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

In addition to the other information set forth in this report, one should carefully consider the factors discussed below, which could materially affect our business, financial condition or future results. The risks described below are not the only risks that we face.face but are designed to highlight what we believe are the material factors to consider when evaluating our business and expectations. References to past events and risks are provided as examples only and are not intended to be a complete listing or representation as to whether any such risk factor presented has occurred in the past or likelihood of it occurring in the future. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially adversely affect our business, financial condition and/or operating results.

The Company’s profitability is dependentdepends to a large extent on its net interest income, which is the difference between the interest income paid on its loans and investments and the interest the Company pays to third parties such as its depositors, lenders and debtholders. ChangesConsequently, changes in interest rates can impact profits and the fair values of certain assets and liabilities. Models that the Company uses to forecast and plan for the impact of rising and falling interest rates may fail to consider the impact of competition and other conditions affecting loansloans, deposits and deposit cash flow assumptions. Volatility in interest rates affects the Company’s earnings, and depending on the extent of such volatility, the Company’s operating results and financial position could be materially impacted.

Increases in interest rates and economic conditions affecting consumer demand for housing can have a material impact on the volume of mortgage originations and refinancing, adversely affecting the profitability of the mortgage banking business. Interest rate risk can also result from mismatchesvariances between the dollar amounts of repricing or maturing assets and liabilities and from mismatchesvariances in the timing and rates at which the assets and liabilities reprice. The Company actively monitors and manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that the Company will be able to avoid material adverse effects on net interest margin in all market conditions.margin. Rising interest rates in prior periods have increased interest expense, with a commensurate negative effect on net interest income, but may not be expected to do so in future periods. In a rising rate environment, competition for cost-effective deposits increases, making it more costly for the Company to fund loan growth. Rapid and unexpected volatility in interest rates creates additional uncertainty and potential for adverse financial effects. There can be no assurance that the Company will not be materially adversely affected by futureFuture changes in interest rates.rates may materially adversely affect our financial condition and results of operations.

At December 31, 2024,2025, we had approximately $526.3$512.6 million of securities available for sale. These securities are carried at fair value on our consolidated balance sheets. Unrealized gains or losses on these securities, that is, the difference between the fair value and the amortized cost of these securities, are reflected in stockholders’ equity, net of deferred taxes. As of December 31, 2024,2025, our available for sale securities had an unrealized loss, net of taxes, of approximately $38.3$29.1 million. The fair value of our available for sale securities is subject to change based on prevailing interest rate change,rates, which would not affect recorded earnings, but would increase or decrease comprehensive income (loss) and stockholders’ equity.

Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future periods. A security is considered impaired if theits fair value of the security is less than its amortized cost basis (excluding fair value hedge accounting adjustments from active portfolio layer method hedges).

Management periodically evaluates investments for impairment and utilizes criteria such as the magnitude of the decline, in addition to the reasons underlying the decline, to determine whether impairment is due to credit losses. If management concludes that it does not intend to sell an impaired security and it is not more likely than not required to sell an impaired security before recovery of its amortized cost basis (except for fair value hedge accounting adjustments from active portfolio layer method hedges), the Company will record the portion of the impairment related to credit losses (if any) in an ACL with an offsetting entry to net income. If an impairment charge is significant enough, it could affect our ability to pay dividends, which could materially adversely affect us and our ability to pay dividends to shareholders.dividends. Significant impairment charges could also negatively impact our regulatory capital ratios and result in us not being classified as “well-capitalized” for regulatory purposes.

Lending money is a significant part of the banking business and interest income on our loan portfolio is the principal component of our revenue. Our financial condition and results of operations are affected by the ability of our borrowers to repay their loans, andloans in a timely manner. Borrowers, however, do not always repay their loans. The risk of non-payment is assessed through our underwriting and loan review procedures based on several factors including credit risks of a particular borrower, changes in economic conditions, the duration of the loan and in the case of a collateralized loan, uncertainties as to the future value of the collateral and other factors. Despite our efforts, we do and will experience loan and leasecredit losses, and our financial condition and results of operations will be adversely affected. Our loans which were between 3030- and 8989- days delinquent on December 31, 20242025, totaled $14.1$15.5 million. Our nonperforming assets were approximately $23.0$12.1 million on December 31, 2024.2025. Our ACL was approximately $41.8$39.0 million on December 31, 2024.2025.

At December 31, 2024,2025, $551.9$602.3 million or 13.814.8 percent, of our loan portfolio consisted of residential mortgage loans and $2.3 billion or 57.456.9 percent, of our loan portfolio consisted of commercial real estate loans. In addition, $836.0$667.9 million or 20.916.4 percent of our loan portfolio consisted of taxable commercial loans and $202.3 million or 5.0 percent of non-taxable commercial loans. A majority of these loans are made to borrowers or secured by properties located in Eastern Pennsylvania.Pennsylvania, where our business activities are primarily concentrated. Deterioration in economic conditions in this market area, particularly in the industries on which this geographic area depend,depends, or a general decline in economic conditions mayhas previously adversely affectaffected the quality of our loan portfolio (including the level of nonperforming assets, charge offs and provision for credit losses) and may adversely impact our loan quality in the future, as well as the demand for our products and services, and, accordingly, our results of operations. Future declines in real estate values in the region could also cause some of our mortgage and commercial real estate loans to be inadequately collateralized, which would expose us to a greater risk of loss if we seeksought to recover on defaulted loans by selling the real estate collateral.

At December 31, 20242025, our portfolio included $179.1$169.0 million of equipment financing loans.loans and leases. Our equipment finance activities through our wholly-owned subsidiary, 1st Equipment Finance, Inc., expose us to a range of risks, including credit, operational, and collateral and/or residual value risks. Credit risk arises from the potential inability of borrowers to meet their payment obligations, which can be influenced by economic conditions, industry-specific downturns, or borrower-specific financial difficulties. Operational risks include the potential for errors in documentation, underwriting, or asset/collateral management processes, which could affect our ability to enforce contracts or recover equipment. Collateral and/or residual value risks stem from fluctuations in the value of financed equipment. The resale market for equipment may be limited, reducing our ability to mitigate losses in the event of default or at the end of lease term.

The determination of the ACL involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our ACL. Increases in nonperforming loans have a significant impact on our ACL. Our ACL may not be adequate to absorb actual credit losses. If conditions in our regional real estate markets decline, we could experience increased delinquencies and credit losses, particularly with respect to real estate construction and land acquisition and development loans and one-to-four family residential mortgage loans. Moreover, if the economy slows, the negative impact to our market area could result in higher delinquencies and credit losses. As a result, we will continue to make provisions for credit losses and to charge off additional loans in the future, which could materiallyhave adverselya affectmaterial adverse effect on our financial conditionscondition and results of operations.

In addition to our internal processes for determining our ACL, bank regulatory agencies periodically review our ACL and may require us to increase the provision for credit losses, to recognize further loan charge-offs, or to take other actions,actions based on judgments that differ from those of our management. If loan charge-offs in future periods exceed the ACL, we will need to increase our ACL. Furthermore, growth in our loan portfolio would generally lead to an increase in the provision for credit losses. Provisions for credit losses will result in a decrease in net income and capital,capital and may have a material adverse effect on our financial condition, and results of operations and cash flows.

An inability to raise funds through deposits, borrowings, the sale of securities or loans and other sources couldwould have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on the terms of which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general.generally. Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of our lenders or market conditions were to change.change for us or our lenders.

Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of the Bank, which could lead to a loss of depositor confidence andin turn leading to an increase in deposit withdrawals, particularly among those with uninsured deposits. Furthermore, as we and other banks experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers (i) spread deposits among several different banks so as to maximize their amount of FDIC insurance, (ii) move deposits to larger banks (who may be considered “too big to fail”), or (iii) remove deposits from the banking system entirely. As of December 31, 2024,2025, approximately 20.323.1 percent of our deposits were uninsured and uncollateralized. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.

Our business strategies are based on access to funding from local customer deposits. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises. If our deposit levels fall, we could lose a relatively low costlow-cost source of funding and our interest expense would likely increase as we obtain alternative funding to replace lost deposits. If local customer deposits are not sufficient to fund our normal operations and growth, or if we lose a significant portion of our local customer deposits or a significant deposit relationship, we will look to outside sources, such as borrowings from the FHLB, which is a secured funding source, and our liquidity and/or profitability could be adversely impacted. Our ability to access borrowings from the FHLB will bedepend dependent upon whether andon the extent to which we can provide collateral to secure FHLB borrowings. We may also look to federal funds purchased and brokered deposits, although the use of brokered deposits may be limited or discouraged by our banking regulators. We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity. If we are unable to access sufficient funding sufficient to support our business operations and growth strategies or if we are unable to access such funding on attractive terms, we may not be able to implement our business strategies which may negatively affect our financial performance.

AsWe marketwill interestcontinue ratesto havemonitor increased, we have experienced unrealized losses on our available for salethe securities portfolio. Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available for sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity. Nonetheless, our access to liquidity sources could be affected by unrealized losses if: (i) securities must be sold at a loss; (ii) tangible capital ratios continue to decline from an increase in unrealized losses or realized credit losses; or (iii) bank regulators impose restrictions on us that impact the level of interest rates we may pay on deposits or our ability to access brokered deposits. Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among thosecustomers with uninsured deposits.

OurThe liquidity of our holding company is dependent for liquiditydepends on payments from the Bank, which payments are subject to restrictions.

We depend on dividends, distributions and other payments from Thethe Bank to fund dividend payments to our shareholders, if any, and to fund all payments on obligations of our holding company. The Bank is subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from the Bank to us. Restrictions or regulatory actions of that kind could impede our access to funds that we may need to make payments on our obligations or dividend payments, if any. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. Holders of our common stock are entitled to receive dividends if and when declared from time to time by our Board of Directors in its sole discretion out of funds legally available for that purpose.

We report certain assets, including available for sale investment securities, at fair value. Generally, forFor assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we record these assets at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. The level of interest rates can impact the estimated fair value of investment securities. Disruptions in the capital markets may require us to recognize impairments in future periods with respect to investment securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated recovery period.

As of December 31, 2024,2025, goodwill and intangible assets totaled $76.0 million and $34.2$27.7 million, respectively. We account for goodwill and other intangible assets in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using thea two steptwo-step approach. Testing for impairment of goodwill and intangible assets is performed annually, or more frequently if market factors change, and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. A significant and sustained decline in the company’s common stock price from changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates andor other external factors (such as global pandemicspandemics, political instability and conflict, or natural disasters) may necessitate taking charges in the future and could result in an impairment charge at a future date.

We currently operate 3940 branchcommunity banking offices, and own additional real estate. In addition, a significant portion of our loan portfolio is secured by real property. In the course of our business, we may foreclose, accept deeds in lieu of foreclosure, or otherwise acquire real estate, and in doing so could become subject to environmental liabilities with respect to these properties. We may become responsible to a governmental agency or third parties for property damage, personal injury, investigation and clean-up costs incurred by those parties in connection with environmental contamination,contamination or may be required to investigate or clean-up hazardous or toxic substances, or chemical releases at a property. The costs associated with environmental investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Although we have policies and procedures to perform an environmental review before acquiring title to any real property, these may not be sufficient to detect all potential environmental hazards. If we were to become subject to significant environmental liabilities, it could materially and adversely affect us.

We depend to a significant extent on relationshipsthird-party service providers and vendors, with third party service providers. Specifically,whom we utilizehave thirdsubstantial partyand material ongoing business relationships, including for core banking services and receiveservices, credit card and debit card services, branch capture services, Internetinternet banking services and other services complementary to our banking products from various third party service providers.products. If these thirdthird-party partyrelationships servicewere providersto experienceunexpectedly difficultiesbecome impaired or terminate their services and we are unable to replace them with other service providers,cease, our operations could be interrupted. It may be difficult for us to replace some of our third partythird-party vendors, particularly vendors providing our core banking, credit card and debit card services, in a timely manner ifand theythe werereplacement unwillingcould orbe unableon terms that are less favorable to provide us with these services in the future for any reason.us. If an interruption were to continue for a significant period of time, itor could haveif a materialnew adverse effect on our business, financial condition or results of operations. Even if we are able to replace them, it may be at higher cost to us or onvendor’s terms that arewere less favorable to usus, than those currently provided by our existing third party service providers, whichit could have a material adverse effect on our business, financial condition or results of operations. In addition, if a thirdthird-party’s party provider failsfailure to provide the services we require,require failscould tothreaten meet contractual requirements, such asour compliance with applicable laws and regulations,regulations or sufferscause aus cybersecurity incident or other security breach, our business couldto suffer economic and reputational harm that could have a material adverse effect on our business, financial condition or results of operations.

We regularly use third party vendors as part of our business. We also have substantial ongoing business relationships with other third parties. These types of third partythird-party relationships are subject to demanding regulatory requirements and attention byfrom our bank regulators. Banking regulations requiresrequire us to perform due diligence,diligence concerning our third-party vendors, to monitor ongoing monitoringrelationships, and to maintain controloperational over our third party vendors and other ongoing third party business relationships.control. We expect that our regulators will hold us responsible for deficiencies in ourany oversight andor loss of control of our third partythird-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations.

The Company’s business activities and earnings are affected by general business conditions in the United States and in the market area in which the Company operates. There can be no assurance that our business and corresponding financial performance will not be adversely affected by general economic or consumer trends or events,events. includingThese pandemics,conditions publicinclude healthshort-term crises,and weatherlong-term catastrophes,interest actsrates, inflation, unemployment levels, consumer confidence and spending, fluctuations in both debt and equity capital markets, recession and the strength of terrorism,the war,economy in the United States generally and politicalthe instability.Company’s Inmarket particular,area. globalA favorable business environment is characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; or increases in inflation or interest rates; or periods of inflation. Unfavorable conditions can be caused by a variety of factors that lead to uncertainty and volatility. Global economic markets have seen extensive volatility over the last several years owing to variety of factors, including high inflation, trade policies and tariffs, volatility in the capital markets, the failure of financial institutions, volatility in the housing market, interest and currency rate fluctuations, labor availability, supply chain disruptions, global pandemics and public health crises and the responses thereto, weather catastrophes and geopolitical instability, including shutdowns and threats of shutdowns of the U.S. federal government, growing tensions between Chinathe U.S. and theother U.S.,nations, the Russia-Ukraine war, conflict in the Middle East, including the recent U.S. initiative against Iran, and acts of terrorism. These events have created,created and may continue to create,create significant disruptiondisruptions ofto the global economy, supply chains and financial and labor markets. If such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s business, financial condition and results of operations. Furthermore, such economic conditions have produced downward pressure on share prices and on the availability of credit for financial institutions and corporations while also driving up interest rates, further complicating borrowing and lending activities.

Technology and other changes are allowing Fin Tech companies and other parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the loss of deposits as a lower cost source of funds could have a material adverse effect on our financial condition and results of operations.

We or our third-party vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presents several potential risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other areas of laws applicableimpacted toby the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.

Effective and competitive delivery of our products and services is increasingly dependentdepends upon information technology resources and processes, both those provided internally as well as those provided through third party vendors. In addition to better serving customers, the effective use of technology increases efficiency and enables us to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services to enhance customer convenience, as well as to create additional efficiencies in our operations. Many of our competitors have greater resources to invest in technological improvements. Additionally, as technology in the financial services industry changes and evolves, keeping pace becomes increasingly complex and expensive for us. There can be no assurance that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to compete effectively.

Information security risks have significantly increased in recent yearsyears, and are likely to continue to do so, in part because of the proliferation of new technologies, the use of the Internetinternet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. We rely on digital technologies, computer and email systems, software, and networks to conduct secure processing, transmission and storage of confidential information. In addition, to access our products and services, our customers may use personal smart phones, tablet PCs and other mobile devices that are beyond our control systems. Our technologies, systems, and networks (including such third-party information technology platforms on which our business depends) and our customers’ devices have been subject to, and are likely to continue to be the target of, cybersecurity threats, computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized use, loss or destruction of our or our customers’ or third parties’ confidential information, or otherwise disrupt our or our customers’ or other third parties’ business operations.

In addition to cybersecurity incidents or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, that are designed to disrupt key business services, such as customer-facing web sites. We are not able tocannot anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

Although we use a variety of physical, procedural and technological safeguards to protect confidential information from mishandling, misuse or loss, these safeguards cannot provide assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of the information did occur, those events will be promptly detected and addressed. A failure in or breach of our operational or information security systems, or those of a third-party service provider, as a resultbecause of cybersecurity incidents or information security breaches or otherwise could have a material adverse effect on our business, damage our reputation, increase our costs and/or cause significant losses. Furthermore, because some of our employees are workingwork remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment. As information security risks and cyber threats continue to evolve, we maywill be required to expend substantial resources to further enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

We are subject to extensive regulation, supervision and examination by certain state and federal agencies including the FDIC, the Federal Reserve Board and the Pennsylvania Department of Banking. Such regulationBanking and supervisionSecurities. The regulatory rules and regulations that govern our operations limit the activities in which we may engage andor areprovide intendedrestrictions primarilyor prohibitions concerning corporate actions we could take, for example by prohibiting our engagement in certain non-bank activities, limiting our ability to ensurepay the safetydividends, and soundnessmandating ofthat financialwe institutions.maintain certain capital ratios. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of assets and determination of the level of the ACL. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on us and our operations. There also are several federal and state statutes which regulate the obligation and liabilities of financial institutions pertaining to environmental issues. In addition to the potential for attachment of liability resulting from our own actions, we may be held liable under certain circumstances for the actions of our borrowers, or third parties, for environmental problems on properties that collateralize loans held by us. Further, the liability has the potential to far exceed the original amount of a loan.

The policies of the Federal Reserve affect us significantly. The Federal Reserve regulates the supply of money and credit in the U.S. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce theborrower demand for a borrower'sour products and services.services This couldor adversely affect the borrower’s earnings and ability to repay a loan, which could have an adverse effect on our financial condition and results of operations. Alternatively, an expansion of the money supply could make it easier for a borrower to obtain a loan from another financial institution at a lower interest rate, resulting in a payoff of that borrower’s higher rate loan with us, and which could have an adverse effect on our financial condition and results of operations.

The CFPB has broad powers to supervise and enforce consumer protection laws and broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Company or its subsidiaries by virtue of the adoption of such policies and practices by the Federal Reserve and the FDIC. Further, the CFPB may include its own examiners in regulatory examinations by the Company’s primary regulators. The limitations and restrictions imposed by the CFPB may produce significant,significant material effects on our business, financial condition and results of operations. Dodd-FrankThere is ongoing uncertainty as to the CFPB’s regulations and approach to enforcement and supervision, although the current leadership of the CFPB has indicated intentions to rescind or revise many regulations, as well as to narrow its enforcement and supervision. Federal law permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Management’s Discussion and Analysis appearing on the following pages should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis 2024 versus 2023 contained in this AnnualItem Report on Form 10-K.7.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the consolidated financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from when those estimates were made. Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Critical estimates that are particularly susceptible to material change within future periods relate to the determination of ACL,ACL and impairment of goodwill and business combination.goodwill. Actual amounts could differ from those estimates.

The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. ItLoans receivable are carried at amortized cost basis, which is comprised of the unpaid principal balance of the loan, unamortized deferred loan origination fees and costs and, if applicable, unamortized acquired premiums or discounts less any write-downs. The measurement of expected credit losses also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The methodology for determining the ACL is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL.

We monitor the adequacy of the allowance quarterly and adjust the allowance as necessary through normal operations. The allowance is established through a provision for credit losses that is charged against income. Management cannot ensure that charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be required, resulting in an adverse impact on our financial condition and operating results.

The ACL increaseddecreased $19.9$2.8 million to $41.8$39.0 million at December 31, 2024,2025, from $21.9$41.8 million at the end of 2023.2024. The increase was due to a $14.3 million day one adjustment for non-PCD loans acquired inDuring the FNCByear merger,ended $1.8December 31, 2024, an additional allowance of $14.3 million related to purchaseacquired credit deteriorated (“PCD”)non-PCD loans acquiredassociated inwith the merger with FNCB mergerBancorp, Inc, and a net provision for credit losses of $4.8 million. Updatedupdated economic assumptions, additional qualitative factors related to the equipment financing portfolio and risk rating migrations lead to higher model loss rates and a higher provision when excluding the impact of one-time merger items. The CECLACL is calculated using an advanced probability of default model which exhibits the highest sensitivity to delinquencies, nonperforming loans, net charge-offscharge-offs, recovery rates and variables within the economic forecast. The economic forecast is based on many of the components utilized within the Dodd-Frank Act stress test (“DFAST”) base-case scenarios, including the unemployment rate.scenarios.

At December 31, 2024,2025, the pooled portion of the ACL consisted of $15.5$15.9 million in quantitative and $25.3$21.8 million in qualitative components as compared to $5.2$15.5 million and $16.6$25.3 million, respectively at December 31, 2023.2024. The portion of the ACL related to loans that were individually evaluated was $1.3 million at December 31, 2025, and $1.0 million at December 31, 2024.

Goodwill is evaluated at least annually for impairment or more frequently if conditions indicate potential impairment exist.exists. Any impairment losses arising from such testing are reported in the income statement in the current period as a separate line item within operations. Goodwill totaled $76.0 million at December 31, 2024.2025. At December 31, 2024,2025, we completed a qualitative goodwill impairment test to determine if it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the Company is less than its carrying value, including goodwill, as described by the GAAP methodology. Based on this analysis, we concluded it is more likely than not that the fair value of the Company, as of December 31, 2024,2025, is higher than its carrying value, and, therefore, goodwill is not considered impaired and no further testing is required. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as globalpandemics, pandemicspolitical instability and conflicts, or natural disasters) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.

Total assets, loans and deposits were $5.1$5.3 billion, $4.0$4.1 billion and $4.4 billion, respectively, at December 31, 2024. Assets, loans and deposits acquired at the completion of the FNCB merger on July 1, 2024 were $1.8 billion, $1.2 billion and $1.4 billion, respectively.2025.

Stockholders’ equity equaled $519.8 million, or $52.01 per share, at December 31, 2025, an increase of $50.8 million, or $5.07 per share, from $469.0 million, or $46.94 per share, at December 31, 2024,2024. andThe $340.4increase in equity was primarily due to net income of $59.2 million, orcoupled $48.35with pera share,$16.0 atmillion Decemberreduction 31,in 2023.accumulated other comprehensive loss. Our equity to asset ratio was 9.21 percent and 9.109.86 percent at thoseDecember respective31, period2025, ends.and 9.21 percent at December 31, 2024. Dividends declared for the year ended December 31, 20242025, amounted to $2.47 per share representing 41.6 percent of net income and an increase of $0.41 per share, or 19.9 percent from $2.06 per share representingfor 208.1the percentyear ofended netDecember income.31, 2024.

Primarily, ourOur investment portfolio provides a source of liquidity needed to meet expected loan demand and generates a reasonable return in order to increase our profitability. Additionally, we utilizeuse the investment portfolio to meet pledging requirements and reduce income taxes. At December 31, 2024,2025, our portfolio included short-term U.S. Treasury and government agency securities, which provide a source of liquidity,liquidity; mortgage-backed securities issued by U.S. government-sponsored agencies, private collateralized mortgage obligations, asset backed securities and corporate bonds to provide income and intermediate-term, tax-exempt state and municipal obligations, which mitigate our tax burden.

Market risk or IRR relates to the inverse relationship between bond prices and market yields. It is defined as the risk that increases in general market interest rates will result in market value depreciation. A marked reduction in the value of the investment portfolio could subject us to liquidity strains and reducedreduction in earnings if we are unable or unwilling to sell these investments at a loss. Moreover, the inability to liquidate these assetsinvestments could require us to seek alternative funding, which may further reduce profitability and expose us to greater risk in the future. In addition, since the majority of our investment portfolio is designated as available for sale and carried at estimated fair value, with net unrealized gains and losses reported as a separate component of stockholders’ equity, market value depreciation could negatively impact our capital position.

Our investment portfolio consists primarily of fixed-rate bonds. As a result, changes in the velocity and magnitude of market rates can significantly influence the fair value of our portfolio. Specifically, the parts of the yield curve most closely related to our investments include the 2-year and 10-year U.S. Treasury security.securities. The yield on the 2-year U.S. Treasury note affects the values of our U.S. Treasury and government agency securities, whereas the 10-year U.S. Treasury note influences the value of tax-exempt and taxable state and municipal obligations.

Investment securities increaseddecreased $123.0$19.7 million, to $587.2 million at December 31, 2025, from $606.9 million at December 31, 2024, from $483.9 million at December 31, 2023. Investments acquired in the FNCB merger totaled $421.9 million, with $241.7 million being sold subsequent to the merger as the Company used the proceeds to pay-down borrowings and add to its cash position.2024. At December 31, 2024,2025, the investment portfolio consisted of $526.3$512.6 million of investment securities classified as available for sale, $2.4$2.6 million in equity investments carried at fair value, and $78.2$72.0 million classified as held to maturity. Securities purchased during 20242025 totaled $5.0$168.5 million. ThereIn 2024, $421.9 of investments were no investment purchasesacquired in 2023.our merger with FNCB Bancorp, Inc. Repayments of investment securities totaled $132.9 million in 2025 and $64.7 million in 2024 and $31.5 million in 2023.2024.

ResidentialAs a result of the repositioning, U.S. treasury securities represented 5.3 percent of our total portfolio at year end 2025 compared to 27.7 percent at the end of 2024, while U.S. government agency and U.S. government sponsored enterprise residential and commercial mortgage backedmortgage-backed securities totaledincreased 32.6to 45.5 percent of the portfolio at year-end 20242025 compared to 32.732.6 percent at year-end 2023. U.S. Treasury and U.S. government-sponsored enterprise securities comprised 27.7 percent of our total portfolio at year-end 2024 compared to 38.5 percent at the end of 2023.2024. Tax-exempt municipal obligations increased as a percentage of the total portfolio to 29.823.3 percent at year-end 20242025 from 16.212.7 percent at the end of 2023.2024. Taxable municipals remained relatively flat at 11.410.5 percent at year-end 20242025 from 11.811.4 percent at the end of 2023.2024. The remaining portfolio, which is comprised of a combination of privately collateralized mortgage obligations, asset backed securities, corporate debt securities and negotiable certificates of deposit remained relatively flat at 15.4 percent of the portfolio at December 31, 2025, compared with 15.6 percent at December 31, 2024.

The average life of the investment portfolio decreasedincreased to 5.67.5 years at December 31, 20242025, from 6.15.6 years at year end 2023,2024, whilereflecting the repositioning into municipal securities with longer average lives. Similarly, the effective duration of the investment portfolio increased to 5.3 years at December 31, 2025, from 4.8 years at December 31, 2024 from 4.4 years at December 31, 2023.2024.

There were no impairment charges recognized for each of the three years ended December 31, 20242025, 2024, and December 31, 2023, and no other-than-temporary impairments recognized for the year ended December 31, 2022.2023. For additional information related to impairment charges refer to Note 3 entitled “Investment securities” in the Notes to Consolidated Financial Statements toincluded in Part II, Item 8 of this Annual Report.Report on form 10-K, which is incorporated in this item by reference.

Investment securities averaged $617.2$641.3 million and equaled 13.6 percent of average earning assets in 2025, compared to $617.2 million and 14.8 percent of average earning assets in 2024, compared to $559.3 million and 16.0 percent of average earning assets in 2023.2024. The tax-equivalent yield on the investment portfolio increased 6672 basis points to 3.15 percent in 2025 from 2.43 percent in 2024 from 1.77 percent in 2023.2024. The increase in the tax-equivalent yield is due to therunoff investmentsof acquiredlow inyielding U.S. treasuries and the mergeraddition beingof bookedhigher atyielding the then current market rates.replacements.

Economic factors and how they affect loan demand are of extreme importanceimportant to usthe Company and to the overall banking industry, as lending is a primary business activity. Loans are the most significant component of earning assets and they generate the greatest amount of revenue for us.revenue. Similar to the investment portfolio, there are risks inherent in the loan portfolio that must be understood and considered in managing the lending function. These risks include IRR, credit concentrations and fluctuations in demand. Changes in economic conditions and interest rates affect these risks which influence loan demand, the composition of the loan portfolio and profitability of the lending function.

Overall, total loans increased $1.1 billion in 2024 to $4.0 billion at December 31, 2024 due primarily to the $1.2 billion in loans acquired in the FNCB merger. The following table summarizes the Company’s loan portfolio at December 31, 20242025, and December 31, 2023.2024.

Loans averaged $4.0 billion in 2025, compared to $3.5 billion in 2024, compared to $2.8 billion in 2023.2024. Taxable loans averaged $3.2$3.7 billion, while tax-exempt loans averaged $0.3$273.4 billionmillion in 2024.2025. The loan portfolio continues to play the prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 83.184.9 percent in 2024,2025, an increase from 81.083.1 percent in 2023.2024.

The tax-equivalent yield on our loan portfolio increased 8137 basis points to 5.99 percent in 2025 from 5.62 percent in 2024 from 4.81 percent in 2023 due to higher yields on newnewer loan originations and loans assumed in the FNCB merger which included the impact of the accretion of purchase accounting marks. The yield on the loan portfolio may decrease as repayments on loans are replaced with new originations at current market rates and floating and adjustable-rate loans continue to reprice downward.

Credit risk is the principal risk associated withour theseoutstanding instruments.loans, commitments to extend credit, lines of credit and standby letters of credits. Our involvement and exposure to credit loss in the event that the instruments are fully drawn upon and the customer defaults is represented by the contractual amounts of these instruments. In order to control credit risk associated with entering into commitments and issuing letters of credit, we employ the same credit quality and collateral policies in making commitments that we use in other lending activities. We evaluate each customer’s creditworthiness on a case-by-case basis, and if deemed necessary, obtain collateral. The amount and nature of the collateral obtained is based on our credit evaluation.

We are committed to developing and maintaining sound,sound quality assets through our credit risk management policies and procedures. Credit risk is the risk to earnings or capital which arises from a borrower’s failure to meet the terms of their loan obligations. We manage credit risk by diversifying the loan portfolio and applying policies and procedures designed to foster sound lending practices. These policies include certain standards that assist lenders in making judgments regarding the character, capacity, cash flow, capital structure and collateral of the borrower.

WithTo regard to managingmanage our exposure to credit risk inand lightprotect ofagainst general devaluations in real estate values, we have established maximum loan-to-value ratios for commercial mortgage loans not to exceed 80.0 percent of the appraised value. With regard to residential mortgages, customers with loan-to-value ratios in excess of 80.0 percent are generally required to obtain PMI. PMI is used to protect us from loss in the event loan-to-value ratios exceed 80.0 percent and the customer defaults on the loan. Appraisals are performed by an independent appraiser engaged by us, not the customer, who is either state certified or state licensed depending upon collateral type and loan amount.

Nonperforming assets consist of nonperforming loans and foreclosed assets. Nonperforming loans include nonaccrual loans and accruing loans past due 90 days or more. For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for credit losses” in the Notes to Consolidated Financial Statements toincluded in Part II, Item 8 of this Annual Report on Form 10-K which are incorporated in this item by reference.

Information concerning nonperforming assets forat theDecember past31, two2025, yearsand 2024 is summarized as follows. The table includes credits classified for regulatory purposes and all material credits that cause us to have serious doubts as to the borrower’s ability to comply with present loan repayment terms.

NonperformingWe experienced an improvement in our asset quality during 2025 as evidenced by a $10.9 million reduction in nonperforming assets increasedto $18.1$12.1 million toat December 31, 2025, from $23.0 million at year-endDecember 31, 2024. Additionally, our nonperforming assets as a percentage of total assets increaseddecreased to 0.23 percent at December 31, 2025, from 0.45 percent at December 31, 2024 from 0.13 percent at December 31, 2023,2024, and our nonperforming loans as a percentage of loans, net increaseddecreased to 0.580.28 percent from 0.170.58 percent at December 31, 2023.2024. LoansThe onreduction in nonperforming assets was largely due to an $11.7 million decrease in nonaccrual status, excluding modified loans forfollowing borrowersthe experiencing difficulty, increased $18.6 million and included $8.5 millionresolution of loansseveral acquiredlarge incommercial thecredit FNCB merger, of which, $6.4 million were PCD loans.relationships.

At December 31, 20242025, there was one foreclosed asset recorded at $27$750 thousand compared to noone foreclosed propertiesproperty recorded at $27 thousand at December 31, 2023.2024. The property that was outstanding at the end of 2024 was sold during 2025, and the Company acquired one commercial property with a recorded investment of $750 thousand through foreclosure. Loans past due ninety days and accruing decreasedincreased $0.5$66 millionthousand and includes twothree residential mortgages and threetwo consumercommercial loans. For a further discussion of assets classified as nonperforming assets and potential problem loans, refer to Note 4, “Loans, net and the allowance for credit losses,” in the Notes to Consolidated Financial Statements toincluded in Part II, Item 8 of this Annual Report.Report on form 10-K, which is incorporated in this item by reference.

Past due loans not satisfied through repossession, foreclosure or related actions are evaluated individually to determine if all or part of the outstanding balance should be charged against the ACL account.ACL. Any subsequent recoveries are credited to the allowance account.ACL. Net loans charged-offcharged decreasedoff increased $1.8 million to $2.9 million in 2025 from $1.1 million in 2024 from $2.9 million in 2023.2024. The elevated charge-offs in the prior year wasare due primarilyin duepart to thea partial$0.8 charge-offmillion ofvaluation adjustment related to a commercial real estate loan as the market value declined significantly as a result of the impending vacancy of the property by its single “anchor” tenant.foreclosure. Net charge-offs, as a percentage of average loans outstanding, equaled 0.07 percent in 2025 and 0.03 percent in 2024 and 0.10 percent in 2023.2024.

The ACL increaseddecreased $19.9$2.8 million to $41.8$39.0 million at December 31, 2024,2025, from $21.9$41.8 million at the end of 2023.2024. During the twelve monthsyear ended December 31, 2024,2025, net charge-offs were $1.1$2.9 million and the provision for credit losses totaled $19.1$98 million.thousand. AsThe 2025 provision was due primarily to improvement in qualitative factors driven by a reduction in commercial real estate concentration levels and a seasoning of the Acquisitionequipment Date,financing portfolio, while overall model loss rates were substantially unchanged. During the year ended December 31, 2024, $14.3 million was recorded to the provision for credit losses related to acquired non-PCD loans.loans associated with the merger with FNCB Bancorp, Inc. In addition to the merger related provision, a provision of $4.8 million was recorded due to the impact of various factors such as updated economic assumptions as well as additional qualitative factors for the equipment financing portfolio, risk rating migration, additional charge-offs during the last six months of 20242024, and higher delinquencies.

The ACL, as a percentage of loans, net of unearned income, was 0.96 percent at December 31, 2025, and 1.05 percent at theDecember end31, of 2024 and 0.77 percent at the end of 2023, respectively.2024. The coverage ratio, the ACL, as a percentage of nonperforming loans, is an industry ratio used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans. The coverage ratio was 344.6 percent at December 31, 2025, and 182.0 percent at December 31, 2024 and 442.5 percent at December 31, 2023.2024. We believe that our allowance was adequate to absorb probable credit losses at December 31, 2024.2025.

The allocation of the ACL forat theDecember past31, two2025, yearsand 2024 is summarized as follows:

The ACL account increaseddecreased $19.9$2.8 million to $39.0 million at December 31, 2025, compared to $41.8 million at December 31, 2024, compared to $21.9 million at December 31, 2023.2024. The individually evaluated portion of the allowance for credit losses increased $918$0.3 thousandmillion to $949$1.3 thousandmillion at December 31, 2025, from $1.0 million at December 31, 2024, from $31 thousand at December 31, 2023 and the portion of the allowance for credit losses collectively evaluated increaseddecreased $18.9$3.1 million to $37.7 million at December 31, 2025, from $40.8 million at December 31, 2024, from $21.9 million at December 31, 2023. The increase to the pooled portion was due in part to the provision for non-PCD loans acquired in the FNCB merger.2024.

At December 31, 2024,2025, total brokered deposits were $152.2 million, or 3.4 percent of total deposits as compared to $256.4 million or 5.8 percent of total deposits as compared to $261.0 million or 8.0 percent of total deposits at December 31, 2023.2024. DuringAs the fourth quarterpart of 2024,strategic balance sheet management initiatives, the Company calledreduced $100.7its million of highhigher rate brokered CDsCD toportfolio reduceby overall funding costs, and has the option to call $140.8$104.2 million ofduring the total yearend balance at any time.2025. The Company maintains a brokered deposit to total asset policy limit of 1515.0 percent. At December 31, 2024,2025, brokered deposits represented 5.02.9 percent of total assets.

Total deposits averaged $4.3 billion in 2025 and $3.8 billion in 2024 and $3.2 billion in 2023,2024, increasing $614.9$460.7 million or 19.112.0 percent comparing 20242025 to 2023.2024. Average noninterest-bearing deposits increased $16.1$183.2 million, while average interest-bearing accounts grew $598.8$277.5 million. Average interest-bearing non-maturing deposits, including demand deposits, money market and interest-bearing demand and NOW accounts, and savings accounts, increased $377.3$316.1 million while average total time deposits increaseddecreased $221.5$38.6 million when comparing 20242025 and 2023.2024. Deposit averages from 2023 to 2024 were primarily affected by the merger with FNCB Bancorp, Inc. on July 1, 2024, and its associated deposit product realignments. Additionally, average balances for 2024 reflect only six months of combined Company results following the July 1, 2024 merger.

Our cost of interest-bearing deposits increaseddecreased 43 basis points to 2.39 percent in 2025 compared to 2.82 percent in 2024 compared to 2.32 percent in 2023.2024. Specifically, the cost of money market accounts increaseddecreased 160186 basis points to 4.772.91 percent from 3.174.77 percent and savings accounts increaseddecreased 7969 basis points to 0.31 percent in 2025 from 1.00 percent in 2024 from 0.21 percent in 2023,2024, while interest-bearing demand and NOW accounts decreasedincreased 1220 basis points to 1.882.08 percent from 2.001.88 percent in the year ago period. Volatile deposits, time deposits of $100 thousand or more, averaged $291.5$362.3 million in 2024,2025, an increase of $90.7$70.8 million or 45.224.3 percent from $200.7$291.5 million in 2023.2024. Our average cost of these funds increaseddecreased 11152 basis points to 3.55 percent in 2025, from 4.07 percent in 2024, from 2.96 percent in 2023.2024. This type of funding is susceptible to withdrawal by the depositor as they are particularly price sensitive and are therefore not considered to be a strong source of liquidity.

In addition to deposit gathering, we have a secondary source of liquidity through existing credit arrangements with the FHLB, FRB and other correspondents. At December 31, 2024,2025, our maximum borrowing capacity with the FHLB was $1.7 billion of which $99.1$158.3 million was outstanding in borrowings and $487.8$498.8 million outstanding in the form of irrevocable standby letters of credit. Depending upon deposit activity and loan growth in 2025,2026, we may the utilize these credit arrangements. For a further discussion of our borrowings and their terms, refer to the notes entitled, “Short-term borrowings” and “Long-term debt,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

On June 1,30, 2020,2025, the Company soldredeemed $33.0 million aggregate principal amount of its 5.375% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2020 Notes”) which were sold to accredited investors.investors on June 1, 2020. The 2020 Notes are treatedqualified as Tier 2 capital for regulatory capital purposes. The 2020 Notes bore interest at a rate of 5.375% per year for the first five years and then floated based on a benchmark rate. The interest rate on the 2020 Notes adjusted to 9.08% on June 1, 2025.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause the Company’s actual results to differ materially from those in the forward-looking statements include, but are not limited to: changes in interest rates, including their effect on the Company’s investment values; impairment charges relating to the Company’s investment portfolio; credit risks in connection with the Company’s lending activities; the Company’s exposure to commercial and industrial, construction, commercial real estate, and equipment finance loans; the Company’s ability to maintain an adequate allowance for credit losses; access to liquidity; the strength of the Company’s customer deposit levels; unrealized losses; reliance on the Company’s subsidiaries; accounting procedures, policies and requirements; changes in the value of goodwill; the Company’s ability to attract and retain key personnel; the strength of the Company’s disclosure controls and procedures and internal controls over financial reporting; potential for errors, omissions or fraud; environmental liabilities; reliance on third-party vendors and service providers; the Company’s ability to compete effectively in the Company’s industry and within the Company’s market area, including with respect to competition from financial technology companies and non-bank entities; the development and use of artificial intelligence (“AI”) in business processes, services, and products; including emerging external focus among regulators and other officials related to risk in connection with the development and use of AI; the Company’s ability to prevent, detect and respond to cybersecurity threats and incidents; a failure of information technology, whether due to a breach, cybersecurity incident, or ability to keep pace with growth and developments; the Company’s ability to comply with privacy and data protection requirements; changes in U.S. or regional economic conditions; the soundness of other financial institutions; changes in laws and regulations; geopolitical instability, including wars and other conflicts; fiscal and monetary policies of the federal government and its agencies; a failure to meet minimum capital requirements; the Company’s ability to realize the anticipated benefits of future acquisitions or a change in control; and the Company’s ability to pay dividends. Additional factors that may affect the Company’s results are discussed in Part I, Item 1A of the Company’s Annual ReportsReport on Form 10-K for the year ended December 31, 2025, and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

The Company has goodwill with a net carrying value of $76.0 million at both MarchJune 31,30, 20262026, and December 31, 2025. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If the Company’s carrying amount exceeds the fair value of the goodwill, the Company would record an impairment charge based on that difference. At MarchJune 31,30, 2026, we performed a qualitative evaluation, which involves determining whether any events occurred or circumstances changed that would more likely than not reduce the fair value of the Company’s goodwill below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.

We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment of intangible assets at MarchJune 31,30, 2026.

Total assets increased $152.8$170.0 million, or 11.86.5 percent annualized to $5.4 billion at MarchJune 31,30, 2026, from $5.3 billion at December 31, 2025. The increase in the balance sheet wasexpansion primarily duereflected tostrong increasesloan growth, partially offset by decreases in loansinvestment securities and cash and cash equivalents, partially offset by a decrease in investment securities.equivalents. Loans, net increased $123.3$235.9 million, or 12.311.7 percent annualized to $4.2$4.3 billion, at MarchJune 31,30, 2026, from $4.1 billion at December 31, 2025. Total investment securities decreased $57.6 million to $529.6 million at June 30, 2026, from $587.2 million at December 31, 2025. Cash and cash equivalents increaseddecreased $59.6$12.7 million to $328.6$256.3 million at MarchJune 31,30, 2026, from $269.0 million at December 31, 2025. InvestmentsAlso decreasedcontributing $44.3to the increase in total assets was a $15.8 million increase in other assets to $542.9$86.5 million at March 31, 2026, from $587.2$70.7 million at December 31, 20252025, Totalwhich depositswas decreasedprimarily $8.7caused millionby toan $4.4additional billioninvestment atin Marcha 31,limited 2026,partnership fromlow $4.4income billionhousing attax Decembercredit 31, 2025. Interest-bearing deposits decreased $23.5 million to $3.5 billion at March 31, 2026, compared to $3.5 billion at December 31, 2025. Noninterest-bearing deposits increased $14.8 million to $969.3 million at March 31, 2026, from $954.5 million as of December 31, 2025.project.

Total short-term borrowings at MarchJune 31,30, 2026, were $179.3$85.3 million, an increase of $146.6$52.6 million from $32.7 million at December 31, 2025. Long term debt increased $0.4$20.1 million to $134.8$154.5 million at MarchJune 31,30, 2026, from $134.4 million at December 31, 2025.

Total stockholders’ equity increased $5.7$16.4 million from $519.8 million at year-end 2025 to $525.5$536.2 million at MarchJune 31,30, 2026, due largely to net income, partially offset by dividends paid to shareholders and an increase in accumulated other comprehensive loss resulting from an increase in the unrealized loss on available-for-sale investment securities.shareholders. Book value per share increased $0.49$1.55 to $52.50$53.56 at MarchJune 31,30, 2026, from $52.01 at December 31, 2025. The Bank and the Company were considered well capitalized at MarchJune 31,30, 2026 and December 31, 2025, with regulatory capital ratios that exceeded minimum regulatory capital ratios required to be well capitalized under applicable regulations.

The majority of the investment portfolio is classified as available for sale, which provides greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available for sale totaled $469.3$458.1 million at MarchJune 31,30, 2026, a decrease of $43.3$54.4 million, or 34.321.4 percent annualized, from $512.6 million at December 31, 2025. The decrease was primarily due to additional sales associated with ana ongoingpartial portfolio repositioning strategystrategy, to replace lower-yielding investment securitiescoupled with higher-yielding instruments. In the quarter ended March 31, 2026, the Company completed a partial repositioningredirection of thecash investment securities portfolio, selling $31.9 million of U.S. government agency and sponsored agency mortgage-backed securities resulting in pre-tax gain of approximately $0.5 million. Approximately half of the $32.4 million in proceeds receivedflows from theprincipal sale were re-deployed backpayments into the available for sale investment portfolio with the remaining proceeds used to fund loan demand. This repositioning followed a previous repositioning completed in the fourth quarter of 2025.portfolio.

Investment securities held to maturity, which consisted of 84.784.3 percent mortgage-backed securities issued or guaranteed by U.S. Government agencies and U.S. Government-sponsored entities and 15.315.7 percent tax-exempt municipal securities, totaled $70.5$68.7 million at MarchJune 31,30, 2026, a decrease of $1.5$3.3 million, or 8.49.3 percent annualized from $72.0 million at December 31, 2025. The decrease was primarily due to principal payments on mortgage-backed securities. Held to maturity securities had a market value of $61.0$59.3 million at MarchJune 31,30, 2026, compared to $62.8 million at December 31, 2025.

The Company also holds a portfolio of equity investments, consisting primarily of publicly traded bank holding companies, which are carried at fair value. Equity investments totaled $3.1$2.7 million at MarchJune 31,30, 2026, compared to $2.6 million at December 31, 2025. In the second quarter of 2026, the Company sold a portion of its equity portfolio, recognizing a gain of $104 thousand on the sale.

For the threesix months ended MarchJune 31,30, 2026, investments averaged $611.0$596.8 million, a decrease of $32.0$38.3 million or 5.06.0 percent compared to $643.0$635.1 million for the same threesix months of 2025. Average taxable investments decreased $94.6$106.3 million, or 17.019.4 percent to $461.3$441.9 million from $555.9$548.1 million for the threesix months ended MarchJune 31,30, 2025. Partially offsetting this decrease was an increase in average tax-exempt municipal bonds of $62.6$67.9 million or 71.9 percent to $149.7$154.9 million for the threesix months ended MarchJune 31,30, 2026, from $87.1$87.0 million for the comparable period of 2025. Despite the reduction and due to portfolio repositioning strategies,strategies and the redirection of principal cash flows to the loan portfolio, the fully tax-equivalent (“FTE”) yield on the investment portfolio, a non-GAAP measure, increased 8578 basis points to 3.803.90 percent for the threesix months ended MarchJune 31,30, 2026, from 2.953.12 percent for the comparable period of 2025.

Securities available for sale are carried at fair value, with unrealized gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive loss component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $25.8$23.9 million net of a deferred income tax benefit of $7.2$6.7 million at MarchJune 31,30, 2026, and net unrealized losses of $22.8 million, net of deferred income tax benefit of $6.4 million, at December 31, 2025.

Total loans increased $123.3$235.9 million or 12.311.7 percent annualized from $4.1 billion at December 31, 2025, to $4.2$4.3 billion at MarchJune 31,30, 2026. The increase was due primarily to strong demand for commercial and residential real estate loans, commercial loans and municipalcommercial loans, partially offset by reductions in indirect automobile loans, commercial equipment financing, indirect automobilemunicipal loans and other consumer loans during the first quarterhalf of 2026.

CommercialAs a result of the strong demand within the business sector, commercial real estate loans, which were $2.4$2.5 billion at MarchJune 31,30, 2026, increased $108.9$176.4 million from $2.3 billion at December 31, 2025. Additionally, commercial and industrial loans increased $44.7 million to $712.7 million at June 30, 2026, compared to $668.0 million at December 31, 2025.

Consumer loans, which consist primarily of indirect auto loans, decreased $9.9$11.7 million to $101.3$99.5 million at MarchJune 31,30, 2026, compared to $111.2 million at December 31, 2025.

Equipment financing loans decreased $9.3$9.5 million to $159.7$159.5 million at MarchJune 31,30, 2026, compared to $169.0 million at December 31, 2025.2025 The Company did not aggressively compete for indirect automobile loans and equipment financing during the first half of 2026.

For the threesix months ended MarchJune 31,30, 2026, total loans averaged $4.1$4.2 billion, an increase of $139.7$193.8 million or 3.54.9 percent compared tofrom $4.0 billion for the same period of 2025. The FTE yield on the loan portfolio was 5.805.85 percent for the threesix months ended MarchJune 31,30, 2026, a 12-basis14-basis point decrease from 5.925.99 percent for the comparable period last year. The reduction in yield largely reflected the 75-basis point decrease in the prime rate, resulting from the FOMC actions to lower the federal funds target rate during the second half of 2025.

Unused commitments at MarchJune 31,30, 2026 totaled $904.9$948.5 million, consistingand consisted of $842.2$876.0 million in unfunded commitments of existing loan facilities and $62.7$72.5 million in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and, therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2025 totaled $894.0 million, consistingwhich were comprised of $839.0 million in unfunded commitments of existing loans and $55.0 million in standby letters of credit. AnIn order to provide for credit losses associated with these instruments, the Company recorded an allowance for credit losses, included in other liabilities on the consolidated balance sheets of $1.1 million and $1.3 million was recorded for unused commitments at Marchboth 31,June 30, 2026, and December 31, 2025, respectively.2025.

Nonperforming assets increased $0.2$2.6 million to $12.3$14.7 million, or 0.230.27 percent of total assets, at MarchJune 31,30, 2026, from $12.1 million, or 0.23 percent of total assets, at December 31, 2025. The increase was primarily caused by an increase in nonaccrual loans, partially offset by a decrease in accruing loans past due 90 days or more.more, and an adjustment to a foreclosed property.

Loans on nonaccrual status increased $0.6$2.9 million to $11.4$13.7 million at MarchJune 31,30, 2026, from $10.8 million at December 31, 2025. The increase was primarily relateddue to one commercial realrelationship estateinvolving credittwo that wasloans placed on nonaccrual status duringat the firstend of the second quarter of 2026. ThereThe wasCompany had one foreclosed commercial property with a carrying value of $750$630 thousand at MarchJune 31,30, 2026, and $750 thousand at December 31, 2025. The property went under a sales agreement during the second quarter of 2026, and it was written down $120 thousand to the sales price less estimated selling costs.

The allowance for credit losses equaled $39.6$42.3 million or 0.940.98 percent of loans, net, at MarchJune 31,30, 2026, compared to $39.0 million, or 0.96 percent of loans, net, at December 31, 2025. NetFor charge-offsthe three and six months ended June 30, 2026, the Company recorded net charge offs of $0.8$0.4 million wereand recognized$1.2 duringmillion respectively, compared to net recoveries of $0.1 million for the three months ended MarchJune 31,30, 2026,2025 and werenet $0.9charge offs of $0.8 million infor the samesix periodmonths inended June 30, 2025. The provision for credit losses for the quarter endedending MarchJune 31, 2026,30, was $1.4$3.1 million in 2026 compared to a provisionrelease of reserves of $0.2 million in 2025. For the samesix quartermonths ended June 30, the provision for credit losses totaled $4.5 million in 2026 compared to a release of reserves of $39 thousand in 2025. The increase in the provision infor the quarter and year-to-date periods of 2026 was dueprimarily primarilyattributable to significant loan growth, while the increaseprior-year periods benefited from lower specific reserves associated with reductions in loannonperforming volume, partially offset by decreases in qualitative factor adjustments primarily related to the seasoning of the commercial equipment financing portfolio.loans.

Total deposits decreasedincreased $8.7$74.8 million, or 0.83.4 percent annualized, to $4.4$4.5 billion at MarchJune 31,30, 2026, from $4.4 billion at December 31, 2025. Interest-bearing deposits decreasedincreased $23.6$82.8 million,million or 2.84.8 percent annualized, andto were$3.6 billion, at June 30, 2026, from $3.5 billion at March 31, 2026 and December 31, 2025, respectively.2025. Partially offsetting the decreaseincrease in interest-bearing deposits was ana increasedecrease in noninterest-bearing deposits of $14.9$8.0 million, or 6.31.7 percent annualized, whento comparing$946.5 Marchmillion 31,at June 30, 2026, tofrom $954.5 million at December 31, 2025. The decreaseincrease in interest-bearing deposits was primarily due to reductionsan increase in brokered and retail time deposits,deposits less than $250 thousand, coupled with cyclical fluctuations in municipal deposit balances, partially offset by increases in money market deposits and savings accounts. These increases were partially offset by decreases in interest-bearing demand deposits and time deposits $250 thousand or more.

Interest-bearing demand deposits and NOW accounts decreased $33.2$88.8 million, and were $1.2 billion at June 30, 2026, and $1.3 billion at March 31, 2026, and December 31, 2025. The decrease was primarily caused by cyclical outflows of municipal deposits. Money market accounts increased $65.7$31.2 million and were $1.1$1.0 billion both at MarchJune 31,30, 2026,2026 from $1.0 billionand at December 31, 2025. Savings accounts increased $14.5$11.2 million to $512.0$508.7 million as of MarchJune 31,30, 2026, from $497.5 million at December 31, 2025. Time deposits less than $250 thousand decreasedincreased $52.1$173.9 million to $425.0$651.0 million at MarchJune 31,30, 2026, from $477.1 million at December 31, 2025,2025. dueTime primarilydeposits less than $250 include brokered time deposits. The Company increased its utilization of brokered time deposits, including short-term and longer-term callable instruments, during the second quarter of 2026 to aoffset reductioncyclical outflows of $40.1municipal deposits. As a result, brokered time deposits increased $184.8 million into brokered$337.0 CDs.million at June 30, 2026 from $152.2 million at December 31, 2025. Time deposits of $250 thousand or more decreased $18.5$44.7 million to $211.4$185.2 million at MarchJune 31,30, 2026, from $229.9 million at year end 2025. The decrease in large denomination time deposits was largely caused by a planned outflow of two certificates of deposit to one municipal customer at their maturity.

Our deposit base is diversified and consisted of 41.439.9 percent retail accounts, 36.434.9 percent commercial accounts, 19.717.5 percent are non-brokered municipal relationships and 2.57.7 percent brokered deposits at MarchJune 31,30, 2026. At MarchJune 31,30, 2026, total estimated uninsured deposits were approximately $1.5$1.4 billion, or 34.531.0 percent of total deposits; as compared to approximately $1.5 billion, or 34.3 percent of total deposits at December 31, 2025.

Interest-bearing deposits averaged $3.4 billion for the threesix months ended MarchJune 31,30, 2026, aan decreaseincrease of $34.5$3.1 million compared to $3.4 billion for the same threesix months of 2025. Average noninterest-bearing deposits increased $48.9 million to $935.1 million from $886.2 million comparing the six months ended June 30, 2026, and 2025. The cost of interest-bearing deposits was 2.162.15 percent for the threesix months ended MarchJune 31,30, 2026, a decrease of 3029 basis points compared to 2.462.44 percent for the same period of 2025, which reflected overall lower market interest rates. The cost of total deposits, which includes the impact of noninterest-bearing deposits, decreased 24 basis points to 1.69 percent for the six months ended June 30, 2026, from 1.93 percent for the same six months of 2025.

The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the FHLB provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB. In addition, Thethe Bank may borrow from the Federal Reserve Bank utilizing the Discount Window.

Overall, total borrowings were $405.5$331.4 million at MarchJune 31,30, 2026, which included short-term borrowings, long-term debt, and subordinated debt, compared to $258.4 million at December 31, 2025, an increase of $147.1$73.0 million. At MarchJune 31,30, 2026, short-term borrowings, which were comprised of both overnight borrowings from the FHLB and cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $179.3$85.3 million compared to $32.7 million at December 31, 2025, an increase of $146.6$52.6 million. The increase in short-term borrowings was used to support on balance sheet liquidity at MarchJune 31,30, 2026. Long-term debt was $134.8$154.5 million at MarchJune 31,30, 2026, compared with $134.4 million at year end 2025, and was comprised exclusively of advances from the FHLB. Junior subordinated debt, which was acquired as part of the 2024 FNCB merger and reported net of discount, totaled $8.2 million and $8.1 million at MarchJune 31,30, 2026, and December 31, 2025, respectively. Subordinated debt, net of unamortized debt outstandingissuance costs, was $83.3$83.4 million at MarchJune 31,30, 2026, and $83.2 million at December 31, 2025.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments andprepayments, the ability to sell both available for sale securities and mortgage loans held for sale.sale, and borrowing capacity.

Management actively monitors the Company’s liquidity position, sources of available liquidity in relation to funding and cash flow needs. Additionally, the Company’s ALCO generally meets quarterly, and most recently met in FebruaryMay 2026 to review our IRR profile, capital adequacy and liquidity. On MarchJune 31,30, 2026, the Company’s cash and cash equivalents were $328.6$256.3 million. In addition to cash and cash equivalents, the Company had ample sources of additional liquidity including available borrowing capacity with the FHLB and Federal Reserve Bank Discount Window and federal fund lines of credit with correspondent banks. Our maximum borrowing capacity with the FHLB as of MarchJune 31,30, 2026, was $1.7$1.8 billion, of which $756.4$606.8 million was outstanding in the form of borrowings and irrevocable standby letters of credit, with remaining availability of $0.9$1.2 billion. Additionally, the Company maintainshad $506.4$568.8 million ofin availability at the Federal Reserve Bank Discount Window, through a borrower-in-custody of collateral arrangement, which enables us to pledge certain loans not being used as collateral elsewhere. Additional sources of credit with corresponding banks total $27.0 million, none of which are currently utilized. The Company also maintains an available for sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury securities, highly rated municipal securities and U.S. agency-backed mortgage-backed securities. This portfolio serves as an additional source of liquidity and capital. At MarchJune 31,30, 2026, the Company’s available for sale investment portfolio totaled $469.3$458.1 million, of which $165.5$151.0 million was unencumbered. We believe our liquidity position is sufficient to meet our current and anticipated financial obligations and commitments in a timely manner.

We employ several analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after MarchJune 31,30, 2026. Our noncore funds at MarchJune 31,30, 2026,2026 were comprised of time deposits in denominations of $100 thousand or more, brokered deposits and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and could be highly volatile. On MarchJune 31,30, 2026, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 12.116.8 percent, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investmentsinvestments, to long-term assets equaled 7.311.1 percent. Our reliance on non-core funding at MarchJune 31,30, 2026 increased modestly as compared to our reliance at December 31, 2025, which primarily reflected an increase in non-core funds outstanding, specifically short-term borrowings.borrowings and brokered deposits. Our overall noncore dependence ratio at December 31, 20252025, was 11.2 percent and our net short-term noncore funding dependence ratio was 6.36.4 percent.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, increaseddecreased $59.6$12.7 million during the threesix months ended MarchJune 31,30, 2026. Comparatively, cash and cash equivalents decreasedincreased $58.7$39.9 million for the same period last year. For the threesix months ending MarchJune 31,30, 2026, net cash inflows of $8.3$22.2 million from operating activities and $131.6$134.4 million from financing activities were more than entirely offset by $80.3$169.3 million used in investing activities. For the same period of 2025, net cash outflows of $108.5$17.8 million from financing activities were more than offset by $40.7$34.8 million receivedin innet cash provided by investing activities and $9.1$23.0 million receivedprovided inby operating activities.

Operating activities provided net cash of $8.3$22.2 million for the threesix months ended MarchJune 31,30, 2026, and provided $9.1$23.0 million for the corresponding threesix months of 2025. Net income, adjusted for the effects of gains and losses along with non-cash transactions such as depreciation, amortization and accretion and the provision for credit losses, is the primary source of funds from operations.

Investing activities primarily include lending activities, and investment portfolio transactions. Investing activities used net cash of $80.3$169.3 million for the threesix months ended MarchJune 31,30, 2026, compared to providing net cash of $40.7$34.8 million for the same period of 2025. IncreasesCash inused loansto fund loan originations totaled $230.4 million for the six months ended June 30, 2026, and purchases of investments, partially offset by proceeds received from repayments and sales of investment securities, werewas the primary factorsfactor causing the net outflow.cash outflow from investing activities. Also contributing to the outflow was $23.0 million in cash used to purchase available for sale investment securities and $3.5 million in purchases of premises and equipment. Partially offsetting these outflows was $49.0 million in principal payments from investment securities, $32.7 million in proceeds from sales of available for sale investment securities and equity investments and $6.8 million received from bank owned life insurance.

Financing activities provided net cash of $131.6$134.4 million for the threesix months ended MarchJune 31,30, 2026, and used net cash of $108.5$17.8 million for the corresponding threesix months of 2025. For the threesix months ended MarchJune 31,30, 2026, the net increase was primarily driven by increases in deposits, coupled with net proceeds received from short term borrowings and long-term debt, partially offset by decreased deposits, and dividends paid to shareholders. The net outflow of cash for the comparative period of 2025 was primarily caused by decreases in deposits, borrowingsdeposits and payment of dividends to shareholders. While a portion of the deposit outflows are seasonal, we continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.

Stockholders’ equity totaled $525.5$536.2 million or $52.50$53.56 per share at MarchJune 31,30, 2026, an increase of $5.7$16.3 million compared to $519.8 million or $52.01 per share at December 31, 2025. The increase in stockholders’ equity was primarily due to net income, partially offset by cash dividends paid and an increase in accumulated other comprehensive loss which was largely due to changes in market values of available for sale investment securities.shareholders.

Dividends declared equaled $0.625$1.25 per share for the threesix months ended MarchJune 31,30, 2026, and $0.6175$1.24 per share for the same period of 2025. The Company has paid cash dividends since its formation as a bank holding company in 1986. On AprilJuly 24,31, 2026, the Company’s board of directors declared a secondthird quarter dividend of $0.625 per share payable on JuneSeptember 15, 2026, to shareholders of record as of MayAugust 29,31, 2026. It is the present intention of the Company’s board of directors to continue to pay comparable quarterly dividends. Future dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the board of directors considers payment of dividends.

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At MarchJune 31,30, 2026, Thethe Bank’s Tier 1 capital to total average assets was 10.4210.46 percent as compared to 10.22 percent at December 31, 2025. The Bank’s Tier 1 capital to risk weighted asset ratio was 12.9512.75 percent and the Bank’s total capital to risk weighted asset ratio was 13.8913.74 percent at MarchJune 31,30, 2026. The respective ratios were 13.06 percent and 14.01 percent at December 31, 2025. The Bank’s common equity Tier 1 to risk weighted asset ratio was 12.9512.75 percent at MarchJune 31,30, 2026, compared to 13.06 percent at December 31, 2025. The Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, the Company’s Tier 1 capital to total average assets was 9.039.11 percent as compared to 8.84 percent at December 31, 2025. The Company’s Tier 1 capital to risk weighted asset ratio was 11.2011.10 percent and the total capital to risk weighted asset ratio was 14.1614.06 percent at MarchJune 31,30, 2026. These ratios were 11.28 percent and 14.31 percent at December 31, 2025. The Company’s common equity Tier 1 to risk weighted asset ratio was 10.9610.87 percent at MarchJune 31,30, 2026, compared to 11.03 percent at December 31, 2025.

The Company reported net income of $14.7$14.8 million or $1.47$1.48 per diluted share for the three months ended MarchJune 31,30, 2026, a decrease of $0.3$2.2 million when compared to a net income of $15.0$17.0 million or $1.49$1.68 per diluted share for the comparable period of 2025. The $0.3 million reduction in net income comparing the three months ended MarchJune 31,30, 20262026, and 2025 was primarily due to an increase in the provision for credit losses due to strong loan growth, coupled with an increase in non-interest expense and income tax expense, which were partially offset by increases in net interest income and non-interest income. The Company recorded a $1.4$3.1 million provision for credit losses during the firstsecond quarter of 2026 compared to a $0.2 million provision credit for the comparable quarter of 2025. Noninterest expenses increased by $2.5$2.3 million, primarily due to increases in salaries and benefits andexpense, net occupancy and equipment expenses.expense, advertising and corporate business development expense. For the three months ended MarchJune 31,30, 2026, net interest income increased $3.4 million to $42.9$45.6 million from $39.5$42.2 million for the three months ended MarchJune 31,30, 2025. Noninterest income was $6.9$6.5 million for the three months ended MarchJune 31,30, 2026, an increase of $0.6$0.3 million from $6.3$6.2 million in the year ago period. The current period includes a gain of $0.5$0.3 million from the sale of available-for-salea investmentbranch securitiesproperty, coupled with increases in wealth management and anmortgage increasebanking ofincome, $0.4which millionincludes ingains, positivefees marketand valuecommissions adjustmentsand onmerchant equityservices securities.income.

Net income for the six months ended June 30, 2026, totaled $29.6 million, or $2.95 per diluted shares, a decrease of $2.4 million, compared to $32.0 million, or $3.18 per diluted share for the same six months of 2025. Similar to the quarterly period, the decrease in year-to-date net income was primarily attributable to a higher provision for credit losses, reflecting strong loan growth, along with increases in noninterest expense and income tax expense, partially offset by higher net interest income and noninterest income, Return on average assets (“ROAA”) measures our net income in relation to total assets. Our annualized ROAA was 1.151.13 percent for the firstsecond quarter of 2026 compared to 1.221.36 percent for the same period of 2025. Return on average equity (“ROAE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROAE was 11.2611.10 percent for the firstsecond quarter of 2026 compared to 12.7013.87 percent for the comparable period in 2025. For the six months ended June 30, 2026 ROAA and ROAE were 1.14 percent and 11.18 percent, respectively, compared to 1.29 percent and 13.30 percent for the respective periods of 2025.

The following table reconciles the non-GAAP financial measures of net interest income adjusted to FTE for the three and six months ended MarchJune 31,30, 2026 and 2025:

The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three and six months ended MarchJune 31,30, 2026 and 2025:

On September 17, 2025, the Federal Open Market Committee (FOMC) reduced the target federal funds rate by 25 basis points to 4.25 percent, after maintaining the rate at 4.50 percent since December 18, 2024. The Committee—whose mandate is to promote maximum employment and maintain inflation at 2 percent over the longer run—cited rising economic uncertainty and increasing risks to the labor market as key reasons for the rate cut. Following this action, the national prime rate declined by 25 basis points, from 7.50 percent to 7.25 percent. The FOMC implemented two additional 25 basis point cuts on October 29 and December 10, 2025, bringing the federal funds target rate to 3.75 percent by year end. In response, the national prime rate also fell, ending 2025 at 6.75 percent. During the first quarter,quarter of 2026, the FOMC signaled that the existing rate level was sufficiently restrictive to guide inflation lower while avoiding undue pressure on employment. TheAt its meeting on July 1, 2026, the FOMC emphasizedvoted thatto futurekeep adjustmentsthe wouldbenchmark dependovernight on incoming data, but noborrowing rate cutsunchanged, or hikes occurred duringmarking the quarter.first meeting with a new chairman. Due to the recentongoing conflict in the Middle East, we expect uncertainty with respect to economic conditions to remain elevated, which may result in future FOMC actions. Any additional rate actions by the FOMC could have a negative impact on Peoples’ net interest margin and net interest income.

For the three months ended MarchJune 31,30, 2026, the average balances included $4.1$4.2 billion in loans, $611.0$582.8 million in investments, $3.4 billion in interest bearing deposits, and $264.5$293.0 million in borrowings, which wasincluded comprised of $83.2$83.3 million in subordinated debt and $8.2 million in junior subordinated debt. For the three months ended MarchJune 31,30, FTE net interest income, a non-GAAP measure, increased $3.4$3.6 million to $43.7$46.5 million in 2026 from $40.3$42.9 million in 2025. The FTE net interest spread increased to 3.103.24 percent for the three months ended MarchJune 31,30, 2026, from 2.923.08 percent for the three months ended MarchJune 31,30, 2025, which was caused by a 17-basis20-basis point decrease in the average rate paid on interest-bearing liabilities, andpartially offset by a 1 basis4-basis point increasedecrease in the FTE earning asset yield. The FTE net interest margin increased 1713 basis points to 3.673.82 percent for the firstsecond quarter of 2026 from 3.503.69 percent for the comparable period of 2025. The increase in tax-equivalent net interest margin from athe year ago same period was primarily due to decreases in average deposit rates, specifically money market demand accounts and time deposits, coupled with higher volumes of earning assets, partially offset by decreases in average loan rates and increases in average volumes and rates of subordinated debt.yields.

For the three months ended MarchJune 31,30, the $3.6 million increase in FTE net interest income, a non-GAAP measure, was primarily due to an increase in FTE interest income, a non-GAAP measure, coupled with a decrease in interest expense. FTE interest income on earning assets, a non-GAAP measure, increased $2.4$2.6 million to $65.5$68.7 million in 2026 as compared to $63.1$66.1 million in 2025. The increase toin FTE interest income was primarilypredominantly due to increases in the volume of earning assetsassets, andprimarily increasesloans, partially offset by a 4-basis point decrease in the FTE yieldsearning onasset taxableyield. investmentAverage securitiesearnings dueassets increased $221.5 million to our$4.9 ongoingbillion portfolio repositioning, as new purchases were added at higher yields thanfor the securitiesthree sold.months Averageended loanJune balances30, were2026 $139.7from million$4.7 higherbillion when compared tofor the same quarterthree months of 2025. Strong loan demand resulted in 2025a while$247.3 million increase in average investment balances were $32.0 million lower when comparedloans to $4.2 billion from $4.0 billion comparing the yearsecond agoquarters quarter.of Meanwhile,2026 and 2025. Additionally, average federalinterest-bearing funds solddeposits increased $62.1$18.8 million to $88.1$67.0 million for the three months ended MarchJune 31,30, 2026, from $26.0$48.3 million for the same three months of 2025. These increases were partially offset by a $44.6 million reduction in average investment securities to $582.8 million for the second quarter of 2026 from $627.3 million for the same quarter of 2025. The overall yield on earning assets, on an FTE basis, increaseddecreased 14 basis pointpoints for the three months ended MarchJune 31,30, 2026, to 5.515.64 percent as compared to 5.505.68 percent for the three months ended MarchJune 31,30, 2025. The yield on loans decreased 1218 basis points in the firstsecond quarter of 2026 to 5.805.89 percent from 5.926.07 percent for the firstsecond quarter of 2025, while the yield on federalinterest fundsbearing solddeposits decreased 7569 basis points to 3.703.72 percent from 4.454.41 percent when comparing the firstsecond quarters of 2026 and 2025, respectively. FOMC rate actions in the second half of 2025 contributed to the decreases in yields on loans and federal funds sold.yields. Partially offsetting the reductions in loan and federalinterest-bearing fundsdeposit sold yields,yields was ana 8572 basis point increase in the yield earned on investments into 4.01% for the firstsecond quarter of 20262026, compared to 3.80 percent from 2.95 percent3.29% for the firstsecond quarter of 2025,2025. whichThis improvement was primarily duedriven to the partialby repositioning transactions completedexecuted in both the fourth quarter of 2025 and the first quarter of 20262026, wherewhereby a portion of the cash flows received from theinvestment sales werewas reinvested into higher yieldinghigher-yielding securities.

Net interest income changes due to rate and volume for the threesix months ended MarchJune 3130

FTE net interest income, a non-GAAP measure, was $43.7$90.2 million for the threesix months ended MarchJune 31,30, 2026, and $40.3$83.2 million in the comparable period lastof year.2025. Contributing to the $3.4$7.0 million increase in FTE net interest income was a positive rate variance partially offset byand a negativenegligible positive volume variance. The positive rate variance resulted in an increase in net interest income of $6.1$7.0 million when comparing the first quarterssix months of 2026 and 2025, while the impact from changes in average interest-earning assets and interest-bearing liabilities resulted in a decrease in FTE net interest income, a non-GAAP measure, of $2.6 million.2025.

For the threesix months ended MarchJune 31,30, 2026, the favorable rate variance resulted primarily from a 17-basis29-basis point decrease in the costaverage ofrates funds.paid Withfor regardinterest-bearing todeposits, thewhich decreaseoutweighed a 14-basis point reduction in fundingaverage costs,loan theyields. The average rate paid on interest-bearing deposits decreased 30 basis points to 2.162.15 percent from 2.462.44 percent in the yearprior agoyear’s six-month period resulting in a decrease in interest expense of $9.1$10.1 million. The reduction in interest-bearing deposits costs was largely influenced by decreases in the average rate paid offor money market deposits and time deposits. Comparing the first quarterssix months of 2026 and 2025, the average cost of money market deposits decreased 131134 basis points to 2.572.58 percent from 3.883.92 percent, respectively, which resulted in a decrease in interest expense of $10.6$11.0 million. Additionally,Specifically, comparing the yieldsix onmonths largeended June 30, 2026, and 2025, the rate paid for small denomination time deposits decreased 2983 basis points, while the average rate paid for time deposits $100 or more decreased 28 basis points and resulted in a decrease in interest expense of $1.0 million and the yield on time deposits less than $100 thousand decreased 88 basis points, which resulted in acombined decrease in interest expense of $0.8$2.4 million. Partially offsetting the reductionreductions in money market and time deposit costs werewas increasesan increase in the average rate paid for interest-bearing demand deposits and NOWdeposit accounts and savings of 19 basis points and 522 basis points, respectively, which caused a combinedan increase to interest expense of $3.3$3.2 million. The yield on long-term debt decreased 63 basis points to 4.25 percent for the three months ended March 31, 2026, from 4.88 percent for the same three-month period ended March 31, 2025, and resulted in a decrease of $0.9 million in interest expense. The yield on short-term borrowings decreased 67 basis points to 3.85 percent for the three months ended March 31, 2026 from 4.52 percent for the same three months of period in 2025 and resulted in a $0.2 million decrease to interest expense. The Company issued $85.0 million of 7.75 percent fixed-to-floating subordinated notes on June 6, 2025, due 2035, and on June 30, 2025, redeemed $33.0 million of its 5.375 percent fixed-to -floating subordinated notes due 2030. Combined, these notes resulted in an increase in yield of 308 basis points and resulted in a $0.4 million increase in interest expense.

Comparing the threesix months ended MarchJune 31, 2026, and 2025,30, the FTE yield on earning assets was 5.515.57 percent for the first quarter of 2026, a decrease of 12 basis points from 5.505.59 percent infor 2025. A 12-basis14-basis point decrease in the FTE yield on average loans overshadowed the positive impact of ana 85-basis78-basis point increase in the average FTE yield on investments,investments. resultingThe inaverage arate $3.8paid millionon reductionloans decreased to FTE interest income due to changes in rate. The FTE yield on the loan portfolio decreased 12 basis points to 5.805.85 percent in 2026 from 5.925.99 percent in 2025 and resulted in a decrease to interest income of $6.3$7.6 million. The yield on the taxable investment portfolio increased 73 basis points to 3.783.90 percent during the threesix months ended MarchJune 31,30, 2026, from 3.053.12 percent in the year ago period, resulting in an increase of $3.4$4.3 million in interest income. The yield on the tax-exempt investment portfolio increased 155 basis points to 3.88 percent from 2.33 percent in the year ago period resulting in a $0.4 million increase to interest income.

Average earning assets increased $168.1$195.0 million to $4.8 billion for the threesix months ended MarchJune 31,30, 2026, from $4.7 billion for the same threesix months of 2025 and accounted for aan $6.2$8.8 million increase in interest income. The impact of the increase in average earning assets was more than entirely offset by a $71.0$102.2 million increase in average interest-bearing liabilities, which resulted in an $8.8 million increase in interest expense.