaced short-term borrowings. During 2025, the Federal Open Market Committee (FOMC) decreased interestthe ratesfederal funds rate by 50 basis points, and in both November and December of 2024, the FOMC decreased interest rates by another 2575 basis points. Currently, consensus economic forecasts are expecting declines between 25one to 50two declines of 25 basis points over the course ofthroughout fiscal year 2025. The Company does not currently expect to see improvement in net interest margin until the second half of 2025, as rates on interest bearing deposits will take time to match the decreasing rate environment.2026. For 2025,2026, the Company currently maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains toon manageenhancing margin enhancement by reallocating cash flow to focus growth on specific higher yielding assets, being proactive with loan pricingpricing, and managing deposit costs to maintain a reasonable spread.

For the years ended December 31, 20242025 and 2023,2024, book value per share was $41.39 and $35.56, respectively, an increase of 16%. Over the same periods, tangible common book value per share (non-GAAP) was $31.98$37.88 and $29.57$31.98 (1), respectively, an increase of 8.2%.18%. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios. See “Non-GAAP Financial Measures” located above within this management’s discussion and analysis.

Non-performing assets represented 0.30%0.08% of total assets as of December 31, 2024,2025, upa decrease from 0.13%0.30% at the prior year end. Non-performing assets to total assets were higherdecreased during 20242025 mostly due to the percentage change of non-performing assets increasing to a greater extent compared to the growthdecline in totalnon-accrual assets.loans.

During 2025,2026, the Company currently expects to operate in a moderately declining interest rate environment throughout the year. Management is primarily reliant on the Federal Open Market Committee'sCommittee’s statements and forecast. Management is aware the Company may continue to experience pressure to maintain higher rates on interest-bearing deposits due to the competitive nature of deposits in our market area. ToManagement helpmonitors mitigateuninsured anydeposits impactwhich represented approximately 39% of total deposits as of December 31, 2025, primarily within non-personal accounts. Also, as part of the imminentplanning changeprocess, tomanagement theincorporates economicdeposit landscape,pricing assumptions from its non-maturity deposit study, including estimated beta sensitivity for interest-bearing accounts, and monitors liquidity under multiple stress scenarios through its contingency funding and liquidity risk reporting processes. Accordingly, while competitive funding pressures may continue, management believes its deposit mix, modeled deposit repricing assumptions and liquidity monitoring framework position the Company hasto successfullymanage developedfunding costs and willliquidity continueprudently. Expected loan growth is anticipated to strengthenbe its association with existing customers, develop new business relationships and generate new loan volumes. The Company’s net interest income performance has been reducedfunded by assetdeposit yieldsgrowth being outpaced by higher cost of funds compressing net interest spread. For 2025, the Company currently expects to improveand net interest margin is expected to improve compared to 2024.2025.

Consolidated assets increased $81.5$163.4 million, or 3%,6%, to $2.7 billion as of December 31, 2025 from $2.6 billion as of December 31, 2024 from $2.5 billion as of December 31, 2023.2024. The increase in assets was primarily due to loan portfolio growth. The Company reallocated assets and used deposits to fund loan growth.

The Company is a community-based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 21 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market; non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.

Approximately 96% of the CDs, with a weighted-average interest rate of 4.36%,3.72%, are scheduled to mature in 20252026 and an additional 2%, with a weighted-average interest rate of 1.20%,2.01%, are scheduled to mature in 2026.2027. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the fiscal year of 2024,2025, CD87% retentionof ismaturing overCDs 85%.were retained in deposit products within the bank. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company. Additionally, the Company utilized IntraFi's ICS One-way buy to purchase $24.6 million at year-end 2024 compared to no balance at December 31, 2023.

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the year ended December 31, 2024,2025, AOCI improved by $0.9$14.9 million primarily due to amortization of unrealized lossesgains on securities transferred from AFS to HTM.AFS.

During 2024,2025, the carrying value of total investments decreased $11.1$33.3 million, or 2%.6%. The decline was primarily due to principal reductions totaling $22.8 million coupled with a $1.2 million decline in the unrealizedsale lossof position in the AFS portfolio. Partially offsetting these decreases was $15.4$45.7 million in purchaseavailable-for-sale securities and $23.0 million in paydowns partially offset by $25.1 million in purchases of MBS - GSE residential or mortgage-backed securities throughout 2024.securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.

The AFS securities were recorded with a net unrealized loss of $52.8$36.4 million and $51.6$52.8 million as of December 31, 20242025 and 2023,2024, respectively. Of the $1.2$16.4 million net declineimprovement: $1.3$11.2 million was attributable to mortgage-backed securitiessecurities, $3.9 million attributable to municipal securities, and $0.5$1.3 million was attributable to municipal securities. This decrease was offset by a $0.6 million improvement in agency securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.

As of December 31, 20242025 and 2023,2024, loans HFS consisted of residential mortgages with carrying amounts of $2.1$0.6 million and $1.5$2.1 million, respectively, which approximated their fair values. During the year ended December 31, 2024,2025, residential mortgage loans with principal balances of $59.3$65.7 million were sold into the secondary market and the Company recognized net gains of $1.0 million, compared to $52.0$59.3 million and $0.9$1.0 million, respectively, during the year ended December 31, 2023.2024. Additionally, during 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.

During the twelve months ended December 31, 2024,2025, the growth in the portfolio was primarily attributed to a $121.4$130.6 million, or 13%,million increase in the commercial portfolio duewhich towas heavily impacted by the origination toof two commercial & industrial loans to twoa differentsingle borrowersborrower totaling $17$28.0 million; thea single origination ofto twoa municipal loans to two different borrowersborrower totaling $8$18.5 million; the origination of five commercial real estate non-owner occupied loans to five different borrowers totaling $39 million; the origination of threesix commercial real estate owner occupied loans to threefive differentindependent borrowers totaling $17$35.5 million; $25.5 million in construction projects that were completed and theconverted to non-owner commercial real estate loans and a single origination oftotaling four$4.7 million to a commercial constructionreal loansestate tonon-owner threeoccupied different borrowers totaling $15 millionborrower; and general portfolio growth.

The Company also experienced a $5.9 million increase in the residential portfolio, which was offset by the $24.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio As management continues to identify ways to optimize the Company’s balance sheet, the focus is to lend in areas that provide better risk-adjusted returns and improved opportunities to deepen relationships with our customers. This could result in a change in the composition of the loan portfolio in future periods.

For the twelve months ended December 31, 2024,2025, the Company originated $560.6$586.5 million in loans and lines of credit, an increase of $29.6$25.9 million, or 6%,4%, compared to the twelve months ended December 31, 2023.2024.

The Company originated $257.2$320.9 million total lines of creditloans in 2024,2025, which was $63.8$17.5 million more than originations in 2023.2024. LineCommercial ofand creditindustrial loan originations increased by $41.1 million in 2025 compared to 2024, due to enhanced management strategy around the segment. Loan originations decreased in commercial real estate (both owner-occupied and non-owner occupied CRE) by $42.4$18.1 million to $183.9$93.2 million, residential constructionloans by $12.3$4.2 million to $37.7$89.4 million, and homeconsumer equity and other consumerloans by $9.1$1.4 million to $35.6$31.6 million.

As of December 31, 2024,2025, the commercial portfolio increased by $121.4$130.6 million, or 13%, to $1.0$1.2 billion compared to the December 31, 20232024 balance of $903.2$1.0 millionbillion due to growth of $27.2$66.6 million in total commercial and industrial loans and $94.2$64.0 million in growth in commercial real estate loans.

For the twelve months ended December 31, 2024,2025, commercial and industrial (non-municipal) loans increased $20.2$47.7 million, or 13%,28%, from $152.6 million as of December 31, 2023 to $172.8 million as of December 31, 2024,2024 to $220.5 million as of December 31, 2025, which was due to originations of twothree commercial & industrial loans to two separate borrowers totaling $17$32.1 million,million in the third quarter along with the standard originations and advances outpacing scheduled payments and curtailments.

For the twelve months ended December 31, 2024,2025, municipal loans increased $7.0$18.9 million, or 7%,19%, from $94.7$101.7 million on December 31, 2023,2024, to $101.7$120.6 million as of December 31, 20242025 which was primarily attributed to thea single origination ofto twoa municipal loans to two different borrowersborrower totaling $8$18.5 million.

For the twelve months ended December 31, 2024,2025, owner occupied commercial real estate loans increased $26.6$35.9 million, or 10%,12%, from $278.3$304.9 million on December 31, 2023,2024, to $304.9$340.8 million as ofat December 31, 2024,2025, which was attributed primarilydue to thean origination ofto threea single commercial real estate owner occupied borrower totaling $9.3 million during the first quarter, the origination of two loans to threea differentsingle commercial real estate owner occupied borrower totaling $9.5 million during the second quarter, an origination to a single commercial real estate owner occupied borrower totaling $6.0 million during the third quarter, the origination of two loans to two commercial real estate owner occupied borrowers totaling $17$10.8 million.million during the fourth quarter and general portfolio growth.

Non-owner occupied CRE loans are commercial loans not occupied by their owners and thus rely on income from third parties, including multi-family residential tenants and commercial tenants representing various industries. Underwriting on non-owner occupied CRE loans evaluates cash flow derived from the respective tenants and the industries they occupy. As such, management considers non-owner occupied CRE loans as having a higher risk profile than owner occupied CRE loans. In keeping with its risk appetite and relationship management strategy, the Company avoids speculative commercial office space and prefers loans for projects with the following characteristics: sufficient equity, or loan to value, and have either S&P rated tenants with long term leases, loans structured with personal guarantees of owners whose personal financial strength provides meaningful cash flow support to supplement rental income volatility, residential projects with stable rents in desirable locations, or projects with sufficient diversity and industries proven to provide lower risk over the long term.

Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of December 31, 2024,2025, the commercial construction portfolio of $50.9$56.7 million consisted of $41.3$37.4 million, or 81%,66%, of non-owner-occupied loans and $9.6$19.2 million, or 19%,34%, of owner-occupied loans.

For the twelve months ended December 31, 2024,2025, commercial construction loans increased $11.1$5.8 million, or 28%,11%, from $39.8$50.9 million on December 31, 20232024 to $50.9$56.7 million at December 31, 2024.2025. This increase was attributed to $21.4$24.4 million in commercial construction commitments originated during the year and $13.9$19.9 million in advances during the year on commercial construction loan availability originatedbooked prior to December 31, 2023.2025. TheseThis advancesincrease werewas partially offset by $0.5 million of paydowns/payoffs and $23.7$33.4 million in construction projects thatconverting stabilizedto andpermanent were convertedfinancing to owner and non-owner commercial real estate loans and $5.1 million in loans that were paid off during the twelve months ended December 31, 2024.2025.

As of December 31, 2025, the total consumer loan portfolio decreased by $24.5 million, or 10%, to $226.3 million compared to the December 31, 2024 balance of $250.8 million, primarily due to a management strategic determination to reduce the indirect auto portfolio based on payoffs with minimal originations, resulting in a $41 million reduction. Offsetting the reduction in the indirect auto portfolio was growth of $6$12.1 million in the HELOC portfolio due to a sales campaign done during the year and growth of $7$4.6 million in the consumer other portfolioportfolio, duewhich was attributed to $6$5.6 million in personal loans purchased from Bankerthe Healthcarethird-party Grouporiginator (BHG) Financial during the year along with standard portfolio growth.year.

ForAs the twelve months endedof December 31, 2024,2025, the residential loan portfolio increased by $23.8$5.9 million, or 5%,1%, to $525.3$531.2 million compared to the December 31, 20232024 balance of $501.5$525.3 million. The increase wasmillion due to ageneral shiftportfolio from mortgage loans sold in the secondary market to loans held-for-investment, primarily jumbo mortgages with rates fixed for 5, 7 or 10 years with adjustable rates thereafter.growth.

The residential real estate loan portfolio (non-construction) consisted primarily of held-for-investment residential loans for primary residences, including approximately $401$410 million in fixed-rate and $104$105 million in adjustable-rate mortgages as of December 31, 2024.2025.

The allowance for credit losses as a percentage of total loans decreased to 1.09%1.06% as of December 31, 20242025 compared to 1.12%1.09% at December 31, 20232024 based on the changes in current year loss factorsfactors, a more favorable economic forecast, and portfolio growthreduction in lowernon-performing risk segments.loans.

Key loss driver assumptions used in the allowance estimate included the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts, the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prepayment and curtailment rates, and estimated remaining loan lives. Although key loss driver assumptions used in the ACL estimate remained largely stable from the estimate as of December 31, 20232024 to the estimate as of December 31, 2024,2025, the ACL on absolute terms increased based on growth in the loan and lease portfolio and changes in the composition of the portfolio along with slower prepayment and curtailment rates offset by more favorable economic forecasts.

For the year ended December 31, 2025, net charge-offs against the allowance totaled $0.6 million compared with net charge-offs of $0.5 million for the year ended December 31, 2024, net charge-offs against the allowanceincrease totaled $465 thousand compared with net charge-offs of $578 thousand for the year ended December 31, 2023, representing a $113 thousand, or 20%, decreaseis due to twoa recoveries$0.1 frommillion twoincrease commercialin charge-offs related to residential real estate with two individual borrowers totalingduring $304 thousand.2025. Net charge-offs declined as a percentage of the total loan portfolio towere unchanged at 0.03% for the twelve months ended December 31, 20242025 comparedand to 0.04% for the twelve months ended December 31, 2023.2024.

As of December 31, 2024,2025, the commercial real estate loan portfolio comprised 45%44% of the total allowance for credit losses, down 21 percentage pointspoint from December 31, 2023.2024. As of December 31, 2024,2025, the commercial real estate loan portfolio was 42%43% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

As of December 31, 2024,2025, the residentialconsumer portfolio comprised 30%10% of the total allowance for credit losses, unchangeddown 3 percentage points from December 31, 2023.2024. As of December 31, 2024,2025, the residentialconsumer portfolio is 29%11% of the total loan and lease portfolio indicative of a reservecomparable, thatrelative is proportionally representative of the loan portfolio.reserve.

Non-performing assets represented 0.30%0.08% of total assets at December 31, 20242025 compared with 0.13%0.30% at December 31, 2023.2024. The increasedecrease resulted from a $4.5$5.6 million, or 135%,72%, increasedecline in non-performing assets, specifically non-accrual loans, which increaseddeclined $5.5 million due to $2.9the sale of a $1.3 million commercial owner occupied real estate loan to a third-party purchaser during the first quarter of 2025; $0.3 million residential real estate to other real estate owned in loansthe tosecond quarter, and the resolution of a single commercial and industrial borrowerloan addedduring tothe non-accrual,second aand $0.4third quarters of 2025, which included $2.3 million commercialin real estate non-owner-occupied loan added to non-accrual,payments and a $0.3 million residentialcharge real estate loan added to non-accrual during the year.off.

LoansThere were no loans past due 90 days or more accruing totaled $32 thousand, which was comprisedas of December 31, 2025, compared to two direct finance leases as of December 31, 2024, compared to one direct finance lease totaling $14$32 thousand as of December 31, 2023.2024. All loans were well secured and in the process of collection.

ForeclosedassetsForeclosed assets held-for-sale

From December 31, 20232024 to December 31, 2024,2025, foreclosed assets held-for-sale increaseddecreased from $1$430 thousand to $430$326 thousand, a $429$104 thousand increase,decrease, which was attributed to the sale of two commercial properties totaling $292 thousand and sale of three residential properties totaling $253 thousand. These sales were partially offset by the addition of three properties to a single borrower totaling $430 thousand, which were added to ORE during the third quarter. These additions were offset by the sale of one commercial property totaling $1 thousand and addition and subsequent sale of one commercial property totaling $219$442 thousand.

As of December 31, 2024,2025, OREthe consistedcompany ofhad threeone propertiesproperty totaling $429$324 thousand, which werewas addedlisted in 2024 and are under agreement offor sale.

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of MarchJune 31,30, 2026 compared to December 31, 2025 and a comparison of the results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2025 Annual Report filed on Form 10-K.

We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for MarchJune 2026 was 4.3%,4.2%, down 0.10.2 percentage pointpoints compared to December 2025. Due to delays in the release of local unemployment data, February 2026 unemployment rates represented the most current data available at the time of filing. The local market unemployment rates in the Scranton – Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at FebruaryJune 28,30, 2026 were 5.5%4.7% in market area north and 4.9%4.1% in market area south, respectively, an increase of 1.20.4 percentage points and 1.00.2 percentage points from the 4.3% and 3.9%, respectively, at December 31, 2025. The median home values in the Scranton – Wilkes-Barre – Hazleton metro and Allentown – Bethlehem – Easton metro each increased 2.5%1.4% and 2.9%3.2% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 0.9%1.8% and 1.9%, respectively, in the next year. In light of these expectations, we continue to monitor housing market conditions, including home price trends and interest rate expectations. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

For the threesix months ended MarchJune 31,30, 2026, net income was $7.5$15.3 million, or $1.29$2.64 basic earnings per share and $1.28$2.63 diluted earnings per share, a 25%19% increase, compared to $6.0$12.9 million, or $1.04$2.24 basic earnings per share and $1.03$2.23 diluted earnings per share, for the threesix months ended MarchJune 31,30, 2025.

As of MarchJune 31,30, 2026 and MarchJune 31,30, 2025, common book value per share was $42.14$43.54 and $36.70,$37.78, and tangible common book value per share (non-GAAP) was $38.67$40.08 and $33.16$34.25 (1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.

In addition to the challenging and competitive economic environment in which we compete,operate, the regulationregulatory and oversight of our business has changed significantly in recent years. As described more fully in Part II, Item 1A, “Risk Factors” below, as well as Part I, Item 1A, “Risk Factors,” and in the “Supervision and Regulation” section of management’s discussion and analysis of financial condition and results of operations in our 2025 Annual Report filed on Form 10-K, certain aspects of the Dodd-Frank Wall Street Reform Act (Dodd-Frank Act) continue to have a significant impact on us.

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at MarchJune 31,30, 2026 and 2025.

Comparison of the results of operations three and six months ended MarchJune 31,30, 2026 and 2025

Net income for the quarter ended MarchJune 31,30, 2026 was $7.5$7.8 million, or $1.29 basic$1.34 earnings per share and $1.28$1.33 per diluted share, compared to $6.0$6.9 million, or $1.04 basic$1.20 earnings per share and $1.03$1.20 per diluted share, for the quarter ended MarchJune 31,30, 2025. The $1.5$0.9 million, or 25%,13%, increase in net income resulted primarily from a $2.4$2.9 million increase in net interest income coupled with a $0.2$0.1 million increase in non-interest income. This was partially offset by a $0.6$1.3 million increase in non-interest expense and a $0.6$0.4 million increase in the provision for credit losses due to the growth of loans and unfunded commitments. For the six months ended June 30, 2026, net income was $15.3 million, or $2.64 earnings per share and $2.63 diluted earnings per share, compared to $12.9 million, or $2.24 earnings per share and $2.23 diluted earnings per share, for the six months ended June 30, 2025. The $2.4 million, or 19%, increase in net income stemmed from the $5.2 million increase in net interest income and $0.4 million increase in non-interest income. This was partially offset by a $1.9 million increase in non-interest expense and a $1.0 million increase in the provision for credit losses on the growth of loans and unfunded commitments.

Return on average assets (ROA) waswere 1.08%1.11% and 0.93%1.04% for the firstsecond quarters of 2026 and 2025, respectively.respectively, Duringand 1.09% and 0.98% for the samesix timemonths periods,ended returnJune on30, average shareholders’ equity (ROE) was 12.41%2026 and 11.66%,2025, respectively. The increasesincrease in ROA and ROE werewas primarily the result of an increase in net income during the firstsecond quarter of 2026 and year-to-date 2026, compared to the same periods of 2025. Return on average shareholders’ equity (ROE) was 12.68% and 13.02% for the second quarters of 2026 and 2025, respectively, and 12.55% and 12.35% for the six months ended June 30, 2026 and 2025, respectively. The increase ROE year-to-date 2026 was primarily the result of an increase in net income, compared to year-to-date 2025. The decrease in ROE during the second quarter of 2026, compared to the same period2025 ofquarter, 2025.was primarily due to a 17% increase in average total equity compared to a 13% increase in net income. Pre-provision net revenue to average assets (non-GAAP) was 1.36%1.45% and 1.16%1.28% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 1.41% and 1.22% for the six months ended June 30, 2026 and 2025, respectively. The increases were due to an increase in income before taxes quarter-over-quarter.quarter-over-quarter and year-over-year.

Net interest income was $19.4$20.8 million for the firstsecond quarter of 2026, representing a 14%16% increase over the $17.0$17.9 million earned for the firstsecond quarter of 2025. The $2.4$2.9 million increase in net interest income resulted from the increase of $2.2$1.9 million in interest income primarily due to a $160.6$113.1 million increase in the average balance of interest-earning assets and a 49 basis pointpoints increase in fully-taxable equivalent ("FTE") (non-GAAP measurement) yields. The loan portfolio had the most significant impact, producing a $2.0$3.2 million increase in FTE interest income from $132.8$208.2 million in higher quarterly average balances and an increase of 5 basis points in FTE loan yields. Additionally, the Company experienced an increase of $0.6 million in interest earned from interest-bearing deposits with other financial institutions from $77.3 million in higher average balances. The increase in interest income was coupled with a $0.2$0.9 million decrease in interest expense on deposits due to a 2128 basis points decrease in rates paid on interest-bearing deposits which more than offset the increase from $138.0$82.1 million in higher average balances compared to the firstsecond quarter of 2025.

The FTE yield on interest-earning assets was 4.77%4.86% for the firstsecond quarter of 2026, an increase of 49 basis points from 4.73%4.77% for the firstsecond quarter of 2025. The overall cost of interest-bearing liabilities was 2.27%2.24% for the firstsecond quarter of 2026, a decrease of 2228 basis points from the 2.49%2.52% for the firstsecond quarter of 2025. The cost of funds decreased 1622 basis points from 1.93%1.95% to 1.77%1.73% for the firstsecond quarters of 2025 and 2026, respectively. The Company’s FTE net interest spread was 2.50%2.62% for the firstsecond quarter of 2026, an increase of 2637 basis points from 2.24%2.25% recorded for the firstsecond quarter of 2025. FTE net interest margin increased to 3.08%3.22% for the three months ended MarchJune 31,30, 2026 from 2.89%2.92% for the same period of 20252025. primarilyFuture duemargin performance will continue to thebe reductioninfluenced inby ratescompetitive paiddeposit onpricing, interest-bearingmarket deposits.interest rate changes, loan growth, funding mix, and overall balance sheet management strategies.

For the remainder of 2026, the Company currently expects to operate in aan stable to moderately declininguncertain interest rate environment.environment with little change in short-term rates. Management’s outlook is informed primarily by the Federal Open Market Committee’s (FOMC) published statements and economic projections. DuringFuture thechanges fourthin quartershort-term ofrates 2025,remain theuncertain FOMCand reduceddependent theon federalincoming fundseconomic rateinformation byand an aggregateevolving of 75 basis points. Based on current consensus economic forecasts, short-term rate stability with the potential for one additional reduction of 25 basis point is presently anticipated over the remaining fiscal year 2026.outlook. In this environment, the Company expects loan demand to remain supported by its current pipeline and anticipates continued growth in the loan portfolio, initially funded through available excess cash holdings. If excess cash is depleted and deposit growth is insufficient to fund planned loan growth, the Company expects to utilize wholesale borrowings. Overall changes in market interest rates are expected to impact the Company’s net interest margin (“NIM”) based on the timing and magnitude of repricing across earning assets and interest-bearing liabilities. InChanges ain declining-ratemarket environment,interest rates, whether upward or downward, may cause earning asset yields onand variable-ratefunding loanscosts to reprice at different speeds and other earning assets may reprice downward more quickly than funding costs,magnitudes, which could pressurepositively or negatively affect NIM. However, managementManagement expects that athe portioneffects of thisrate impactmovements on NIM may be moderated bythrough the Company’s ability to reduce interest-bearing depositactive pricing and,and asbalance depositsheet ratesmanagement approachacross moreboth normalizedearning levels,assets byand thefunding potential for a lower deposit beta (i.e., a lower percentage change in deposit rates relative to changes in benchmark market rates).sources. The Company’s actual deposit beta and the resulting effect on NIM will depend on competitive dynamics, changes in deposit mix, and customer behaviors, including the extent to which customers shift balances among non-interest-bearing and interest-bearing accounts or into higher-rate products. Management’s focus remains on enhancing and protecting NIM by reallocating cash flows toward higher-yielding assets, maintaining disciplined and proactive loan pricing (including floors where appropriate), and actively managing deposit costs and product mix to preserve an appropriate spread.

The Company’s Asset Liability Management (ALM) team meets regularly to discuss among other things, interest rate risk and when deemed necessary adjusts interest rates. ALM and the Pricing Committee is actively addressing the Company's sensitivity to a changing rate environment to ensure interest rate risks are contained within acceptable levels. ALM also discusses revenue enhancing strategies to help combat the potential for a decline in net interest income. The Company’s marketingMarketing department, together with ALM, and service-driventhe branchPricing and relationship managers,Committee, continue to develop prudent strategies that will grow the loan portfolio and accumulate relationship driven deposits at costs lower than borrowing costs to improve net interest income performance.

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for MarchJune 31,30, 2026 and 2025 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the firstsecond quarterquarters of 2026 and 2025, respectively, and $0.4 million and $0.4 million during the six months ended June 30, 2026 and 2025, respectively, are included in interest income from loans. Purchase accounting adjustments of $0.3$0.2 million and $0.4$0.3 million are included in interest income from loans and approximately $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended MarchJune 31,30, 2026 and 2025. Purchase accounting adjustments of $0.5 million and $0.6 million are included in interest income from loans and $2 thousand and $2 thousand reduced interest expense on deposits and borrowings for the six months ended June 30, 2026 and 2025. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

Management continuously reviews the risks inherent in the loan portfolio. The determination of the amounts of the allowance for credit losses and the provision for credit losses is based on management’s current judgments about the credit quality of the Company’s financial assets and known and expected relevant internal and external factors that significantly affect collectability such as historical loss information, current conditions, and reasonable and supportable forecasts, including significant qualitative factors For the three months ended March 31, 2026, the provision for credit losses on loans was $875 thousand and the provision for credit losses on unfunded commitments was $90 thousand, compared to a $455 thousand provision for credit losses on loans and a $85 thousand net benefit in the provision for credit losses on unfunded loan commitments for the three months ended March 31, 2025.factors.

For the three months ended MarchJune 31,30, 2026, the increaseprovision infor credit losses on loans was $400 thousand and the provision for credit losses on unfunded commitments was $340 thousand, compared to thea prior$300 periodthousand wasprovision duefor tocredit losses on loans and a $20 thousand provision for credit losses on unfunded loan commitments for the originatedthree growthmonths inended theJune portfolio,30, specifically in commercial construction commitments.2025.

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for threesix months ended MarchJune 31,30, 2026 to maintain an allowance level that management deemed adequate.

Total non-interest income increased $0.2$0.1 million, or 4%,2%, to $5.2$5.5 million for the firstsecond quarter of 2026 compared to $5.0$5.4 million for the firstsecond quarter of 2025. The increase in non-interest income was primarily attributed to increasesan increase of $0.4 million in fees from commercial loans with interest rate hedges and $0.3 million in wealth management revenue driven by new client acquisition, expanded business with theexisting largestwealth contributormanagement beingclients, personaland truststrong fees.client Theseretention increasescoupled werewith investment in new wealth advisors and market performance. This increase was partially offset by a $0.6$0.2 million lowerBOLI gaindeath onbenefit sold loans due to a $0.5 million gain on the sale of a commercial loanrecognized during the firstsecond quarter of 2025. Additionally, the Company saw an increase of $0.2 million in commercial loan late fees due to two substandard loans that were paid off in the first quarter of 2026.

Non-interest expenses increased $0.6$1.3 million, or 4%,9%, for the firstsecond quarter of 2026 to $15.2$16.0 million from $14.6$14.7 million for the same quarter of 2025. The increase in non-interest expenses was primarily attributed to the increases inadded salaries and benefits expense of $0.4$0.8 million primarilymostly due to an increase in the number of bankers and incentive-based compensation throughout the quarter.quarter-over-quarter. Additionally, the Company sawexperienced an increase of $0.2 million in advertisingprofessional services expenses and marketing$0.1 million in premises and equipment expenses primarily due to ancosts increasefor insoftware Neighborhoodand Assistancesubscriptions. ProgramThese donationsincreases fromwere whichpartially theoffset Companyby recognizeda decrease of $0.2 million in additionaladvertising taxcosts creditsprimarily causingdue ato correspondingless decreasespending inon PA shares tax expense.promotions.

The provision for income taxes decreasedincreased $0.1$0.3 million during the three months ended MarchJune 31,30, 2026 compared to the same period in 2025 primarily due to a $1.3 million increase in income before taxes. The provision for income taxes increased $0.2 million during the six months ended June 30, 2026 compared to the same period in 2025 primarily due to a $2.6 million increase in income before taxes. Partially offsetting the increase in the provision for income taxes was a $0.5 million discount recognized in the provision from utilizing/applying purchased renewable energy tax credits in the first quarter of 2026.credits. The Company's effective tax rate was 11.6%14.7% at MarchJune 31,30, 2026 compared to 15.4%15.8% at MarchJune 31,30, 2025. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the recognition of this $0.5 million discount in the first quarterhalf of 2026.2026 along with the effect of tax-exempt income in ration to the level of pre-tax income.

MarchJune 31,30, 2026 and December 31, 2025

The Company’s total assets had a balance of $2.9approximately $3.0 billion as of MarchJune 31,30, 2026, an increase of $111.2$223.1 million from December 31, 2025. The increase resulted from $111.9$174.9 million of net growth in the loans and leases portfolio during the first three monthsas of 2026.June 30, 2026 compared to December 31, 2025. Cash and cash equivalents also increased by $6.9 million and premises and equipment increased $3.8$59.6 million over the same timeperiod. periodAsset asgrowth was offset by a decrease of $14.9 million in the Company sold investment securities with the proceeds maintained in interest-bearing deposits with financial institutions.portfolio. Deposit growth of $109.1$91.3 million wasand short-term borrowings of $119.8 million were utilized to fund loan growth.

During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of MarchJune 31,30, 2026, the Company recorded the fair value of the swap of $0.5$0.2 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $0.5$0.2 million increase to the carrying value of designated investment securities.

As of MarchJune 31,30, 2026, the carrying value of investment securities amounted to $512.3$509.0 million, or 18%17% of total assets, compared to $523.9 million, or 19% of total assets, as of December 31, 2025. On MarchJune 31,30, 2026, 32%31% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).

As of MarchJune 31,30, 2026, the carrying value of total investments decreased $11.6$14.9 million, or 2%.3%. The decline was primarily due to $10.5 million in paydowns and the sale of $5.8 million in available-for-sale securities and $5.1 million in securities paydowns.securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.

A comparison of investment securities at MarchJune 31,30, 2026 and December 31, 2025 is as follows:

The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities. The portfolio had no adjustable-rate instruments as of MarchJune 31,30, 2026 and December 31, 2025.

The AFS securities were recorded with a net unrealized loss of $36.5$33.9 million and $36.4 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.

As of MarchJune 31,30, 2026, the Company had $354.9$365.3 million in public deposits, or 14% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of MarchJune 31,30, 2026, the balance of pledged securities required was $393.4$383.5 million, or 77%75% of total securities.

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the threesix months ended MarchJune 31,30, 2026, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

During the first three monthshalf of 2026, the Company sold five available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.6 million as the amortized cost was $5.8 million compared to the sales proceeds of $5.2 million. These sales were undertaken as part of the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

Investment in FHLB stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $4.4$9.4 million and $4.3 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. The dividends received from the FHLB totaled $89$165 thousand and $77$152 thousand for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of MarchJune 31,30, 2026 and December 31, 2025.

As of MarchJune 31,30, 2026 and December 31, 2025, loans HFS consisted of residential mortgages with carrying amounts of $0.6$1.6 million and $0.6 million, respectively, which approximated their fair values. During the threesix months ended MarchJune 31,30, 2026, residential mortgage loans with principal balances of $9.7$21.9 million were sold into the secondary market and the Company recognized net gains of $0.2$0.3 million, compared to $12.5$32.0 million and $0.2$0.5 million, respectively, during the threesix months ended MarchJune 31,30, 2025.

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships and opportunities with those customers. At MarchJune 31,30, 2026 and December 31, 2025, the servicing portfolio balance of sold residential mortgage loans was $508.6$508.1 million and $513.6 million, respectively, with mortgage servicing rights of $1.0 million and $1.1 million for the same periods, respectively.

As of MarchJune 31,30, 2026, the Company had gross loans and leases totaling $2.0$2.1 billion, an increase of $111.9$175.8 million, or 6%,9%, compared to $1.9 billion at December 31, 2025.

During the threesix months ended MarchJune 31,30, 2026, the growth in the portfolio was attributed primarily to a $122.3$190.2 million increase in the commercial portfolio and a $1.5$5.2 million increase in the residential portfolio, which was partially offset by the $12.1$19.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.

The composition of the loan portfolio at MarchJune 31,30, 2026 and December 31, 2025 is summarized as follows:

As of MarchJune 31,30, 2026, the commercial portfolio increased by $122.3$190.2 million, or 11%,16%, to $1.3 billion compared to the December 31, 2025 balance of $1.2 billion. The increase was due to growth of $93.4$148.9 million in commercial real estate loans and $28.9$41.3 million in commercial and industrial loans. The increased origination growth in the commercial portfolio was attributed to management's balance sheet optimization strategy to grow this segment of the loan and lease portfolio.

For the threesix months ended MarchJune 31,30, 2026, commercial and industrial (non-municipal) loans increased $19.2$32.2 million, or 9%,15%, from $220.5 million at December 31, 2025 to $239.7$252.7 million at MarchJune 31,30, 2026, which was due to one loan to a single borrowerorigination totaling $12.4 million and two loansoriginations to a single borrower totaling $5.2 million along withduring the first quarter, a single origination totaling $4.0 million during the second quarter, and standard originations and advances outpacing scheduled payments and curtailments.

For the threesix months ended MarchJune 31,30, 2026, municipal loans increased $9.7$9.1 million, or 8%, from $120.6 million at December 31, 2025, to $130.3$129.7 million at MarchJune 31,30, 20262026, which was attributed to a single origination to a municipal borrower totaling $3.0$2.3 million during the first quarter, two loans to a single municipal borrower totaling $2.9 million during the second quarter, and standard portfolio growth.

Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral whose values tend to move inversely with interest rates. These loans are secured with mortgages, or commercial real estate mortgages (CREM) against the subject property. In underwriting commercial real estate construction loans, the Company performs a robust analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers consistent with Uniform Standards of Professional Appraisal Practice (USPAP) standards and compliant with Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). At MarchJune 31,30, 2026, the commercial real estate portfolio was 45%46% of total loans outstanding compared to 43% at December 31, 2025.

For the threesix months ended MarchJune 31,30, 2026, owner occupied commercial real estate loans increased $18.8$37.0 million, or 6%,11%, from $340.8 million on December 31, 2025, to $359.6$377.8 million at MarchJune 31,30, 2026, due to three originations to three separate commercial real estate owner occupied borrowers totaling $11.2 million during the first quarter, a single origination totaling $6.6 million during the second quarter, a $8.0 million construction loan that stabilized during the second quarter, and was converted to owner occupied commercial real estate, and general portfolio growth.

The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at MarchJune 31,30, 2026 compared to December 31, 2025: