FKYS 10-K & 10-Q changes, risk factors and insider trading
First Keystone Corp. · OTC · State Commercial Banks · CIK 737875 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The Corporation’s operations of its business, including its transactions with customers, are increasingly done electronically, and this has increased its risks related to cybersecurity.”
New heading “Changes to trade policies and tariffs can have an adverse impact on the Corporation’s business and its customers.”
Largest changes
“Increasingly, financial transactions are processed electronically, both by the Corporation and its customers, via online, mobile, and cloud technologies. Operational systems are progressively becoming cloud-based. Conducting business in this environment depends on secure transmission and storage of data in digital form as well as procedures and systems to prevent or ensure the resiliency against system failures, interruptions or breaches in security. …”see in full comparison
“Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets the Corporation serves. The Corporation’s customers-particularly local businesses engaged in agriculture, manufacturing, and retail-may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. …”see in full comparison
“Changes to trade policies and tariffs can have an adverse impact on the Corporation’s business and its customers.”see in full comparison
“While the Corporation has not incurred any material losses related to cyber-attacks, nor is it aware of any specific or threatened material cyber incidents as of the date of this report, it may incur substantial costs and suffer other negative consequences if it falls victim to successful cyber-attacks. …”see in full comparison
“The Corporation’s operations of its business, including its transactions with customers, are increasingly done electronically, and this has increased its risks related to cybersecurity.”see in full comparison
“Our management identified an additional material weakness in our internal control over financial reporting at December 31, 2025 that had a material impact on our reported financial condition and results of operation for the fiscal year ended December 31, 2025, but did not impact any prior periods or subsequent periods. Financial results for the fiscal year ended December 31, 2025 were revised and restated accordingly.”see in full comparison
Full comparison: every changed paragraph (13)
The Corporation’s operations of its business, including its transactions with customers, are increasingly done electronically, and this has increased its risks related to cybersecurity.
Increasingly, financial transactions are processed electronically, both by the Corporation and its customers, via online, mobile, and cloud technologies. Operational systems are progressively becoming cloud-based. Conducting business in this environment depends on secure transmission and storage of data in digital form as well as procedures and systems to prevent or ensure the resiliency against system failures, interruptions or breaches in security. As a result, the Corporation is exposed to the risk of cyber-attacks in the normal course of business, which may be perpetrated against the Corporation, or its third-party service providers and its customers. Further, the Corporation 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 Corporation 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.
In general, cyber incidents can result from deliberate attacks or unintentional events. The Corporation has 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. While the Corporation maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover or ameliorate certain financial aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
The Corporation maintains policies and procedures designed to prevent or limit the effects of possible security breaches of its information systems. However, the techniques used for cyber-attacks are becoming increasingly sophisticated, including the use of AI, and there can be no assurance that preventive and detective measures are fail-safe.
While the Corporation has not incurred any material losses related to cyber-attacks, nor is it aware of any specific or threatened material cyber incidents as of the date of this report, it may incur substantial costs and suffer other negative consequences if it falls 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; disruption or failures of physical infrastructure, operating systems or networks that support the Corporation’s business and customers resulting in the loss of customers and business opportunities; additional regulatory scrutiny and possible regulatory penalties; litigation; and, reputational damage adversely affecting customer or investor confidence.
Changes to trade policies and tariffs can have an adverse impact on the Corporation’s business and its customers.
Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets the Corporation serves. The Corporation’s customers-particularly local businesses engaged in agriculture, manufacturing, and retail-may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair the Corporation’s customers' ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If its customers experience financial stress, the Corporation could see an increase in loan delinquencies and credit losses, negatively affecting its asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to the Corporation’s long-term success. While it actively monitors economic and policy developments, the Corporation cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on its business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact its financial condition, results of operations, and future growth prospects.
We identified a material weaknessweaknesses in our internal control over financial reporting at December 31, 2023 and December 31, 2025 and cannot assure you that additional material weaknesses will not be identified in the future. If we fail to implement and maintain effective internal control over financial reporting, it could result in material misstatements in our financial statements in the future, which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on our stock price.
Our management identified a material weakness in our internal control over financial reporting at December 31, 2023. The material weakness had no impact upon our reported financial condition or results of operation at and for the fiscal year ended December 31, 2023, any prior periods or subsequent periods.
Our management identified an additional material weakness in our internal control over financial reporting at December 31, 2025 that had a material impact on our reported financial condition and results of operation for the fiscal year ended December 31, 2025, but did not impact any prior periods or subsequent periods. Financial results for the fiscal year ended December 31, 2025 were revised and restated accordingly.
Our management identified a material weakness in our internal control over financial reporting at December 31, 2023. See Item 9A, "Controls and Procedures." While the material weakness had no impact upon our reported financial condition or results of operation at and for the fiscal year ended December 31, 2023, any prior periods or subsequent periods, weWe cannot assure you that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements in future periods. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC under Section 404. The existence of a material weakness could result in errors in our financial statements in future periods that could result in a restatement of financial statements, cause us to fail to meet our reporting obligations, and cause investors or customers to lose confidence in our reported financial information, leading to a decline in our stock price or a loss of business.
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.
Management's Discussion & Analysis (MD&A)
New heading “Table 14 – Remaining Maturities of Time Deposits and Other Time Open Deposits of $100,000 or More”
Largest changes
Total non-performing assets amounted to $16,919,000 as of December 31, 2025, as compared to $4,970,000 as of December 31,see in full comparison2024, as compared to $5,681,000 as of December 31, 2023.2024. The economic growth for the fourth quarter of20242025washashigherremainedthanrelativelyexpected.stagnant from the higher-than-expected growth in the first quarter of 2025. Consumer spending remains at high levels. The inflation raterosewasin2.7% as of Decemberto31,2.9%,2025, compared inflation rates of 3.0%, 2.7%, and 2.4% as of September 30, 2025, June 30, 2025, and March 31, 2025, respectively. Inflation rates for all four quarters of 2025 were above the Federal Reserve Board’s desired rate of 2.0%.BusinessInflationsentimenthadsawbeen receding in the middle of 2024, but has seen aslightriserisein 2025, asratesthewerecurrentlyloweredimposedduringtariffs and threat of higher tariffs have pushed inflation higher. Additionally, mass layoffs from thefourthfederalquarter.government increased unemployment levels. Layoffs from large corporations from the public sector have also had an effect. Many economists and influential thinkers still believe that the economy is moving forwardin spite ofdespite certain forecasts and predictors. The concern of a recession,however, has lessened. Inflation was receding,althoughit has seen a slight but steady riselessened inthe2025,lastisfewstillmonths.beingThisdiscussed.has theThe Federal Reserve is looking very cautiously at their nextmove.move,Thiswhich willalldepend on which directiontheinflationrate trendsandtheunemploymentlandscape.rates are trending. The war between Ukraine and Russia continues to deeply pierce the landscape of the world. Theheightenedconflict with Israel and Palestinehasiscausedmovingmuchforwardhostility throughoutwith theworld.cease fire directive, and the world is watching to see if it holds. Thecontinuingnewdisputeaggressionoverwithwhether to continue US support of UkraineVenezuela andIsraeltheincontinuingongoingobjectiveeffortsfrom Homeland Security, more specifically ICE agents, hasbeenfueledaincreased strife, concern, and strain on the economy. Values of new and used homes and automobiles have remained high.AlthoughAlthough, there would seem to be a dynamic shift in the automobile industry where inventories are increasing and sales are slowing, this may lead to a reduced profit margin.Higher interestInterest rates haveaddedcome down slightly but remain high and continue tothe curtailedcurtail borrowing. Consumer savings is dwindling, and credit balances are growing. Supply chains are back up and running efficiently in many areas. Labor continues to remain costly and unpredictable. These forces have had a direct effect on the Corporation’s non-performing assets. The Corporation is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment. Non-accrual loans totaled $16,773,000 as of December 31, 2025 as compared to $4,214,000 as of December 31,2024 as compared to $4,616,000 as of December 31, 2023.2024. There were no foreclosed assets held for resale as of December 31,20242025 or December 31,2023.2024. Therewerewassixoneloansloan past-due 90 days or more and still accruing interest as of December 31,20242025 which carriedan aggregatea balance of$756,000,$146,000, compared to December 31,20232024 when there werefivesix loans past-due 90 days or more and still accruing interesttotalingwhich$1,065,000.carried an aggregate balance of $756,000. Theloansloan past-due 90 days or more and still accruing interest as of December 31,20242025consisted of four loans secured by commercial real estate and two loanswas secured by residential realestate,estateallandof which werewas well secured and in the process of collection.
Net cash flows provided by operating activities weresee in full comparison$8,168,000$11,163,000 and$5,905,000$8,645,000 as of December 31,20242025 and December 31,2023,2024, respectively. Netlossincome amounted to $6,152,000 for the year ended December 31, 2025 compared to net loss of $13,203,000 for the year ended December 31,2024 compared to net income of $5,560,000 for the year ended December 31, 2023.2024. The provision for credit losses resulted in a balance of $4,701,000 for the year ended December 31, 2025 compared to $1,640,000 for the year ended December 31,20242024. Goodwill impairment amounted to $0 at December 31, 2025 compared toa$19,133,000creditatbalanceDecember 31, 2024. During the year ended December 31, 2025, net discount accretion on securities amounted to $86,000, compared to net premium amortization on securities of$217,000$273,000 for the year ended December 31,2023. Goodwill impairment amounted to $19,133,000 at December 31, 2024 and $0 at December 31, 2023. During the years ended December 31, 2024 and 2023, net premium amortization on securities amounted to $273,000 and $1,519,000, respectively.2024. Net gains on sales of mortgage loans were $143,000 for the year ended December 31, 2025, compared to $80,000 for the year ended December 31,2024, compared to $65,000 for the year ended December 31, 2023.2024. Originations of mortgage loans originated for resale exceeded proceeds (including gains) from sales of mortgage loans originated for resale by$446,000$272,000 and$77,000$446,000 for the years ended December 31,20242025 and2023,2024, respectively. Net securities gains were $224,000 for the year ended December 31, 2025, compared to $105,000 for the year ended December 31,2024,2024.comparedAccruedtointerestnetreceivablesecuritiesincreasedlossesbyof$4,000$118,000 forduring the year ended December 31,2023.2025Accrued interest receivableand decreased by $208,000 during the year ended December 31,20242024.andAccrued interest payable increased by$810,000$583,000 during the year ended December 31,2023.2025Accrued interest payableand decreased by $671,000 during the year ended December 31,20242024.andOtherincreasedassets decreased by$2,260,000$584,000 during the year ended December 31,2023.2025Other assetsand increased by$812,000$808,000 during the year ended December 31,2024 and decreased by $661,000 during the year ended December 31, 2023.2024. Other liabilities decreased by$20,000$906,000 and$5,429,000increased $1,721,000 during the years ended December 31,20242025 and2023,2024, respectively. Amortization of investment in low-income housing partnerships amounted to $819,000 for theyearyears ended December 31,2024,2025comparedandto2024.$231,000Cashforsurrender value of bank owned life insurance increased by $666,000 during the year ended December 31,2023.2025 compared to an increase of $669,000 during the year ended December 31, 2024. A gain from bank owned life insurance proceeds was recognized during the year ended December 31, 2025 in relation to a death benefit which amounted to $255,000, compared to the year ended December 31, 2024 when no gains were recognized in relation to bank owned life insurance proceeds.
“Goodwill. Goodwill represents the excess purchase consideration over the fair value of net assets acquired in connection with acquisitions. Goodwill is not amortized but is periodically evaluated for impairment. Impairment testing is performed using either a qualitative or quantitative approach. The Corporation has selected December 31 as the date to perform the annual goodwill impairment test. Additionally, a goodwill impairment evaluation is performed on an interim basis when events or circumstances indicate impairment potentially exists. …”see in full comparison
Income tax resulted insee in full comparisona benefitexpense for the year ended December 31,20242025 of$45,000$213,000 as compared to income taxexpensebenefit of$684,000$45,000 for the year ended December 31,2023.2024. The effective income tax rate was 3.4% in 2025 and (0.3)% in2024 and 11.0% in 2023.2024. Thedecreaseincrease in the effective tax rate for20242025 was mainly due toahigherfederaloverall operating incometaxwithbenefitminimalat the statutory 21% rate generated duechange tothetax-exemptnet loss that resulted from the full goodwill impairment charge recorded effective March 31, 2024, along with more low-income housing tax credits, offset by an increase in the effective tax rate to add back the impact of the portion of the full goodwill impairment charge that is non-deductible for tax purposes.income. The Corporation recognized $840,000and $484,000of tax credits from low-income housing partnerships for the years ended December 31,20242025 and2023, respectively2024, included in tax expense. The Corporation expects to carry forward$328,000$0 and$0$328,000 of low-income housing tax credits as of December 31,20242025 and December 31,2023,2024, respectively, which will begin to expire in the year2044.2045.
Normal increases in capital are generated by net income, less cash dividends paid out. Also, the net unrealized gains or losses on debt securities available-for-sale and derivatives, net of taxes, referred to as accumulated other comprehensive (loss) income, may increase or decrease total equity capital. The total netsee in full comparisondecreaseincrease in capital was $6,278,000 in 2025 after a decrease of $14,833,000 in2024 after an increase of $1,229,000 in 2023.2024. Thedecreaseincrease in equity capital in20242025 was due totheanimpairmentimprovementofinGoodwillaccumulated other comprehensive (loss) income amounting to$19,133,000$6,177,000offset byand issuance of new shares through the Corporation’s Dividend Reinvestment Program (“DRIP”) amounting to$1,264,000$922,000,andoffsetanbyimprovementa decrease of $821,000 inaccumulatedretainedother comprehensive (loss) income amounting to $4,015,000.earnings.
“Net occupancy, furniture and equipment and computer expense increased $18,000, or 0.4% in 2024 compared to 2023. Professional services increased $177,000, or 12.3% in 2024 as compared to 2023. The higher expense was the result of increases in annual audit fees and audit expenses relating to the adoption of CECL as well as goodwill impairment.”see in full comparison
Full comparison: every changed paragraph (73)
Net income decreasedincreased to $6,152,000 for the year ended December 31, 2025, as compared to a net loss of $13,203,000 for the year ended December 31, 2024, as compared to net income of $5,560,000 for the prior year, aan decreaseincrease of $18,763,000$19,355,000. whichThe net loss in 2024 was primarily due to the Corporation recognizing a full goodwill impairment charge of $19,133,000 during the first quarter of 2024. Earnings per share, both basic and diluted, for 20242025 was $(2.14)$0.99 as compared to $0.91$(2.14) in 2023.2024. Dividends per share for 20242025 and 20232024 were $1.12. The Corporation’s return on average assets was 0.41% in 2025 and (0.93)% in 2024 and 0.42% in 2023.2024. Return on average equity decreasedincreased to 5.60% in 2025 from (12.04)% in 2024 from 4.55% in 2023.2024. Total interest income in 20242025 amounted to $71,422,000,$77,199,000, an increase of $14,434,000$5,777,000 or 25.3%8.09% from 2023.2024. The increase in interest income is due to increased interest rates,and fees on loans related to growth in real estate loans secured by commercial properties, and increased interest income earned on securities.loans. Total interest expense of $39,143,000$39,548,000 increased $11,271,000$405,000 or 40.4%1.03% from 2023.2024. The majority of this increase is related to increases in interest paid to depositors to retain and grow deposit relationships andoffset increasesby a decrease in interestexpenses paidrelated onto long-termshort-term borrowings through the Federal Home Loan Bankmainly due to increaseslower average balances of short-term borrowings held in both2025 averageversus volume and rate of borrowings in 2024 over 2023.2024.
The yield on earning assets was 5.45% in 2025 and 5.30% in 2024 and 4.64% in 2023.2024. The rate paid on interest bearing liabilities was 3.42% in 2025 and 3.56% in 2024 and 2.85% in 2023.2024. This resulted in aan decreaseincrease in our net interest spread to 1.74%2.04% in 2024,2025, as compared to 1.79%1.74% in 2023.2024.
As Table 3 illustrates, net interest margin, which is interest income less interest expense divided by average earning assets, was 2.40%2.66% in 20242025 as compared to 2.38%2.40% in 2023.2024. Net interest margins are presented on a tax-equivalent basis. In 2024.2025, the yield on earning assets increased by 0.66%0.15% and the rate paid on interest bearing liabilities increaseddecreased by 0.71%. Yields increased for a majority of interest earning assets and interest bearing liabilities during 2024, mainly as a result of the current high interest rate environment.0.14%. The yield on loans increased from 4.90% in 2023 to 5.55% in 2024 to 5.98% in 2025 mainly due to loans originating and repricing at higher interest rates during the latter part of 20232024 and 2024.2025. The securities portfolio yield increaseddecreased to 4.30% in 2025 as compared to 4.65% in 2024 as compared to 3.92% in 2023.2024. The increasedecrease was mainly the result of thereduced elevatedyield rateon environment impacting variable ratetaxable securities which declined from 4.91% in 2024 to 4.51% in 2025 due to maturities and purchasescalls of higher yielding securities inthat 2024.were reinvested at lower rates. The average rate paid on short-term borrowings decreased 0.31%0.24% from 5.27% in 2023 to 4.96% in 2024.2024 to 4.72% in 2025. The rate paid on savings, NOW, money market, and interest checking accounts increaseddecreased 0.31%0.35% from 2.10%2.41% to 2.41%2.06% and the average rate paid on time deposits increaseddecreased 1.47%0.13% from 2.75%4.22% to 4.22%.4.09%. Interest income exempt from federal tax was $1,352,000$1,354,000 in 20242025 and $1,570,000 in 2023. Interest income exempt from federal tax decreased due to the maturity of tax-exempt municipal securities$1,352,000 in 2024. Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 21%.
The increase in net interest margin at December 31, 20242025 compared to December 31, 20232024 was primarily due to increased yields on loans and securitiesdecreased yields related to deposits and short-term borrowings in 2024,2025, as compared to 2023.2024. Fully tax equivalent net interest income increased by $2,907,000$5,391,000 or 9.9%16.7% to $32,297,000$37,689,000 at December 31, 20242025 compared to $29,390,000$32,298,000 at December 31, 2023.2024. During 2024,2025, the Federal Reserve decreased the federal-funds rate by 1.00%,0.75%, resulting in a target range of 4.25%3.50% - 4.50%.3.75%. The Corporation could experience a decrease in net interest income if market rates remain static or increase, as the Corporation’s net interest income continues to be liability sensitive. To negate the potential impact of a decreasing net interest margin, the Corporation will continue to focus on attracting organic loan growth and core deposits such as checking, savings, and money market accounts, thereby further reducing its dependence on higher priced certificates of deposit and short-term borrowings. The Corporation is actively monitoring and restructuring its portfolios to become more asset sensitive, which will allow for better performance in a static or rates-up environment. TheAs of December 31, 2025 the Corporation alsohad entereda intototal fourof rate swap contracts effective September 20, 2023. Of the four swaps, two werefive fair value interest rate swapsswaps, four with a combined notional amount of $50,000,000,$96,646,000 hedging fixed-rate available-for-sale debt securities available-for-sale, and two were cash flowone interest rate swaps with a combined notional amount of $100,000,000, hedging specific short-term wholesale funding positions. The Corporation entered into one additional swap contract effective September 4, 2024 with a notional amount of $75,000,000, hedging a specified pool of the Bank’s fixed-rate loans. The Corporation also had a total of two cash flow interest rate swaps with a combined notional amount of $100,000,000 hedging specific short-term wholesale funding positions as of December 31, 2025. See Note 12 – Derivative Instruments and Hedging Activities on page 9299 for further analysis. The Corporation will continue to evaluate the potential impact of short-term rate fluctuations in 2025,2026, as well as the slope and position of the yield curve.
For the year ended December 31, 2024,2025, the provision for credit losses resultedwas in$4,701,000 a balance of $1,640,000,as compared to a credit balance of $217,000$1,640,000 for the year ended December 31, 2023.2024. The increase in the provision for credit losses in 20242025 as compared to 20232024 resulted from the Corporation’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors.factors, Thealong provisionwith forspecific, relationship-level credit lossesevents foridentified during the year ended December 31, 2024 is also reflective of management’s assessment of the continued risk associated with the uncertainty surrounding geopolitical and economic concerns.2025. Charge-off and recovery activity in the allowance for credit losses resulted in net charge-offs of $893,000$2,961,000 and $13,000$893,000 for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in the provision for credit losses for the year ended December 31, 2025 was mainly the result of a charge-off of $2,000,000 on a commercial real estate loan, a charge-off of $500,000 on a commercial and industrial loan, and the movement to non-accrual of a significant hotel-related commercial real estate loan. The loan moved to non-accrual status was subsequently individually evaluated and a specific allocation of $973,000 was recorded based on the value of the underlying collateral. Aside from these discrete events, credit quality metrics within the remainder of the loan portfolio remained generally stable during the year ended December 31, 2025. See Analysis of Allowance for Credit Losses table on page 3739 for furtheradditional discussion.information.
Non-interest income through December 31, 20242025 was $6,697,000,$7,323,000, an increase of 8.8%,9.3%, or $541,000,$626,000, from 2023.2024. The increase was mainly due to gains on life insurance proceeds received in 2025 related to a death benefit, more service charges and fee income in 2025 and higher net securities gains realized in 2024 compared to net securities losses realized in 2023 and increased trust department income in 2024.2025.
During 2024,2025, net securities gains (losses) increased $223,000$119,000 to a net gain of $105,000.$224,000. The increase was due to the Corporation recognizing $224,000 in net gains on held equity securities in 2025 vs recognizing $105,000 in net gains on held equity securities in 2024 vsdue recognizingto $217,000improvement in netthe lossesmark-to-market valuation on the Corporation’s held equity securities offset by $99,000 in net gains on sold debt securities in 2023.securities.
Gains on sales of mortgage loans amounted to a net gain of $80,000$143,000 in 20242025 as compared to a net gain of $65,000$80,000 in 2023.2024. The increase in net gains on sales of mortgage loans in 20242025 was due to more individual loans sold at a higher average gain in 2025 vs 2024. The Corporation continues to service the majority of mortgages which are sold, through maturity of the loans. This servicing income provides an additional source of non-interest income on an ongoing basis.
ATM fees and debit card income increased by $33,000 or 1.5% in 20242025 as compared to 20232024 due to increased debit card interchange fees as the result of an increase in debit card transaction volume in 2024.2025. Income related to ana increasegain in cash surrender value offrom life insurance increasedproceeds byrelated $48,000 or 7.7% mainly asto a resultdeath ofbenefit increasedamounted interestto rates$255,000 onfor the2025 relatedcompared policies.to 2024 when there were no gains realized in relation to life insurance proceeds.
Other income, consisting primarily of income from the sale of retail non-deposit investment products, safe deposit box rentals, and miscellaneous fees, increased $60,000,$23,000, or 23.3%7.3% in 20242025 as compared to 20232024 as the Corporation recognized more income from retail investment annuitiesactivity in 2024.2025.
Total non-interest expense amounted to $50,584,000,$33,908,000, ana increasedecrease of $21,339,000,$16,670,000, or 73.0%33.0% in 2024.2025.
The Companysignificant recognizeddecrease in total non-interest expense for the year ended December 31, 2025 was mainly the result of the full, one-time, goodwill impairment charge in the amount of $19,133,000 that was recorded during the first quarter of 2024. This was the result of goodwill impairment testing performed due to the decrease of the Company’s stock price during the first quarter of 2024 as a triggering event. The goodwill impairment has no impact on regulatory capital ratios, liquidity or the Company’s cash balances.
Aside from the one-time goodwill impairment charge recognized in 2024, expenses associated with employees (salaries and employee benefits) continue to be the largest non-interest expenditure. Salaries and employee benefits amounted to $17,228,000$17,879,000 or 34.1%52.7% of total non-interest expense in 20242025 and $16,055,000$17,228,000 or 54.9%34.1% in 2023.2024. Salaries and employee benefits increased $1,173,000,$651,000, or 7.3%3.8% in 2024.2025. The increase in 20242025 was mainly due to a $592,000 increase in salaries in an effort to offer more competitive wages in our various markets, increase retention and support the Corporation’s growth, plus increased costs associated with employee health insurance which were $357,000$454,000 greaterhigher in 2024. The number of full-time equivalent employees was 2092025 as ofcompared Decemberto 31, 2024 and 215 as of December 31, 2023.2024.
Net occupancy, furniture and equipment and computer expense increased $510,000, or 11.7% in 2025 compared to 2024. The increase was mainly due to increased depreciation on furniture and equipment resulting from the replacement of the Corporation’s ATM fleet, an increase in disaster recovery expense as the Corporation put new disaster recovery systems in place in late 2024 and an increase in expense related to various new software systems that were implemented in 2025. Professional services decreased $6,000, or 0.4% in 2025 as compared to 2024.
Net occupancy, furniture and equipment and computer expense increased $18,000, or 0.4% in 2024 compared to 2023. Professional services increased $177,000, or 12.3% in 2024 as compared to 2023. The higher expense was the result of increases in annual audit fees and audit expenses relating to the adoption of CECL as well as goodwill impairment.
Pennsylvania shares tax expense increased $209,000,$49,000, or 24.3%4.6% in 20242025 as compared to 2023. This increase was mainly due to the Corporation recording a true-up for Pennsylvania shares tax expense for the 2023 shares tax return in the third quarter of 2024 which resulted in $70,000 net expense, as compared to receiving a shares tax refund of $52,000 in 2023 for the 2022 tax return, along with a $163,000 expense true up for the 2024 tax year.2024. FDIC insurance expense increased $394,000,$154,000, or 56.0%14.0% in 20242025 as compared to 2023.2024. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.
ATM and debit card fees expense increased $205,000, or 20.4% in 2025 as compared to 2024. This increase was a result of higher electronic funds transfer expenses in 2025 as vendor relationship credits resulting from contract negotiations, applied against billings in 2024, were fully utilized and no longer available in 2025. Data processing fees increased $453,000, or 44.3% in 2025 as compared to 2024. The increase was the result of increased internet banking expenses and core system fees due to vendor relationship credits, applied in 2024, which were fully utilized and no longer available in 2025.
ATM and debit card fees expense decreased $143,000, or 12.5% in 2024 as compared to 2023. The decrease was the result of lower electronic funds transfer expenses, decreased ATM fraud and the application of vendor credits in 2024. Data processing fees decreased $282,000, or 21.6% in 2024 as compared to 2023. This decrease was the result of lower internet banking expenses as the result of a new vendor relationship for online banking and the application of vendor relationship credits in 2024 resulting from contract negotiations, along with implementation fees recognized in 2023.
Advertising expense increaseddecreased $32,000,$111,000, or 6.1%19.8% in 20242025 as compared to 20232024 as the result of the Corporation marketing the new full-service Bethlehem branch, along with utilizing moreless television, billboard, digitaltelevision and social mediaradio advertising induring 2024.2025.
Other non-interest expense increased $558,000, or 15.9% in 2025 as compared to 2024. Other non-interest expense was higher in 2025 mainly as the result of a customer-related write-off of $307,000 during the first quarter of 2025, increased promo and underwriting expenses of $76,000 related to loans, $72,000 in additional expenses related to non-accrual loans in 2025 including legal fees and force placed insurance, and increased postage expenses of $102,000 mainly due to increased marketing mailers sent to customers in 2025.
Other non-interest expense increased $628,000, or 21.8% in 2024 as compared to 2023. Other non-interest expense was higher in 2024 mainly as the result of monthly amortization of a new low income housing partnership that began in the fourth quarter of 2023.
Income tax resulted in a benefitexpense for the year ended December 31, 20242025 of $45,000$213,000 as compared to income tax expensebenefit of $684,000$45,000 for the year ended December 31, 2023.2024. The effective income tax rate was 3.4% in 2025 and (0.3)% in 2024 and 11.0% in 2023.2024. The decreaseincrease in the effective tax rate for 20242025 was mainly due to ahigher federaloverall operating income taxwith benefitminimal at the statutory 21% rate generated duechange to thetax-exempt net loss that resulted from the full goodwill impairment charge recorded effective March 31, 2024, along with more low-income housing tax credits, offset by an increase in the effective tax rate to add back the impact of the portion of the full goodwill impairment charge that is non-deductible for tax purposes.income. The Corporation recognized $840,000 and $484,000 of tax credits from low-income housing partnerships for the years ended December 31, 20242025 and 2023, respectively2024, included in tax expense. The Corporation expects to carry forward $328,000$0 and $0$328,000 of low-income housing tax credits as of December 31, 20242025 and December 31, 2023,2024, respectively, which will begin to expire in the year 2044.2045.
Total cash and cash equivalents increased by $103,995,000 to $121,249,000 at December 31, 2025 from $17,254,000 at December 31, 2024. The increase was mainly the result of excess cash balances and excess cashflows from activity in the debt securities available-for-sale portfolio which were not reinvested during the year ended December 31, 2025.
Total debt securities available-for-sale decreasedincreased $2,680,000$3,938,000 or 0.7%1.0% to $390,288,000$394,226,000 as of December 31, 2024.2025. The decreaseincrease was mainly due to $65,459,000$51,918,000 in securities purchased duringand 2024an as partimprovement of the$10,313,000 executionin ofunrealized aloss balanceon sheet leverage strategy,securities, offset by principal$58,380,000 in maturities, paydowns, maturities, and calls of $69,878,000 completed during the same period.
Net loans decreased slightly in 2025 from $940,779,000 to $939,013,000 mainly due to higher balances of principal payments and paydowns which offset the new loan originations for the year.
Net loans increased in 2024 from $904,153,000 to $940,779,000, a 4.1% increase. Loan demand grew in 2024 as the Bank has realized an increase in loan originations, primarily commercial real estate loans.
The cash surrender value of bank owned life insurance totaled $26,679,000 at December 31, 2024, an increase of $669,000 or 2.6% from 2023. This increase represents tax-free income included in non-interest income on the consolidated statements of income.
Investments in low-income housing partnerships were $5,152,000 at year-end 2024, a decrease of 13.6% from year-end 2023. The decrease is mainly the result of $819,000 in amortization recognized during the year ended December 31, 2024 on two low-income housing partnerships in which the Corporation is a limited partner, offset by a final capital contribution payment of $10,000 that was made in 2024 in relation to a new real estate venture in which the Corporation became a limited partner in 2021. Investing in low-income housing real estate ventures enables the Corporation to recognize tax credits and satisfy Community Reinvestment Act initiatives.
As of December 31, 2024,2025, total deposits amounted to $1,045,880,000,$1,137,437,000, an increase of 6.7%$91,557,000 or 8.8% from 2023.2024. The increase is mainly due to a $40,100,000$135,733,000 increase in retail CDs offset by a $44,554,000 decrease in other retail deposits as the Corporation has experienced a shift from transactional deposits to term deposits and a $33,899,000 increase in Brokered CDs.deposits.
Total short-term borrowings as of December 31, 2025 increased by $2,419,000 or 1.8% from 2024 mainly due to an increase of $3,913,000 in the balance of repurchase agreements, offset by a decrease of $1,494,000 in the balance of FHLB overnight borrowings. Balances of both FHLB long-term borrowings and subordinated debentures remained unchanged at December 31, 2025 versus December 31, 2024.
The Corporation continues to maintain and manage its asset growth. The Corporation’s strong equity capital position provides an opportunity to further leverage its asset growth. Short and long-term borrowings decreased $35,042,000 from $275,468,000 in 2023 to $240,426,000 in 2024 mainly due to the maturity of a $20,000,000 long-term note in the third quarter of 2024, along with increased deposits in 2024.
Total stockholders’ equity decreasedincreased to $106,782,000$113,060,000 at December 31, 2024,2025, aan decreaseincrease of $14,833,000,$6,278,000, primarily due to aan decreaseimprovement of $6,177,000 in retainedaccumulated earningsother duecomprehensive toloss as a result of market value improvement in the fullcurrent goodwillinterest impairmentrate charge.environment.
The Corporation continues to maintain and manage its asset growth. The Corporation’s strong equity capital position provides an opportunity to further leverage its asset growth.
Earning assets are defined as those assets that produce interest income. By maintaining a healthy asset utilization rate, i.e., the volume of earning assets as a percentage of total assets, the Corporation maximizes income. The earning asset ratio (average interest earning assets divided by average total assets) equaled 94.6%95.3% for 20242025 compared to 93.1%94.6% for 2023.2024. This indicates that the management of earning assets is a priority and non-earning assets, primarily cash and due from banks, fixed assets and other assets, are maintained at minimal levels. The primary earning assets are loanssecurities and securities.loans.
The securities portfolio consists of debt securities available-for-sale. No securities were established in a trading account. Debt securities available-for-sale decreasedincreased $2,680,000$3,938,000 or 0.7%1.0% to $390,288,000$394,226,000 in 2024.2025. At December 31, 2024,2025, the net unrealized loss, net of the tax effect, on these securities was $24,454,000$16,320,000 and was included in stockholders’ equity as accumulated other comprehensive loss. Table 7 provides data on the fair value of the Corporation’s securities portfolio on the dates indicated. The vast majority of security purchases are allocated as available-for-sale. This provides the Corporation with increased flexibility should there be a need or desire to liquidate a security.
Total loans increaseddecreased to $948,451,000$946,661,000 as of December 31, 2024,2025, compared to a balance of $911,078,000$946,826,000 as of December 31, 2023.2024. Table 9 provides data relating to the composition of the Corporation’s loan portfolio on the dates indicated. Total loans increaseddecreased $37,373,000,$165,000, or 4.1%0.02% in 20242025 compared to an increase of $52,609,000,$37,373,000, or 6.1%4.10% in 2023.2024.
The Real Estate portfolio increased $40,308,000$3,012,000 or 5.0%0.4% from $811,493,000$850,656,000 at December 31, 20232024 to $851,801,000$853,668,000 at December 31, 2024.2025. The increase in the Real Estate portfolio for the year ended December 31, 20242025 was mainly the result of $103,734,000$115,827,000 in new loan originationsoriginations, which were offset by loan payoffs of $71,096,000 and ana increasedecrease of $5,264,000$41,679,000 in utilization of existing real estate lines of credit, which were offset by loan payoffs of $41,336,000, along with regular principal payments and other typical fluctuations in the Real Estate portfolio. The Agricultural portfolio increased $268,000$48,000 or 39.9%5.1% from $671,000$936,000 at December 31, 20232024 to $939,000$984,000 at December 31, 2024.2025. The increase in the Agricultural portfolio for the year ended December 31, 20242025 wasconsisted mainlyof new loan originations in the resultamount of four$30,000 and two loans totaling $275,000$219,000 that were reclassed from the Commercial and Industrial portfolio to the Agricultural portfolio during the year ended December 31, 20242025, andalong with an increase of $15,000$12,000 in utilization of existing agricultural lines of credit, offset by loan payoffs of $64,000 along with regular principal payments and other typical fluctuations in the Agricultural portfolio. During the year ended December 31, 2024, there was two new agricultural loans originated with an aggregate balance of $59,000 and one agricultural loan paid off with a balance of $46,000. The Commercial and Industrial portfolio increased $196,000$218,000 or 0.3% from $66,909,000$66,706,000 at December 31, 20232024 to $67,105,000$66,924,000 at December 31, 2024.2025. The increase was attributable to $8,363,000$13,501,000 in new loan originations,originations whichand werean offset by a decreaseincrease of $5,484,000$2,356,000 in utilization of existing commercial and industrial lines of creditcredit, andwhich were offset by loan payoffspayments of $3,292,000,$6,179,000 as well asand regular principal payments and other typical amortization in the Commercial and Industrial portfolio. The Consumer portfolio increaseddecreased $635,000$1,437,000 or 10.9%22.5% from $5,824,000$6,390,000 at December 31, 20232024 to $6,459,000$4,953,000 at December 31, 2024.2025. The increasedecrease is mainly attributable to new loan originations of $3,071,000$1,771,000, offset by loan payoffs of $1,587,000, a decrease of $66,000 in utilization of existing consumer lines of credit, and regular principal payments. The State and Political Subdivisions portfolio decreased $2,006,000 or 9.1% from $22,138,000 at December 31, 2024 to $20,132,000 at December 31, 2025. The decrease is mainly the result of new loan originations totaling $3,309,000 and an increase of $10,000$105,000 in utilization of existing consumer lines of credit, offset by loan payoffs of $1,078,000$2,593,000 and regular principal payments. The State and Political Subdivisions portfolio decreased $4,034,000 or 15.4% from $26,181,000 at December 31, 2023 to $22,147,000 at December 31, 2024. The decrease is mainly the result of regular principal payments on state and political subdivisions loans and a $1,825,000 payoff on one state and political loan, which were offset by an increase in the balance of an existing state and political subdivision line of credit resulting from draws of $950,000 completed during the year ended December 31, 2024.2025.
Overall, non-pass grades increased to $28,791,000 at December 31, 2025, as compared to $27,834,000 at December 31, 2024, as compared to $24,092,000 at December 31, 2023.2024. Real Estate non-pass grades increased $3,987,000$1,087,000 or 17.1%4.0% to $28,458,000 as of December 31, 2025 compared to $27,371,000 as of December 31, 2024 compared to $23,384,000 as of December 31, 2023.2024. Commercial and Industrial non-pass grades decreased $193,000$147,000 or 29.7%32.2% to $310,000 as of December 31, 2025 compared to $457,000 as of December 31, 20242024. comparedConsumer non-pass grades increased $17,000 or 283.3% to $650,000$23,000 as of December 31, 2023.2025 Consumer non-pass grades decreased $52,000 or 89.7%compared to $6,000 as of December 31, 2024 compared to $58,000 as of December 31, 2023.2024. There were no Agricultural or State and Political Subdivision non-pass grades as of December 31, 20242025 or December 31, 2023.2024.
The increase in Real Estate non-pass grades from December 31, 2023 to December 31, 2024 is mainly the result of the downgrade of a loan to the owner of a commercial property which carried a balance of $4,529,000 at December 31, 2024. The loan was downgraded to substandard status during the fourth quarter of 2024 due to the loss of a large tenant.
Management considers, based upon its methodology, that the allowance for credit losses is adequate to cover foreseeable future losses. However, there can be no assurance that the allowance for credit losses will be adequate to cover significant losses, if any, that might be incurred in the future. On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Corporation’s allowance for credit losses and various adjustments are made to these factors as deemed necessary at the time of evaluation. The following table summarizes the qualitative factor adjustments made during the year ended December 31, 2025.
Management considers, based upon its methodology, that the allowance for credit losses is adequate to cover foreseeable future losses. However, there can be no assurance that the allowance for credit losses will be adequate to cover significant losses, if any, that might be incurred in the future. On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Corporation’s allowance for credit losses and various adjustments are made to these factors as deemed necessary at the time of evaluation. During the first quarter of 2024, qualitative factors related to delinquency trends were decreased by eight basis points related to loans (a) secured by first liens, (b) secured by owner-occupied, non-farm, non-residential properties, and (c) other revolving credit plans. Qualitative factors related to volume trends were increased by eight basis points related to loans secured by junior liens and decreased by eight basis points related to other revolving credit plans. Qualitative factors related to collateral values were also increased by four basis points related to commercial and industrial loans during the first quarter of 2024. During the second quarter of 2024, qualitative factors related to delinquency trends were increased by four basis points related to (a) loans secured by first liens and (b) loans secured by owner occupied, non-farm, non-residential properties, as well as increased by sixteen basis points related to (c) loans secured by other non-farm, non-residential properties. Qualitative factors related to volume trends were also decreased by four basis points related to (a) other revolving credit plans and (b) automobile loans during the second quarter of 2024. During the third quarter of 2024, qualitative factors related to delinquency trends were increased by four basis points related to (a) revolving open-end loans and (b) other revolving credit plans and increased by eight basis points related to (c) automobile loans. Qualitative factors related to delinquency trends were decreased by four basis points related to (a) loans secured by multifamily residential properties, (b) loans for agricultural production and other loans to farmers, (c) commercial and industrial loans, and (d) other consumer loans. Qualitative factors related to volume trends decreased by four basis points related to (a) loans secured by farmland, (b) loans secured by other non-farm, non-residential properties, (e) other revolving credit plans, and (f) automobile loans. During the fourth quarter of 2024, qualitative factors related to delinquency trends were decreased by eight basis points related to (a) construction land development and other land loans, (b) residential construction loans, (c) loans for agribusiness farmland, or secured by farmland, and (d) loans secured by other non-farm, non-residential properties. Qualitative factors related to delinquency trends were decreased by four basis points related to (a) revolving open-end loans, (b) loans for agricultural production and other loans to farmers, (c) commercial and industrial loans, (d) other revolving credit plans, (e) automobile loans, and (f) obligation of state and political subdivisions. Qualitative factors related to delinquency trends were increased by four basis points related to loan’s secured by multifamily residential properties. Qualitative factors related to loan volume trends increased by twelve basis points related to (a) loans for agribusiness, farmland, or secured by farmland, (b) loans secured by other non-farm, non-residential properties, and (c) automobile loans. Qualitative factors decreased by eight basis points related to loan volume trends related to (a) other revolving credit plans.
Table 11 contains an analysis of the allowance for credit losses indicating charge-offs and recoveries by year. In 20242025 and 2023,2024, net charge-offs as a percentage of average loans amounted to 0.097%0.31% and 0.001%0.10% respectively. Net charge-offs amounted to $2,961,000 in 2025 and $893,000 in 2024 and $13,000 in 2023.2024. Net charge-offs were higher in 20242025 than in 2023,2024, mainly due to $741,000a incharge-off aggregateof charge-offs$2,000,000 completed on foura loansloan granted to a plasticreal processingestate companydeveloper focusing on non-post-consumer recycling that were completed duringfor the third quarterpurpose of 2024,renovating the property into luxury residential rentals. Plans for renovations did not progress as anticipated and the businessborrower ceasedexperienced operationsdifficulty in making payments as arequired, resultultimately ofleading financialto difficulties.the Duringloan exceeding 90-days past due during the fourth quarter of 2024,2025, at which point the loan was moved to non-accrual status and the charge-off was completed. Additionally, a charge-off in the amount of $67,000$500,000 was alsocompleted completedduring the fourth quarter of 2025 on ana owner-occupied,fully non-farm,drawn non-residentialrevolving loancommercial and industrial line of credit that was granted to a non-profitbuilding civiccontractor. organization,It aswas determined that the non-profitpledged nocollateral longerdid usesnot support the property,loan alongbalance withand athe charge-offborrower has become unresponsive to attempted communication from the Corporation regarding the repayment of $41,000the on a loan to an individual borrower secured by 1-4 family residential real estate.principal.
For the year ended December 31, 2024,2025, the provision for credit losses resulted in a balance of $1,640,000, as$4,701,000 compared to a credit balance of $217,000$1,640,000 for the year ended December 31, 2023.2024. The net effect of the provision and net charge-offs resulted in the year-end allowance for credit losses of $7,672,000$9,412,000 of which 94.04%93.88% was attributed to the Real Estate component, 0.03%0.02% was attributed to the Agricultural component, 4.08%4.80% was attributed to the Commercial and Industrial component, 1.28%0.79% was attributed to the Consumer component, and 0.57%0.51% was attributed to the State and Political Subdivisions component (refer to the activity in Note 3 — Loans and Allowance for Credit Losses on page 77.82.) The Corporation determined that the provision for credit losses made during 20242025 was sufficient to maintain the allowance for credit losses at a level necessary for the probable losses inherent in the loan portfolio as of December 31, 2024.2025.
Total non-performing assets amounted to $16,919,000 as of December 31, 2025, as compared to $4,970,000 as of December 31, 2024, as compared to $5,681,000 as of December 31, 2023.2024. The economic growth for the fourth quarter of 20242025 washas higherremained thanrelatively expected.stagnant from the higher-than-expected growth in the first quarter of 2025. Consumer spending remains at high levels. The inflation rate rosewas in2.7% as of December to31, 2.9%,2025, compared inflation rates of 3.0%, 2.7%, and 2.4% as of September 30, 2025, June 30, 2025, and March 31, 2025, respectively. Inflation rates for all four quarters of 2025 were above the Federal Reserve Board’s desired rate of 2.0%. BusinessInflation sentimenthad sawbeen receding in the middle of 2024, but has seen a slightrise risein 2025, as ratesthe werecurrently loweredimposed duringtariffs and threat of higher tariffs have pushed inflation higher. Additionally, mass layoffs from the fourthfederal quarter.government increased unemployment levels. Layoffs from large corporations from the public sector have also had an effect. Many economists and influential thinkers still believe that the economy is moving forward in spite ofdespite certain forecasts and predictors. The concern of a recession, however, has lessened. Inflation was receding, although it has seen a slight but steady riselessened in the2025, lastis fewstill months.being Thisdiscussed. has theThe Federal Reserve is looking very cautiously at their next move.move, Thiswhich will all depend on which direction the inflation rate trends and the unemployment landscape.rates are trending. The war between Ukraine and Russia continues to deeply pierce the landscape of the world. The heightened conflict with Israel and Palestine hasis causedmoving muchforward hostility throughoutwith the world.cease fire directive, and the world is watching to see if it holds. The continuingnew disputeaggression overwith whether to continue US support of UkraineVenezuela and Israelthe incontinuing ongoingobjective effortsfrom Homeland Security, more specifically ICE agents, has beenfueled aincreased strife, concern, and strain on the economy. Values of new and used homes and automobiles have remained high. AlthoughAlthough, there would seem to be a dynamic shift in the automobile industry where inventories are increasing and sales are slowing, this may lead to a reduced profit margin. Higher interestInterest rates have addedcome down slightly but remain high and continue to the curtailedcurtail borrowing. Consumer savings is dwindling, and credit balances are growing. Supply chains are back up and running efficiently in many areas. Labor continues to remain costly and unpredictable. These forces have had a direct effect on the Corporation’s non-performing assets. The Corporation is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment. Non-accrual loans totaled $16,773,000 as of December 31, 2025 as compared to $4,214,000 as of December 31, 2024 as compared to $4,616,000 as of December 31, 2023.2024. There were no foreclosed assets held for resale as of December 31, 20242025 or December 31, 2023.2024. There werewas sixone loansloan past-due 90 days or more and still accruing interest as of December 31, 20242025 which carried an aggregatea balance of $756,000,$146,000, compared to December 31, 20232024 when there were fivesix loans past-due 90 days or more and still accruing interest totalingwhich $1,065,000.carried an aggregate balance of $756,000. The loansloan past-due 90 days or more and still accruing interest as of December 31, 20242025 consisted of four loans secured by commercial real estate and two loanswas secured by residential real estate,estate alland of which werewas well secured and in the process of collection.
Individually evaluated loans were $17,052,000 at December 31, 2025, compared to $4,523,000 at December 31, 2024. The largest individually evaluated loan relationship at December 31, 2025 consisted of a non-performing loan to a borrower engaged in the hotel operations business. The loan is secured by commercial real estate and carried a balance of $9,703,000 and a specific allocation of $973,000 as of December 31, 2025. The second largest individually evaluated loan relationship at December 31, 2025 consisted of a non-performing loan granted to a real estate developer for the purpose of renovating the property into luxury residential rentals. The loan is secured by commercial real estate and carried a balance of $2,443,000 as of December 31, 2025, net of $2,000,000 that had been charged off to date. The third largest individually evaluated loan relationship at December 31, 2025 consisted of a non-performing loan to a student housing holding company which is secured by commercial real estate. At December 31, 2025, the loan carried a balance of $1,603,000, net of $1,989,000 that had been charged off to date.
Individually evaluated loans were $4,523,000 at December 31, 2024, compared to $4,925,000 at December 31, 2023. The largest individually evaluated loan relationship at December 31, 2024 consisted of a non-performing loan to a student housing holding company which is secured by commercial real estate. At December 31, 2024, the loan carried a balance of $1,603,000, net of $1,989,000 that had been charged off to date. The second largest individually evaluated loan relationship at December 31, 2024 consisted two non-performing loans granted to an individual for the purpose of renovating a multi-use property slated to be converted into apartments and a retail storefront. Both loans are secured by commercial real estate and carried an aggregate balance of $1,441,000 at December 31, 2024. The third largest individually evaluated loan relationship at December 31, 2024 consisted of a non-performing loan to the owner of a golf course and catering venue which is secured by commercial real estate. At December 31, 2024, the loan carried a balance of $582,000.
The post modification recorded investment of loans to borrowers experiencing financial difficulty was $12,671,000 at December 31, 2025, with $12,664,000 classified in the Real Estate portfolio and $7,000 classified in the Commercial and Industrial portfolio. The loan modifications for the year ended December 31, 2025 consisted of five payment modifications and one other modification was classified as “other.”. Four modifications of loans to borrowers experiencing financial difficulty were completed during the fourth quarter of 2025, one on a loan carrying a post modification recorded investment of $1,983,000 which allowed a full payment deferral period of three months, one on a loan carrying a post modification recorded investment of $7,000 which allowed interest-only payments for a period of six months, one on a loan carrying a post modification recorded investment of $9,716,000 for which the modification allowed taxes to be paid by the Corporation on behalf of the borrower and the amount appended on to the principal amount outstanding on the loan, and one on a loan carrying a post modification outstanding recorded investment of $529,000 for which the modification allowed interest-only payments for a period of six months. Two modifications of loans to borrowers experiencing financial difficulty were completed during the second quarter of 2025, one on a loan carrying a post modification recorded investment of $107,000 and one on a loan carrying a post modification recorded investment of $332,000, both of which allowed interest-only payments for periods of eleven and twelve months, respectively. Both loans were subsequently modified again during the fourth quarter of 2025 to allow an extension of interest-only payments on each loan for an additional four months. The post modification recorded investment of loans to borrowers experiencing financial difficulty was $10,183,000 as of December 31, 2024, with $10,009,000 classified in the Real Estate portfolio at $174,000 classified in the Commercial and Industrial portfolio. The loan modifications for the year ended December 31, 2024 consisted of four payment modifications. Two modifications of loans to borrowers experiencing financial difficulty were completed during the fourth quarter of 2024, one on a loan carrying a post modification recorded investment of $174,000 to extend the maturity date of the loan by six months and one on a loan carrying a post modification recorded investment of $434,000 to release a portion of the real estate securing the loan.
One modification of a loan to a borrower experiencing financial difficulty was completed during the third quarter of 2024 to extend the maturity date of the loan by ten months. The loan carried a post modification recorded investment of $120,000. One modification of a loan to a borrower experiencing financial difficulty was completed during the first quarter of 2024 and allowed a period of interest-only payments of six months. The loan carried a post modification recorded investment of $9,455,000.
The outstanding recorded investment of modified loans to borrowers experiencing financial difficulty as of December 31, 2024 amounted to $10,193,000, with $10,019,000 classified in the Real Estate portfolio and $174,000 classified in the Commercial and Industrial portfolio. There were no loan modifications completed with respect to borrowers experiencing financial difficulty during the year ended December 31, 2023. The loan modifications to borrowers experiencing financial difficulty during the year ended December 31, 2024 consisted of term modifications on two loans which allowed an extension of the maturity date for each respective loan, one payment modification which allowed a period of interest only payments on one loan, and one loan experienced the release of a piece of collateral securing the loan.
There were no unfunded commitments related to modified loans to borrowers experiencing financial difficulty andas allof modifiedDecember 31, 2025 or December 31, 2024. At December 31, 2025, there were two modifications of loans to borrowers experiencing financial difficulty that were not in compliance with restructurethe terms of their restructure, compared to December 31, 2024 when there were no modifications of loans to borrowers experiencing financial difficulty that were not in compliance with the terms of their restructure. Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding December 31, 2025, one loan carrying a post modification recorded investment of $107,000 experienced a payment default during the year ended December 31, 2025, but the loan was less than 30 days past due as of December 31, 2024.2025. Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding December 31, 2024, two loans experienced payment defaults during the year ended December 31, 2024. One loan carrying a post modification recorded investment of $9,455,000 experienced a payment default during the first quarter of 2024 and a loan carrying a post modification recorded investment of $120,000 experienced a payment default during the fourth quarter of 2024. Both loans were paid current as of December 31, 2024.
The economic climate remains unstable. The war between Ukraine and Russia continues on into its thirdfourth year and the Israeli conflict in the Gaza strip has intensifiedmoved andto incitedexploring worldwideyet hostilities.another cease fire attempt. Inflationary pressures remain elevated and have seen ana uptickslight decline in the lastfourth fewquarter months.of 2025. This continues to create much debatedebate, speculation, and concern regarding the appropriate stepsactions to be taken to overcome the effects of monetary policy adjustmentsadjustments, tariffs, federal government shutdown, and continuing large federal layoffs that have beentranspired and willmay becontinue madeto transpire to affect the change. Intense political turmoil, commodity prices remaining high, gas prices fluctuating widely from week to week, small businesses closing, larger corporations cutting jobs, unprecedented weather conditions seen around the world, and the uncertainty of where the Federal Reserve may go from here in regard to rates have exacerbated the difficulties in the national and state economy. Experts at all levels continue to ascertain the intermediate or long-term effects of such issues. The Corporation may experience difficulties collecting payments on time from its borrowers, and certain types of loans may need to be modified, which could cause a rise in the level of individually evaluated loans, non-performing assets, charge-offs, and delinquencies. Should such metrics increase, additions to the balance of the Corporation’s allowance for credit losses could be required. The extent of the impact of these stressors on the Corporation’s operational and financial performance will depend on certain developments including reactions to inflationary controls enacted, the labor force, the longevity of the wars, the ongoing political landscape, and the looming worldwide discord, and any after-effects of these factors. These factors may not immediately impact the Corporation’s operational and financial performance, as the effects of these factors may lag into the future. The Corporation is also susceptible to the impact of economic and fiscal policy factors that may evolve in the current economic environment.
Deposits increased by $65,441,000,$91,557,000, or 6.7%8.8% for the year ending December 31, 20242025 as compared to December 31, 2023.2024. The increase in deposits in 20242025 can mainly be attributed to increasesan increase of $135,733,000 in non-interestthe bearingbalance demandof accounts,retail interestCDs bearingresulting demandfrom accounts and time deposits, while savings accounts decreased. The decrease in savings deposits in 2024 can be attributed to many customers moving money intonew higher rate CD offerings.promotions offered throughout 2025.
Table 14 – Remaining Maturities of Time Deposits and Other Time Open Deposits of $100,000 or More
Total borrowings were $240,426,000 as of December 31, 2024, compared to $275,468,000 at December 31, 2023. During 2024, long-term borrowings decreased to $106,000,000 from $122,000,000. The decrease in long-term borrowings in 2024 was mainly the result of increased deposits in 2024.
Short-termTotal debtborrowings decreasedwere from $153,468,000 in 2023 to $134,426,000$242,845,000 as of December 31, 2025, compared to $240,426,000 at December 31, 2024. TheShort-term decreasedebt wasincreased mainlyfrom the$134,426,000 resultin 2024 to $136,845,000 as of increasedDecember deposits31, in 2024.2025. Short-term borrowings are comprised of federal funds purchased, securities sold under agreements to repurchase, Federal Discount Window and short-term borrowings from FHLB. Short-term borrowings from FHLB are commonly used to offset balance sheet fluctuations. During 2025, long-term borrowings remained the same at $106,000,000.
The rapid increase in interest rates throughout 2022 and 2023 created a significant earnings challenge for the industry. As liability costs outpaced asset yield growth, negative earnings was a plausible scenario shown in many models if no action was taken. Due to the stress this placed on the Corporation, an action plan strategy was put into effect in 2023 that included disciplined loan pricing, fair value and interest rate swaps/hedges and a leverage of the balance sheet consisting of securities and brokered CD purchases and long-term borrowings. This action plan strategy was the key part of the Corporation’s decision to utilize targeted long-term borrowings over high-rate short-term borrowings and the decision to take on more brokered CDs in 2023.2023 and 2024, also entering into an additional hedge agreement against a specified pool of the Bank’s loans in 2024. As a continuation of this strategy, in 2024,2025, the Corporation purchased additional brokered CDs and entered into an additional hedge agreement against a specified pool of the Bank’s loans.securities with funding provided by short-term brokered CDs with a three-month maturity. The short-term brokered CDs matured during the third quarter of 2025 and replacement was not deemed necessary.
Normal increases in capital are generated by net income, less cash dividends paid out. Also, the net unrealized gains or losses on debt securities available-for-sale and derivatives, net of taxes, referred to as accumulated other comprehensive (loss) income, may increase or decrease total equity capital. The total net decreaseincrease in capital was $6,278,000 in 2025 after a decrease of $14,833,000 in 2024 after an increase of $1,229,000 in 2023.2024. The decreaseincrease in equity capital in 20242025 was due to thean impairmentimprovement ofin Goodwillaccumulated other comprehensive (loss) income amounting to $19,133,000$6,177,000 offset byand issuance of new shares through the Corporation’s Dividend Reinvestment Program (“DRIP”) amounting to $1,264,000$922,000, andoffset anby improvementa decrease of $821,000 in accumulatedretained other comprehensive (loss) income amounting to $4,015,000.earnings.
Return on average equity (“ROE”) is computed by dividing net income by average stockholders’ equity. This ratio was 5.60% for 2025 and (12.04)% for 2024 and 4.55% for 2023.2024.
Net cash flows provided by operating activities were $8,168,000$11,163,000 and $5,905,000$8,645,000 as of December 31, 20242025 and December 31, 2023,2024, respectively. Net lossincome amounted to $6,152,000 for the year ended December 31, 2025 compared to net loss of $13,203,000 for the year ended December 31, 2024 compared to net income of $5,560,000 for the year ended December 31, 2023.2024. The provision for credit losses resulted in a balance of $4,701,000 for the year ended December 31, 2025 compared to $1,640,000 for the year ended December 31, 20242024. Goodwill impairment amounted to $0 at December 31, 2025 compared to a$19,133,000 creditat balanceDecember 31, 2024. During the year ended December 31, 2025, net discount accretion on securities amounted to $86,000, compared to net premium amortization on securities of $217,000$273,000 for the year ended December 31, 2023. Goodwill impairment amounted to $19,133,000 at December 31, 2024 and $0 at December 31, 2023. During the years ended December 31, 2024 and 2023, net premium amortization on securities amounted to $273,000 and $1,519,000, respectively.2024. Net gains on sales of mortgage loans were $143,000 for the year ended December 31, 2025, compared to $80,000 for the year ended December 31, 2024, compared to $65,000 for the year ended December 31, 2023.2024. Originations of mortgage loans originated for resale exceeded proceeds (including gains) from sales of mortgage loans originated for resale by $446,000$272,000 and $77,000$446,000 for the years ended December 31, 20242025 and 2023,2024, respectively. Net securities gains were $224,000 for the year ended December 31, 2025, compared to $105,000 for the year ended December 31, 2024,2024. comparedAccrued tointerest netreceivable securitiesincreased lossesby of$4,000 $118,000 forduring the year ended December 31, 2023.2025 Accrued interest receivableand decreased by $208,000 during the year ended December 31, 20242024. andAccrued interest payable increased by $810,000$583,000 during the year ended December 31, 2023.2025 Accrued interest payableand decreased by $671,000 during the year ended December 31, 20242024. andOther increasedassets decreased by $2,260,000$584,000 during the year ended December 31, 2023.2025 Other assetsand increased by $812,000$808,000 during the year ended December 31, 2024 and decreased by $661,000 during the year ended December 31, 2023.2024. Other liabilities decreased by $20,000$906,000 and $5,429,000increased $1,721,000 during the years ended December 31, 20242025 and 2023,2024, respectively. Amortization of investment in low-income housing partnerships amounted to $819,000 for the yearyears ended December 31, 2024,2025 comparedand to2024. $231,000Cash forsurrender value of bank owned life insurance increased by $666,000 during the year ended December 31, 2023.2025 compared to an increase of $669,000 during the year ended December 31, 2024. A gain from bank owned life insurance proceeds was recognized during the year ended December 31, 2025 in relation to a death benefit which amounted to $255,000, compared to the year ended December 31, 2024 when no gains were recognized in relation to bank owned life insurance proceeds.
Investing activities provided cash of $4,907,000 during the year ended December 31, 2025 and used cash of $33,158,000 and $76,833,000 during the yearsyear ended December 31, 2024 and 2023, respectively.2024. Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions, net against purchases) provided cash of $6,462,000 during the year ended December 31, 2025 and $4,419,000 during the year ended December 31, 2024 and used cash of $16,533,000 during the year ended December 31, 2023.2024. Net change in restricted investment in bank stocks provided cash of $40,000 during the year ended December 31, 2025 and $1,901,000 during the year ended December 31, 2024 and used cash of $3,749,000 during the year ended December 31, 2023.2024. Net cash used to originate loans amounted to $37,740,000$2,520,000 and $52,480,000$37,740,000 during the years ended December 31, 20242025 and 2023,2024, respectively. Proceeds from bank owned life insurance provided cash of $1,238,000 during the year ended December 31, 2025 compared to the year ended December 31, 2024 when there was no cash provided from bank-owned life insurance. Purchase of premises and equipment used cash of $1,728,000$313,000 and $1,656,000$1,728,000 during the years ended December 31, 20242025 and 2023,2024, respectively. Purchase of investment in real estate ventures used cash of $10,000$0 and $2,415,000$10,000 during the years ended December 31, 20242025 and 2023,2024, respectively.
What changed in the latest 10-Q
Risk Factors
There have been no material changes to the risk factors disclosed in Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Six months ended June 30, 2026 compared to six months ended June 30, 2025”
Largest changes
Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months precedingsee in full comparisonMarchJune31,30, 2026,threefive loans experienced payment defaults during thethreesix months endedMarchJune31,30, 2026. One loan carrying abalancerecorded investment of$311,000$299,000 experienced a payment default during the three months endedMarchJune31,30, 2026 but was paid current prior toMarchJune31,30, 2026, one loan carrying abalancerecorded investment of$9,571,000$110,000 experienced a payment default during thethreesix months endedMarchJune31,30, 2026 and remainedgreater than 30 daysin past dueatstatusMarchas31,of June 30, 2026, one loan carrying a recorded investment of $330,000 experienced a payment default during the six months ended June 30, 2026 but was paid current as of June 30, 2026, one loan carrying a recorded investment of $9,437,000 experienced a payment default during both the three and six months ended June 30, 2026 and remained in past due status as of June 30, 2026, and one loan that was subsequently paid off prior toMarchJune31,30, 2026 had experienced a payment default during thethreesix months endedMarchJune31,30, 2026. Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months precedingMarchJune31,30, 2025,twothree loans experienced payment defaults during thethreesix months endedMarchJune31,30, 2025. One loan carrying abalancerecorded investment of $120,000 experienced a payment default during the six months ended June 30, 2025 and remained in past due status as of June 30, 2025. A loan carrying a recorded investment of $421,000 experienced a payment default during the three and six months ended June 30, 2025 and remained in past due status as of June 30, 2025. One loan carrying a recorded investment of $107,000 experienced a payment default during the three months endedMarchJune31, 2025 but the loan was paid off by the customer as of March 31, 2025. A loan carrying a balance of $425,000 experienced a payment default during the three months ended March 31,30, 2025 and remained in past due status as ofMarchJune31,30, 2025.
“Six months ended June 30, 2026 compared to six months ended June 30, 2025”see in full comparison
“Total past due loans increased by $9,459,000 during the six months ended June 30, 2026 from $12,616,000 at December 31, 2025 to $22,075,000 at June 30, 2026. The increase in past due loans during the six months ended June 30, 2026 was mainly attributable to one non-accrual loan carrying a balance of $9,437,000 that was past due as of June 30, 2026. The loan was individually evaluated for impairment due to its non-accrual status and had a specific allocation of $707,000 recorded under the allowance for credit losses as of June 30, 2026. …”see in full comparison
“The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense. For the six months ended June 30, 2026, interest income amounted to $39,218,000, an increase of $2,124,000 or 5.7% from the six months ended June 30, 2025, while interest expense amounted to $19,771,000 in the six months ended June 30, 2026 an increase of $952,000 or 5.1% from the six months ended June 30, 2025. As a result, net interest income increased $1,172,000 or 6.4% to $19,447,000 from $18,275,000 for the same period in 2025. …”see in full comparison
“The post modification outstanding recorded investment of modified loans to borrowers experiencing financial difficulty was $640,000 at March 31, 2026 which consisted of two loans classified in the Real Estate portfolio. The post modification outstanding recorded investment of modified loans to borrowers experiencing financial difficulty as of December 31, 2025 amounted to $12,671,000, with $12,664,000 classified in the Real Estate portfolio and $7,000 classified in the Commercial and Industrial portfolio. …”see in full comparison
Net cash flows provided by operating activities weresee in full comparison$2,195,000$4,908,000 for thethreesix months endedMarchJune31,30, 2026 and$308,000$5,729,000 for thethreesix months endedMarchJune31,30, 2025. Net income amounted to$1,959,000$5,736,000 for thethreesix months endedMarchJune31,30, 2026, compared to$1,053,000$3,967,000 for thethreesix months endedMarchJune31,30, 2025. During thethreesix months endedMarchJune31,30, 2026, the provision for credit losses amounted to a credit/recovery balance of$390,000$689,000 compared to a provision balance of$751,000$514,000 for thethreesix months endedMarchJune31,30, 2025. The provision for credit losses on unfunded commitmentsprovided cash of $53,000 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 when the provision for credit lossesused cash of$13,000.$5,000 and $6,000 for the six months ended June 30, 2026 and 2025, respectively. During thethreesix months endedMarchJune31,30, 2026, net discount accretion on securities amounted to$48,000$113,000 compared to net premium amortization of$50,000$104,000 for thethreesix months endedMarchJune31,30, 2025. Deferred income taxes provided cash of$34,000$111,000 and $210,000 during thethreesix months endedMarchJune31,30, 2026comparedandto2025,the three months ended March 31, 2025 when deferred income taxes used cash of $105,000.respectively. Net gains on sales of mortgage loans amounted to$46,000$59,000 for thethreesix months endedMarchJune31,30, 2026 and$20,000$38,000 for thethreesix months endedMarchJune31,30, 2025.ProceedsOriginations of mortgage loans originated for sale exceeded proceeds (net of gains/losses) from sales of mortgage loans originated for sale by $290,000 for the six months ended June 30, 2026 and proceeds (net of gains/losses) from sales of mortgage loans originated for sale exceeded originations of mortgage loans originated forresalesale by$733,000$663,000 for thethreesix months endedMarchJune31, 2026 and $192,000 for the three months ended March 31,30, 2025. Net securities gains amounted to$174,000$548,000 for thethreesix months endedMarchJune31,30, 2026, compared to net securitieslossesgains of$86,000$19,000 for thethreesix months endedMarchJune31,30, 2025. Accrued interest receivable decreased by$153,000$333,000 for thethreesix months endedMarchJune31,30, 2026 andincreaseddecreased by$76,000$39,000 for thethreesix months endedMarchJune31,30, 2025. Accrued interest payable decreased by$55,000$218,000 for thethreesix months endedMarchJune31,30, 2026 and increased by$386,000$167,000 for thethreesix months endedMarchJune31, 2025. Amortization of investment in low-income housing partnerships amounted to $204,000 for the three months ended March 31, 2026 and $214,000 for the three months ended March 31,30, 2025. Other assets increased by$1,583,000$188,000 for the six months ended June 30, 2026 and$1,734,000decreased by $516,000 during thethreesix months endedMarchJune31,30,2026 and 2025, respectively.2025. Other liabilities increased$1,177,000$105,000 during thethreesix months endedMarchJune31,30, 2026, compared to a decrease of$345,000$833,000 during thethreesix months endedMarchJune31,30, 2025. A gain from bank-owned life insurance proceeds of$235,000$255,000 was recognized during thethreesix months endedMarchJune31,30, 2025, compared to thethreesix months endedMarchJune31,30, 2026 when no gains were recognized in relation to bank-owned life insurance proceeds.
Full comparison: every changed paragraph (94)
Quarter ended MarchJune 31,30, 2026 compared to quarter ended MarchJune 31,30, 2025
First Keystone Corporation realized earnings for the three months ended MarchJune 31,30, 2026 of $1,959,000,$3,777,000, an increase of $906,000$863,000 from the firstsecond quarter of 2025. The increase in net income for the three months ended MarchJune 31,30, 2026 was primarily due to increased interest on excess cash balances held at the Federal Reserve and an increase interest and fees on loans.Reserve.
On a per share basis, for the three months ended MarchJune 31,30, 2026, net income was $0.31$0.60 compared to earnings of $0.17$0.47 per share for the same three month period of 2025. Quarterly regular cash dividends amounted to $0.28 per share for the three months ended MarchJune 31,30, 2026 and 2025.
The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense. In the three months ended MarchJune 31,30, 2026, interest income amounted to $19,242,000,$19,976,000, an increase of $1,032,000$1,092,000 or 5.7%5.8% from the three months ended MarchJune 31,30, 2025, while interest expense amounted to $10,111,000$9,660,000 in the three months ended MarchJune 31,30, 2026, an increase of $671,000$281,000 or 7.1%3.0% from the three months ended MarchJune 31,30, 2025. As a result, net interest income increased $361,000$811,000 or 4.1%8.5% to $9,131,000$10,316,000 from $8,770,000$9,505,000 for the same period in 2025.
The Company’s net interest margin for the three months ended MarchJune 31,30, 2026 was 2.49%2.77% compared to 2.58%2.78% for the same period in 2025. The decrease in net interest margin was primarily a result of increased interest on deposits and subordinated debt.
The provision for credit losses for the three months ended MarchJune 31,30, 2026, carried a recovery balance of $390,000,$299,000, compared to a provisionrecovery balance of $751,000$237,000 for the three months ended MarchJune 31,30, 2025. The decrease in the provision for credit losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. Charge-off and recovery activity in the allowance for credit losses resulted in net recoveries of $16,000$40,000 and net charge-offs of $355,000$69,000 for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increased level of net charge-offsrecoveries realized for the three months ended MarchJune 31,30, 2025 was2026 mainly theresulted resultfrom a recovery of a charge-off of $116,000 completed$31,000 on a loanresidential tomortgage and a truckingrecovery transportationof business and $245,000 charged-off$25,000 on a loan to a manufacturer of hemp-based biodegradable plastic food containers. See Allowance for Credit Losses on page 5053 for further discussion.
Total non-interest income was $1,813,000$2,145,000 for the three months ended MarchJune 31,30, 2026, as compared to $1,759,000$1,798,000 for the same period in 2025, an increase of $54,000,$347,000, or 3.1%.19.3%.
Net securities gains (losses) increased $260,000$269,000 to a net gain of $174,000$374,000 for the three months ended MarchJune 31,30, 2026 as compared to net lossesgains of $86,000$105,000 for the three months ended MarchJune 31,30, 2025. The increase in net securities gains (losses) was the result of an increase in the mark-to-market adjustment on held equity securities during the quarter ended MarchJune 31,30, 2026 compared to the quarter ended MarchJune 31,30, 2025.
Trust department income increased $25,000$15,000 or 9.6%5.4% to $286,000$295,000 for the three months ended MarchJune 31,30, 2026 as compared to the same period in 2025. Service charges and fees income decreased $5,000$2,000 or 0.9%0.4% for the three months ended MarchJune 31,30, 2026 as compared to the same period in 2025. Cash surrender value of life insurance increased $5,000$19,000 or 3.0%12.3% to $170,000$174,000 for the three months ended MarchJune 31,30, 2026. Gains on sales of mortgage loans increaseddecreased $26,000$5,000 or 130.0%27.8% for the three months ended MarchJune 31,30, 2026. The increase was due to more loans sold during the first quarter of 2026 as compared to the same period of 2025. There were no gains from life insurance proceeds realized during the three months ended MarchJune 31,30, 2026, compared to gains from life insurance proceeds of $235,000$20,000 that were recognized during the three months ended MarchJune 31,30, 2025 in relation to a death benefit. Other non-interest income decreasedincreased $23,000$48,000 or 30.7%57.1% to $52,000$132,000 for the three months ended MarchJune 31,30, 2026. The increase was mainly the result of a recovery of funds related to a prior defalcation loss.
Total non-interest expense was $9,173,000$8,438,000 for the three months ended MarchJune 31,30, 2026, as compared to $8,649,000$8,261,000 for the three months ended MarchJune 31,30, 2025.
Salaries and employee benefits amounted to $4,967,000$4,228,000 or 54.1%50.1% of total non-interest expense for the three months ended MarchJune 31,30, 2026, as compared to $4,630,000$4,303,000 or 53.5%52.1% of total non-interest expense for the three months ended MarchJune 31,30, 2025. The increasedecrease was mainly duethe toresult normalof employee merit increases and increased employeelower health insurancecare costs induring the first quarter ofended June 30, 2026 as compared to the same period inof 2025.
Net occupancy, furniture and equipment, and computer expense amounted to $1,411,000$1,286,000 for the three months ended MarchJune 31,30, 2026, an increase of $196,000$97,000 or 16.1%8.2% which was mainly due to an increase in expense related to various new software systems that were implemented inthroughout 2025.2025 Professionaland the first half of 2026. Expenses related to professional services increased $85,000$67,000 or 22.5%17.9% to $463,000$441,000 as of the quarter ended MarchJune 31,30, 2026 compared to the same quarter of 2025. The increase was due to normal annual increases in accounting audit expenses inand thelegal first quarter of 2026 asfees related to the sameCompany’s periodsubordinated indebt 2025.holdings during the second quarter of 2026. Pennsylvania shares tax expense amounted to $271,000$272,000 for the three months ended MarchJune 31,30, 2026, an increase of $50,000$5,000 or 22.6%1.9% as compared to the three months ended MarchJune 31,30, 2025.
Federal Deposit Insurance Corporation (“FDIC”) insurance expense amounted to $323,000$320,000 for the three months ended MarchJune 31,30, 2026, an increase of $14,000$16,000 or 4.5%5.3% as compared to the same period in 2025. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.
ATM and debit card fees expense amounted to $262,000$347,000 for the three months ended MarchJune 31,30, 2026, an increase of $15,000$41,000 or 6.1%13.4% as compared to the three months ended MarchJune 31,30, 2025. The increase was mainly due to increased electronic funds transfer fees in the firstsecond quarter of 2026. Data processing expenses amounted to $391,000$422,000 for the three months ended MarchJune 31,30, 2026 as compared to $357,000$385,000 for the same period of 2025, an increase of $34,000$37,000 or 9.5%9.6% mainly due to increases in internet banking and core service fees.
Advertising expense amounted to $82,000$100,000 in the firstsecond quarter of 2026, a decrease of $23,000$38,000 or 21.9%27.5% as compared to the three months ended MarchJune 31,30, 2025 as the Company utilized less newspaper and digital advertising during the firstsecond quarter of 2026.
Other non-interest expense amounted to $1,003,000$1,022,000 for the three months ended MarchJune 31,30, 2026, aan decreaseincrease of $184,000$27,000 or 15.5%2.7% as compared to the three months ended MarchJune 31,30, 2025. The decrease was mainly the result of $307,000 in expense related to a fraud write-off that was recognized during the first quarter of 2025.
Income tax expense amounted to $202,000$545,000 for the three months ended MarchJune 31,30, 2026, as compared to income tax expense of $76,000$365,000 for the three months ended MarchJune 31,30, 2025, an increase of $126,000.$180,000. The effective total income tax rate was 9.3%12.6% for the three months ended MarchJune 31,30, 2026 as compared to 6.7%11.1% for the three months ended MarchJune 31,30, 2025. The increase in the effective tax rate was mainly due to higher overall operating income, with minimal change to tax-exempt income. The Company recognized $210,000 of tax credits from low-income housing partnerships during both the three months ended MarchJune 31,30, 2026 and 2025.
Six months ended June 30, 2026 compared to six months ended June 30, 2025
First Keystone Corporation realized earnings for the six months ended June 30, 2026 of $5,736,000, an increase of $1,769,000 from the same period in 2025. The increase in net income for the six months ended June 30, 2026 was primarily due to increased interest on excess cash balances held at the Federal Reserve and an increase in interest and fees on loans during the six months ended June 30, 2026, offset with an increase in interest on deposits during the same period.
On a per share basis, net income was $0.91 for the six months ended June 30, 2026 compared to $0.64 for the same period in 2025. Cash dividends amounted to $0.56 per share for the six months ended June 30, 2026 and 2025.
NET INTEREST INCOME
The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense. For the six months ended June 30, 2026, interest income amounted to $39,218,000, an increase of $2,124,000 or 5.7% from the six months ended June 30, 2025, while interest expense amounted to $19,771,000 in the six months ended June 30, 2026 an increase of $952,000 or 5.1% from the six months ended June 30, 2025. As a result, net interest income increased $1,172,000 or 6.4% to $19,447,000 from $18,275,000 for the same period in 2025. The increase was primarily due to growth in interest bearing deposits in other banks during the six months ended June 30, 2026, offset by increased interest on deposits and subordinated debt and decreases in the balance of taxable securities due to run-off of principal and interest without replacement.
The Company’s net interest margin for the six months ended June 30, 2026 was 2.63% compared to 2.68% for same period in 2025. The decrease in net interest margin was primarily a result of increases in interest on deposits and subordinated debt and a decrease in income related to taxable securities.
PROVISION FOR CREDIT LOSSES
The provision for credit losses for the six months ended June 30, 2026, carried a recovery balance of 689,000, compared to a provision balance of $514,000 for the six months ended June 30, 2025. The decrease in the provision for credit losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. Charge-off and recovery activity in the allowance for credit losses resulted in net recoveries of $56,000 and net charge-offs of $424,000 for the six months ended June 30, 2026 and 2025, respectively. The increased balance of net charge offs for the six months ended June 30, 2025 was mainly the result of charge-offs completed on two loans during the first six months of 2025. Charge-offs of $162,000 were completed on a loan to a trucking transportation business and a charge off of $245,000 was completed on a loan to a manufacturer of hemp-based biodegradable plastic food containers. See Allowance for Credit Losses on page 53 for further discussion.
NON-INTEREST INCOME
Total non-interest income was $3,958,000 for the six months ended June 30, 2026, as compared to $3,557,000 for the same period in 2025, an increase of $401,000, or 11.3%.
Trust department income was $581,000 for the six months ended June 30, 2026 an increase of $40,000 or 7.4% as compared to the same period in 2025. Service charges and fee income decreased $7,000 or 0.6% for the six months ended June 30, 2026. Cash surrender value of life insurance increased $24,000 or 7.5% to $344,000 for the six months ended June 30, 2026, as compared to $320,000 for the six months ended June 30, 2025.
ATM fees and debit card income increased $24,000 or 2.1% to $1,143,000 for the six months ended June 30, 2026. Gains on sales of mortgage loans increased $21,000 or 55.3% due to more loans sold and at a higher average gain on individual loans sold in the first six months of 2026 as compared to the same period in 2025.
Net securities gains increased $529,000 to a net gain of $548,000 for the six months ended June 30, 2026 as compared to net gains of $19,000 for the six months ended June 30, 2025. The increase in net securities gains was the result of an increase in the mark-to-market adjustment on held equity securities during the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
Other non-interest income amounted to $184,000 for the six months ended June 30, 2026, an increase of $25,000 or 15.7% as compared to the same period of 2025. The increase was mainly the result of a recovery of funds related to a prior defalcation loss.
NON-INTEREST EXPENSE
Total non-interest expense was $17,611,000 for the six months ended June 30, 2026, as compared to $16,910,000 for the six months ended June 30, 2025. Non-interest expense increased $701,000 or 4.1%.
Salaries and employee benefits amounted to $9,195,000 or 52.2% of total non-interest expense for the six months ended June 30, 2026, as compared to $8,933,000 or 52.8% for the six months ended June 30, 2025. The increase was mainly the result of normal employee merit increases during the first half of 2026.
Net occupancy, furniture and equipment, and computer expense amounted to $2,697,000 for the six months ended June 30, 2026, an increase of $293,000 or 12.2%. The increase was mainly due to an increase in expense related to various new software systems that were implemented throughout 2025 and the first half of 2026. Expenses related to professional services increased $152,000 or 20.2% to $904,000 for the six months ended June 30, 2026. The increase was due to normal annual increases in accounting audit expenses and legal fees related to the Company’s subordinated debt holdings during the first half of 2026. Pennsylvania shares tax expense amounted to $543,000 for the six months ended June 30, 2026, an increase of $55,000 or 11.3% as compared to the six months ended June 30, 2025.
FDIC insurance expense increased $30,000 or 4.9% for the six months ended June 30, 2026. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.
ATM and debit card fees expense amounted to $609,000 for the six months ended June 30, 2026, an increase of $56,000 or 10.1% as compared to the six months ended June 30, 2025. This increase was a result of higher electronic funds transfer expenses for the six months ended June 30, 2026, as compared to the same period in 2025. Data processing expenses amounted to $813,000 for the six months ended June 30, 2026, an increase of $71,000 or 9.6% as compared to the six months ended June 30, 2025. The increase was mainly the result of increased internet banking and core service fees.
Advertising expense decreased $61,000 or 25.1% during the six months ended June 30, 2026. This decrease was mainly the result of the Company utilizing less newspaper and digital advertising during the first half of 2026 as compared to the first half of 2025.
Other non-interest expense amounted to $2,025,000 for the six months ended June 30, 2026, a decrease of $157,000 or 7.2% as compared to the six months ended June 30, 2025. The decrease was mainly the result of $307,000 in expense related to a fraud write-off that was recognized during the first half of 2025.
INCOME TAXES
Income tax expense amounted to $747,000 for the six months ended June 30, 2026, as compared to income tax expense of $441,000 for the six months ended June 30, 2025, an increase of $306,000. The effective total income tax rate was 11.5% for the six months ended June 30, 2026 as compared to 10.0% for the six months ended June 30, 2025. The increase in the effective tax rate was mainly due to higher overall operating income with minimal change to tax-exempt income. The Company recognized $420,000 of tax credits from low-income housing partnerships during both the six months ended June 30, 2026 and 2025.
Total assets decreasedincreased to $1,524,919,000$1,574,315,000 as of MarchJune 31,30, 2026, aan decreaseincrease of $6,058,000$43,338,000 from year-end 2025. Total assets as of December 31, 2025 amounted to $1,530,977,000.
Total cash and cash equivalents increased by $15,590,000$66,712,000 to $136,839,000$187,961,000 as of MarchJune 31,30, 2026 from $121,249,000 as of December 31, 2025. The increase was mainly the result of an increase of $66,463,000 in interest-bearing deposits in other banks due to an increase in excess cash balances held at the Federal Reserve resulting from increased deposits and cashflows from activity in the debt securities available-for-sale portfolio which were not reinvested during the three months ended March 31, 2026, along with a decrease in the loans held for investment portfolio duringrunoff thethat firstwas quarternot of 2026.reinvested.
Total debt securities available-for-sale decreased $7,362,000$25,142,000 or 1.9%6.4% to $386,864,000$369,084,000 as of MarchJune 31,30, 2026 from $394,226,000 at December 31, 2025 mainly due to $10,543,000$28,933,000 in maturities, paydowns, and calls completed during the threesix months ended MarchJune 31,30, 2026 and an increase of $867,000 in unrealized loss on securities,2026, offset by $4,000,000 in securities purchased during the same period.
Total net loans decreasedincreased $15,436,000$2,359,000 or 1.6%0.3% to $923,577,000$941,552,000 as of MarchJune 31,30, 2026 from $939,013,000 as of December 31, 2025. Real estate loans, the largest segment of the Company’s loan portfolio, decreased by $14,429,000$8,450,000 during the threesix months ended MarchJune 31,30, 2026 and2026, commercial and industrial loans, the second largest segment of the Company’s loan portfolio, decreasedincreased by $737,000$1,101,000 during the threesix months ended MarchJune 31,30, 2026, and loans to state and political subdivisions, the third largest segment of the Company’s loan portfolio increased by $9,188,000 during the six months ended June 30, 2026. The allowance for credit losses also decreased by $633,000 during the six months ended June 30, 2026.
Total deposits increased $42,473,000 or 3.7% to $1,179,910,000 from $1,137,437,000 as of December 31, 2025, mainly due to an increase of $24,065,000 in the balance of non-interest bearing deposits due to an increase of $18,368,000 in the balance of non-interest checking accounts. Interest-bearing deposits also increased by $18,408,000 during the six months ended June 30, 2026 due to an increase of $20,402,000 in the balance of retail CDs and an increase of $27,943,000 in the balance of other interest-bearing deposit accounts, offset by a decrease of $29,938,000 in the balance of brokered CDs during the same period.
Total deposits decreased $6,148,000 or 0.5% to $1,131,289,000 as of March 31, 2026 from $1,137,437,000 as of December 31, 2025, mainly due to a decrease of $16,679,000 in the balance of interest bearing deposits, driven by a decrease of $29,938,000 in the balance of brokered CDs, offset by an increase of $10,040,000 in the balance of retail CDs and an increase of $3,218,000 in the balance of other interest bearing deposit accounts. Non-interest bearing deposits increased by $10,531,000 during the three months ended March 31, 2026.
The Company continues to maintain and manage its asset growth. The Company’s strong equity capital position provides an opportunity to further leverage its asset growth. Total borrowings decreased during the threesix months ended MarchJune 31,30, 2026 by $761,000$1,241,000 to $242,084,000$241,604,000 from $242,845,000 as of December 31, 2025. The decrease in borrowings was the result of a decrease of $761,000 in$1,241,000 the balance of repurchase agreements.
Total stockholders’ equity amounted to $114,175,000$118,456,000 at MarchJune 31,30, 2026, an increase of $1,115,000$5,396,000 or 1.0%4.8% from December 31, 2025 mainly due to an increase of $414,000 in common stock surplus, an improvement of $415,000$2,249,000 in accumulated other comprehensive loss,loss and an increase of $203,000$2,217,000 in retained earnings.
Earning assets are defined as those assets that produce interest income. By maintaining a healthy asset utilization rate, i.e., the volume of earning assets as a percentage of total assets, the Company maximizes income. The earning asset ratio (average interest earning assets divided by average total assets) equaled 95.7% at MarchJune 31,30, 2026 and 95.0% at MarchJune 31,30, 2025. This indicates that the management of earning assets is a priority and non-earning assets, primarily cash and due from banks, fixed assets and other assets, are maintained at minimal levels. The primary earning assets are loans and securities.
The Company’s primary earning asset, the loans held for investment portfolio, decreasedincreased to $932,163,000$948,848,000 as of MarchJune 31,30, 2026, downup $15,122,000$1,563,000 or 1.6%0.2% since year-end 2025. The loan portfolio continues to be well diversified and asset quality has remained consistent. Total non-performing assets were $16,886,000$20,123,000 as of MarchJune 31,30, 2026, a decreaseincrease of $33,000$3,204,000 or 0.2%18.94% from $16,919,000 reported in non-performing assets as of December 31, 2025. Total allowance for credit losses to total non-performing assets was 53.5%43.63% as of MarchJune 31,30, 2026 and 55.6%55.63% at December 31, 2025. See the Non-Performing Assets section on page 5256 for more information.
In addition to loans, another primary earning asset is our overall securities portfolio, which decreased in size from December 31, 2025 to MarchJune 31,30, 2026 mainly due to normal runoff in the securities portfolio which was not reinvested. Debt securities available-for-sale amounted to $386,864,000$369,084,000 as of MarchJune 31,30, 2026, a decrease of $7,362,000$25,142,000 from year-end 2025. The decrease in debt securities available-for-sale is mainly due to $10,543,000$28,933,000 in maturities, paydowns, and calls completed during the threesix months ended MarchJune 31,30, 2026 and an increase of $867,000 in unrealized loss on securities,2026, offset by $4,000,000 in securities purchased during the same period.
Interest-bearing deposits in other banks increased $15,338,000$66,463,000 as of MarchJune 31,30, 2026, to $127,832,000$178,957,000 from $112,494,000 at year-end 2025 mainly due to an increase in excess cash balances held at the Federal Reserve as a result of increased deposit balances,balances and excess cashflows from activity in the debt securities available-for-sale portfolio which were not reinvested during the threesix months ended MarchJune 31, 2026, and a decrease in the loans held for investment portfolio during the first quarter of30, 2026.
Total loans decreasedincreased to $931,620,000$948,423,000 as of MarchJune 31,30, 2026 as compared to $946,661,000 as of December 31, 2025. The table on page 21 provides data relating to the composition of the Company’s loan portfolio on the dates indicated. Total loans decreasedincreased by $15,041,000$1,762,000 or 1.6%.0.2%.
The Real Estate portfolio decreased $14,429,000$8,450,000 or 1.7%1.0% from $853,668,000 at December 31, 2025 to $839,239,000$845,218,000 at MarchJune 31,30, 2026. The decrease in the Real Estate portfolio for the threesix months ended MarchJune 31,30, 2026 was mainly the result of a$76,134,000 decreasein new loan originations and an increase in utilization of existing real estate lines of credit of $3,136,000$21,500,000, andoffset by loan payoffs of $24,779,000$62,477,000 along with regular principal payments (which have significantly increased for the Company’s Real Estate portfolio for the six months ended June 30, 2026 as compared to prior periods) and other typical fluctuations in the Real Estate portfolio, offset by $24,634,000 in new loan originations.portfolio. The Agricultural portfolio increased $246,000$257,000 or 25.0%26.1% from $984,000 at December 31, 2025 to $1,230,000$1,241,000 at MarchJune 31,30, 2026. The increase in the Agricultural portfolio for the threesix months ended MarchJune 31,30, 2026 was mainly the result of an increase of $88,000$119,000 in utilization of existing agricultural lines of credit, along with three loans carrying an aggregate balance of $243,000$254,000 which were reclassed from the Real Estate portfolio to the Agricultural portfolio during the first quartertwo quarters of 2026, offset by regular principal payments and other typical fluctuations in the Agricultural portfolio. The Commercial and Industrial portfolio decreasedincreased $737,000$1,101,000 or 1.1%1.7% from $66,924,000 at December 31, 2025 to $66,187,000$68,025,000 at MarchJune 31,30, 2026. The decreaseincrease was attributable to $5,463,000 in new loan originations and an increase of $1,377,000 in utilization of existing commercial and industrial lines of credit, offset by loan payoffs of $663,000$1,779,000 and regular principal payments and other typical amortization in the Commercial and Industrial portfolio, offset by $1,753,000 in new loan originations and an increase of $508,000 in utilization of existing commercial and industrial lines of credit.portfolio. The Consumer portfolio decreased $72,000$334,000 or 1.5%6.7% from $4,953,000 at December 31, 2025 to $4,881,000$4,619,000 at MarchJune 31,30, 2026. The decrease is mainly attributable to loan payoffs of $307,000$785,000 and a decrease in utilization of existing real estateconsumer lines of credit of $83,000,$95,000, along with regular principal payments and other typical amortization in the Consumer portfolio, offset by new loan originations of $640,000.$1,268,000. The State and Political Subdivisions portfolio decreasedincreased $49,000$9,188,000 or 0.2%45.6% from $20,132,000 at December 31, 2025 to $20,083,000$29,320,000 at MarchJune 31,30, 2026. The decreaseincrease iswas mainlyattributable theto result$8,900,000 in new loan originations and an increase in utilization of existing state and political subdivision lines of credit of $485,000, offset by regular principal payments on state and political subdivisions loans completed during the threesix months ended MarchJune 31,30, 2026, offset by an increase in utilization of existing real estate lines of credit of $40,000.2026.
Overall, the portfolio risk profile as measured by loan grade is considered low risk, as $893,112,000$906,086,000 or 95.9%95.5% of gross loans are graded Pass; $12,349,000$16,666,000 or 1.3%1.8% are graded Special Mention; $26,159,000$25,671,000 or 2.8%2.7% are graded Substandard; and $0 are graded Doubtful. The rating is intended to represent the best assessment of risk available at a given point in time, based upon a review of the borrower’s financial statements, credit analysis, payment history with the Bank, credit history and lender knowledge of the borrower. See Note 4 — Loans and Allowance for Credit Losses for risk grading tables. Overall, non-pass grades increased $9,717,000$13,546,000 to $38,508,000$42,337,000 at MarchJune 31,30, 2026, as compared to $28,791,000 at December 31, 2025. Real Estate non-pass grades increased $1,037,000$3,727,000 to $29,495,000$32,185,000 as of MarchJune 31,30, 2026 as compared to $28,458,000 as of December 31, 2025. Commercial and Industrial non-pass grades increased $8,693,000$9,818,000 to $9,003,000$10,128,000 as of MarchJune 31,30, 2026 as compared to $310,000 as of December 31, 2025. The increase in Commercial and Industrial non-pass grades during the threesix months ended MarchJune 31,30, 2026 was mainly the result of the downgrade of one loan relationship to Special Mention status which carried an aggregate balance of $8,694,000,$9,755,000, related to a plastic injection molding company. Consumer non-pass grades decreasedincreased $13,000$1,000 to $10,000$24,000 as of MarchJune 31,30, 2026 as compared to $23,000 as of December 31, 2025. There were no Agricultural or State and Political Subdivision non-pass grades at MarchJune 31,30, 2026 or December 31, 2025.
The allowance for credit losses constitutes the amount available to absorb losses within the loan portfolio. As of MarchJune 31,30, 2026 the allowance for credit losses was $9,038,000$8,779,000 as compared to $9,412,000 as of December 31, 2025. The allowance for credit losses is established through a provision for credit losses charged to expenses. Loans are charged against the allowance for possible credit losses when management believes that the collectability of the principal is unlikely. The risk characteristics of the loan portfolio are managed through various control processes, including credit evaluations of individual borrowers, periodic reviews, and diversification by industry. Risk is further mitigated through the application of lending procedures such as the holding of adequate collateral and the establishment of contractual guarantees.
Management considers, based upon its methodology, that the allowance for credit losses is adequate to cover foreseeable future losses. However, there can be no assurance that the allowance for credit losses will be adequate to cover significant losses, if any, that might be incurred in the future. On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Company’s allowance for credit losses and various adjustments are made to these factors as deemed necessary at the time of evaluation. The following table summarizes the qualitative factor adjustments made during the first quarterand second quarters of 2026.
Total past due loans increased by $9,459,000 during the six months ended June 30, 2026 from $12,616,000 at December 31, 2025 to $22,075,000 at June 30, 2026. The increase in past due loans during the six months ended June 30, 2026 was mainly attributable to one non-accrual loan carrying a balance of $9,437,000 that was past due as of June 30, 2026. The loan was individually evaluated for impairment due to its non-accrual status and had a specific allocation of $707,000 recorded under the allowance for credit losses as of June 30, 2026. The loan was on non-accrual status as of December 31, 2025 but was paid current at that time. As of December 31, 2025, the loan was individually evaluated for impairment and carried a specific allocation of $973,000. The reduction of $266,000 in the specific allocation (and subsequently the allowance for credit losses overall) was due to payments made on the loan, bringing the loan balance closer to the appraised value of the underlying collateral.
Non-performing assets increased by $3,204,000 during the six months ended June 30, 2026 from $16,919,000 at December 31, 2025 to $20,123,000 at June 30, 2026. The increase in non-performing assets for the six month period was mainly the result of an increase of $2,599,000 in the balance of non-accrual loans which increased from $16,763,000 at December 31, 2025 to $19,362,000 at June 30, 2026 mainly due to the addition of a loan relationship containing five loans to a real estate investor carrying an aggregate balance of $2,044,000. None of the loans moved to non-accrual status during the six months ended June 30, 2026 were determined to require a specific allocation as a result of the individual evaluation analysis performed.
FKYS insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 4 Form 4 filings (3 insiders, 4 trade dates, 6,458 shares, about $115.6K) and open-market sales in 0 filings. Net open-market shares: 6,458 (purchases minus sales); net value about $115.6K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-06-23 | Bower Donald Matthew |
Open-market purchase | 4,275 | $17.70 | $75.7K |
| 2026-05-28 | Bower Donald Matthew |
Open-market purchase | 1,000 | $18.00 | $18.0K |
| 2026-05-27 | Jezewski Michael L |
Open-market purchase | 334 | $17.97 | $6.0K |
| 2026-05-27 | Jezewski Michael L |
Open-market purchase | 105 | $17.98 | $1.9K |
| 2026-05-27 | Jezewski Michael L |
Open-market purchase | 109 | $17.90 | $2.0K |
| 2026-05-26 | Karas Michelle M. |
Open-market purchase | 635 | $19.00 | $12.1K |
Well-known investors holding FKYS (13F)
None of the 59 investors we track reported a position in their latest 13F.