ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this Annual Report on Form 10-K are forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation that may include future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the “Corporation”) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “may”, “would”, “will”, "should", “likely”, “possibly”, "expect", "anticipate", “intend”, “pro forma”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “strategic”, “objective”, “plan”, “forecast”, “project”, “believe” and “goal” or other similar words, phrases or concepts. Persons reading this document are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different. A number of factors could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements. In addition to factors previously disclosed in the reports filed by the Corporation with the SEC, including the Risk Factors section of this Form 10-K, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:
changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates
changes in general economic conditions
the potential for adverse developments in the banking industry that could have a negative impact on customer confidence
the possibility that the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses
difficulties in integrating the operations of the former Susquehanna. (acquired by the Corporation October 1, 2025)
legislative or regulatory changes
downturn in demand for loan, deposit and other financial services in the Corporation’s market area
increased competition from other banks and non-bank providers of financial services
technological changes and increased technology-related costs
information security breaches or other technology difficulties or failures
changes in, or the application of, generally accepted accounting principles with respect to the presentation of the Corporation’s financial statements
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fraud and cyber malfunction risks as usage of artificial intelligence continues to expand
integration efforts between the Corporation and Susquehanna may divert the attention of the management teams of the Corporation and Susquehanna and cause a loss in the momentum of their ongoing businesses
success of the Corporation in Susquehanna’s geographic market area will require the Corporation to attract and retain key personnel in the market and to differentiate the Corporation from its competitors in the market
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. All forward-looking statements and information made herein are based on management’s current beliefs and assumptions as of the date of filing of this document. The Corporation does not undertake to update forward-looking statements.
Completion of Merger with Susquehanna Community Financial, Inc.
On October 1, 2025, the Corporation completed its previously announced merger with Susquehanna. Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Snyder and Union counties in Pennsylvania. Pursuant to the Agreement and Plan of Merger dated April 23, 2025 between the Corporation and Susquehanna, Susquehanna merged with and into the Corporation, with the Corporation as the surviving corporation in the Merger. Immediately following the completion of the Merger, Susquehanna Community Bank, the wholly owned subsidiary of Susquehanna, merged with and into C&N Bank, with C&N Bank surviving. Upon completion of the merger, shareholders of Susquehanna became entitled to exchange each share of Susquehanna common stock owned for 0.80 shares of the Corporation’s common stock. Cash was issued in lieu of fractional shares resulting from the conversion of Susquehanna’s stock. In total, C&N issued approximately 2.3 million shares of common stock to the former Susquehanna stockholders, resulting in total merger consideration valued at $44.6 million and an increase in the Corporation’s stockholders’ equity of $44.4 million, net of equity issuance costs.
In connection with the acquisition, effective October 1, 2025, tangible common book value per share (a non-GAAP ratio- see reconciliation on. page 38) was diluted by $0.56, or 3.6%, as the Corporation recorded goodwill of $10.8 million and a core deposit intangible asset of $10.7 million. Assets acquired included loans valued at $393.6 million, cash and due from banks of $6.1 million, bank-owned life insurance valued at $8.0 million and securities valued at $147.6 million. Liabilities assumed included deposits valued at $501.5 million and short-term borrowings valued at $45.8 million. The assets purchased and liabilities assumed in the acquisition were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition.
In November 2025, the Financial Accounting Standards Board issued Accounting Standards Update 2025-08, Financial Instruments – Credit Losses (ASU 2025-08). The Corporation adopted ASU 2025-08 in accounting for the Susquehanna acquisition. Consistent with ASU 2025-08, The Corporation recorded loans receivable at fair value plus an allowance for credit losses of $7.1 million, including allowances totaling $2.6 million on loans with more than insignificant deterioration in credit quality subsequent to origination (“PCD”) loans and an allowance of $4.5 million on non-PCD loans. At acquisition date, the recorded value of loans receivable included PCD loans totaling $23.7 million.
In 2025, the Corporation incurred pre-tax merger-related expenses related to the Susquehanna acquisition of $7,940,000. Merger-related expenses include expenses related to conversion of Susquehanna’s core customer system data into C&N’s core system, severance and legal and other professional expenses. Management believes disclosure of 2025 earnings results, adjusted to exclude the impact of merger-related expenses, net of tax, provides useful information to investors for comparative purposes. The following table provides a reconciliation of the Corporation’s 2025 earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding merger-related expenses, net of tax.
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(Dollars in Thousands)
Year Ended
December 31,
Calculation of Adjusted Net Income:
Net Income (GAAP) (A)
Add: Merger-related expenses (B)
Less: Tax effect of merger-related expenses (C)
Adjusted Net Income (D=A+B-C) - Non-GAAP
Adjusted Net Income Attributable to Common Shares - Non-GAAP
Number of Shares Used in Computation-Basic and Diluted - Non-GAAP
Net Income-Basic and Diluted per Common Share - GAAP
Adjusted Net Income-Basic and Diluted Per Common Share - Non-GAAP
EARNINGS OVERVIEW
Net income for the year ended December 31, 2025 was $23,427,000 or $1.46 per diluted share, as compared to $25,958,000, or $1.69 per diluted share, for the year ended December 31, 2024. The addition of Susquehanna contributed to growth in net interest income, noninterest income and noninterest expenses. As disclosed in the table above, adjusted earnings (which is a non-GAAP number that excludes the impact of merger-related expenses, net of tax), for the year ended December 31, 2025 were $29,777,000, or $1.85 per diluted share.
Significant variances were as follows:
Net interest income totaled $91,853,000 for the year ended December 31, 2025, an increase of $12,738,000 from 2024 including the benefit of three months of income from growth in net earning assets resulting from the Susquehanna merger. Average total loans increased $137,995,000 or 7.3% and average total deposits increased $170,215,000, or 8.3%. Average brokered deposits decreased $50,415,000 to $11,123,000 for the year ended December 31, 2025 from $61,538,000 for the year ended December 31, 2024, while average total borrowed funds decreased $44,254,000. The net interest margin was 3.61% for the year ended December 31, 2025, up from 3.30% in the corresponding period of 2024. The interest rate spread increased 0.38%, as the average rate on interest-bearing liabilities was 0.25% lower while the average yield on earning assets increased 0.13%.
For the year ended December 31, 2025, the provision for credit losses was $6,073,000, up from $2,195,000 in 2024. The provision for the year ended December 31, 2025 included the impact of increases in the allowance for credit losses (“ACL”) related to changes in qualitative factors. The ACL increased $11,013,000, to 1.32% of loans receivable at December 31, 2025 as compared to 1.06% at December 31, 2024, including the impact of growth in the loan portfolio, mainly from the Susquehanna acquisition, as well as a net increase related to changes in qualitative factors. For the year ended December 31, 2025, net charge-offs totaled $1,617,000, or 0.08% of average loans receivable as compared to net charge-offs for 2024 of $1,603,000, or 0.09% of average loans receivable.
Noninterest income totaled $30,852,000 for the year ended December 31, 2025, up $1,643,000 from the total for the year ended December 31, 2024 including the impact of $665,000 in noninterest income from the Susquehanna acquisition. Significant variances included the following:
Other noninterest income of $5,637,000 increased $407,000 including increases in credit enhancement fees of $117,000, income from merchant services of $66,000, interchange revenue from credit cards of $65,000, income from tax credits related to donations of $51,000 and letter of credit fees of $49,000.
Interchange revenue from debit card transactions of $4,623,000 increased $347,000, including an increase in volume-related incentive income.
Net gains from sale of loans of $1,483,000 increased $325,000, reflecting an increase in volume of residential mortgage loans sold and includes the impact of $146,000 in net gains from sale of loans resulting from the Susquehanna acquisition.
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Trust revenue of $8,212,000 increased $284,000, consistent with appreciation in the trading prices of many U.S. equity securities and included an increase in estate fees.
Noninterest expense, excluding merger-related expenses of $7,940,000, totaled $80,049,000 for the year ended December 31, 2025, an increase of $5,791,000 from the total of $74,258,000 for the year ended December 31, 2024. The increase in noninterest expense included the impact of the Susquehanna acquisition. Other significant variances included the following:
Salaries and employee benefits expense of $47,386,000 increased $2,456,000, including the impact of the Susquehanna acquisition and an increase of $387,000 in cash and stock-based incentive compensation.
Other noninterest expense of $11,535,000 increased $1,174,000. Within this category, other significant variances included the following:
Core deposit intangible amortization expense increased $808,000, including $773,000 related to core deposits assumed from Susquehanna.
In 2025, there was a reduction in expense associated with the defined benefit postretirement medical benefit plan of $65,000. In comparison, in 2024, there was a reduction in expense of $527,000 related to the defined benefit postretirement medical benefit plan, including a curtailment gain of $469,000.
Legal fees unrelated to merger activity totaled $299,000 for the year ended December 31, 2025, a decrease of $305,000 from the total for 2024.
The income tax provision of $5,216,000, or 18.2% of pre-tax income for the year ended December 31 2025 decreased $697,000 from $5,913,000, or 18.6% of pre-tax income for the year ended December 31, 2024. The decrease in income tax provision was consistent with the decrease in pre-tax income of $3,228,000.
Net income for the year ended December 31, 2024 was $25,958,000, or $1.69 per diluted share, as compared to $24,148,000, or $1.57 per diluted share, for the year ended December 31, 2023. The results for 2023 included the impact of a $1.3 million charge, or $0.08 per diluted share, related to the repositioning of available-for-sale securities and bank-owned life insurance (BOLI).
Significant variances were as follows:
Net interest income totaled $79,115,000 for the year ended December 31, 2024, a decrease of $1,285,000 from 2023. The net interest margin was 3.30% in 2024, down from 3.47% in 2023. The interest rate spread decreased 0.32%, as the average rate on interest-bearing liabilities was higher by 0.75% while the average yield on earning assets increased 0.43%. Average total earning assets increased $81,866,000. Average total loans increased $88,973,000 (5.0%) and average total deposits increased $85,644,000 (4.3%).
For the year ended December 31, 2024, the provision for credit losses was $2,195,000, compared to $186,000 in 2023. For the year ended December 31, 2024, the provision related to loans receivable included the impact of a net increase in the ACL related to qualitative factors, partially offset by a decrease in total specific allowances on individual loans and decreases in other components of the ACL. The ACL increased $827,000 to 1.06% of loans receivable at December 31, 2024 as compared to 1.04% at December 31, 2023. For the year ended December 31, 2024, net charge-offs totaled $1,603,000, or 0.09% of average loans receivable as compared to $264,000 or 0.01% of average loans receivable for 2023.
Noninterest income totaled $29,209,000 for the year ended December 31, 2024, up $4,792,000 from the year ended December 31, 2023. Significant variances included the following:
There were no net gains or losses on available-for-sale debt securities for the year ended December 31, 2024 compared to net losses on available-for-sale debt securities of $3,036,000 for the year ended December 31, 2023. The net losses on available-for-sale debt securities of $3,036,000 for the year ended December 31, 2023 were primarily from sales in the fourth quarter 2023 related to the repositioning of the portfolio.
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Earnings from the increase in cash surrender value of life insurance of $1,830,000 decreased $873,000 in 2024 from 2023. Included in 2023 was income from a one-time enhancement of $2,100,000 on BOLI purchased in December 2023. Excluding the impact of the income from the enhancement in 2023, earnings from the increase in cash surrender value of life insurance increased $1,227,000 reflecting the increase in the average balance of BOLI to $51,465,000 in 2024 from $31,808,000 in 2023.
Other noninterest income of $5,230,000 increased $620,000 as dividends on FHLB-Pittsburgh and Federal Reserve stock totaled $1,743,000, an increase of $451,000, and income from tax credits related to donations increased $77,000.
Brokerage and insurance revenue of $2,271,000 increased $596,000 due to an increase in sales volume.
Trust revenue of $7,928,000 increased $515,000, consistent with appreciation in the trading prices of many U.S. equity securities and includes revenue from new business.
Net gains from sale of loans of $1,158,000 increased $435,000, reflecting an increase in volume of residential mortgage loans sold.
Service charges on deposit accounts of $5,867,000 increased $300,000 reflecting an increase in volume of fees.
Noninterest expense totaled $74,258,000 for the year ended December 31, 2024, an increase of $110,000 from the total for the year ended December 31, 2023. Significant variances included the following:
Other noninterest expense of $10,361,000 decreased $872,000. Within this category, significant variances included the following:
Other operational losses included a net decrease in expense of $407,000 to $98,000 in other losses in 2024 from expense of $505,000 in 2023. Included in 2023 was $427,000 related to a trust department tax compliance matter.
In 2024, there was a reduction in expense of $527,000 related to the defined benefit postretirement medical benefit plan, including a curtailment of $469,000 related to plan adjustments in the first quarter 2024. In comparison, in 2023, there was a reduction in expense associated with the postretirement plan of $19,000.
Donations expense increased $195,000 from 2023 including an increase of $133,000 in PA Educational Improvement Tax Credit Program donations and $50,000 in 2024 donations to benefit Northern Tier and Northcentral PA communities impacted by storm damage.
Professional fees of $2,175,000 decreased $322,000 as 2023 included $389,000 of conversion costs related to a change in Wealth Management platform for providing brokerage and investment advisory services.
Salaries and employee benefits expense of $44,930,000 increased $735,000, including an increase of $905,000 in cash and stock-based incentive compensation, an increase in base salaries expense of $630,000, or 2.1%, and an increase of $253,000 in wealth management-related commissions while there were decreases in expense related to the Employee Stock Ownership Plan of $579,000, health insurance expense of $361,000 and the Supplemental Executive Retirement Plan of $267,000.
The income tax provision of $5,913,000, or 18.6% of pre-tax income for the year ended December 31, 2024 decreased $422,000 from $6,335,000, or 20.8% of pre-tax income for the year ended December 31, 2023. The higher effective tax rate in 2023 included the net impact of a tax charge of $950,000 related to the initiated surrender of BOLI, partially offset by the non-taxable income of $2,100,000 from the one-time enhancement on the purchase of BOLI.
More detailed information concerning the Corporation’s earnings results are provided in other sections of Management’s Discussion and Analysis.
CRITICAL ACCOUNTING POLICIES
The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
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Business Combinations – The Corporation accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of FASB ASC Topic 805 ("ASC 805"), Business Combinations. Under ASC 805, the assets acquired, including identified intangible assets such as core deposit intangibles and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The valuations are based upon management’s assumptions of future growth rates, future attrition, discount rates and other relevant factors, which involves a significant level of estimation and uncertainty. In addition, management engaged independent third-party specialists to assist in the development of the fair values of the acquired assets and assumed liabilities. The preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the merger date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments would be recorded to goodwill during the current reporting period.
Examples of the impacted acquired assets and assumed liabilities include loans, deposits, identifiable intangible assets and certain other assets and liabilities.
For acquired loans at the merger date, management evaluated and classified loans based upon whether the loans had experienced a more-than-insignificant amount of credit deteriorating since origination. To determine the fair value of the loans, significant estimates and assumptions were applied, including projected cash flows, discount rates, repayment speeds, credit loss severity rates, default rates and realizable collateral values. In November 2025, the Financial Accounting Standards Board issued Accounting Standards Update 2025-08, Financial Instruments – Credit Losses (ASU 2025-08). The Corporation adopted ASU 2025-08 in accounting for the Susquehanna acquisition. Consistent with ASU 2025-08, the Corporation recorded loans receivable at fair value plus an allowance for credit losses of $7.1 million, including allowances totaling $2.6 million on loans with more than insignificant deterioration in credit quality subsequent to origination (“PCD”) loans and an allowance of $4.5 million on non-PCD loans at acquisition.
Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Notes 1 and 8 to the consolidated financial statements provide an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis.
The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.
NET INTEREST INCOME
The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables I, II and III include information regarding the Corporation’s net interest income in 2025, 2024 and 2023. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis using the Corporation’s marginal tax rate of 21%. The Corporation believes presentation of net interest income on a fully taxable-equivalent basis provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. Fully-taxable-equivalent interest income is reconciled to interest income following Table I. The discussion that follows is based on amounts in the tables.
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Fully taxable equivalent net interest income was $92,735,000 in 2025, $12,801,000 (16.0%) higher than in 2024 including the benefit of three months of income from growth in net earning assets resulting from the Susquehanna merger. Table III shows the net impact of changes in the volume increased net interest income by $6,832,000 and changes in interest rates increased net interest income by $5,969,000. The increase in net interest income reflected an increase in interest income of $11,202,000 and a decrease in interest expense of $1,599,000. As presented in Table II, the Net Interest Margin was 3.61% in 2025, as compared to 3.30% in 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.97% in 2025 from 2.59% in 2024. The average yield on earning assets of 5.45% was 0.13% higher in 2025 as compared to 2024, while the average rate on interest bearing liabilities of 2.48% was 0.25% lower in 2025 as compared to 2024. Accretion of acquisition accounting valuation adjustments related to the Susquehanna merger had a positive impact of $789,000 including accretion on loans of $486,000 and $303,000 on time deposits.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $140,099,000 in 2025, an increase of $11,202,000, or 8.7%, from 2024.
Interest and fees from loans receivable increased $10,242,000 in 2025 as compared to 2024. In 2025, the fully taxable equivalent yield on loans was 6.12%, up from 6.03% in 2024, r eflecting the effects of loans acquired from Susquehanna and valued based on current market yields as of October 1, 2025 as well as gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates . Average outstanding loans receivable increased $137,995,000 (7.3%) to $2,019,117,000 in 2025 from $1,881,122,000 in 2024. The increase in average annual loans attributable to Susquehanna was $97,392,000.
Income from interest-bearing due from banks totaled $3,359,000 in 2025, a decrease of $948,000 from 2024. Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks decreased to 4.21% in 2025 from 4.97% in 2024. The average balance of interest-bearing due from banks was $79,833,000 in 2025, down from $86,703,000 in 2024.
Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, increased $1,905,000 in 2025. The average yield on the portfolio increased to 2.78% for 2025 from 2.45% for 2024, and the average balance (at amortized cost) increased $15,534,000. The Susquehanna merger resulted in an initial increase in available-for-sale debt securities of $147,617,000. The majority of these securities were sold, and a significant portion of the proceeds were reinvested in securities contributing to the increase in average balance and yield.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense decreased $1,599,000 to $47,364,000 in 2025 from $48,963,000 in 2024.
Interest expense on deposits increased $275,000, as average total deposits (interest-bearing and noninterest-bearing) increased $170,214,000 (8.3%) in 2025 as compared to 2024. The increase in average annual deposit balances included $121,038,000 attributable to the Susquehanna acquisition. The average rate on interest-bearing deposits decreased to 2.29% in 2025 from 2.51% in 2024. Within average deposits, average brokered deposits were $11,123,000 at an average rate of 4.57% in 2025 as compared to $61,537,000 at an average rate of 5.19% in 2024. Average time deposits increased $58,512,000, average interest checking deposits increased $41,761,000, average savings deposits increased $38,120,000, average total balance of money market accounts increased $18,405,000 and the average balance of noninterest bearing demand deposits increased $13,416,000.
Interest expense on borrowed funds decreased $1,874,000 in 2025 as compared to 2024. Interest expense on short-term borrowings of $7,000 in 2025 was down from $1,168,000 in 2024 as the average balance of short-term borrowings decreased to $1,370,000 in 2025 from 22,743,000 in 2024. The average rate on short-term borrowings was 0.51% in 2025 compared to 5.14% in 2024. Interest expense on long-term borrowings (FHLB advances) decreased $720,000 to $6,468,000 in 2025 from $7,188,000 in 2024. The average balance of long-term borrowings was $144,114,000 in 2025, down from an average balance of $167,181,000 in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.49% in 2025 compared to 4.30% in 2024.
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Fully taxable equivalent net interest income was $79,934,000 in 2024, $1,385,000 (1.7%) lower than in 2023. The decrease in net interest income reflected an increase in interest expense of $15,859,000 and an increase in interest income of $14,474,000. As presented in Table II, the Net Interest Margin was 3.30% in 2024, as compared to 3.47% in 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.59% in 2024 from 2.91% in 2023. The average yield on earning assets of 5.32% was 0.43% higher in 2024 as compared to 2023, while the average rate on interest bearing liabilities of 2.73% was 0.75% higher in 2024 as compared to 2023. Additionally , average total earning assets increased $81,866,000, average total loans increased $88,973,000 (5.0%) and average total deposits increased $85,644,000 (4.3%). Table III shows the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for 2024 over 2023 by $2,539,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $3,924,000.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $128,897,000 in 2024, an increase of $14,474,000, or 12.6%, from 2023.
Interest and fees from loans receivable increased $11,730,000 in 2024 as compared to 2023. In 2024, the fully taxable equivalent yield on loans was 6.03%, up from 5.67% in 2023, r eflecting the effects of primarily rising interest rates on new loan originations and floating-rate loans . Average outstanding loans receivable increased $88,973,000 (5.0%) to $1,881,122,000 in 2024 from $1,792,149,000 in 2023. The Corporation experienced growth in commercial real estate and other commercial loans in 2023 and in 2024.
Income from interest-bearing due from banks totaled $4,307,000 in 2024, an increase of $2,928,000 from 2023. Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.97% in 2024, up from 4.22% in 2023. The average balance of interest-bearing due from banks was $86,703,000 in 2024, up from $32,709,000 in 2023. The net increase in average interest-bearing due from banks for 2024 as compared to 2023 reflected net sources of cash from deposit growth, a reduction in average available-for-sale debt securities and an increase in borrowed funds, partially offset by net uses of cash for loan growth and an increase in Bank-Owned Life Insurance.
Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, decreased $246,000 in 2024 as compared to 2023, as the average balance (at amortized cost) of available-for-sale debt securities decreased $61,916,000 as indicated in Table II. The average yield on available-for-sale debt securities was 2.45% for 2024, up from 2.21% in 2023.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense increased $15,859,000 to $48,963,000 in 2024 from $33,104,000 in 2023.
Interest expense on deposits increased $14,967,000, as the average rate on interest-bearing deposits increased to 2.51% in 2024 from 1.66% in 2023. Average total deposits (interest-bearing and noninterest-bearing) increased $85,644,000 (4.3%) in 2024 as compared to 2023. Within average deposits, average brokered deposits were $61,537,000 at an average rate of 5.19% in 2024 as compared to $47,424,000 at an average rate of 4.78% for 2023. Average time deposits increased $84,394,000, average interest checking deposits increased $48,472,000 and the average total balance of money market accounts increased $11,144,000 while average savings deposits decreased $35,631,000 and the average balance of noninterest bearing demand deposits decreased $22,735,000.
Interest expense on borrowed funds increased $892,000 in 2024 as compared to 2023. Interest expense on short-term borrowings in 2024 of $1,168,000 was down from $3,240,000 in 2023 as the average balance of short-term borrowings decreased to $22,743,000 in 2024 from $62,926,000 in 2023. The average rate on short-term borrowings was 5.14% in 2024 compared to 5.15% in 2023. Interest expense on long-term borrowings (FHLB advances) increased $2,958,000 to $7,188,000 in 2024 from $4,230,000 in 2023. The average balance of long-term borrowings was $167,181,000 in 2024, up from an average balance of $110,943,000 in 2023. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.30% in 2024 compared to 3.81% in 2023.
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TABLE I - ANALYSIS OF INTEREST INCOME AND EXPENSE
Year Ended
December 31,
Increase/(Decrease)
(In Thousands)
INTEREST INCOME
Interest-bearing due from banks
Available-for-sale debt securities:
Taxable
Tax-exempt
Total available-for-sale debt securities
Loans receivable:
Taxable
Tax-exempt
Total loans receivable
Other earning assets
Total Interest Income
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking
Money market
Savings
Time deposits
Total interest-bearing deposits
Borrowed funds:
Short-term
Long-term - FHLB advances
Senior notes, net
Subordinated debt, net
Total borrowed funds
Total Interest Expense
Net Interest Income
Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%.
Fees on loans are included with interest on loans and amounted to $1,726,000 in 2025, $1,927,000 in 2024 and $1,856,000 in 2023.
The table that follows is a reconciliation of net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.
(In Thousands)
Year Ended
December 31,
Increase/(Decrease)
Net Interest Income Under U.S. GAAP
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
Net Interest Income as adjusted to a fully taxable-equivalent basis - Non-GAAP
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TABLE II - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES
(Dollars In Thousands)
Year
Year
Year
Ended
Rate of
Ended
Rate of
Ended
Rate of
Return/
Return/
Return/
Average
Cost of
Average
Cost of
Average
Cost of
Balance
Funds%
Balance
Funds%
Balance
Funds%
EARNING ASSETS
Interest-bearing due from banks
Available-for-sale debt securities, at amortized cost:
Taxable
Tax-exempt
Total available-for-sale debt securities
Loans receivable:
Taxable
Tax-exempt
Total loans receivable
Other earning assets
Total Earning Assets
Cash
Unrealized loss on securities
Allowance for credit losses
Bank-owned life insurance
Bank premises and equipment
Intangible assets
Other assets
Total Assets
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
Money market
Savings
Time deposits
Total interest-bearing deposits
Borrowed funds:
Short-term
Long-term - FHLB advances
Senior notes, net
Subordinated debt, net
Total borrowed funds
Total Interest-bearing Liabilities.
Demand deposits (noninterest bearing)
Other liabilities
Total Liabilities
Stockholders' equity, excluding accumulated other comprehensive loss
Accumulated other comprehensive loss
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
Interest Rate Spread
Net Interest Income/Earning Assets
Total Deposits (Interest-bearing and Demand)
Brokered Deposits
Rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
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TABLE III - ANALYSIS OF VOLUME AND RATE CHANGES
(In Thousands)
Year Ended 12/31/2025 vs. 12/31/2024
Year Ended 12/31/2024 vs. 12/31/2023
Change in
Change in
Total
Change in
Change in
Total
Volume
Rate
Change
Volume
Rate
Change
EARNING ASSETS
Interest-bearing due from banks
Available-for-sale debt securities:
Taxable
Tax-exempt
Total available-for-sale debt securities
Loans receivable:
Taxable
Tax-exempt
Total loans receivable
Other earning assets
Total Interest Income
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
Money market
Savings
Time deposits
Total interest-bearing deposits
Borrowed funds:
Short-term
Long-term - FHLB advances
Senior notes, net
Subordinated debt, net
Total borrowed funds
Total Interest Expense
Net Interest Income
Changes in income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
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NONINTEREST INCOME
TABLE IV - COMPARISON OF NONINTEREST INCOME
(Dollars in Thousands)
Year Ended
December 31,
Change
Change
Trust revenue
Brokerage and insurance revenue
Service charges on deposit accounts
Interchange revenue from debit card transactions
Net gains from sales of loans
Loan servicing fees, net
Increase in cash surrender value of life insurance
Other noninterest income
Realized gains on available-for-sale debt securities, net
Total noninterest income
(Dollars in Thousands)
Year Ended
December 31,
Change
Change
Trust revenue
Brokerage and insurance revenue
Service charges on deposit accounts
Interchange revenue from debit card transactions
Net gains from sales of loans
Loan servicing fees, net
Increase in cash surrender value of life insurance
Other noninterest income
Realized losses on available-for-sale debt securities, net
Total noninterest income
N/M = Not meaningful
NONINTEREST EXPENSE
TABLE V - COMPARISON OF NONINTEREST EXPENSE
(Dollars in Thousands)
Year Ended
December 31,
Change
Change
Salaries and employee benefits
Net occupancy and equipment expense
Data processing and telecommunications expense
Automated teller machine and interchange expense
Pennsylvania shares tax
Professional fees
Other noninterest expense
Total noninterest expense, excluding merger-related expenses
Merger-related expenses
Total noninterest expense
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(Dollars in Thousands)
Year Ended
December 31,
Change
Change
Salaries and employee benefits
Net occupancy and equipment expense
Data processing and telecommunications expense
Automated teller machine and interchange expense
Pennsylvania shares tax
Professional fees
Other noninterest expense
Total noninterest expense
Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.
INCOME TAXES
The effective income tax rate was 18.2% of pre-tax income in 2025, down from 18.6% in 2024 and 20.8% in 2023. Tax-exempt interest income and income from BOLI contributed to the effective rate being lower than the federal statutory rate in 2023 through 2025.The higher effective income tax rate in 2023 included the net impact of a tax charge of $950,000 for the initiated surrender of BOLI.
The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. At December 31, 2025, the net deferred tax asset was $17,615,000, down from the balance at December 31, 2024 of $19,098,000. The largest change in temporary difference components was a decrease of $3,928,000 in the net deferred tax asset related to the unrealized loss on available-for-sale debt securities resulting from decreases in interest rates. Other significant changes included increases in the net deferred tax asset related to the ACL and acquisition accounting valuation adjustments on loans and a decrease related to core deposit intangibles.
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Further, the value of the benefit from realization of deferred tax assets would be impacted if income tax rates were changed from currently enacted levels.
Management believes the recorded net deferred tax asset at December 31, 2025 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.
Additional information related to income taxes is presented in Note 14 to the consolidated financial statements.
SECURITIES
Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.
Table VI shows the composition of the available-for-sale debt securities portfolio at December 31, 2025, 2024 and 2023. The total amortized cost of available-for-sale debt securities at December 31, 2025 was higher by $86,377,000 from December 31, 2024 and by $71,292,000 from December 31, 2023. The increase in amortized cost of the portfolio at December 31, 2025 resulted from purchases of available-for-sale debt securities with funding provided by proceeds from the sale of most of the securities acquired from Susquehanna .
At December 31, 2025, the largest categories of securities held as a percentage of total amortized cost, were as follows: (1) residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, including pass-through securities
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and collateralized mortgage obligations, 40.0%; (2) tax-exempt and taxable municipal bonds, 29.0%; and (3) commercial mortgage-backed securities issued or guaranteed by U.S. Government sponsored agencies, 18.5%.
The composition of the available-for-sale debt securities portfolio at December 31, 2025, 2024 and 2023 is as follows:
TABLE VI - INVESTMENT SECURITIES
Amortized
Fair
Amortized
Fair
Amortized
Fair
(In Thousands)
Cost
Value
Cost
Value
Cost
Value
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury
Obligations of U.S. Government agencies
Bank holding company debt securities
Obligations of states and political subdivisions:
Tax-exempt
Taxable
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
Residential collateralized mortgage obligations
Commercial mortgage-backed securities
Private label commercial mortgage-backed securities
Asset-backed securities,
Collateralized loan obligations
Total Available-for-Sale Debt Securities
Aggregate Unrealized Loss
Aggregate Unrealized Loss as a % of Amortized Cost
As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $29,685,000, or 5.5% at December 31, 2025, $47,543,000, or 10.6% at December 31, 2024 and $49,213,000 or 10.6% at December 31, 2023. The volatility in the fair value of the portfolio, including the significant reduction in fair value, resulted from changes in interest rates.
Additional information regarding the potential impact of interest rate changes on all of the Corporation’s financial instruments is provided in Item 7A, Quantitative and Qualitative Disclosures about Market Risk.
As described in Note 7 to the consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at December 31, 2025 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of December 31, 2025 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2025, other than securities issued or guaranteed by U.S. Government entities or agencies, was as follows:
Bank holding company debt securities – The Corporation’s holdings of bank holding company debt securities include twelve subordinated securities with face amounts ranging from $250,000 to $5 million. There have been no payment defaults on the securities . Eleven of the issuers have publicly traded common stock. At December 31, 2024, the face amount of the issue from the bank holding company that is not publicly traded is $400,000 . At December 31, 2025, two of the securities with a total face amount of $900,000 are unrated, and the rest of securities have external ratings ranging from BBB-/Baa3 to A-.
Obligations of states and political subdivisions (municipal bonds) – All of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at December 31, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA or pre-refunded – 19% of the portfolio; AA – 73%; A – 8%.
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Private label commercial mortgage-backed securities (PLCMBS) – There was one PLCMBS security, which was from the most senior payment (subordination) class. This security was investment grade (rated Aaa), and there have been no payment defaults on this security.
Collateralized loan obligations (CLOs) – There were three CLOs securities, all of which were from the most senior payment (subordination) classes of their respective issuances. These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.
Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at December 31, 2025.
The following table presents the contractual maturities and the weighted-average yields (calculated based on amortized cost) of investment securities as of December 31, 2025. Yields on tax-exempt securities are presented on a fully taxable-equivalent basis using the Corporation’s marginal tax rate of 21%. For callable securities, yields on securities purchased at a discount are based on yield-to-maturity, while yields on securities purchased at a premium are based on yield to the first call date. Yields on mortgage-backed securities are estimated and include the effects of prepayment assumptions. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.
Within
One-
Five-
After
One
Five
Ten
Ten
(Dollars In Thousands)
Year
Yield
Years
Yield
Years
Yield
Years
Yield
Total
Yield
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury
Obligations of U.S. Government agencies
Bank holding company debt securities
Obligations of states and political subdivisions:
Tax-exempt
Taxable
Sub-total
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
Residential collateralized mortgage obligations
Commercial mortgage-backed securities
Private label commercial mortgage-backed securities
Collateralized loan obligations
Total
The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase due to increased refinance activity and other factors. In the table above, the entire balances and weighted-average rates for mortgage-backed securities and collateralized mortgage obligations are shown in one period.
FINANCIAL CONDITION
This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses for loans and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at December 31, 2025.
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Table VII shows the composition of the loan portfolio at year-end from 2021 through 2025. Throughout this time period, the portfolio was primarily commercial in nature. At December 31, 2025, commercial loans represented 76% of the portfolio while residential loans totaled 19% of the portfolio.
As presented in Table VII, total loans outstanding at December 31, 2025 were $2,354,365,000 which is an increase of $458,517,000 (24.2%) from total loans at December 31, 2024 including $393,587,000 of gross loans receivable, net of purchase accounting adjustments, recorded effective October 1, 2025 pursuant to the acquisition of Susquehanna . In comparing outstanding balances at December 31, 2025 and 2024, total commercial loans were up $376,154,000 or 26.4%, total outstanding consumer loans increased $46,422,000 or 72.6% and total residential mortgage loans increased $35,941,000 or 8.8%.
Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at December 31, 2025. The data in Table VII shows the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $125,175,000, or 5.3% of gross loans receivable. At December 31, 2025, within this segment there were two loans with a total amortized cost basis of $2,787,000 in nonaccrual status with no individual allowances and the remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at December 31, 2025.
While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Participation loans are included in the “Commercial and industrial”, “Commercial loans secured by real estate”, “Political subdivisions” and “Other commercial” classes in the loan tables presented in this Form 10-K. Total participation loans outstanding amounted to $107,351,000 at December 31, 2025, up from $35,129,000 at December 31, 2024. The increase in 2025 resulted from participation loans acquired from Susquehanna.
The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh. The Corporation also originates and sells mortgages under the Pennsylvania Housing Finance Agency and other programs though the volume of sales has been small in comparison to the volume under the MPF programs.
For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At December 31, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,598,000 and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $3,029,000.
At December 31, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $450,120,000, including loans sold through the MPF Xtra program of $272,656,000 and loans sold through the Original program of $177,464,000. At December 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,766,000. The outstanding balance of residential mortgage loans originated and serviced by the Corporation that have been sold to third parties increased $120,354,000 from the total at December 31, 2024, reflecting the impact of servicing obligations assumed on such loans that had been sold by Susquehanna prior to the merger. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of December 31, 2025.
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TABLE VII – Five-Year Summary of Loans by Type
(Dollars In Thousands)
Commercial real estate - non-owner occupied:
Non-owner occupied
Multi-family (5 or more) residential
1-4 Family - commercial purpose
Total commercial real estate - non-owner occupied
Commercial real estate - owner occupied
All other commercial loans:
Commercial and industrial
Commercial lines of credit
Political subdivisions
Commercial construction and land
Other commercial loans
Total all other commercial loans
Residential mortgage loans:
1-4 Family - residential
1-4 Family residential construction
Total residential mortgage
Consumer loans:
Consumer lines of credit (including HELOCs)
All other consumer
Total consumer
Total
Less: allowance for credit losses on loans
Loans, net
Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio at December 31, 2025 is as follows:
(In Thousands)
December 31,
% of Non-owner
Occupied CRE
Total Loans
Office
Retail
Industrial
Hotels
Mixed Use
Self Storage Facilities
Other
Total Non-owner Occupied CRE Loans
Total Gross Loans
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TABLE VIII – LOAN MATURITY DISTRIBUTION
As of December 31, 2025
Fixed-Rate Loans
Variable- or Adjustable-Rate Loans
All Loans
1 Year
1 Year
(In Thousands)
or Less
Years
Years
Years
Total
or Less
Years
Years
Years
Total
Total
Commercial Real Estate- Nonowner Occupied:
Non-owner occupied
Multi-family (5 or more) residential
1-4 Family - commercial purpose
Total commercial real estate - non-owner occupied
Commercial real estate - owner occupied
All other commercial loans:
Commercial and industrial
Commercial lines of credit
Political subdivisions
Commercial construction and land
Other commercial loans
Total all other commercial loans
Residential mortgage loans:
1-4 Family - residential
1-4 Family residential construction
Total residential mortgage
Consumer loans:
Consumer lines of credit (including HELOCs)
All other consumer
Total consumer
Total
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PROVISION AND ALLOWANCE FOR CREDIT LOSSES
A summary of the provision for credit losses for the years ended December 31, 2025 and 2024 is as follows:
(In Thousands)
12 Months
12 Months
Ended
Ended
December 31,
December 31,
Provision for credit losses:
Loans receivable
Off-balance sheet exposures
Total provision for credit losses
For the year ended December 31, 2025, there was a provision for credit losses of $6,073,000, an increase of $3,878,000 compared to $2,195,000 in 2024. The provision for 2025 included expense related to loans receivable of $5,556,000 and expense related to off-balance sheet exposures of $517,000. The provision for the year ended December 31, 2025 included the impact of increases in the ACL related to changes in qualitative factors. The ACL increased $11,013,000, to 1.32% of loans receivable at December 31, 2025 as compared to 1.06% at December 31, 2024, including the impact of an increase in the ACL attributable to the Susquehanna acquisition and an increase related to changes in qualitative factors.
As shown in Table X, the ACL on loans individually evaluated increased to $2,772,000 at December 31, 2025 from $122,000 at December 31, 2024, including an ACL of $2,632,000 at December 31, 2025 on acquired PCD loans as part of the Susquehanna acquisition.
Table X also shows that, at December 31, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $8,234,000 and the ACL on collectively evaluated residential mortgage increased $273,000, while the ACL on collectively evaluated consumer loans decreased $144,000. The increase for commercial loans includes the impact of growth in the portfolio, mainly from the Susquehanna acquisition and an increase in qualitative adjustments resulting mainly from changes in external indexes and an increase in past due and nonaccrual loans.
In 2025, net charge-offs totaled $1,617,000, or 0.08% of average outstanding loans compared to net charge-offs for 2024 of $1,603,000, or 0.09% of average outstanding loan. Table IX shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023. Table XII shows that over the five-year period ended December 31, 2025, the average net-charge off rate was 0.10%.
Table XI shows that total nonperforming assets as a percentage of total assets was 1.06% at December 31, 2025, up from 0.92% at December 31, 2024 and higher than that at year-end 2021 through 2023. Total nonperforming assets were $33.1 million at December 31, 2025, up from $24.1 million at December 31, 2024, including the impact of nonaccrual PCD loans acquired as part of the merger with a total amortized cost basis of $6.8 million at December 31, 2025.
Over the period 2021-2025, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.
Management believes it has been prudent in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the
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ACL calculated as of December 31, 2025. Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.
Tables IX through XII present historical data related to loans and the allowance for credit losses.
TABLE IX - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(Dollars In Thousands)
Years Ended December 31,
Balance, beginning of year
Adoption of ASU 2016-13 (CECL)
Allowance recorded in business combination- PCD loans
Allowance recorded in business combination- Non PCD loans
Charge-offs
Recoveries
Net charge-offs
Provision for credit losses on loans
Balance, end of period
Net charge-offs as a % of average loans (annualized)
TABLE X - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES
UPON ADOPTION OF CECL
(In Thousands)
December 31,
December 31,
December 31,
January 1,
Loans individually evaluated
Loans collectively evaluated:
Commercial real estate - nonowner occupied
Commercial real estate - owner occupied
All other commercial loans
Residential mortgage
Consumer
Total Allowance
PRIOR TO CECL ADOPTION
(In Thousands)
As of December 31,
ASC 310 - Impaired loans - individually evaluated
ASC 450 - Collectively evaluated:
Commercial
Residential mortgage
Consumer
Unallocated
Total Allowance
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TABLE XI - PAST DUE AND NONPERFORMING ASSETS
(Dollars In Thousands)
As of December 31, 2025
As of December 31,
PCD Loans
Non PCD Loans
Total Loans
Collateral dependent loans with a valuation allowance
Collateral dependent loans without a valuation allowance
Purchased credit impaired loans
Total collateral dependent loans
Total loans past due 30-89 days and still accruing
Nonperforming assets:
Purchased credit impaired loans
Other nonaccrual loans
Total nonaccrual loans
Total loans past due 90 days or more and still accruing
Total nonperforming loans
Foreclosed assets held for sale (real estate)
Total nonperforming assets
Total nonperforming loans as a % of loans
Total nonperforming assets as a % of assets
Nonaccrual loans as a % of loans
Allowance for credit losses as a % of nonaccrual loans
Allowance for credit losses as a % of total loans
TABLE XII – FIVE-YEAR HISTORY OF LOAN LOSSES
(Dollars In Thousands)
Average
Average gross loans
Year-end gross loans
Year-end allowance for credit losses on loans
Year-end nonaccrual loans
Year-end loans 90 days or more past due and still accruing
Net charge-offs
Provision for credit losses on loans
Earnings coverage of charge-offs
Allowance coverage of charge-offs
Net charge-offs as a % of provision for credit losses on loans
Net charge-offs as a % of average gross loans
Income before income taxes on a fully taxable equivalent basis
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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The Corporation’s significant fixed and determinable contractual obligations as of December 31, 2025 include repayment obligations related to time deposits and borrowed funds. Information related to maturities of time deposits is provided in Note 11 to the consolidated financial statements. Information related to maturities of borrowed funds is provided in Note 12 to the consolidated financial statements. The Corporation’s operating lease commitments with terms of one year or less and other commitments at December 31, 2025 are immaterial. Information concerning operating lease commitments with terms greater than one year is provided in Note 17 to the consolidated financial statements.
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate or liquidity risk in excess of the amount recognized in the consolidated balance sheets. Commitments to extend credit are legally binding agreements to lend to customers and generally have fixed expiration dates or other termination clauses and may require payment of fees. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments and standby letters of credit do not necessarily represent future liquidity requirements, as they may expire without being used.
The following table presents the Corporation's commitments to extend credit and standby letters of credit as of December 31, 2025:
(In Thousands)
December 31,
Commercial real estate loans
Commercial lines of credit
Commercial construction and land
Other commercial loans
1-4 family residential construction
Consumer lines of credit (including HELOCs)
All other consumer loans
Total commitments to extend credit
Financial letters of credit
Performance letters of credit
Total standby letters of credit
Off-balance sheet arrangements are further described in Note 16 and the allowance for credit losses on off-balance sheet exposures is described in Note 8 to the consolidated financial statements.
As described in more detail in the Financial Condition section of Management’s Discussion and Analysis, the Corporation sells residential mortgage loans for which the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. At December 31, 2025, outstanding balances of such loans sold totaled $450,120,000.
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.
The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.
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The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale securities with a carrying value of $26,947,000 at December 31, 2025.
The Corporation’s outstanding, available, and total credit facilities at December 31, 2025 and 2024 are as follows:
Outstanding
Available
Total Credit
(In Thousands)
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
Federal Home Loan Bank of Pittsburgh
Federal Reserve Bank Discount Window
Other correspondent banks
Total credit facilities
At December 31, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and borrowings of $27,000,000, long-term borrowings with par values totaling $120,935,000 and letters of credit totaling $22,987,000. At December 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $165,451,000 and letters of credit totaling $23,241,000. Availability on the facility is also reduced by accrued interest payable on the borrowings and by the total of the Corporation’s credit enhancement obligations on residential mortgage loans sold under the MPF Original Program.
Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could utilize available-for-sale debt securities as collateral for borrowings or sell securities to meet its obligations. At December 31, 2025, the carrying value of available-for-sale debt securities in excess of amounts required to meet pledging or repurchase agreement obligations was $319,624,000.
Deposits totaled $2,564,716,000 at December 31, 2025, up $470,807,000 from $2,093,909,000 at December 31, 2024. Deposits of $501,488,000 were assumed from Susquehanna, effective October 1, 2025. After the impact of the initial balances of deposits assumed from Susquehanna, total deposits were down at December 31, 2025, mainly due to seasonal declines in balances maintained by municipal customers. Average total deposits of $2,227,784,000 were 8.3% higher for the year ended December 31, 2024, as compared to $2,057,570,000 for the year ended December 31, 2024. Average brokered deposits decreased $50,415,000 to $11,123,000 for the year ended December 31, 2025 from $61,538,000 for the year ended December 31, 2024.
As shown in the table below, at December 31, 2025, estimated uninsured deposits totaled $811.2 million, or 31.4% of total deposits, up from $632.8 million, or 30.0% of total deposits at December 31, 2024. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $172.6 million at December 31, 2025. As shown in the table below, total uninsured and uncollateralized deposits amounted to 24.7% of total deposits at December 31, 2025, up from 22.3% at December 31, 2024.
As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.2 billion at December 31, 2025. Available funding from these sources totaled 148.7% of uninsured deposits and 188.8% of total uninsured and uncollateralized deposits at December 31, 2025.
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Uninsured Deposits Information
December 31,
December 31,
Total Deposits - C&N Bank
Estimated Total Uninsured Deposits
Portion of Uninsured Deposits that are
Collateralized
Uninsured and Uncollateralized Deposits
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
Available Funding from Credit Facilities
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
Highly Liquid Available Funding
Highly Liquid Available Funding as a % of
Uninsured Deposits
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits
Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.
STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY
Details concerning capital ratios at December 31, 2025 and December 31, 2024 are presented in Note 18 to the consolidated financial statements. Management believes, as of December 31, 2025, that the Corporation and C&N Bank meet all capital adequacy requirements to which they are subject and maintain a capital conservation buffer (described in more detail below) that allows the Corporation and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, the Corporation’s and C&N Bank’s capital ratios at December 31, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels. Management expects the Corporation and C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future.
Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 18 to the consolidated financial statements.
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Corporation and C&N Bank must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At December 31, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:
Minimum common equity tier 1 capital ratio
Minimum common equity tier 1 capital ratio plus capital conservation buffer
Minimum tier 1 capital ratio
Minimum tier 1 capital ratio plus capital conservation buffer
Minimum total capital ratio
Minimum total capital ratio plus capital conservation buffer
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation
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buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:
Capital Conservation Buffer
Maximum Payout
(as a % of risk-weighted assets)
(as a % of eligible retained income)
Greater than 2.5%
No payout limitation applies
≤2.5% and >1.875%
≤1.875% and >1.25%
≤1.25% and >0.625%
At December 31, 2025, the Corporation’s Capital Conservation Buffer was 6.18% and C&N Bank’s Capital Conservation Buffer was 5.82%.
On September 25, 2023, the Corporation announced a treasury stock repurchase program with no expiration that can be suspended or terminated by the Board of Directors, in its sole discretion. Under this program, the Corporation is authorized to repurchase up to 750,000 shares of its common stock. During the year ended December 31, 2025, 501 shares were repurchased for a total cost of $9,534, at an average price of $19.03 per share. At December 31, 2025, there were 723,465 shares available to be repurchased under the program.
The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Corporation’s regulatory capital ratios but is included for the determination of tangible common equity, as discussed in the following paragraph. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $23,154,000 at December 31, 2025 and $37,084,000 at December 31, 2024. The volatility in stockholders’ equity related to accumulated other comprehensive loss from available-for-sale debt securities has been caused by fluctuations in interest rates including overall increases in rates as compared to market rates when most of the Corporation’s securities were purchased. The securities section of Management’s Discussion and Analysis and Note 7 to the consolidated financial statements provide additional information concerning information management considered in evaluating debt and equity securities for credit at December 31, 2025.
Tangible common equity is a non-GAAP measure, and tangible common book value per share and tangible common equity as a percentage of tangible assets are non-GAAP ratios. Management believes this non-GAAP information is helpful in evaluating the strength of the Corporation’s capital and in providing an alternative valuation of the Corporation’s net worth. Information at December 31, 2025 and 2024 is as follows:
(Dollars In Thousands, Except Per Share Data)
December 31,
Total Assets
Less: Intangible Asset, Goodwill
Less: Intangible Asset, Core Deposit Intangibles, net
Related Tax Effect on Core Deposit Intangibles, net
Tangible Assets (1)
Total Stockholders' Equity
Less: Intangible Asset, Goodwill
Less: Intangible Asset, Core Deposit Intangibles, net
Related Tax Effect on Core Deposit Intangibles, net
Tangible Common Equity (2)
Common Shares Outstanding, End of Period (3)
Tangible Common Book Value per Share = (2)/(3)
Tangible Common Equity (2) / Tangible Assets (1)
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ITEM 7A. QUANTITA TIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices of the Corporation’s financial instruments. In addition to the effects of interest rates, the market prices of the Corporation’s available-for-sale debt securities are affected by fluctuations in the risk premiums (amounts of spread over risk-free rates) demanded by investors. Management attempts to limit the risk that economic conditions would force the Corporation to sell securities for realized losses by maintaining a strong capital position (discussed in the “Stockholders’ Equity and Capital Adequacy” section of Management’s Discussion and Analysis) and ample sources of liquidity (discussed in the “Liquidity” section of Management’s Discussion and Analysis).
The Corporation’s major category of market risk, interest rate risk, is discussed in the following section.
INTEREST RATE RISK
The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the economic value of equity (“EVE”). For purposes of these calculations, EVE includes the discounted present values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses. The model measures and projects the amount of potential changes in net interest income and calculates the discounted present value of anticipated cash flows of financial instruments, assuming an immediate increase or decrease in interest rates. Management ordinarily runs a variety of scenarios within a range of plus or minus 100-400 basis points of current rates.
The projected results based on the model include the impact of estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage-backed securities and call activity on other investment securities. Further, the projected results are impacted by assumptions regarding the run-off and the extent of sensitivity to interest rate changes of deposits with no stated maturity (checking, savings and money market accounts). Actual results could vary significantly from these estimates, which could result in significant differences in the calculations of projected changes in net interest income and EVE. Also, the model does not make estimates related to changes in the composition of the deposit portfolio that could occur due to rate competition, and the table does not necessarily reflect changes that management would make to realign the portfolio as a result of changes in interest rates.
The Corporation’s Board of Directors has established policy guidelines for acceptable levels of interest rate risk, based on an immediate increase or decrease in interest rates. The policy limits acceptable fluctuations in net interest income from the baseline (flat rates) one-year scenario and variances in EVE from the baseline values based on current rates.
Table XIII, which follows this discussion, is based on the results of calculations performed using the simulation model as of December 31, 2025 and 2024. The Table shows that as of the respective dates, the changes in net interest income and changes in EVE were within the policy limits in all scenarios.
Based on December 31, 2025 and 2024 data, the amounts of net interest income decrease, as compared to the amounts based on current interest rates, in both the upward and downward rate scenarios. Similarly, at December 31, 2025 and 2024, EVE is modeled to decrease compared to the 0 basis point scenario in all of the rising and falling rate scenarios. The modeling results reflect the impact of management’s assumptions that the Corporation’s deposit rates would rise in the increasing rate scenarios to a greater extent than they would fall in the decreasing rate scenarios. Further, results in the downward rate scenarios reflect limitations on the benefit of falling rates on some deposit types due to a 0% assumed floor.
Under U.S. generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive income (loss) within stockholders’ equity. Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss related to securities of $23.2 million at December 31, 2025. In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates.
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TABLE XIII – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
December 31, 2025 Data
(In Thousands)
Period Ending December 31, 2026
Basis Point
Interest
Interest
Net Interest
NII
NII
Change in Rates
Income
Expense
Income (NII)
% Change
Risk Limit
Economic Value of Equity at December 31, 2025
Present
Present
Present
Basis Point
Value
Value
Value
Change in Rates
Equity
% Change
Risk Limit
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December 31, 2024 Data
(In Thousands)
Period Ending December 31, 2025
Basis Point
Interest
Interest
Net Interest
NII
NII
Change in Rates
Income
Expense
Income (NII)
% Change
Risk Limit
Economic Value of Equity at December 31, 2024
Present
Present
Present
Basis Point
Value
Value
Value
Change in Rates
Equity
% Change
Risk Limit
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