株探米国株
英語
エドガーで原本を確認する
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2025

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________to______________________

 

Commission file number: 001-38229

 

FIDELITY D & D BANCORP, INC.

 

STATE OF INCORPORATION: IRS EMPLOYER IDENTIFICATION NO:
Pennsylvania 23-3017653

 

Address of principal executive offices:

Blakely & Drinker St.

Dunmore, Pennsylvania 18512

TELEPHONE: 570-342-8281

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common stock, without par value

FDBC

The NASDAQ Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Non-accelerated filer ☐

Accelerated filer ☒

  

Smaller reporting company ☒

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on April 30, 2025 the latest practicable date, was 5,767,500 shares.

 

 
Table of Contents

 

 

FIDELITY D & D BANCORP, INC.

 

Form 10-Q March 31, 2025

 

Index

 

Part I. Financial Information

  

Page

Item 1.

Financial Statements (unaudited):

  
 

Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024

3
 

Consolidated Statements of Income for the three months ended March 31, 2025 and 2024

4
 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025 and 2024

5
 

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2025 and 2024

6
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024

7
 

Notes to Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

54

Item 4.

Controls and Procedures

57
     

Part II. Other Information

    

Item 1.

Legal Proceedings

57

Item 1A.

Risk Factors

57

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3.

Defaults upon Senior Securities

57

Item 4.

Mine Safety Disclosures

57

Item 5.

Other Information

57

Item 6.

Exhibits

58

Signatures

  

60
 

 

2
Table of Contents

 

 

PART I – Financial Information

Item 1: Financial Statements

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets                

(Unaudited)

                

(dollars in thousands)

  

March 31, 2025

    

December 31, 2024

  

Assets:

                

Cash and due from banks

   $ 33,906     $ 26,269  

Interest-bearing deposits with financial institutions

     177,289       57,084  

Total cash and cash equivalents

     211,195       83,353  

Available-for-sale securities

     314,806       331,457  

Held-to-maturity securities (fair value of $195,950 in 2025; $194,575 in 2024)

     226,154       225,764  

Restricted investments in bank stock

     4,021       3,961  

Loans and leases, net (allowance for credit losses of $20,017 in 2025; $19,666 in 2024)

     1,795,474       1,779,136  

Loans held-for-sale (fair value $2,087 in 2025; $2,089 in 2024)

     2,018       2,054  

Foreclosed assets held-for-sale

     119       430  

Bank premises and equipment, net

     34,995       35,914  

Leased property under finance leases, net

     917       975  

Right-of-use assets

     9,331       8,785  

Cash surrender value of bank owned life insurance

     58,458       58,069  

Accrued interest receivable

     9,705       9,632  

Goodwill

     19,628       19,628  

Core deposit intangible, net

     803       876  

Other assets

     23,686       24,582  

Total assets

   $ 2,711,310     $ 2,584,616  

Liabilities:

                

Deposits:

                

Interest-bearing

   $ 1,901,775     $ 1,806,885  

Non-interest-bearing

     555,684       533,935  

Total deposits

     2,457,459       2,340,820  

Allowance for credit losses on off-balance sheet credit exposures

     999       1,084  

Finance lease obligation

     954       1,011  

Operating lease liabilities

     10,278       9,714  

Short-term borrowings

     10       -  

Secured borrowings

     6,190       6,266  

Accrued interest payable and other liabilities

     23,746       21,752  

Total liabilities

     2,499,636       2,380,647  
                 

Shareholders' equity:

                

Preferred stock authorized 5,000,000 shares with no par value; none issued

     -       -  

Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding; 5,767,500 at March 31, 2025; and 5,736,252 at December 31, 2024)

     120,004       119,430  

Retained earnings

     143,779       140,113  

Accumulated other comprehensive loss

     (52,022 )     (55,574 )

Treasury stock, at cost (2,071 shares at March 31, 2025 and 54 shares at December 31, 2024)

     (87 )     -  

Total shareholders' equity

     211,674       203,969  

Total liabilities and shareholders' equity

   $ 2,711,310     $ 2,584,616  

 

See notes to unaudited consolidated financial statements

 

3
Table of Contents

 

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

 

(Unaudited)

  

Three months ended

  

(dollars in thousands except per share data)

  

March 31, 2025

    

March 31, 2024

  

Interest income:

                

Loans and leases:

                

Taxable

   $ 23,293     $ 20,929  

Nontaxable

     1,303       1,204  

Interest-bearing deposits with financial institutions

     771       376  

Restricted investments in bank stock

     74       81  

Investment securities:

                

U.S. government agency and corporations

     1,459       1,488  

States and political subdivisions (nontaxable)

     965       1,104  

States and political subdivisions (taxable)

     443       443  

Total interest income

     28,308       25,625  

Interest expense:

                

Deposits

     11,187       9,941  

Secured borrowings

     88       121  

Other short-term borrowings

     -       620  

Total interest expense

     11,275       10,682  

Net interest income

     17,033       14,943  

Provision for credit losses on loans

     455       125  

Net benefit for credit losses on unfunded loan commitments

     (85 )     (50 )

Net interest income after provision for credit losses

     16,663       14,868  

Other income:

                

Service charges on deposit accounts

     992       957  

Interchange fees

     1,357       1,297  

Service charges on loans

     329       304  

Fees from trust fiduciary activities

     964       848  

Fees from financial services

     305       268  

Fees and other revenue

     397       342  

Earnings on bank-owned life insurance

     389       349  

Gain (loss) on write-down, sale or disposal of:

                

Loans

     753       203  

Available-for-sale debt securities

     (822 )     -  

Premises and equipment

     309       4  

Total other income

     4,973       4,572  

Other expenses:

                

Salaries and employee benefits

     7,692       7,131  

Premises and equipment

     2,437       2,159  

Data processing and communication

     728       742  

Advertising and marketing

     1,043       732  

Professional services

     958       1,062  

Automated transaction processing

     458       425  

Office supplies and postage

     247       203  

PA shares tax (benefit) expense

     (160 )     26  

Loan collection

     58       3  

Other real estate owned, net

     (71 )     1  

FDIC assessment

     310       298  

Other

     854       907  

Total other expenses

     14,554       13,689  

Income before income taxes

     7,082       5,751  

Provision for income taxes

     1,091       694  

Net income

   $ 5,991     $ 5,057  

Per share data:

                

Net income - basic

   $ 1.04     $ 0.88  

Net income - diluted

   $ 1.03     $ 0.88  

Dividends

   $ 0.40     $ 0.38  

 

See notes to unaudited consolidated financial statements

 

4
Table of Contents

 

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

                

(Unaudited)

  

Three months ended March 31,

  

(dollars in thousands)

  

2025

    

2024

  
                 

Net income

   $ 5,991     $ 5,057  
                 

Other comprehensive income (loss), before tax:

                

Unrealized holding gain (loss) on available-for-sale debt securities

     3,076       (2,416 )

Reclassification adjustment for net losses realized in income

     822       -  

Amortization of unrealized loss on held-to-maturity securities

     598       584  

Net unrealized gain (loss)

     4,496       (1,832 )

Tax effect

     (944 )     385  

Unrealized gain (loss), net of tax

     3,552       (1,447 )

Other comprehensive income (loss), net of tax

     3,552       (1,447 )

Total comprehensive income, net of tax

   $ 9,543     $ 3,610  

 

See notes to unaudited consolidated financial statements

 

5
Table of Contents

 

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

For the three months ended March 31, 2025 and 2024

 

(Unaudited)

                          

Accumulated

                  
                           

other

                  
   

Capital stock

    

Retained

    

comprehensive

    

Treasury

          

(dollars in thousands)

  

Shares

    

Amount

    

earnings

    

income (loss)

    

Stock

    

Total

  
                                                 

Balance, December 31, 2023

     5,703,636     $ 117,695     $ 128,251     $ (56,467 )   $ -     $ 189,479  

Net income

     -       -       5,057       -       -       5,057  

Other comprehensive loss

     -       -       -       (1,447 )     -       (1,447 )

Issuance of common stock through Employee Stock Purchase Plan

     6,764       280       -       -       -       280  

Re-issuance of common stock through Dividend Reinvestment Plan

     1,645       4       -       -       79       83  

Forfeited restricted dividend reinvestment shares

     (11 )     -       -       -       -       -  

Issuance of common stock from vested restricted share grants through stock compensation plans

     25,304       -       -       -       -       -  

Stock-based compensation expense

     -       459       -       -       -       459  

Repurchase of shares to cover withholdings

     (1,606 )     -       -       -       (79 )     (79 )

Cash dividends declared

     -       -       (2,197 )     -       -       (2,197 )

Balance, March 31, 2024

     5,735,732     $ 118,438     $ 131,111     $ (57,914 )   $ -     $ 191,635  
                                                 

Balance, December 31, 2024

     5,736,252     $ 119,430     $ 140,113     $ (55,574 )   $ -     $ 203,969  

Net income

     -       -       5,991       -       -       5,991  

Other comprehensive income

     -       -       -       3,552       -       3,552  

Issuance of common stock through Employee Stock Purchase Plan

     5,406       248       -       -       -       248  

Forfeited restricted dividend reinvestment shares

     (49 )     -       -       -       -       -  

Issuance of common stock from vested restricted share grants through stock compensation plans

     27,859       -       -       -       -       -  

Stock-based compensation expense

     -       326       -       -       -       326  

Repurchase of shares to cover withholdings

     (1,968 )     -       -       -       (87 )     (87 )

Cash dividends declared

     -       -       (2,325 )     -       -       (2,325 )

Balance, March 31, 2025

     5,767,500     $ 120,004     $ 143,779     $ (52,022 )   $ (87 )   $ 211,674  

 

See notes to unaudited consolidated financial statements

 

6
Table of Contents

 

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

  

Three months ended March 31,

  

(dollars in thousands)

  

2025

    

2024

  
                 

Cash flows from operating activities:

                

Net income

   $ 5,991     $ 5,057  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation, amortization and accretion

     1,379       1,372  

Provision for credit losses on loans

     455       125  

Net benefit for credit losses on unfunded loan commitments

     (85 )     (50 )

Deferred income tax (benefit) expense

     (575 )     219  

Stock-based compensation expense

     326       459  

Proceeds from sale of loans held-for-sale

     14,411       10,857  

Originations of loans held-for-sale

     (11,425 )     (9,588 )

Earnings from bank-owned life insurance

     (389 )     (349 )

Net gain from sales of loans

     (753 )     (203 )

Net loss from sales of investment securities

     822       -  

Net gain from sale and write-down of foreclosed assets held-for-sale

     (76 )     -  

Net gain from write-down and disposal of bank premises and equipment

     (309 )     (4 )

Operating lease payments

     17       8  

Change in:

                

Accrued interest receivable

     (73 )     (306 )

Other assets

     198       (575 )

Accrued interest payable and other liabilities

     1,767       (1,688 )

Net cash provided by operating activities

     11,681       5,334  
                 

Cash flows from investing activities:

                

Available-for-sale securities:

                

Proceeds from sales

     16,665       -  

Proceeds from maturities, calls and principal pay-downs

     7,208       4,992  

Purchases

     (4,569 )     -  

Increase in restricted investments in bank stock

     (59 )     (54 )

Net increase in loans and leases

     (19,814 )     (12,881 )

Principal portion of lease payments received under direct finance leases

     954       1,138  

Purchases of bank premises and equipment

     (173 )     (1,303 )

Proceeds from sale of bank premises and equipment

     578       19  

Proceeds from sale of foreclosed assets held-for-sale

     510       -  

Net cash provided by (used in) investing activities

     1,300       (8,089 )
                 

Cash flows from financing activities:

                

Net increase in deposits

     117,148       57,573  

Net decrease in borrowings

     (66 )     (92,072 )

Repayment of finance lease obligation

     (57 )     (49 )

Proceeds from employee stock purchase plan participants

     248       280  

Repurchase of shares to cover withholdings

     (87 )     (79 )

Dividends paid, net of dividends reinvested

     (2,325 )     (2,114 )

Net cash provided by (used in) financing activities

     114,861       (36,461 )

Net increase (decrease) in cash and cash equivalents

     127,842       (39,216 )

Cash and cash equivalents, beginning

     83,353       111,949  
                 

Cash and cash equivalents, ending

   $ 211,195     $ 72,733  

 

See notes to unaudited consolidated financial statements

 

7
Table of Contents

 

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (continued)

 

   

Three months ended March 31,

  

(dollars in thousands)

  

2025

    

2024

  

Supplemental Disclosures of Cash Flow Information

                

Cash payments for:

                

Interest

   $ 10,903     $ 11,355  

Supplemental Disclosures of Non-cash Investing Activities:

                

Net change in unrealized losses on available-for-sale securities

     3,076       (2,416 )

Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity

     598       584  

Transfers from loans to foreclosed assets held-for-sale

     124       219  

Transfers from loans to loans held-for-sale, net

     1,070       -  

Right-of-use asset

     630       1,391  

Lease liability

     630       1,483  
                 

 

See notes to unaudited consolidated financial statements

 

8
Table of Contents

 

FIDELITY D & D BANCORP, INC.

 

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. Nature of operations and critical accounting policies

 

Nature of operations

 

Fidelity D & D Bancorp, Inc. (the Company) is a bank holding company and the parent of The Fidelity Deposit and Discount Bank (the Bank). The Bank is a commercial bank and trust company chartered under the laws of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of the Company. Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna, Northampton and Luzerne Counties and Wealth Management offices in Schuylkill and Lebanon Counties.

 

Principles of consolidation

 

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included. All significant inter-company balances and transactions have been eliminated in consolidation.

 

For additional information and disclosures required under U.S. GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

 

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report. Management prepared the unaudited financial statements in accordance with U.S. GAAP. In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls. These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

 

In the opinion of management, the consolidated balance sheets as of March 31, 2025 and December 31, 2024 and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity for the three months ended March 31, 2025 and 2024 and consolidated statements of cash flows for the three months ended March 31, 2025 and 2024 present fairly the financial condition and results of operations of the Company. All material adjustments required for a fair presentation have been made. These adjustments are of a normal recurring nature. 

 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after March 31, 2025 through the date these consolidated financial statements were issued.

 

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2024, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

 

Critical accounting estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

 

A material estimate is the calculation of fair values of the Company’s investment securities. Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services. Accordingly, when buying or selling investment securities, price quotes may be obtained from more than one source. All of the Company’s debt securities are classified as available-for-sale (AFS) or held-to-maturity (HTM). AFS debt securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (AOCI).  Debt securities, for which the Company has the positive intent and ability to hold to maturity, are reported at amortized cost. On occasion, the Company may transfer securities from AFS to HTM at fair value on the date of transfer.

 

Another material estimate that is particularly susceptible to significant change relates to the determination of the allowance for credit losses. Management believes that the allowance for credit losses at  March 31, 2025 is adequate and reasonable to cover expected losses. Given the subjective nature of identifying and estimating loan losses, it is reasonably possible that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount. While management uses available information to recognize losses on loans, changes in current economic conditions and reasonable and supportable forecasts may necessitate revisions in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

 

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Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio. When estimating the net amount expected to be collected, management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the Company’s financial assets. Those estimates may be susceptible to significant change. Credit losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.

 

The methodology to analyze the adequacy of the ACL is based on seven primary components:

 

 

●

 Data: The quality of the Company’s data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls.
 

●

Segmentation: Financial assets are segmented based on similar risk characteristics.
 

●

 Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool’s estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets.
 

●

 Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per measurement of credit losses on loans and leases (ASC Topic 326). The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the Commercial & Industrial, Commercial Real Estate Non-Owner Occupied, Commercial Real Estate Owner Occupied, Commercial Construction, Home Equity Installment Loan, Home Equity Line of Credit, Residential Real Estate, and Residential Construction pools. The weighted average remaining maturity (WARM) method is used for the Municipal, Non-Recourse Auto, Recourse Auto, Direct Finance Lease, and Consumer Other pools.
 

●

 Reasonable and supportable forecasts: ASC Topic 326 requires Management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company’s forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when Management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and Unemployment Rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12 month (4 quarter) reasonable and supportable forecast period.
 

●

 Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire estimated life of financial assets. Management may apply reversion techniques for the estimated life remaining after considering the reasonable and supportable forecast period, which allows Management to apply a historical loss rate to latter periods of the financial asset’s life. The Company currently uses a 12 month (4 quarter) straight-line reversion period.
  ● Qualitative factor adjustments: The Company’s ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors:

 

 

o

levels of and trends in delinquencies and non-accrual loans;
 

o

levels of and trends in charge-offs and recoveries;
 

o

trends in volume and terms of loans;
 

o

changes in risk selection and underwriting standards;
 

o

changes in lending policies and legal and regulatory requirements;
 

o

experience, ability and depth of lending management;
 

o

national and local economic trends and conditions; 
 

o

changes in credit concentrations; and
  o changes in underlying collateral.

 

Assets are evaluated on a collective (or pool) basis or individually, as applicable consistent with ASC Topic 326. In accordance with ASC Topic 326, the Company will evaluate individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. In contrast to legacy accounting standards, this criterion is broader than the “impairment” concept as management may evaluate assets individually even when no specific expectation of collectability is in place. Instruments will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope.

 

For individually evaluated assets, an ACL is determined separately for each financial asset. As of the reporting date, the Company is using the collateral and cash flow methods.

 

ASC Topic 326 defines a collateral-dependent asset as a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on Management’s assessment, is experiencing financial difficulty. The ACL for a collateral-dependent loan is measured using the fair value of collateral, regardless of whether foreclosure is probable. The fair value of collateral must be adjusted for estimated costs to sell if repayment or satisfaction of the asset depends on the sale of the collateral. If repayment is dependent only on the operation of the collateral, and not on the sale of the collateral, the fair value of the collateral would not be adjusted for estimated costs to sell. If the fair value of the collateral, adjusted for costs to sell if applicable, is less than the amortized cost basis of the collateral-dependent asset, the difference is recorded as an ACL.

 

The Company’s policy is to charge-off unsecured consumer loans when they become 90 days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.

 

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If the individually evaluated asset is determined to not be collateral dependent, the ACL is measured based on the expected cash flows. This measurement is based on the amount and timing of cash flows; the effective interest rate (EIR) is used to discount the cash flows; and the basis for the determination of cash flows, including consideration of past events, current conditions, and reasonable and supportable forecasts about the future. These cash flows are discounted back by the EIR and compared to the amortized cost basis of the asset. If the present value of cash flows is less than the amortized cost, an ACL is recorded. When the present value of cash flows is equal to or greater than the amortized cost, no ACL is recorded.

 

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.

 

 

2. New accounting pronouncements

 

In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures but expects additional disclosures upon adoption.

 

 

3. Accumulated other comprehensive income

 

The following tables illustrate the changes in accumulated other comprehensive income by component and the details about the components of accumulated other comprehensive income as of and for the periods indicated:

 

As of and for the three months ended March 31, 2025

  
   

Unrealized gains

                  
   

(losses) on

    

Securities

          
   

available-for-sale

    

transferred to

          

(dollars in thousands)

  

debt securities

    

held-to-maturity

    

Total

  

Beginning balance

   $ (41,731 )   $ (13,843 )   $ (55,574 )
                         

Other comprehensive income before reclassifications, net of tax

     2,430       -       2,430  

Amounts reclassified from accumulated other comprehensive income, net of tax

     649       473       1,122  

Net current-period other comprehensive income

     3,079       473       3,552  

Ending balance

   $ (38,652 )   $ (13,370 )   $ (52,022 )

 

As of and for the three months ended March 31, 2024

  
   

Unrealized gains

                  
   

(losses) on

    

Securities

          
   

available-for-sale

    

transferred to

          

(dollars in thousands)

  

debt securities

    

held-to-maturity

    

Total

  

Beginning balance

   $ (40,760 )   $ (15,707 )   $ (56,467 )
                         

Other comprehensive loss before reclassifications, net of tax

     (1,908 )     -       (1,908 )

Amounts reclassified from accumulated other comprehensive income, net of tax

     -       461       461  

Net current-period other comprehensive loss

     (1,908 )     461       (1,447 )

Ending balance

   $ (42,668 )   $ (15,246 )   $ (57,914 )

 

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Details about accumulated other

  

Amount reclassified from accumulated

  

Affected line item in the statement

comprehensive income components

  

other comprehensive income

  

where net income is presented
   

For the three months ended March 31,

    

(dollars in thousands)

  

2025

    

2024

    
                   

Unrealized losses on AFS debt securities

   $ (822 )   $ -  

Gain (loss) on sale of investment securities

Amortization of unrealized loss on held-to-maturity securities

     (598 )     (584 )

Interest income on investment securities

Total reclassifications for the period

     (1,420 )     (584 )

Income before income taxes

Income tax effect

     298       123  

Provision for income taxes

Total reclassifications for the period

   $ (1,122 )   $ (461 )

Net income

 

 

4. Investment securities

 

Agency – Government-sponsored enterprise (GSE) and Mortgage-backed securities (MBS) - GSE residential

 

Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), FNMA, FHLB and Government National Mortgage Association (GNMA). These securities have interest rates that are fixed, have varying short to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.

 

Obligations of states and political subdivisions (municipal)

 

The municipal securities are general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities. Fair values of these securities are highly driven by interest rates. Management performs ongoing credit quality reviews on these issues.

 

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The Company did not record any allowance for credit losses on its available-for-sale or held-to-maturity securities. The Company excludes accrued interest receivable from the amortized cost basis of investment securities disclosed throughout this footnote. As of March 31, 2025 and December 31, 2024, accrued interest receivable for investment securities totaled $2.8 million and $3.4 million, respectively, and is included in accrued interest receivable line in the consolidated balance sheets. The amortized cost and fair value of investment securities at  March 31, 2025 and December 31, 2024 are summarized as follows:

 

           

Gross

    

Gross

          
   

Amortized

    

unrealized

    

unrealized

    

Fair

  

(dollars in thousands)

  

cost

    

gains

    

losses

    

value

  

March 31, 2025

                                

Held-to-maturity securities:

                                

Agency - GSE

   $ 82,767     $ -     $ (6,248 )   $ 76,519  

Obligations of states and political subdivisions

     143,387       -       (23,956 )     119,431  
                                 

Total held-to-maturity securities

   $ 226,154     $ -     $ (30,204 )   $ 195,950  
                                 

Available-for-sale debt securities:

                                

Agency - GSE

   $ 29,297     $ -     $ (2,579 )   $ 26,718  

Obligations of states and political subdivisions

     122,071       -       (17,546 )     104,525  

MBS - GSE residential

     212,363       24       (28,824 )     183,563  
                                 

Total available-for-sale debt securities

   $ 363,731     $ 24     $ (48,949 )   $ 314,806  

 

           

Gross

    

Gross

          
   

Amortized

    

unrealized

    

unrealized

    

Fair

  

(dollars in thousands)

  

cost

    

gains

    

losses

    

value

  

December 31, 2024

                                

Held-to-maturity securities:

                                

Agency - GSE

   $ 82,486     $ -     $ (8,092 )   $ 74,394  

Obligations of states and political subdivisions

     143,278       -       (23,097 )     120,181  
                                 

Total held-to-maturity securities

   $ 225,764     $ -     $ (31,189 )   $ 194,575  
                                 

Available-for-sale debt securities:

                                

Agency - GSE

   $ 31,273     $ -     $ (3,073 )   $ 28,200  

Obligations of states and political subdivisions

     135,149       -       (15,891 )     119,258  

MBS - GSE residential

     217,858       -       (33,859 )     183,999  
                                 

Total available-for-sale debt securities

   $ 384,280     $ -     $ (52,823 )   $ 331,457  

 

The amortized cost and fair value of debt securities at  March 31, 2025 by contractual maturity are summarized below:

 

   

Amortized

    

Fair

  

(dollars in thousands)

  

cost

    

value

  

Held-to-maturity securities:

                

Due in one year or less

   $ -     $ -  

Due after one year through five years

     35,093       33,429  

Due after five years through ten years

     81,297       72,958  

Due after ten years

     109,764       89,563  

Total held-to-maturity securities

   $ 226,154     $ 195,950  
                 

Available-for-sale securities:

                

Debt securities:

                

Due in one year or less

   $ 2,967     $ 2,941  

Due after one year through five years

     37,186       33,837  

Due after five years through ten years

     9,292       8,069  

Due after ten years

     101,301       86,397  
                 

MBS - GSE residential

     211,741       183,562  

Total available-for-sale debt securities

   $ 362,487     $ 314,806  

 

There was a $0.6 million increase to the carrying value of municipal AFS securities and a $0.6 million increase to the carrying value of mortgage-backed securities resulting from the interest rate swap that was not included in the maturity table above.

 

Actual maturities will differ from contractual maturities because issuers and borrowers may have the right to call or repay obligations with or without call or prepayment penalty. Agency – GSE and municipal securities are included based on their original stated maturity. MBS – GSE residential, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total. Most of the securities have fixed rates or have predetermined scheduled rate changes and many have call features that allow the issuer to call the security at par before its stated maturity without penalty.

 

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Some of the Company’s debt securities are pledged to secure trust funds, public deposits, short-term borrowings, FHLB advances, Federal Reserve Bank of Philadelphia Discount Window borrowings and certain other deposits as required by law. Securities pledged at March 31, 2025 had a carrying amount of $359.9 million and were pledged to secure public deposits, trust client deposits, borrowings and derivative instruments.

 

The following table presents the fair value and gross unrealized losses of debt securities aggregated by investment type, the length of time and the number of securities that have been in a continuous unrealized loss position as of  March 31, 2025 and December 31, 2024:

 

   

Less than 12 months

    

More than 12 months

    

Total

  
   

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

  

(dollars in thousands)

  

value

    

losses

    

value

    

losses

    

value

    

losses

  
                                                 

March 31, 2025

                                                

Agency - GSE

   $ -     $ -     $ 103,237     $ (8,826 )   $ 103,237     $ (8,826 )

Obligations of states and political subdivisions

     -       -       223,957       (40,880 )     223,957       (40,880 )

MBS - GSE residential

     8,483       (59 )     168,665       (28,144 )     177,148       (28,203 )

Total

   $ 8,483     $ (59 )   $ 495,859     $ (77,850 )   $ 504,342     $ (77,909 )

Number of securities

     3               399               402          
                                                 

December 31, 2024

                                                

Agency - GSE

   $ -     $ -     $ 102,594     $ (11,165 )   $ 102,594     $ (11,165 )

Obligations of states and political subdivisions

     384       (11 )     239,055       (38,469 )     239,439       (38,480 )

MBS - GSE residential

     15,050       (253 )     168,949       (33,099 )     183,999       (33,352 )

Total

   $ 15,434     $ (264 )   $ 510,598     $ (82,733 )   $ 526,032     $ (82,997 )

Number of securities

     8               416               424          

 

There was a $1.2 million and $1.0 million increase to the carrying value of AFS securities resulting from the interest rate swap that increased the unrealized loss position at March 31, 2025 and December 31, 2024, respectively, that was not included in the table above.

 

The Company had 402 debt securities in an unrealized loss position at  March 31, 2025, including 45 agency-GSE securities, 138 MBS – GSE residential securities and 219 municipal securities. The severity of these unrealized losses based on their underlying cost basis was as follows at  March 31, 2025: 7.88% for agency - GSE, 13.73% for total MBS-GSE residential; and 15.44% for municipals. Management has no intent to sell any securities in an unrealized loss position as of March 31, 2025.

 

The Company reassessed classification of certain investments and effective April 1, 2022, the Company transferred agency and municipal investment securities with a book value of $245.5 million from available-for-sale to held-to-maturity. The securities were transferred at their fair value. The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, is being accreted into interest income from other comprehensive income over the life of the bonds. The allowance for credit losses on these securities was evaluated under the accounting policy for HTM debt securities.

 

Unrealized losses on available-for-sale securities have not been recognized into income because management believes the cause of the unrealized losses is related to changes in interest rates and is not directly related to credit quality. Quarterly, management conducts a formal review of investment securities to assess whether the fair value of a debt security is less than its amortized cost as of the balance sheet date. An allowance for credit losses has not been recognized on these securities in an unrealized loss position because: (1) the entity does not intend to sell the security; (2) more likely than not the entity will not be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is sufficient to recover the entire amortized cost. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

 

The Company has U.S. agency bonds and municipal securities classified as held-to-maturity. Management estimated no credit loss reserve will be necessary for agency bonds HTM given the strong credit history of GSE and other U.S. agency issued bonds and the involvement of the U.S. government. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of credit loss reserve calculated using this model was immaterial to the Company's financial statements, therefore no reserve was recorded, but the Company will continue to evaluate these securities on a quarterly basis.

 

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5. Loans and leases

 

The classifications of loans and leases at  March 31, 2025 and December 31, 2024 are summarized as follows:

 

(dollars in thousands)

  

March 31, 2025

    

December 31, 2024

  

Commercial and industrial:

                

Commercial

   $ 174,555     $ 172,834  

Municipal

     109,959       101,706  

Commercial real estate:

                

Non-owner occupied

     401,771       394,219  

Owner occupied

     316,414       304,889  

Construction

     46,793       50,930  

Consumer:

                

Home equity installment

     54,481       54,214  

Home equity line of credit

     59,030       58,130  

Auto loans - Recourse

     10,477       11,389  

Auto loans - Non-recourse

     67,383       75,440  

Direct finance leases

     24,820       27,827  

Other

     24,069       23,848  

Residential:

                

Real estate

     510,844       504,815  

Construction

     16,655       20,507  

Total

     1,817,251       1,800,748  

Less:

                

Allowance for credit losses on loans

     (20,017 )     (19,666 )

Unearned lease revenue

     (1,760 )     (1,946 )

Loans and leases, net

   $ 1,795,474     $ 1,779,136  

 

Total unamortized net costs and premiums included in loan totals were as follows:

 

(dollars in thousands)

  

March 31, 2025

    

December 31, 2024

  

Net unamortized fair value mark discount on acquired loans

   $ (4,486 )   $ (4,867 )

Net unamortized deferred loan origination costs

     4,979       4,981  

Total

   $ 493     $ 114  

 

The Company excludes accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2025 and December 31, 2024, accrued interest receivable for loans totaled $6.9 million and $6.3 million, respectively, and is included in the accrued interest receivable line in the consolidated balance sheets and is excluded from the estimate of credit losses.

 

Direct finance leases include the lease receivable and the guaranteed lease residual. Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease. Unearned revenue is accrued over the life of the lease using the effective interest method.

 

The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgages serviced for others amounted to $498.0 million as of  March 31, 2025 and $495.4 million as of December 31, 2024. Mortgage servicing rights amounted to $1.3 million and $1.3 million as of  March 31, 2025 and December 31, 2024, respectively, and is included in other assets in the consolidated balance sheets.

 

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Non-accrual loans

 

Non-accrual loans and loans past due over 89 days still accruing, segregated by class, at  March 31, 2025 and December 31, 2024, were as follows:

 

(dollars in thousands)

  

Non-accrual With No Allowance for Credit Loss

    

Non-accrual With an Allowance for Credit Loss

    

Total Non-accrual

    

Loans Past Due Over 89 Days Still Accruing

  

At March 31, 2025

                                

Commercial and industrial:

                                

Commercial

   $ 35     $ 2,672     $ 2,707     $ -  

Commercial real estate:

                                

Non-owner occupied

     627       -       627       -  

Owner occupied

     1,178       84       1,262       -  

Consumer:

                                

Home equity installment

     160       -       160       -  

Home equity line of credit

     271       180       451       -  

Auto loans - Non-recourse

     3       -       3       -  

Direct finance leases

     -       -       -       32  

Residential:

                                

Real estate

     741       -       741       -  

Total

   $ 3,015     $ 2,936     $ 5,951     $ 32  

 

(dollars in thousands)

  

Non-accrual With No Allowance for Credit Loss

    

Non-accrual With an Allowance for Credit Loss

    

Total Non-accrual

    

Loans Past Due Over 89 Days Still Accruing

  

At December 31, 2024

                                

Commercial and industrial:

                                

Commercial

   $ 35     $ 2,673     $ 2,708     $ -  

Municipal

     -       -       -       -  

Commercial real estate:

                                

Non-owner occupied

     711       -       711       -  

Owner occupied

     2,505       84       2,589       -  

Consumer:

                                

Home equity installment

     41       -       41       -  

Home equity line of credit

     281       180       461       -  

Auto loans - Recourse

     -       -       -       -  

Auto loans - Non-recourse

     52       -       52       -  

Direct finance leases

     -       -       -       32  

Other

     20       -       20       -  

Residential:

                                

Real estate

     549       212       761       -  

Total

   $ 4,194     $ 3,149     $ 7,343     $ 32  

 

The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan. C&I and CRE loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 90 days past due as to principal and interest and unsecured consumer loans are charged-off when the loan is 90 days or more past due as to principal and interest. 

 

Loan modifications to borrowers experiencing financial difficulty

 

Occasionally, the Company modifies loans to borrowers in financial distress by providing interest rates below the market rate, temporary interest-only payment periods, term extensions at interest rates lower than the current market rate for new debt with similar risk and/or converting revolving credit lines to term loans. The Company typically does not forgive principal when modifying loans.

 

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as lowering the interest rate, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period.

 

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The following tables present the amortized cost basis of loans at  March 31, 2025 and March 31, 2024 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025 and 2024, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:

 

   

Loans modified during the three months ended:

  

(dollars in thousands)

  

March 31, 2025

  
   

Principal Forgiveness

    

Payment Delay

    

Term Extension

    

Interest Rate Reduction

    

Combination Term Extension and Principal Forgiveness

    

Combination Term Extension Interest Rate Reduction

    

Total Class of Financing Receivable

  

Commercial real estate:

                                                        

Owner occupied

   $ -     $ 367     $ 560     $ -     $ -     $ -       0.29 %

Total

   $ -     $ 367     $ 560     $ -     $ -     $ -        

 

   

Loans modified during the three months ended:

  

(dollars in thousands)

  

March 31, 2024

  
   

Principal Forgiveness

    

Payment Delay

    

Term Extension

    

Interest Rate Reduction

    

Combination Term Extension and Principal Forgiveness

    

Combination Term Extension Interest Rate Reduction

    

Total Class of Financing Receivable

  

Commercial real estate:

                                                        

Non-owner occupied

   $ -     $ -     $ 849     $ -     $ -     $ -       0.28 %

Owner occupied

     -       -       6,533       -       -       -       2.18 %

Total

   $ -     $ -     $ 7,382     $ -     $ -     $ -        

 

The Company has not committed to lend additional amounts to the borrowers included in the previous tables.

 

No loans that have been modified in the last 12 months to borrowers experiencing financial difficulty were past due at March 31, 2025.

 

No loans that have been modified in the previous 12 months to borrowers experiencing financial difficulty were past due at March 31, 2024.

 

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The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2025 and 2024:

 

(dollars in thousands)

  

March 31, 2025

  
   

Principal Forgiveness

    

Weighted-Average Interest Rate Reduction

    

Weighted-Average Term Extension (Months)

  
                         

Commercial real estate:

                        

Owner occupied

   $ -       - %     38.0  

Total

   $ -       - %     38.0  

 

(dollars in thousands)

  

March 31, 2024

  
   

Principal Forgiveness

    

Weighted-Average Interest Rate Reduction

    

Weighted-Average Term Extension (Months)

  
                         

Commercial real estate:

                        

Non-owner occupied

   $ -       - %     3.0  

Owner occupied

     -       -       5.0  

Total

   $ -       - %     4.8  

 

There were no financing receivables that had a payment default during the three months ended March 31, 2025 and 2024 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

 

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. The allowance for credit losses (ACL) may be increased, adjustments may be made in the allocation of the ACL or partial charge-offs may be taken to further write-down the carrying value of the loan.

 

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Past due loans

 

Loans are considered past due when the contractual principal and/or interest is not received by the due date. For loans reported 30-59 days past due, certain categories of loans are reported past due as and when the loan is in arrears for two payments or billing cycles. An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands):

 

 

                                                   

Recorded

  
                   

Past due

                            

investment past

  
   

30 - 59 Days

    

60 - 89 Days

    

90 days

    

Total

            

Total

    

due ≥ 90 days

  

March 31, 2025

  

past due

    

past due

    

or more (1)

    

past due

    

Current

    

loans (3)

    

and accruing

  
                                                         

Commercial and industrial:

                                                        

Commercial

   $ 97       15       2,707     $ 2,819     $ 171,736     $ 174,555     $ -  

Municipal

     -       -       -       -       109,959       109,959       -  

Commercial real estate:

                                                        

Non-owner occupied

     101       -       627       728       401,043       401,771       -  

Owner occupied

     1,432       2,351       1,262       5,045       311,369       316,414       -  

Construction

     -       -       -       -       46,793       46,793       -  

Consumer:

                                                        

Home equity installment

     144       -       160       304       54,177       54,481       -  

Home equity line of credit

     35       92       451       578       58,452       59,030       -  

Auto loans - Recourse

     98       -       -       98       10,379       10,477       -  

Auto loans - Non-recourse

     321       11       3       335       67,048       67,383       -  

Direct finance leases

     240       38       32       310       22,750       23,060 (2)     32  

Other

     19       -       -       19       24,050       24,069       -  

Residential:

                                                        

Real estate

     1,071       -       741       1,812       509,032       510,844       -  

Construction

     -       -       -       -       16,655       16,655       -  

Total

   $ 3,558     $ 2,507     $ 5,983     $ 12,048     $ 1,803,443     $ 1,815,491     $ 32  

 

(1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.8 million. (3) Includes net deferred loan costs of $5.0 million and net unamortized fair value mark discount on acquired loans of $4.5 million.

 

                                                   

Recorded

  
                   

Past due

                            

investment past

  
   

30 - 59 Days

    

60 - 89 Days

    

90 days

    

Total

            

Total

    

due ≥ 90 days

  

December 31, 2024

  

past due

    

past due

    

or more (1)

    

past due

    

Current

    

loans (3)

    

and accruing

  
                                                         

Commercial and industrial

                                                        

Commercial

   $ 61       24       2,708     $ 2,793     $ 170,041     $ 172,834     $ -  

Municipal

     -       -       -       -       101,706       101,706       -  

Commercial real estate:

                                                        

Non-owner occupied

     27       -       711       738       393,481       394,219       -  

Owner occupied

     2,348       589       2,589       5,526       299,363       304,889       -  

Construction

     -       -       -       -       50,930       50,930       -  

Consumer:

                                                        

Home equity installment

     232       121       41       394       53,820       54,214       -  

Home equity line of credit

     226       -       461       687       57,443       58,130       -  

Auto loans - Recourse

     173       18       -       191       11,198       11,389       -  

Auto loans - Non-recourse

     447       54       52       553       74,887       75,440       -  

Direct finance leases

     284       27       32       343       25,538       25,881 (2)     32  

Other

     8       15       20       43       23,805       23,848       -  

Residential:

                                                        

Real estate

     -       695       761       1,456       503,359       504,815       -  

Construction

     -       -       -       -       20,507       20,507       -  

Total

   $ 3,806     $ 1,543     $ 7,375     $ 12,724     $ 1,786,078     $ 1,798,802     $ 32  

(1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.9 million. (3) Includes net deferred loan costs of $5.0 million and net unamortized fair value mark discount on acquired loans of $4.9 million.

 

Credit Quality Indicators

 

Management is responsible for conducting the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans. Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information, and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the Board of Directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

 

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Commercial and industrial and commercial real estate

 

The Company utilizes a loan grading system and assigns a credit risk grade to its loans in the C&I and CRE portfolios. The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio. The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the C&I and CRE portfolios.

 

These loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade is warranted.

 

The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE loans:

 

Pass

 

Loans in this category have an acceptable level of risk and are graded in a range of one to five. Secured loans generally have good collateral coverage. Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends. Management is competent, and a reasonable succession plan is evident. Payment experience on the loans has been good with minor or no delinquency experience. Loans with a grade of one are of the highest quality in the range. Those graded five are of marginally acceptable quality.

 

Special Mention

 

Loans in this category are graded a six and may be protected but are potentially weak. They constitute a credit risk to the Company but have not yet reached the point of adverse classification. Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions. Cash flow may not be sufficient to support total debt service requirements.

 

Substandard

 

Loans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt. The collateral pledged may be lacking in quality or quantity. Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth. The payment history indicates chronic delinquency problems. Management is weak. There is a distinct possibility that the Company may sustain a loss. All loans on non-accrual are rated substandard. Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due. Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as modifications experiencing financial difficulty can be graded substandard.

 

Doubtful

 

Loans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term. Many of the weaknesses present in a substandard loan exist. Liquidation of collateral, if any, is likely. Any loan graded lower than an eight is considered to be uncollectible and charged-off.

 

Consumer and residential

 

The consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated. For these portfolios, the Company utilizes payment activity and history in assessing performance. Non-performing loans are comprised of non-accrual loans and loans past due 90 days or more and accruing. All loans not classified as non-performing are considered performing.

 

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The following table presents loans including $5.0 million and $5.0 million of deferred costs, and $4.5 million and $4.9 million of fair value mark discount, segregated by class and vintage, categorized into the appropriate credit quality indicator category as of  March 31, 2025 and December 31, 2024, respectively:

 

Commercial credit exposure

Credit risk profile by creditworthiness category

As of  March 31, 2025

(dollars in thousands)

 

March 31, 2025

  

2025

    

2024

    

2023

    

2022

    

2021

    

Prior

    

Revolving Loans Amortized Cost Basis

    

Revolving Loans Converted to Term

    

Total

  

Commercial and industrial

                                                                        

Risk Rating

                                                                        

Pass

   $ 2,648     $ 24,386     $ 21,484     $ 10,619     $ 14,490     $ 16,234     $ 80,762     $ -     $ 170,623  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       35       149       2,682       976       90       -       3,932  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial and industrial

   $ 2,648     $ 24,386     $ 21,519     $ 10,768     $ 17,172     $ 17,210     $ 80,852     $ -     $ 174,555  

Current period gross write-offs

   $ -     $ -     $ -     $ 5     $ -     $ 24     $ -     $ -     $ 29  
                                                                         

Commercial and industrial - municipal

                                                                        

Risk Rating

                                                                        

Pass

   $ 10,806     $ 8,551     $ 23,638     $ 14,407     $ 24,054     $ 28,450     $ 53     $ -     $ 109,959  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -       -  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial and industrial - municipal

   $ 10,806     $ 8,551     $ 23,638     $ 14,407     $ 24,054     $ 28,450     $ 53     $ -     $ 109,959  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Commercial real estate - non-owner occupied

                                                                        

Risk Rating

                                                                        

Pass

   $ 3,868     $ 74,287     $ 42,668     $ 67,878     $ 65,665     $ 132,649     $ 7,354     $ -     $ 394,369  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       683       6,719       -       -       7,402  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - non-owner occupied

   $ 3,868     $ 74,287     $ 42,668     $ 67,878     $ 66,348     $ 139,368     $ 7,354     $ -     $ 401,771  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Commercial real estate - owner occupied

                                                                        

Risk Rating

                                                                        

Pass

   $ 15,766     $ 51,708     $ 33,510     $ 31,171     $ 40,744     $ 106,194     $ 16,469     $ -     $ 295,562  

Special Mention

     -       946       -       -       -       886       885       -       2,717  

Substandard

           -       -       6,854       902       10,379       -       -       18,135  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - owner occupied

   $ 15,766     $ 52,654     $ 33,510     $ 38,025     $ 41,646     $ 117,459     $ 17,354     $ -     $ 316,414  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Commercial real estate - construction

                                                                        

Risk Rating

                                                                        

Pass

   $ 709     $ 29,567     $ 13,344     $ 1,656     $ -     $ -     $ 1,517     $ -     $ 46,793  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -       -  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - construction

   $ 709     $ 29,567     $ 13,344     $ 1,656     $ -     $ -     $ 1,517     $ -     $ 46,793  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

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Consumer & Mortgage lending credit exposure

Credit risk profile based on payment activity

As of March 31, 2025

(dollars in thousands)

 

March 31, 2025

  

2025

    

2024

    

2023

    

2022

    

2021

    

Prior

    

Revolving Loans Amortized Cost Basis

    

Revolving Loans Converted to Term

    

Total

  

Home equity installment

                                                                        

Payment performance

                                                                        

Performing

   $ 2,313     $ 6,774     $ 6,981     $ 15,077     $ 7,672     $ 15,504     $ -     $ -     $ 54,321  

Non-performing

     -       -       -       21       -       139       -       -       160  

Total home equity installment

   $ 2,313     $ 6,774     $ 6,981     $ 15,098     $ 7,672     $ 15,643     $ -     $ -     $ 54,481  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Home equity line of credit

                                                                        

Payment performance

                                                                        

Performing

   $ -     $ -     $ -     $ -     $ -     $ -     $ 47,843     $ 10,736     $ 58,579  

Non-performing

     -       -       -       -       -       -       451       -       451  

Total home equity line of credit

   $ -     $ -     $ -     $ -     $ -     $ -     $ 48,294     $ 10,736     $ 59,030  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Auto loans - recourse

                                                                        

Payment performance

                                                                        

Performing

   $ 762     $ 4,012     $ 2,033     $ 1,041     $ 1,439     $ 1,190     $ -     $ -     $ 10,477  

Non-performing

     -       -       -       -       -       -       -       -       -  

Total auto loans - recourse

   $ 762     $ 4,012     $ 2,033     $ 1,041     $ 1,439     $ 1,190     $ -     $ -     $ 10,477  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Auto loans - non-recourse

                                                                        

Payment performance

                                                                        

Performing

   $ 1,073     $ 4,972     $ 25,056     $ 24,665     $ 8,374     $ 3,240     $ -     $ -     $ 67,380  

Non-performing

     -       -       -       -       -       3       -       -       3  

Total auto loans - non-recourse

   $ 1,073     $ 4,972     $ 25,056     $ 24,665     $ 8,374     $ 3,243     $ -     $ -     $ 67,383  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ 67     $ 13     $ -     $ -     $ 80  
                                                                         

Direct finance leases (1)

                                                                        

Payment performance

                                                                        

Performing

   $ 1,466     $ 7,783     $ 6,575     $ 6,121     $ 993     $ 90     $ -     $ -     $ 23,028  

Non-performing

     -       -       -       -       32       -       -       -       32  

Total direct finance leases

   $ 1,466     $ 7,783     $ 6,575     $ 6,121     $ 1,025     $ 90     $ -     $ -     $ 23,060  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Consumer - other

                                                                        

Payment performance

                                                                        

Performing

   $ 3,874     $ 9,417     $ 5,345     $ 1,525     $ 818     $ 813     $ 2,277     $ -     $ 24,069  

Non-performing

     -       -       -       -       -       -       -       -       -  

Total consumer - other

   $ 3,874     $ 9,417     $ 5,345     $ 1,525     $ 818     $ 813     $ 2,277     $ -     $ 24,069  

Current period gross write-offs

   $ -     $ 12     $ 28     $ 3     $ 2     $ 9     $ -     $ -     $ 54  
                                                                         

Residential real estate

                                                                        

Payment performance

                                                                        

Performing

   $ 5,255     $ 40,530     $ 65,687     $ 88,264     $ 136,269     $ 174,098     $ -     $ -     $ 510,103  

Non-performing

     -       315       -       -       -       426       -       -       741  

Total residential real estate

   $ 5,255     $ 40,845     $ 65,687     $ 88,264     $ 136,269     $ 174,524     $ -     $ -     $ 510,844  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ 18     $ -     $ -     $ 18  
                                                                         

Residential - construction

                                                                        

Payment performance

                                                                        

Performing

   $ 326     $ 14,317     $ -     $ -     $ 2,012     $ -     $ -     $ -     $ 16,655  

Non-performing

     -       -       -       -       -       -       -       -       -  

Total residential - construction

   $ 326     $ 14,317     $ -     $ -     $ 2,012     $ -     $ -     $ -     $ 16,655  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

(1) Net of unearned lease revenue of $1.8 million.

 

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Commercial credit exposure

Credit risk profile by creditworthiness category

As of  December 31, 2024

(dollars in thousands)

 

December 31, 2024

  

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Revolving Loans Amortized Cost Basis

    

Revolving Loans Converted to Term

    

Total

  

Commercial and industrial

                                                                        

Risk Rating

                                                                        

Pass

   $ 26,711     $ 22,519     $ 11,367     $ 15,837     $ 2,957     $ 14,581     $ 74,871     $ -     $ 168,843  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       35       169       2,684       12       991       100       -       3,991  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial and industrial

   $ 26,711     $ 22,554     $ 11,536     $ 18,521     $ 2,969     $ 15,572     $ 74,971     $ -     $ 172,834  

Current period gross write-offs

   $ -     $ -     $ 141     $ 35     $ 21     $ 202     $ -     $ -     $ 399  
                                                                         

Commercial and industrial - municipal

                                                                        

Risk Rating

                                                                        

Pass

   $ 10,549     $ 23,789     $ 14,509     $ 24,102     $ 12,535     $ 16,222     $ -     $ -     $ 101,706  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -       -  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial and industrial - municipal

   $ 10,549     $ 23,789     $ 14,509     $ 24,102     $ 12,535     $ 16,222     $ -     $ -     $ 101,706  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Commercial real estate - non-owner occupied

                                                                        

Risk Rating

                                                                        

Pass

   $ 69,675     $ 34,230     $ 72,073     $ 66,554     $ 45,215     $ 90,237     $ 8,513     $ -     $ 386,497  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       685       115       6,922       -       -       7,722  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - non-owner occupied

   $ 69,675     $ 34,230     $ 72,073     $ 67,239     $ 45,330     $ 97,159     $ 8,513     $ -     $ 394,219  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Commercial real estate - owner occupied

                                                                        

Risk Rating

                                                                        

Pass

   $ 52,059     $ 31,026     $ 31,983     $ 41,420     $ 20,746     $ 91,316     $ 15,951     $ -     $ 284,501  

Special Mention

     -       -       -       -       514       886       -       -       1,400  

Substandard

           -       6,758       906       510       10,784       30       -       18,988  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - owner occupied

   $ 52,059     $ 31,026     $ 38,741     $ 42,326     $ 21,770     $ 102,986     $ 15,981     $ -     $ 304,889  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ 132     $ -     $ -     $ 132  
                                                                         

Commercial real estate - construction

                                                                        

Risk Rating

                                                                        

Pass

   $ 21,400     $ 26,055     $ 1,665     $ -     $ -     $ 293     $ 1,517     $ -     $ 50,930  

Special Mention

     -       -       -       -       -       -       -       -       -  

Substandard

     -       -       -       -       -       -       -       -       -  

Doubtful

     -       -       -       -       -       -       -       -       -  

Total commercial real estate - construction

   $ 21,400     $ 26,055     $ 1,665     $ -     $ -     $ 293     $ 1,517     $ -     $ 50,930  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

 
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Consumer & Mortgage lending credit exposure

Credit risk profile based on payment activity

As of December 31, 2024

(dollars in thousands)

 

 

December 31, 2024

  

2024

    

2023

    

2022

    

2021

    

2020

    

Prior

    

Revolving Loans Amortized Cost Basis

    

Revolving Loans Converted to Term

    

Total

  

Home equity installment

                                                                        

Payment performance

                                                                        

Performing

   $ 7,214     $ 7,296     $ 15,611     $ 7,779     $ 6,464     $ 9,809     $ -     $ -     $ 54,173  

Non-performing

     -       -       -       -       -       41       -       -       41  

Total home equity installment

   $ 7,214     $ 7,296     $ 15,611     $ 7,779     $ 6,464     $ 9,850     $ -     $ -     $ 54,214  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ 7     $ -     $ -     $ 7  
                                                                         

Home equity line of credit

                                                                        

Payment performance

                                                                        

Performing

   $ -     $ -     $ -     $ -     $ -     $ -     $ 47,487     $ 10,182     $ 57,669  

Non-performing

     -       -       -       -       -       -       461       -       461  

Total home equity line of credit

   $ -     $ -     $ -     $ -     $ -     $ -     $ 47,948     $ 10,182     $ 58,130  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ 41     $ -     $ 41  
                                                                         

Auto loans - recourse

                                                                        

Payment performance

                                                                        

Performing

   $ 4,743     $ 2,336     $ 1,179     $ 1,735     $ 1,094     $ 302     $ -     $ -     $ 11,389  

Non-performing

     -       -       -       -       -       -       -       -       -  

Total auto loans - recourse

   $ 4,743     $ 2,336     $ 1,179     $ 1,735     $ 1,094     $ 302     $ -     $ -     $ 11,389  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Auto loans - non-recourse

                                                                        

Payment performance

                                                                        

Performing

   $ 5,402     $ 27,679     $ 27,790     $ 9,981     $ 3,588     $ 948     $ -     $ -     $ 75,388  

Non-performing

     -       -       -       48       -       4       -       -       52  

Total auto loans - non-recourse

   $ 5,402     $ 27,679     $ 27,790     $ 10,029     $ 3,588     $ 952     $ -     $ -     $ 75,440  

Current period gross write-offs

   $ -     $ 22     $ 67     $ 23     $ 6     $ 13     $ -     $ -     $ 131  
                                                                         

Direct finance leases (2)

                                                                        

Payment performance

                                                                        

Performing

   $ 8,598     $ 7,121     $ 7,592     $ 2,444     $ 94     $ -     $ -     $ -     $ 25,849  

Non-performing

     -       -       -       32       -       -       -       -       32  

Total direct finance leases

   $ 8,598     $ 7,121     $ 7,592     $ 2,476     $ 94     $ -     $ -     $ -     $ 25,881  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Consumer - other

                                                                        

Payment performance

                                                                        

Performing

   $ 11,794     $ 6,048     $ 1,760     $ 1,055     $ 398     $ 617     $ 2,156     $ -     $ 23,828  

Non-performing

     -       -       20       -       -       -       -       -       20  

Total consumer - other

   $ 11,794     $ 6,048     $ 1,780     $ 1,055     $ 398     $ 617     $ 2,156     $ -     $ 23,848  

Current period gross write-offs

   $ 38     $ 93     $ 30     $ 31     $ 7     $ 41     $ -     $ -     $ 240  
                                                                         

Residential real estate

                                                                        

Payment performance

                                                                        

Performing

   $ 35,008     $ 64,399     $ 89,014     $ 137,434     $ 51,728     $ 126,471     $ -     $ -     $ 504,054  

Non-performing

     -       315       -       -       -       446       -       -       761  

Total residential real estate

   $ 35,008     $ 64,714     $ 89,014     $ 137,434     $ 51,728     $ 126,917     $ -     $ -     $ 504,815  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Residential - construction

                                                                        

Payment performance

                                                                        

Performing

   $ 15,601     $ 2,894     $ -     $ 2,012     $ -     $ -     $ -     $ -     $ 20,507  

Non-performing

     -       -       -       -       -       -       -       -       -  

Total residential - construction

   $ 15,601     $ 2,894     $ -     $ 2,012     $ -     $ -     $ -     $ -     $ 20,507  

Current period gross write-offs

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

(2) Net of unearned lease revenue of $1.9 million.

 

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Collateral dependent loans

 

Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. The following table presents the individually evaluated, collateral dependent loans as of March 31, 2025 and December 31, 2024:

 

(dollars in thousands)

  

Real Estate

    

Other

    

Total Collateral-Dependent Loans

  

At March 31, 2025

                        

Commercial and industrial:

                        

Commercial

   $ -     $ 2,707     $ 2,707  

Commercial real estate:

                        

Non-owner occupied

     627       -       627  

Owner occupied

     1,262       -       1,262  

Consumer:

                        

Home equity installment

     160       -       160  

Home equity line of credit

     451       -       451  

Auto loans - Non-recourse

     -       3       3  

Residential:

                        

Real estate

     741       -       741  

Total

   $ 3,241     $ 2,710     $ 5,951  

 

 

(dollars in thousands)

  

Real Estate

    

Other

    

Total Collateral-Dependent Loans

  

At December 31, 2024

                        

Commercial and industrial:

                        

Commercial

   $ -     $ 2,708     $ 2,708  

Commercial real estate:

                        

Non-owner occupied

     711       -       711  

Owner occupied

     2,589       -       2,589  

Consumer:

                        

Home equity installment

     41       -       41  

Home equity line of credit

     461       -       461  

Auto loans - Non-recourse

     -       52       52  

Other

     20       -       20  

Residential:

                        

Real estate

     761       -       761  

Total

   $ 4,583     $ 2,760     $ 7,343  

 

Allowance for credit losses

 

Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.

 

Information related to the change in the allowance for credit losses on loans and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows:

 

As of and for the three months ended March 31, 2025

                                          
   

Commercial &

    

Commercial

            

Residential

                  

(dollars in thousands)

  

industrial

    

real estate

    

Consumer

    

real estate

    

Unallocated

    

Total

  

Allowance for Credit Losses:

                                                

Beginning balance

   $ 2,345     $ 8,943     $ 2,377     $ 5,989     $ 12     $ 19,666  

Charge-offs

     (29 )     -       (134 )     (18 )     -       (181 )

Recoveries

     5       20       52       -       -       77  

Provision (benefit) for credit losses

     92       219       (24 )     123       45       455  

Ending balance

   $ 2,413     $ 9,182     $ 2,271     $ 6,094     $ 57     $ 20,017  

 

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As of and for the three months ended March 31, 2024

                                                
   

Commercial &

    

Commercial

            

Residential

                  

(dollars in thousands)

  

industrial

    

real estate

    

Consumer

    

real estate

    

Unallocated

    

Total

  

Allowance for Credit Losses:

                                                

Beginning balance

   $ 1,850     $ 8,835     $ 2,391     $ 5,694     $ 36     $ 18,806  

Charge-offs

     (114 )     (5 )     (107 )     -       -       (226 )

Recoveries

     2       155       22       2       -       181  

Provision (benefit) for credit losses

     166       (161 )     (43 )     150       13       125  

Ending balance

   $ 1,904     $ 8,824     $ 2,263     $ 5,846     $ 49     $ 18,886  

 

Unfunded commitments

 

The Company's allowance for credit losses on unfunded commitments is recognized as a liability on the consolidated balance sheets, with adjustments to the reserve recognized in the provision for credit losses on unfunded commitments on the consolidated statements of income. The Company's activity in the allowance for credit losses on unfunded commitments for the period was as follows:

 

(dollars in thousands)

  

For the Three Months Ended March 31, 2025

    

For the Three Months Ended March 31, 2024

  

Beginning balance

   $ 1,084     $ 944  

Provision (benefit) for credit losses

     (85 )     (50 )

Ending balance

   $ 999     $ 894  

 

Direct finance leases

 

The Company originates direct finance leases through three automobile dealerships. The amortized cost of the Company’s lease receivables, net of unearned income, was $3.9 million and $4.5 million as of  March 31, 2025 and December 31, 2024, respectively. The residual value of the direct finance leases is fully guaranteed by the dealerships. Residual values amounted to $18.7 million and $20.9 million at  March 31, 2025 and December 31, 2024, respectively, and are included in the amortized cost of direct finance leases. As of March 31, 2025, there was also $483 thousand in deferred lease expense included in the carrying value of direct finance leases that is not included in the table below.

 

The undiscounted cash flows to be received on an annual basis for the direct finance leases are as follows:

 

(dollars in thousands)

  

Amount

  
         

2025

   $ 9,804  

2026

     8,604  

2027

     4,419  

2028

     1,310  

2029

     200  

2030 and thereafter

     -  

Total future minimum lease payments receivable

     24,337  

Less: Unearned income

     (1,760 )

Undiscounted cash flows to be received

   $ 22,577  

 

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6. Earnings per share

 

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards. The Company maintains one active share-based compensation plan that may generate additional potentially dilutive common shares. For granted and unexercised stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued SSARs were exercised and converted into common stock. For the three months ended March 31, 2025 and 2024, there were 8,208 and 9,199 potentially dilutive shares related to issued and unexercised SSARs, respectively. The calculation did not include 46,423 weighted average unexercised SSARs that could potentially dilute earnings per share but their effect was antidilutive for the three months ended  March 31, 2025. For restricted stock, dilution would occur from the Company’s previously granted but unvested shares. There were 27,072 potentially dilutive shares related to unvested restricted share grants for the three months ended March 31, 2025 compared to 30,190 for the same 2024 period, respectively. 

 

In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised SSARs and unvested restricted stock. Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock. Proceeds include amounts received from the exercise of outstanding stock options and compensation cost for future service that the Company has not yet recognized in earnings. The Company does not consider awards from share-based grants in the computation of basic EPS.

 

The following table illustrates the data used in computing basic and diluted EPS for the periods indicated:

 

   

Three months ended March 31,

  
   

2025

    

2024

  

(dollars in thousands except per share data)

                

Basic EPS:

                

Net income available to common shareholders

   $ 5,991     $ 5,057  

Weighted-average common shares outstanding

     5,753,945       5,722,232  

Basic EPS

   $ 1.04     $ 0.88  
                 

Diluted EPS:

                

Net income available to common shareholders

   $ 5,991     $ 5,057  

Weighted-average common shares outstanding

     5,753,945       5,722,232  

Potentially dilutive common shares

     35,280       39,389  

Weighted-average common and potentially dilutive shares outstanding

     5,789,225       5,761,621  

Diluted EPS

   $ 1.03     $ 0.88  

 

 

7. Stock plans

 

The Company has one active stock-based compensation plan (the stock compensation plan) from which it can grant stock-based compensation awards and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance. The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. The Company’s stock compensation plan was shareholder-approved and permits the grant of share-based compensation awards to its employees and directors. The Company believes that the stock-based compensation plan will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock. In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders. In the stock compensation plan, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock.

 

At the 2022 annual shareholders' meeting, the Company's shareholders approved and the Company adopted the 2022 Omnibus Stock Incentive Plan which replaced the 2012 Omnibus Stock Incentive Plan and the 2012 Director Stock Incentive Plan (collectively, the 2012 stock incentive plans). The 2012 stock incentive plans expired in 2022. Unless terminated by the Company’s board of directors, the 2022 Omnibus Stock Incentive Plan will expire on, and no stock-based awards shall be granted after the year 2032.

 

In the 2022 Omnibus Stock Incentive Plan, the Company has reserved 500,000 shares of its no-par common stock for future issuance. The Company recognizes share-based compensation expense over the requisite service or vesting period. Since 2019, the Company has approved a Long-Term Incentive Plan (LTIP) each year that awarded restricted stock and/or stock-settled stock appreciation rights (SSARs) to senior officers and managers based on the attainment of performance goals. The SSAR awards have a ten-year term from the date of each grant.

 

During the first quarter of 2025, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February 2025 based on 2024 performance.

 

During the first quarter of 2024, the Company approved a LTIP and awarded restricted stock to senior officers and managers in February 2024 based on 2023 performance.

 

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The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended March 31, 2025 and 2024 under the 2022 stock incentive plan:

 

   

March 31, 2025

    

March 31, 2024

  
           

Weighted-

            

Weighted-

  
   

Shares

    

average grant

    

Shares

    

average grant

  
   

granted

    

date fair value

    

granted

    

date fair value

  
                                 

Omnibus plan

     15,200

(2)

   $ 45.09       10,000

(2)

   $ 46.96  

Omnibus plan

     1,588

(2)

     45.09       1,558

(2)

     46.96  

Omnibus plan

     17,065

(3)

     45.09       10,871

(3)

     46.96  

Omnibus plan

     50

(1)

     45.09       50

(1)

     46.96  

Total

     33,903     $ 45.09       22,479     $ 46.96  

(1) Vest after 1 year (2) Vest after 3 years – 33% each year (3) Vest fully after 3 years

 

The fair value of the shares granted in 2025 and 2024 was calculated using the grant date closing stock price.

 

A summary of the status of the Company’s non-vested restricted stock as of and changes during the period indicated are presented in the following table:

 

   

2012 & 2022 Stock incentive plans

  
   

Director

    

Omnibus

    

Total

    

Weighted- average grant date fair value

  

Non-vested balance at December 31, 2024

     4,800       63,825       68,625     $ 48.68  

Granted

     -       33,903       33,903       45.09  

Forfeited

     -       (1,122 )     (1,122 )     48.12  

Vested

     (4,800 )     (23,059 )     (27,859 )     49.38  

Non-vested balance at March 31, 2025

     -       73,547       73,547     $ 46.77  

 

A summary of the status of the Company’s SSARs as of and changes during the period indicated are presented in the following table:

 

   

Awards

    

Weighted-average grant date fair value

    

Weighted-average remaining contractual term (years)

  

Outstanding December 31, 2024

     64,326     $ 11.59       2.8  

Granted

     -       -          

Exercised

     -       -          

Forfeited

     -       -          

Outstanding March 31, 2025

     64,326     $ 11.59       2.6  

 

All the SSARs outstanding at March 31, 2025, are fully vested and exercisable. 

 

Share-based compensation expense is included as a component of salaries and employee benefits in the consolidated statements of income. The following tables illustrate stock-based compensation expense recognized on non-vested equity awards during the three months ended March 31, 2025 and 2024 and the unrecognized stock-based compensation expense as of March 31, 2025:

 

(dollars in thousands)

  

2025

    

2024

  

Stock-based compensation expense:

                

2012 Director stock incentive plan

   $ 30     $ 79  

2012 Omnibus stock incentive plan

     20       88  

2022 Omnibus stock incentive plan

     249       166  

Employee stock purchase plan

     27       126  

Total stock-based compensation expense

   $ 326     $ 459  

 

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As of

  

(dollars in thousands)

  

March 31, 2025

  

Unrecognized stock-based compensation expense:

        

2022 Omnibus stock incentive plan

   $ 2,559  

The unrecognized stock-based compensation expense as of March 31, 2025 will be recognized ratably over the period ended  February 2028 for the 2022 Omnibus Stock Incentive Plan.

 

In addition to the 2022 stock incentive plan, the Company established the 2002 Employee Stock Purchase Plan (the ESPP) and reserved 165,000 shares of its un-issued capital stock for issuance under the plan. The ESPP was designed to promote broad-based employee ownership of the Company’s stock and to motivate employees to improve job performance and enhance the financial results of the Company. Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company’s capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined. As of March 31, 2025, 113,997 shares have been issued under the ESPP. The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance. The Company recognizes compensation expense on its ESPP on the date the shares are purchased, and it is included as a component of salaries and employee benefits in the consolidated statements of income.

 

8. Fair value measurements

 

The accounting guidelines establish a framework for measuring and disclosing information about fair value measurements. The guidelines of fair value reporting instituted a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

 

Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2 - inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

 

Level 3 - inputs are unobservable and are based on the Company’s own assumptions to measure assets and liabilities at fair value. Level 3 pricing for securities may also include unobservable inputs based upon broker-traded transactions.

 

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The Company uses fair value to measure certain assets and, if necessary, liabilities on a recurring basis when fair value is the primary measure for accounting. Thus, the Company uses fair value for AFS securities. Fair value is used on a non-recurring basis to measure certain assets when adjusting carrying values to market values, such as collateral dependent individually evaluated loans, other real estate owned (ORE) and other repossessed assets.

 

The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:

 

March 31, 2025

  
                   

Quoted prices

    

Significant

    

Significant

  
                   

in active

    

other

    

other

  
   

Carrying

    

Estimated

    

markets

    

observable inputs

    

unobservable inputs

  

(dollars in thousands)

  

amount

    

fair value

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Financial assets:

                                        

Cash and cash equivalents

   $ 211,195     $ 211,195     $ 211,195     $ -     $ -  

Held-to-maturity securities

     226,154       195,950       -       195,950       -  

Available-for-sale debt securities

     314,806       314,806       -       314,806       -  

Restricted investments in bank stock

     4,021       4,021       -       4,021       -  

Loans and leases, net

     1,795,474       1,690,552       -       -       1,690,552  

Loans held-for-sale

     2,018       2,087       -       2,087       -  

Accrued interest receivable

     9,705       9,705       -       9,705       -  

Interest rate swaps

     171       171       -       171       -  

Financial liabilities:

                                        

Deposits with no stated maturities

     2,110,610       2,110,610       -       2,110,610       -  

Time deposits

     346,849       345,664       -       345,664       -  

Short-term borrowings

     10       10       -       10       -  

Secured borrowings

     6,190       5,352       -       -       5,352  

Accrued interest payable

     5,361       5,361       -       5,361       -  

Interest rate swaps

     1,414       1,414       -       1,414       -  

 

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December 31, 2024

  
                   

Quoted prices

    

Significant

    

Significant

  
                   

in active

    

other

    

other

  
   

Carrying

    

Estimated

    

markets

    

observable inputs

    

unobservable inputs

  

(dollars in thousands)

  

amount

    

fair value

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Financial assets:

                                        

Cash and cash equivalents

   $ 83,353     $ 83,353     $ 83,353     $ -     $ -  

Held-to-maturity securities

     225,764       194,575       -       194,575       -  

Available-for-sale debt securities

     331,457       331,457       -       331,457       -  

Restricted investments in bank stock

     3,961       3,961       -       3,961       -  

Loans and leases, net

     1,779,136       1,672,690       -       -       1,672,690  

Loans held-for-sale

     2,054       2,089       -       2,089       -  

Accrued interest receivable

     9,632       9,632       -       9,632       -  

Interest rate swaps

     209       209       -       209       -  

Financial liabilities:

                                        

Deposits with no stated maturities

     2,001,920       2,001,920       -       2,001,920       -  

Time deposits

     338,900       337,629       -       337,629       -  

Secured borrowings

     6,266       5,723       -       -       5,723  

Accrued interest payable

     4,988       4,988       -       4,988       -  

Interest rate swaps

     1,224       1,224       -       1,224       -  

 

The carrying value of short-term financial instruments, as listed below, approximates their fair value. These instruments generally have limited credit exposure, no stated or short-term maturities, carry interest rates that approximate market and generally are recorded at amounts that are payable on demand:

 

 

●

Cash and cash equivalents;
 

●

Non-interest bearing deposit accounts;
 

●

Savings, interest-bearing checking and money market accounts
 

●

Short-term borrowings and
  ● Accrued interest.

 

Securities: Fair values on investment securities are determined by prices provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.

 

Accruing loans and leases: The fair value of accruing loans is estimated by calculating the net present value of the future expected cash flows discounted at current offering rates for similar loans. Current offering rates consider, among other things, credit risk. 

 

The carrying value that fair value is compared to is net of the allowance for credit losses and since there is significant judgment included in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.

 

Non-accrual loans: Loans which the Company has measured as non-accruing are generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. These loans are classified within Level 3 of the fair value hierarchy. The fair value consists of loan balances less the valuation allowance.

 

Loans held-for-sale: The fair value of loans held-for-sale is estimated using rates currently offered for similar loans and is typically obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank of Pittsburgh (FHLB).

 

Interest rate swaps: Fair values on derivative instruments are determined by valuations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.

 

Time deposits: The fair value of time deposits is based on discounted cash flows using rates which approximate market rates for deposits of similar maturities.

 

Secured borrowings: The fair value for these obligations uses an income approach based on expected cash flows on a pooled basis.

 

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The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:

 

   

Total carrying value

     Quoted prices in active markets     Significant other observable inputs    

Significant other unobservable inputs

  

(dollars in thousands)

  

March 31, 2025

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Assets:

                                

Available-for-sale securities:

                                

Agency - GSE

   $ 26,718     $ -     $ 26,718     $ -  

Obligations of states and political subdivisions

     104,525       -       104,525       -  

MBS - GSE residential

     183,563       -       183,563       -  

Total available-for-sale debt securities

   $ 314,806     $ -     $ 314,806     $ -  

Interest rate swaps

     171       -       171       -  

Total assets

   $ 314,977     $ -     $ 314,977     $ -  
                                 

Liabilities:

                                

Interest rate swaps

   $ 1,414     $ -     $ 1,414     $ -  

Total liabilities

   $ 1,414     $ -     $ 1,414     $ -  

 

   

Total carrying value

     Quoted prices in active markets     Significant other observable inputs     Significant other unobservable inputs  

(dollars in thousands)

  

December 31, 2024

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Assets:

                                

Available-for-sale securities:

                                

Agency - GSE

   $ 28,200     $ -     $ 28,200     $ -  

Obligations of states and political subdivisions

     119,258       -       119,258       -  

MBS - GSE residential

     183,999       -       183,999       -  

Total available-for-sale debt securities

   $ 331,457     $ -     $ 331,457     $ -  

Interest rate swaps

     209       -       209       -  

Total assets

   $ 331,666     $ -     $ 331,666     $ -  
                                 

Liabilities:

                                

Interest rate swaps

   $ 1,224     $ -     $ 1,224     $ -  

Total liabilities

   $ 1,224     $ -     $ 1,224     $ -  

 

Debt securities in the AFS portfolio are measured at fair value using market quotations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Assets classified as Level 2 use valuation techniques that are common to bond valuations. That is, in active markets whereby bonds of similar characteristics frequently trade, quotes for similar assets are obtained.

 

There were no Level 3 financial instruments measured at fair value on a recurring basis as of and for the periods ending  March 31, 2025 and December 31, 2024, respectively.

 

From time-to-time, the Company may be required to record at fair value financial instruments on a non-recurring basis, such as individually evaluated loans, ORE and other repossessed assets. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting on write downs of individual assets. The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:

 

             

Quoted prices in

    

Significant other

    

Significant other

  
     

Total carrying value

    

active markets

    

observable inputs

    

unobservable inputs

  

(dollars in thousands)

Valuation techniques

  

at March 31, 2025

    

(Level 1)

    

(Level 2)

    

(Level 3)

  
                                   

Individually evaluated loans

Fair value of collateral appraised value

   $ 2,615     $ -     $ -     $ 2,615  

Other real estate owned

Fair value of asset less selling costs

     20       -       -       20  

Total

   $ 2,635     $ -     $ -     $ 2,635  

 

             

Quoted prices in

    

Significant other

    

Significant other

  
     

Total carrying value

    

active markets

    

observable inputs

    

unobservable inputs

  

(dollars in thousands)

Valuation techniques

  

at December 31, 2024

    

(Level 1)

    

(Level 2)

    

(Level 3)

  
                                   

Individually evaluated loans

Fair value of collateral appraised value

   $ 2,810     $ -     $ -     $ 2,810  

Other repossessed assets

Fair value of asset less selling costs

     1       -       -       1  

Total

   $ 2,811     $ -     $ -     $ 2,811  

 

The following describes valuation methodologies used for financial instruments measured at fair value on a non-recurring basis. Individually evaluated loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for credit losses, and as such are carried at the lower of net recorded investment or the estimated fair value. Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.

 

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Valuation techniques for individually evaluated, collateral dependent loans are typically determined through independent appraisals of the underlying collateral or may be determined through present value of discounted cash flows. Both techniques include various Level 3 inputs which are not identifiable. The valuation technique may be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions. If real estate is not the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates and other factors may be utilized to determine fair value.

 

At  March 31, 2025 and December 31, 2024, the range of liquidation expenses and other valuation adjustments applied to individually evaluated, collateral dependent loans ranged from -13.81% to -20.68% and from -13.81% to -31.19%, respectively. The weighted average of liquidation expenses and other valuation adjustments applied to individually evaluated, collateral dependent loans amounted to -16.54% as of March 31, 2025 and -24.85% as of December 31, 2024, respectively. Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used to determine fair value, the Company recognizes that valuations could differ across a wide spectrum of techniques employed. Accordingly, fair value estimates for individually evaluated, collateral dependent loans are classified as Level 3.

 

For ORE, fair value is generally determined through independent appraisals of the underlying properties which generally include various Level 3 inputs which are not identifiable. Appraisals form the basis for determining the net realizable value from these properties. Net realizable value is the result of the appraised value less certain costs or discounts associated with liquidation which occurs in the normal course of business. Management’s assumptions may include consideration of the location and occupancy of the property, along with current economic conditions. Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through incremental subsequent write-downs. These write-downs usually reflect decreases in estimated values resulting from sales price observations as well as changing economic and market conditions. At  March 31, 2025, the discount applied to the appraised values of ORE was -36.90%. At  December 31, 2024, the net realizable values of properties in ORE were higher than the carrying value.

 

At  March 31, 2025, there were no other repossessed assets. At December 31, 2024, there was one other repossessed asset totaling $1 thousand. The Company refers to the National Automobile Dealers Association (NADA) guide to determine a vehicle’s fair value.

 

9. Employee Benefits

 

Bank-Owned Life Insurance (BOLI)

 

The Company has purchased single premium BOLI policies on certain officers. The policies are recorded at their cash surrender values. Increases in cash surrender values are included in non-interest income in the consolidated statements of income. The policies’ cash surrender value totaled $58.5 million and $58.1 million, respectively, as of  March 31, 2025 and December 31, 2024 and is reflected as an asset on the consolidated balance sheets. For the three months ended March 31, 2025 and 2024, the Company has recorded income of $0.4 million and $0.3 million, respectively, due to an increase in cash surrender values.

 

Officer Life Insurance

 

The Bank enters into separate split dollar life insurance arrangements (Split Dollar Agreements) with certain officers which provide each officer a specified death benefit should the officer die while in the Bank’s employ. The Bank owns the policies and all cash values thereunder. Upon death of the covered employee, the agreed-upon amount of death proceeds from the policies will be paid directly to the insured’s beneficiary. As of March 31, 2025, the policies had total death benefits of $58.5 million of which $9.6 million would be paid to the officer’s beneficiaries and the remaining $48.9 million would be paid to the Bank. In addition, five executive officers have the opportunity to retain a split dollar benefit equal to two times their highest base salary after separation from service if the vesting requirements are met. As of  March 31, 2025 and December 31, 2024, the Company had a balance in accrued expenses of $510 thousand and $471 thousand, respectively, for the split dollar benefit.

 

Supplemental Executive Retirement plan (SERP)

 

On March 29, 2017, the Bank entered into separate supplemental executive retirement agreements (individually the “SERP Agreement”) with five officers, pursuant to which the Bank will credit an amount to a SERP account established on each participant’s behalf while they are actively employed by the Bank for each calendar month from March 1, 2017 until retirement. On March 20, 2019, the Bank entered into a SERP Agreement with one officer, pursuant to which the Bank will credit an amount to a SERP account established for the participant’s behalf while they are actively employed by the Bank for each calendar month from March 1, 2019 until normal retirement age. As a result of the acquisition of Landmark, the Company acquired a SERP agreement with one former employee. In June 2024, the bank entered into a supplemental executive retirement plan agreement (the “SERP Agreement”) with one officer; pursuant to which the Bank will credit an amount to a SERP account established for the participant’s behalf while they are actively employed by the Bank for each calendar month from June 1, 2024 until normal retirement age of 70. As of  March 31, 2025 and December 31, 2024, the Company had a balance in accrued expenses of $5.0 million and $4.9 million in connection with these SERPs. 

 

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10. Derivative Instruments

 

The Company is exposed to certain risks relating to its ongoing business operations and economic conditions. The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates and to assist customers with their risk management objectives. All derivative instruments are recognized as either assets or liabilities at fair value in the statement of financial position.

 

Interest rate derivative - no hedge designation

 

The Company is a party to interest rate derivatives that are not designated as hedging instruments. The Company enters into interest rate swaps that allow certain commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company minimizes its net interest rate risk exposure resulting from such transactions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities). As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit-quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented.

 

           

Weighted

                  
   

Notional

    

Average Maturity

    

Interest Rate

  

Interest Rate

        

(dollars in thousands)

  

Amount

    

(Years)

    

Paid

  

Received

  

Fair Value

  

March 31, 2025

                                

Classified in Other assets:

                                

Customer interest rate swaps

   $ 1,762       12.66    

30 Day SOFR + Margin

  

Fixed

   $ 171  

Classified in Accrued interest payable and other liabilities:

                                

Third party interest rate swaps

   $ 1,762       12.66    

Fixed

  

30 Day SOFR + Margin

   $ 171  

 

Interest rate derivative - fair value hedge designation

 

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. This interest rate swap is designated as a fair value hedge and limits the risk to the investment portfolio of rising interest rates. The Company entered into an interest rate swap with a third-party financial institution to convert fixed rate investment securities to an adjustable rate to produce a more asset sensitive profile. The Company recorded the fair value of the fair value hedge in other assets and accrued interest payable and other liabilities on the consolidated balance sheet. The hedged items (fixed rate securities available-for-sale) are also recorded at fair value which offsets the adjustment to the fair value hedge. The related gains and losses are reported in interest income investment securities - U.S. government agencies and corporations and interest income investment securities - state and political subdivisions (nontaxable) in the consolidated statements of income. For the three months ended March 31, 2025, there was a $35 thousand reduction in interest income investment securities - U.S. government agencies and corporations and a $35 thousand reduction in interest income investment securities - state and political subdivisions (nontaxable). For the three months ended March 31, 2024, there was a $89 thousand increase to interest income from investment securities - U.S. government agencies and corporations and a $89 thousand increase to interest income from investment securities - state and political subdivisions (nontaxable). A qualitative assessment of hedge effectiveness was applied at inception of the hedge. Future hedge effectiveness will be determined on a qualitative basis at least annually.  The hedge is expected to remain effective as long as the balance of the hedged item is projected to remain at or above the notional amount of the swap.

 

           

Weighted

          
   

Notional

    

Average Maturity

          

(dollars in thousands)

  

Amount

    

(Years)

    

Fair Value

  

March 31, 2025

                        

Pay-fixed interest rate swap agreements - securities AFS

   $ 100,000       1.50     $ (1,243 )

 

The Company had investment securities with a book value of $2.7 million pledged as collateral on its interest rate swaps with a third-party financial institution as of March 31, 2025.

 

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of March 31, 2025 compared to December 31, 2024 and a comparison of the results of operations for the three months ended March 31, 2025 and 2024. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2024 Annual Report filed on Form 10-K.

 

Forward-looking statements

 

Certain of the matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.

 

The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

 

  ■ local, regional and national economic conditions and changes thereto;
 

■

 the short-term and long-term effects of inflation, and rising costs to the Company, its customers and on the economy;
  ■ the risks of changes and volatility of interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
  ■ securities markets and monetary fluctuations and volatility;
  ■ disruption of credit and equity markets;
 

■

 impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules;
  ■ governmental monetary and fiscal policies, as well as legislative and regulatory changes;
  ■ effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions;
 

■

 the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
 

■

 the impact of new or changes in existing laws and regulations, including laws and regulations concerning taxes, banking, securities and insurance and their application with which the Company and its subsidiaries must comply;
 

■

 the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
 

■

 the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
  ■ the effects of economic conditions of any pandemic, epidemic or other health-related crisis such as COVID-19 and responses thereto on current customers and the operations of the Company, specifically the effect of the economy on loan customers’ ability to repay loans;
  ■ the effects of bank failures, banking system instability, deposit fluctuations, loan and securities value changes;
 

■

technological changes;
 

■

 the interruption or breach in security of our information systems, continually evolving cybersecurity and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses;
 

■

acquisitions and integration of acquired businesses;
 

■

 the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;
 

■

acts of war or terrorism; and
 

■

the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

 

The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document. The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

 

Readers should review the risk factors described in other documents that we file or furnish, from time to time, with the Securities and Exchange Commission, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K and other current reports filed or furnished on Form 8-K.

 

Executive Summary

 

The Company is a Pennsylvania corporation and a bank holding company, whose wholly-owned state chartered commercial bank and trust subsidiary is The Fidelity Deposit and Discount Bank. The Company is headquartered in Dunmore, Pennsylvania. We consider Lackawanna, Northampton and Luzerne Counties our primary marketplace, the "market area".

 

As a leading Northeastern and Eastern Pennsylvania community bank, our goals are to enhance shareholder value while continuing to build a full-service community bank. We focus on growing our core business of retail and business lending and deposit gathering while maintaining strong asset quality and controlling operating expenses. We continue to implement management strategies to diversify earning assets (see “Funds Deployed” section of this management’s discussion and analysis) and to increase the amount of relationship core deposits (see “Funds Provided” section of this management’s discussion and analysis). These strategies include a focus on commercial lending and the ancillary business products and services supporting our commercial customers’ needs as well as residential lending strategies and an array of consumer products. We focus on developing a full banking relationship with existing, as well as new business prospects. The Bank has a personal and corporate trust department and also provides alternative financial and insurance products with asset management services. In addition, we explore opportunities to selectively expand and optimize our franchise footprint, consisting presently of our 21-branch network.

 

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We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for March 2025 was 4.2%, up 0.1 percentage points from December 2024. Similar to the national rate, the unemployment rates in the Scranton - Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at March 31, 2025 were 4.6% in market area north and 4.2% in market area south, respectively, an increase of 0.8 percentage points and 0.8 percentage points from the 3.8% and 3.4%, respectively, at December 31, 2024. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 7.1% and 4.5% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 0.3% and remain flat, respectively, in the next year. In light of these expectations, we believe the real estate values could continue to increase at these levels with the declining rate environment. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

 

For the three months ended March 31, 2025, net income was $6.0 million, or $1.03 diluted earnings per share, an 18% increase, compared to $5.1 million, or $0.88 diluted earnings per share, for the three months ended March 31, 2024. 

 

As of March 31, 2025 and March 31, 2024, tangible common book value per share (non-GAAP) was $33.16 and $29.80 (1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.

 

Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients. We understand our markets, offer products and services along with financial advice that is appropriate for our community, clients and prospects. The Company continues to focus on the trusted financial advisor model by utilizing the team approach of experienced bankers that are fully engaged and dedicated towards maintaining and growing profitable relationships.

 

In addition to the challenging economic environment in which we compete, the regulation and oversight of our business has changed significantly in recent years. As described more fully in Part II, Item 1A, “Risk Factors” below, as well as Part I, Item 1A, “Risk Factors,” and in the “Supervisory and Regulation” section of management’s discussion and analysis of financial condition and results of operations in our 2024 Annual Report filed on Form 10-K, certain aspects of the Dodd-Frank Wall Street Reform Act (Dodd-Frank Act) continue to have a significant impact on us.

 

Non-GAAP Financial Measures

 

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at March 31, 2025 and 2024.

 

The following table reconciles the non-GAAP financial measures of FTE net interest income:

 

   

Three months ended

  

(dollars in thousands)

  

March 31, 2025

    

March 31, 2024

  

Interest income (GAAP)

   $ 28,308     $ 25,625  

Adjustment to FTE

     771       747  

Interest income adjusted to FTE (non-GAAP)

     29,079       26,372  

Interest expense (GAAP)

     11,275       10,682  

Net interest income adjusted to FTE (non-GAAP)

   $ 17,804     $ 15,690  

 

The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income less gain/(loss) on sales of securities. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:

 

   

Three months ended

  

(dollars in thousands)

  

March 31, 2025

    

March 31, 2024

  

Efficiency Ratio (non-GAAP)

                

Non-interest expenses (GAAP)

   $ 14,554     $ 13,689  
                 

Net interest income (GAAP)

     17,033       14,943  

Plus: taxable equivalent adjustment

     771       747  

Non-interest income (GAAP)

     4,973       4,572  

Add: Losses on sales of securities

     822       -  

Net interest income (FTE) plus adjusted non-interest income (non-GAAP)

   $ 23,599     $ 20,262  

Efficiency ratio (non-GAAP)

     61.67 %     67.56 %

 

(1) See non-GAAP financial measurements reconciliation on page 36.

 

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The following table provides a reconciliation of tangible common equity (non-GAAP) and the calculations of tangible book value per share and tangible common equity ratio:

 

(dollars in thousands)

  

March 31, 2025

    

March 31, 2024

  

Tangible Book Value per Share (non-GAAP)

                

Total assets (GAAP)

   $ 2,711,310     $ 2,468,896  

Less: Intangible assets

     (20,431 )     (20,728 )

Tangible assets

     2,690,879       2,448,168  

Total shareholders' equity (GAAP)

     211,674       191,635  

Less: Intangible assets

     (20,431 )     (20,728 )

Tangible common equity

   $ 191,243     $ 170,907  
                 

Common shares outstanding, end of period

     5,767,500       5,735,732  

Tangible Common Book Value per Share (non-GAAP)

   $ 33.16     $ 29.80  

Tangible Common Equity Ratio (non-GAAP)

     7.11 %     6.98 %

Unrealized losses on held-to-maturity securities, net of tax

   $ (23,860 )   $ (24,205 )

Adjusted tangible common equity ratio (non-GAAP)

     6.22 %     5.99 %

 

The following table provides a reconciliation of pre-provision net revenue (PPNR) to average assets (non-GAAP):

 

(dollars in thousands)

  

March 31, 2025

    

March 31, 2024

  

Pre-Provision Net Revenue to Average Assets

                

Income before taxes (GAAP)

   $ 7,082     $ 5,751  

Plus: Provision for credit losses

     370       75  

Total pre-provision net revenue (non-GAAP)

   $ 7,452     $ 5,826  

Total (annualized) (non-GAAP)

   $ 30,222     $ 23,432  
                 

Average assets

   $ 2,609,769     $ 2,451,168  

Pre-Provision Net Revenue to Average Assets (non-GAAP)

     1.16 %     0.96 %

 

General

 

The Company’s earnings depend primarily on net interest income. Net interest income is the difference between interest income and interest expense. Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities. Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings. Net interest income is determined by the Company’s interest rate spread (the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Interest rate spread is significantly impacted by: changes in interest rates and market yield curves and their related impact on cash flows; the composition and characteristics of interest-earning assets and interest-bearing liabilities; differences in the maturity and re-pricing characteristics of assets compared to the maturity and re-pricing characteristics of the liabilities that fund them and by the competition in the marketplace.

 

The Company’s earnings are also affected by the level of its non-interest income and expenses and by the provisions for credit losses and income taxes. Non-interest income mainly consists of: service charges on the Company’s loan and deposit products; interchange fees; trust and asset management service fees; increases in the cash surrender value of the bank owned life insurance and from net gains or losses from sales of loans and securities. Non-interest expense consists of: compensation and related employee benefit costs; occupancy; equipment; data processing; advertising and marketing; FDIC insurance premiums; professional fees; loan collection; net other real estate owned (ORE) expenses; supplies and other operating overhead.

 

Net interest income, net interest rate margin, net interest rate spread and the efficiency ratio are presented in the Management's Discussion & Analysis on a fully-taxable equivalent (FTE) basis. The Company believes this presentation to be the preferred industry measurement of net interest income as it provides a relevant comparison between taxable and non-taxable amounts.

 

Comparison of the results of operations

three months ended March 31, 2025 and 2024

 

Overview

 

Net income for the quarter ended March 31, 2025 was $6.0 million, or $1.03 diluted earnings per share, compared to $5.1 million, or $0.88 diluted earnings per share, for the quarter ended March 31, 2024.  The $0.9 million, or 18%, increase in net income resulted primarily from a $2.1 million increase in net interest income coupled with a $0.4 million increase in non-interest income. This was partially offset by a $0.9 million increase in non-interest expense, a $0.4 million increase in the provision for income tax, and a $0.3 million increase in the provision for credit losses on loans.

 

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Return on average assets (ROA) was 0.93% and 0.83% for the first quarters of 2025 and 2024, respectively. During the same time periods, return on average shareholders’ equity (ROE) was 11.66% and 10.71%, respectively. The increases in ROA and ROE were primarily the result of an increase in net income during the first quarter of 2025, compared to the same period of 2024. Pre-provision net revenue to average assets (non-GAAP) was 1.16% and 0.96% for the three months ended March 31, 2025 and 2024, respectively. The increase quarter-over-quarter was due to an increase in pre-provision net revenue in the first quarter of 2025.

 

Net interest income and interest sensitive assets / liabilities

 

Net interest income was $17.0 million for the first quarter of 2025, a 14% increase over the $14.9 million earned for the first quarter of 2024.  The $2.1 million increase in net interest income resulted from a $2.7 million increase in interest income primarily due to a $148.0 million increase in the average balance of interest-earning assets and a 21 basis point increase in fully-taxable equivalent ("FTE") yield. The loan portfolio had the most significant impact, producing a $2.5 million increase in FTE interest income from $116.4 million in higher quarterly average balances and an increase of 26 basis points in FTE loan yield. Partially offsetting the higher interest income, was a $0.6 million increase in interest expense due to a $124.3 million quarter-over-quarter increase in average interest-bearing liability balances. The increase was due to growth of $179.3 million in average interest-bearing deposit balances and a 6 basis point increase in the rates paid on interest-bearing deposits. This was partially offset by a decrease in interest expense on borrowings due to $53.9 million less in average short-term borrowings.

 

The FTE yield on interest-earning assets was 4.73% for the first quarter of 2025, an increase of 21 basis points from the 4.52% for the first quarter of 2024. The overall cost of interest-bearing liabilities was 2.49% for the first quarter of 2025, a decrease of 2 basis points from the 2.51% for the first quarter of 2024.  The cost of funds remained flat at 1.93% for both the first quarters of 2025 and 2024. The Company’s FTE (non-GAAP measurement) net interest spread was 2.24% for the first quarter of 2025, an increase of 23 basis points from the 2.01% recorded for the first quarter of 2024.  FTE net interest margin increased to 2.89% for the three months ended March 31, 2025 from 2.69% for the same period of 2024 due to the increase in the loan and lease portfolio coupled with the continued re-investment of cash flow into more effective interest-earning assets.

 

The table that follows presents the quarterly ratios for yield on interest-earning assets, net interest margin and net interest spread for the periods indicated:

 

                                         
   

Mar. 31, 2025

    

Dec. 31, 2024

    

Sep. 30, 2024

    

Jun. 30, 2024

    

Mar. 31, 2024

  

Yield on interest-earning assets (FTE) (non-GAAP)

     4.73 %     4.68 %     4.68 %     4.58 %     4.52 %

Net interest spread (FTE) (non-GAAP)

     2.24 %     2.08 %     1.98 %     2.00 %     2.01 %

Net interest margin (FTE) (non-GAAP)

     2.89 %     2.78 %     2.70 %     2.71 %     2.69 %

 

For the remainder of 2025, the Company currently expects to operate in a moderately declining interest rate environment. Management is primarily reliant on the Federal Open Market Committee's (FOMC) statements and forecast. For the three months ended March 31, 2025, the FOMC did not adjust interest rates based on the uncertainty about inflation and the effects of newly introduced tariffs on the economy. The Blue Chip Financial Forecasts economic consensus expects between 50 to 75 basis points in rate cuts during 2025. For 2025, the Company currently maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific assets, being proactive with loan pricing and managing deposit costs to maintain a reasonable spread.

 

The Company’s cost of interest-bearing liabilities was 2.49% for the three months ended March 31, 2025, compared to 2.51% for the same 2024 period. The reduction in average short-term borrowings contributed to the lower cost of interest-bearing liabilities.

 

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

 

The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for March 31, 2025 and 2024 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the first quarter of 2025 and 2024, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.4 million and $0.5 million are included in interest income from loans and less than $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended March 31, 2025 and 2024. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.

 

   

Three months ended

  

(dollars in thousands)

  

March 31, 2025

    

March 31, 2024

  
   

Average

            

Yield /

    

Average

            

Yield /

  

Assets

  

balance

    

Interest

    

rate

    

balance

    

Interest

    

rate

  
                                                 

Interest-earning assets

                                                

Interest-bearing deposits

   $ 69,575     $ 771       4.49 %   $ 28,680     $ 376       5.27 %

Restricted investments in bank stock

     3,973       74       7.54       3,934       81       8.25  

Investments:

                                                

Agency - GSE

     113,787       409       1.46       112,677       407       1.45  

MBS - GSE residential

     216,362       1,050       1.97       223,736       1,081       1.94  

State and municipal (nontaxable)

     191,618       1,391       2.94       194,450       1,532       3.17  

State and municipal (taxable)

     85,906       443       2.09       86,105       443       2.07  

Total investments

     607,673       3,293       2.20       616,968       3,463       2.26  

Loans and leases:

                                                

C&I and CRE (taxable)

     915,402       14,123       6.26       796,830       12,233       6.17  

C&I and CRE (nontaxable)

     128,240       1,648       5.21       122,998       1,523       4.98  

Consumer

     183,692       2,451       5.41       221,397       2,657       4.83  

Residential real estate

     585,706       6,719       4.65       555,443       6,039       4.37  

Total loans and leases

     1,813,040       24,941       5.58       1,696,668       22,452       5.32  

Total interest-earning assets

     2,494,261       29,079       4.73 %     2,346,250       26,372       4.52 %

Non-interest earning assets

     115,508                       104,918                  

Total assets

   $ 2,609,769                     $ 2,451,168                  
                                                 

Liabilities and shareholders' equity

                                                
                                                 

Interest-bearing liabilities

                                                

Deposits:

                                                

Interest-bearing checking

   $ 663,218     $ 3,283       2.01 %   $ 667,620     $ 3,821       2.30 %

Savings and clubs

     192,030       134       0.28       201,888       156       0.31  

MMDA

     631,984       4,353       2.79       525,210       3,589       2.75  

Certificates of deposit

     339,725       3,417       4.08       252,897       2,375       3.78  

Total interest-bearing deposits

     1,826,957       11,187       2.48       1,647,615       9,941       2.43  

Secured borrowings

     6,226       88       5.71       7,335       121       6.63  

Short-term borrowings

     22       -       3.90       53,952       620       4.62  

Total interest-bearing liabilities

     1,833,205       11,275       2.49 %     1,708,902       10,682       2.51 %

Non-interest bearing deposits

     533,286                       519,856                  

Non-interest bearing liabilities

     34,937                       32,434                  

Total liabilities

     2,401,428                       2,261,192                  

Shareholders' equity

     208,341                       189,976                  

Total liabilities and shareholders' equity

   $ 2,609,769                     $ 2,451,168                  

Net interest income - FTE

           $ 17,804                     $ 15,690          
                                                 

Net interest spread

                     2.24 %                     2.01 %

Net interest margin

                     2.89 %                     2.69 %

Cost of funds

                     1.93 %                     1.93 %

 

 

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Changes in net interest income are a function of both changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which changes in interest rates and changes in volumes of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by the prior period rate), (2) the changes attributable to changes in interest rates (changes in rates multiplied by prior period volume) and (3) the net change. The combined effect of changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate. Tax-exempt income was not converted to a tax-equivalent basis on the rate/volume analysis:

 

   

Three months ended March 31,

  

(dollars in thousands)

  

2025 compared to 2024

    

2024 compared to 2023

  
   

Increase (decrease) due to

  
   

Volume

    

Rate

    

Total

    

Volume

    

Rate

    

Total

  

Interest income:

                                                

Interest-bearing deposits

   $ 458     $ (63 )   $ 395     $ 316     $ 29     $ 345  

Restricted investments in bank stock

     1       (8 )     (7 )     (30 )     5       (25 )

Investments:

                                                

Agency - GSE

     1       -       1       -       (6 )     (6 )

MBS - GSE residential

     (42 )     12       (30 )     (113 )     87       (26 )

State and municipal

     (18 )     (121 )     (139 )     (229 )     113       (116 )

Total investments

     (59 )     (109 )     (168 )     (342 )     194       (148 )

Loans and leases:

                                                

Residential real estate

     314       368       682       561       452       1,013  

C&I and CRE

     1,727       261       1,988       731       1,138       1,869  

Consumer

     (493 )     286       (207 )     (148 )     381       233  

Total loans and leases

     1,548       915       2,463       1,144       1,971       3,115  

Total interest income

     1,948       735       2,682       1,088       2,199       3,287  
                                                 

Interest expense:

                                                

Deposits:

                                                

Interest-bearing checking

     (26 )     (512 )     (538 )     57       2,443       2,500  

Savings and clubs

     (8 )     (14 )     (22 )     (24 )     6       (18 )

Money market

     707       57       764       (88 )     1,126       1,038  

Certificates of deposit

     845       197       1,042       692       1,111       1,803  

Total deposits

     1,518       (272 )     1,246       637       4,686       5,323  

Secured borrowings

     (17 )     (16 )     (33 )     (3 )     13       10  

Short-term borrowings

     (537 )     (83 )     (620 )     62       (26 )     36  

Total interest expense

     964       (371 )     593       696       4,673       5,369  

Net interest income

   $ 984     $ 1,107     $ 2,090     $ 392     $ (2,474 )   $ (2,082 )

 

Provision for credit losses

 

The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to increase the allowance for credit losses to a level that represents management’s best estimate of expected credit losses in the Company’s loan portfolio. Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans. The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.

 

Management continuously reviews the risks inherent in the loan portfolio. The determination of the amounts of the allowance for credit losses and the provision for credit losses is based on management’s current judgments about the credit quality of the Company’s financial assets and known and expected relevant internal and external factors that significantly affect collectability such as historical loss information, current conditions, and reasonable and supportable forecasts, including significant qualitative factors.

 

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For the three months ended March 31, 2025, the provision for credit losses on loans was $455 thousand partially offset by a $85 thousand net benefit in the provision for unfunded commitments, compared to a $125 thousand provision for credit losses on loans and a $50 thousand net benefit in the provision for credit losses on unfunded loan commitments for the three months ended March 31, 2024.

 

For the three months ended March 31, 2025, the increase in the provision for credit losses on loans compared to the prior year period was due to higher loan growth and higher net charge-offs. For the three months ended March 31, 2025, the higher net benefit for credit losses on unfunded commitments was due to a larger reduction in unfunded commitments during the quarter compared to the same period in 2024.

 

The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for three months ended March 31, 2025 to maintain an allowance level that management deemed adequate.

 

For a discussion on the allowance for credit losses, see “Allowance for credit losses,” located in the comparison of financial condition section of management’s discussion and analysis contained herein.

 

Other income

 

Total non-interest income increased $0.4 million, or 9%, to $5.0 million for the first quarter of 2025 compared to $4.6 million for the first quarter of 2024. The increase in non-interest income was attributed to $0.2 million in wealth management fees and $0.1 million in interchange fees. Additionally, during the first quarter of 2025, gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities.

 

Operating expenses

 

Non-interest expenses increased $0.9 million, or 6%, for the first quarter of 2025 to $14.6 million from $13.7 million for the same quarter of 2024. Salaries and benefits expense increased $0.6 million due to an increase in the number of bankers, group insurance costs, and banker incentives in the first quarter of 2025. Additionally, the Company saw an increase of $0.3 million in advertising and marketing expenses primarily due to an increase in Neighborhood Assistance Program donations from which the Company recognized $0.2 million in additional tax credits causing a corresponding decrease in PA shares tax expense. 

 

Provision for income taxes

 

The provision for income taxes increased $0.4 million during the three months ended March 31, 2025 compared to the same period in 2024 primarily due to a $1.3 million increase in income before taxes and $0.1 million less in tax credits. The Company's effective tax rate was 15.4% at March 31, 2025 compared to 12.1% at March 31, 2024. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income.

 

40
Table of Contents
 

 

Comparison of financial condition at

 March 31, 2025 and December 31, 2024

 

Overview

 

The Company’s total assets had a balance of $2.7 billion as of March 31, 2025, an increase of $126.7 million from December 31, 2024. The increase resulted from $127.8 million in growth in cash and cash equivalents during the three months ended March 31, 2025. The loans and leases portfolio increased $16.3 million during the same period of 2025. Asset growth was offset by a decrease of $16.7 million in the investment portfolio. Deposit growth of $116.6 million was used to fund the loan portfolio with the remaining balances held in cash.

 

Funds Deployed:

 

Investment securities

 

The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels. In establishing investment strategies, the Company considers its business, growth strategies or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities in its portfolio, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations. The Company’s policy prescribes permissible investment categories that meet the policy standards and management is responsible for structuring and executing the specific investment purchases within these policy parameters. Management buys and sells investment securities periodically depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies. Investment security purchases provide a way to quickly invest excess liquidity in order to generate additional earnings. The Company generally earns a positive interest spread by assuming interest rate risk using deposits or borrowings to purchase securities with longer maturities.

 

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the three months ended March 31, 2025, AOCI improved by $3.6 million primarily due to the change in fair value of the Company's investment securities.

 

As of March 31, 2025, the carrying value of held-to-maturity securities was $226.2 million, net of $13.4 million in remaining transferred discount.

 

The Company utilized a fair value hedge to designate and swap a portion of the fixed rate AFS portfolio. The Company has an approved Derivative Policy that requires Board pre-approval on such balance sheet hedging activities as well as ongoing reporting to its ALCO Committee. The Board has approved up to $200 million in notional amount of pay-fixed interest rate swap and the Company has executed on $100 million to date.

 

During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of March 31, 2025, the Company recorded the fair value of the swap of $1.2 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $1.2 million increase to the carrying value of designated investment securities.

 

As of March 31, 2025, the carrying value of investment securities amounted to $541.0 million, or 20% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On March 31, 2025, 34% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).

 

The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $176.8 million ($170.1 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $83.1 million ($77.9 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 36% AAA, 62% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.

 

During the first three months of 2025, the carrying value of total investments decreased $16.3 million, or 3%. The decline was primarily due to a sale of $17.5 million in available-for-sale securities and $5.2 million in paydowns partially offset by $4.6 million in purchases of securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.

 

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Table of Contents

 

A comparison of investment securities at March 31, 2025 and December 31, 2024 is as follows:

 

   

March 31, 2025

    

December 31, 2024

  

(dollars in thousands)

  

Amount

    

%

    

Book yield

    

Reprice term (years)

    

Amount

    

%

    

Book yield

    

Reprice term (years)

  

HTM securities:

                                                                

Obligations of states & political subdivisions - tax exempt

   $ 83,559       15.4 %     2.1 %     19.6     $ 83,544       15.1 %     2.1 %     19.8  

Obligations of states & political subdivisions - taxable

     59,828       11.1       2.1       10.1       59,734       10.7       2.1       10.3  

Agency - GSE

     82,767       15.3       1.4       5.2       82,486       14.7       1.4       5.4  

Total HTM securities

   $ 226,154       41.8 %     1.8 %     11.8     $ 225,764       40.5 %     1.8 %     12.1  

AFS debt securities:

                                                                

MBS - GSE residential

   $ 183,563       33.9

%

     2.0

%

     5.6     $ 183,999       33.0

%

     2.0

%

     5.9  

Obligations of states & political subdivisions - tax exempt

     86,503       16.0       2.3       18.6       95,635       17.2       2.4       17.5  

Obligations of states & political subdivisions - taxable

     18,022       3.4       1.5       4.6       23,623       4.2       1.6       4.6  

Agency - GSE

     26,718       4.9       1.2       3.2       28,200       5.1       1.2       3.3  

Total AFS debt securities

   $ 314,806       58.2 %     2.0 %     9.0     $ 331,457       59.5 %     2.0 %     8.9  

Total securities

   $ 540,960       100.0

%

     1.9

%

     10.1     $ 557,221       100.0

%

     2.0

%

     10.1  

 

The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities. The portfolio had no adjustable-rate instruments as of March 31, 2025 and December 31, 2024.

 

The AFS securities were recorded with a net unrealized loss of $48.9 million and a net unrealized loss of $52.8 million as of March 31, 2025 and December 31, 2024, respectively. Of the $3.9 million net improvement; $5.1 million was attributable to mortgage-backed securities and $0.5 million was attributable to agency securities. This improvement was offset by a $1.7 million decrease to municipal securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.

 

As of March 31, 2025, the Company had $292.7 million in public deposits, or 12% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of March 31, 2025, the balance of pledged securities required was $335.9 million, or 62% of total securities.

 

Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the three months ended March 31, 2025, the Company did not incur any credit losses on debt securities from its investment securities portfolio.

 

During the first quarter of 2025, the Company sold nineteen available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.8 million as the amortized cost was $17.5 million compared to the sales proceeds of $16.7 million. This sale was due to the ongoing management strategy of improving margin and focusing on more effective interest earning assets.

 

Restricted investments in bank stock

 

Investment in Federal Home Loan Bank (FHLB) stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $3.9 million and $3.9 million as of March 31, 2025 and December 31, 2024, respectively.  The dividends received from the FHLB totaled $77 thousand and $73 thousand for the three months ended March 31, 2025 and 2024, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of March 31, 2025 and December 31, 2024.

 

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Loans held-for-sale (HFS)

 

Upon origination, most residential mortgages and certain Small Business Administration (SBA) guaranteed loans may be classified as held-for-sale (HFS). In the event of market rate increases, fixed-rate loans and loans not immediately scheduled to re-price would no longer produce yields consistent with the current market. In declining interest rate environments, the Company would be exposed to prepayment risk as rates on fixed-rate loans decrease, and customers look to refinance loans. Consideration is given to the Company’s current liquidity position and projected future liquidity needs. To better manage prepayment and interest rate risk, loans that meet these conditions may be classified as HFS. Occasionally, residential mortgage and/or business loans may be transferred from the loan portfolio to HFS. The carrying value of loans HFS is based on the lower of cost or estimated fair value. If the fair values of these loans decline below their original cost, the difference is written down and charged to current earnings. Subsequent appreciation in the portfolio is credited to current earnings but only to the extent of previous write-downs.

 

As of March 31, 2025 and December 31, 2024, loans HFS consisted of residential mortgages with carrying amounts of $2.0 million and $2.1 million, respectively, which approximated their fair values. During the three months ended March 31, 2025, residential mortgage loans with principal balances of $12.5 million were sold into the secondary market and the Company recognized net gains of $0.2 million, compared to $10.8 million and $0.2 million, respectively, during the three months ended March 31, 2024.

 

The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At March 31, 2025 and December 31, 2024, the servicing portfolio balance of sold residential mortgage loans was $498.0 million and $495.4 million, respectively, with mortgage servicing rights of $1.3 million and $1.3 million for the same periods, respectively. Additionally, during the first quarter of 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.

 

Loans and leases

 

As of March 31, 2025, the Company had gross loans and leases totaling $1.8 billion, an increase of $17 million, or 1%, compared to $1.8 billion at December 31, 2024.

 

During the three months ended March 31, 2025, the growth in the portfolio was attributed to a $24.9 million increase in the commercial portfolio primarily due to the origination of two municipal loans to two unrelated borrowers totaling $8.3 million; an origination to a single commercial real estate owner occupied borrower totaling $9.4 million; and general portfolio growth. The Company also experienced a $2.2 million increase in the residential portfolio, which was offset by the $10.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.

 

As management continues to identify ways to optimize the Company’s balance sheet, the focus is to lend in areas that provide better risk-adjusted returns and improved opportunities to deepen relationships with our customers. This could result in a change in the composition of the loan portfolio in future periods.

 

The composition of the loan portfolio at March 31, 2025 and December 31, 2024 is summarized as follows:

 

   

March 31, 2025

    

December 31, 2024

  

(dollars in thousands)

  

Amount

    

%

    

Amount

    

%

  

Commercial and industrial:

                                

Commercial

   $ 174,555       9.6

%

   $ 172,834       9.6

%

Municipal

     109,959       6.1       101,706       5.6  

Commercial real estate:

                                

Non-owner occupied

     401,771       22.1       394,219       21.9  

Owner occupied

     316,414       17.4       304,889       16.9  

Construction

     46,793       2.6       50,930       2.9  

Consumer:

                                

Home equity installment

     54,481       3.0       54,214       3.0  

Home equity line of credit

     59,030       3.2       58,130       3.2  

Auto loans - Recourse

     10,477       0.6       11,389       0.6  

Auto loans - Non-recourse

     67,383       3.7       75,440       4.2  

Direct finance leases

     24,820       1.4       27,827       1.5  

Other

     24,069       1.3       23,848       1.4  

Residential:

                                

Real estate

     510,844       28.1       504,815       28.0  

Construction

     16,655       0.9       20,507       1.2  

Gross loans

     1,817,251       100.0

%

     1,800,748       100.0

%

Less:

                                

Allowance for credit losses

     (20,017 )             (19,666 )        

Unearned lease revenue

     (1,760 )             (1,946 )        

Net loans

   $ 1,795,474             $ 1,779,136          
                                 

Loans held-for-sale

   $ 2,018             $ 2,054          

 

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Commercial & industrial (C&I) and commercial real estate (CRE)

 

As of March 31, 2025, the commercial portfolio increased by $24.9 million, or 2%, to $1.0 billion compared to the December 31, 2024 balance of $1.0 billion. The increase was due to growth of $10.0 million in commercial and industrial loans and growth of $14.9 million in commercial real estate loans.

 

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, independent collateral appraisals, etc.

 

For the three months ended March 31, 2025, commercial and industrial (non-municipal) loans increased $1.7 million, or 1%, from $172.8 million at December 31, 2024 to $174.5 million at March 31, 2025, which was due to originations and advances outpacing scheduled payments and curtailments.

 

Municipal loans are secured by the full faith and credit of respective local government units located in the Commonwealth of Pennsylvania authorized in accordance with the Local Government Unit Debt Act. These loans have a long history of performance within contractual terms with no defaults noted.

 

For the three months ended March 31, 2025, municipal loans increased $8.3 million, or 8%, from $101.7 million at December 31, 2024, to $110.0 million at March 31, 2025 which was attributed to the origination of two municipal loans to two unrelated borrowers totaling $8.3 million.

 

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

 

For the three months ended March 31, 2025, owner occupied commercial real estate loans increased $11.5 million, or 4%, from $304.9 million on December 31, 2024, to $316.4 million at March 31, 2025, due to an origination to a single commercial real estate owner occupied borrower totaling $9.4 million and general portfolio growth.

 

Owner occupied commercial real estate loans rely on income generated from the respective owners’ businesses. Therefore, underwriting on owner occupied CRE loans emphasizes the owner’s cash flow and financial conditions while the real estate typically represents the owners' primary business location. Since cash flows from operations are the primary source of repayment for owner-occupied commercial real estate loans, this segment has a different risk profile than non-owner occupied lending.

 

The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at March 31, 2025 compared to December 31, 2024:

 

   

March 31, 2025

    

December 31, 2024

  

(dollars in thousands)

  

Amount

       %  

Amount

       %

Commercial real estate non-owner occupied:

                                

1-4 Family

   $ 43,811       10.90 %   $ 45,613       11.57 %

Multifamily

     48,485       12.07 %     48,087       12.20 %

Industrial

     46,942       11.68 %     51,486       13.06 %

Mixed Use

     52,991       13.19 %     53,233       13.50 %

Retail

     66,692       16.60 %     64,227       16.29 %

Land

     20,811       5.18 %     17,368       4.41 %

Special Purpose

     40,503       10.08 %     32,187       8.16 %

Hotel

     29,442       7.33 %     29,607       7.51 %

Office

     52,094       12.97 %     52,411       13.30 %

Total

   $ 401,771       100.00 %   $ 394,219       100.00 %

 

For the three months ended March 31, 2025, non-owner occupied commercial real estate loans increased $7.6 million, or 2%, from $394.2 million on December 31, 2024, to $401.8 million on March 31, 2025 due to general portfolio growth and construction loans that stabilized and were converted to non-owner occupied commercial real estate during the quarter.

 

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

 

In the table above, office space comprised $52.1 million and special purpose comprised $40.5 million in outstanding amounts, respectively. The office segment mainly has suburban medical and suburban professional third-party tenants. The special purpose segment includes self-storage facilities, assisted living facilities, nursing homes, and parking garages.

 

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Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of March 31, 2025, the commercial construction portfolio of $46.8 million consisted of $33.8 million, or 72%, of non-owner-occupied loans and $13.0 million, or 28%, of owner-occupied loans.

 

For the three months ended March 31, 2025, commercial construction loans decreased $4.1 million, or 8%, from $50.9 million on December 31, 2024 to $46.8 million at March 31, 2025. This reduction was attributed to $21.8 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the three months ended March 31, 2025. This reduction was partially offset by $0.7 million in commercial construction commitments originated during the quarter and $17.0 million in advances during the quarter on commercial construction loan availability booked prior to March 31, 2025. 

 

Consumer

 

The consumer loan portfolio consisted of home equity installment, home equity line of credit, non-recourse auto loans, recourse auto loans, direct finance leases and other consumer loans.

 

As of March 31, 2025, the total consumer loan portfolio decreased by $10.6 million, or 4%, to $240.2 million compared to the December 31, 2024 balance of $250.8 million, primarily due to a management strategic determination to reduce the indirect auto portfolio totaling $12 million resulting from payoffs/paydowns with minimal originations. Offsetting the reduction in the indirect auto portfolio was growth of $0.9 million in the HELOC portfolio due to a sales campaign done during the quarter. For the remainder of 2025, the Company expects maturities of approximately $27.5 million in the dealer portfolio with minimal originations.

 

Residential

 

As of March 31, 2025, the residential loan portfolio increased by $2.2 million, or less than 1%, to $527.5 million compared to the December 31, 2024 balance of $525.3 million due to general portfolio growth.

 

The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $404 million in fixed-rate and $107 million in adjustable-rate mortgages as of March 31, 2025.

 

The Company considers its portfolio segmentation, including the real estate secured portfolio, to be reasonably diversified. The banking industry is affected by general economic conditions including, among other things, the effects of real estate values. The Company ensures that its mortgage lending adheres to standards of secondary market compliance. Furthermore, the Company’s credit function strives to mitigate the negative impact of economic conditions by maintaining strict underwriting principles for all loan types.

 

Allowance for credit losses

 

Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of expected credit losses in the loan portfolio. When estimating the net amount expected to be collected, management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the Company’s financial assets. Those estimates may be susceptible to significant change. Loan losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.

 

The methodology to analyze the adequacy of the ACL is based on seven primary components:

 

 

●

 Data: The quality of the Company’s data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls.
 

●

Segmentation: Financial assets are segmented based on similar risk characteristics.
 

●

 Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool’s estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets.
 

●

 Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per Accounting Standards Codification (ASC) Topic 326. The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the commercial & industrial, commercial real estate non-owner occupied, commercial real estate owner occupied, commercial construction, home equity installment loan, home equity line of credit, residential real estate, and residential construction pools. The weighted average remaining maturity (WARM) method is used for the municipal, non-recourse auto, recourse auto, direct finance lease, and consumer other pools.
 

●

 Reasonable and supportable forecasts: ASC Topic 326 requires management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company’s forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and unemployment rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12-month (4 quarter) reasonable and supportable forecast period.

 

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●

 Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire contractual life of financial assets. Management may apply reversion techniques for the contractual life remaining after considering the reasonable and supportable forecast period, which allows management to apply a historical loss rate to latter periods of the financial asset’s life. The Company currently uses a 12 month (4 quarter) straight-line reversion period.
 

●

 Qualitative factor adjustments: The Company’s ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors:

 

 

o

levels of and trends in delinquencies and non-accrual loans;
 

o

levels of and trends in charge-offs and recoveries;
 

o

trends in volume and terms of loans;
 

o

changes in risk selection and underwriting standards;
 

o

changes in lending policies and legal and regulatory requirements;
 

o

experience, ability and depth of lending management;
 

o

national and local economic trends and conditions;
 

o

changes in credit concentrations; and
 

o

changes in underlying collateral.

 

A control related to the allowance is the Company’s Special Assets Committee. This committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance. The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment. The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating.

 

The following tables set forth the activity in the allowance for credit losses and certain key ratios for the period indicated:

 

(dollars in thousands)

   As of and for the three months ended March 31, 2025     As of and for the twelve months ended December 31, 2024     As of and for the three months ended March 31, 2024  
                         

Balance at beginning of period

   $ 19,666     $ 18,806     $ 18,806  
                         

Charge-offs:

                        

Commercial and industrial

     (29 )     (399 )     (114 )

Commercial real estate

     -       (132 )     (5 )

Consumer

     (134 )     (419 )     (107 )

Residential

     (18 )     -       -  

Total

     (181 )     (950 )     (226 )
                         

Recoveries:

                        

Commercial and industrial

     5       12       2  

Commercial real estate

     20       352       155  

Consumer

     52       76       22  

Residential

     -       45       2  

Total

     77       485       181  

Net charge-offs

     (104 )     (465 )     (45 )

Provision for credit losses on loans

     455       1,325       125  

Balance at end of period

   $ 20,017     $ 19,666     $ 18,886  
                         

Allowance for credit losses to total loans

     1.10

%

     1.09

%

     1.11

%

Net charge-offs to average total loans outstanding

     0.02

%

     0.03

%

     0.01

%

Average total loans

   $ 1,813,040     $ 1,741,349     $ 1,696,669  

Loans 30 - 89 days past due and accruing

   $ 6,065     $ 5,349     $ 2,171  

Loans 90 days or more past due and accruing

   $ 32     $ 32     $ 12  

Non-accrual loans

   $ 5,951     $ 7,343     $ 3,557  

Allowance for credit losses to non-accrual loans

     3.36

x

     2.68

x

     5.31

x

Allowance for credit losses to non-performing loans

     3.35

x

     2.67

x

     5.29

x

 

For the three months ended March 31, 2025, the allowance increased $0.3 million, or 2%, to $20.0 million from $19.7 million on December 31, 2024. The increase in the allowance was based on the provisioning of $0.5 million partially offset by net charge-offs of $0.1 million.
 

Management believes that the current balance in the allowance for credit losses is adequate to meet the identified potential credit quality issues that may arise and other issues unidentified but inherent to the portfolio. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.

 

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

 

Qualitative factors for the ACL estimate as of March 31, 2025 saw a general decrease compared to the prior quarter based on reduction in the qualitative factor for improvement in asset quality, specifically the commercial real estate owner occupied and consumer other loan categories.

 

The allocation of net charge-offs among major categories of loans are as follows for the periods indicated:

 

(dollars in thousands)

  

For the three months ended March 31, 2025

    

% of Total Net Charge-offs

    

For the three months ended March 31, 2024

    

% of Total Net Charge-offs

  

Net charge-offs

                                

Commercial and industrial

   $ (24 )     23 %   $ (112 )     249 %

Commercial real estate

     20       (19 )     150       (334 )

Consumer

     (82 )     79       (85 )     189  

Residential

     (18 )     17       2       (4 )

Total net charge-offs

   $ (104 )     100 %   $ (45 )     100 %

 

For the three months ended March 31, 2025, net charge-offs against the allowance totaled $104 thousand compared with net charge-offs of $45 thousand for the three months ended March 31, 2024, representing a $59 thousand increase due to a $123 thousand commercial real estate recovery during the first quarter of 2024. Net charge-offs grew as a percentage of the total loan portfolio at 0.02% for the three months ended March 31, 2025 compared to 0.01% for the three months ended March 31, 2024.

 

For a discussion on the provision for credit losses, see the “Provision for credit losses,” located in the results of operations section of management’s discussion and analysis contained herein.

 

The allowance for credit losses can generally absorb losses throughout the loan portfolio. However, in some instances an allocation is made for specific loans or groups of loans. Allocation of the allowance for credit losses for different categories of loans is based on the methodology used by the Company, as previously explained. The changes in the allocations from period-to-period are based upon quarter-end reviews of the loan portfolio.

 

Allocation of the allowance among major categories of loans for the periods indicated, as well as the percentage of loans in each category to total loans, is summarized in the following table. This table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. When present, the portion of the allowance designated as unallocated is within the Company’s guidelines:

 

   

March 31, 2025

    

December 31, 2024

    

March 31, 2024

  
           

% of

    

Category

            

% of

    

Category

            

% of

    

Category

  
           

Total

    

% of

            

Total

    

% of

            

Total

    

% of

  

(dollars in thousands)

  

Allowance

    

Allowance

    

Loans

    

Allowance

    

Allowance

    

Loans

    

Allowance

    

Allowance

    

Loans

  

Category

                                                                        

Commercial real estate

   $ 9,182       46 %     42 %   $ 8,943       45 %     42 %   $ 8,824       47 %     38 %

Commercial and industrial

     2,413       12       16       2,345       12       15       1,904       10       16  

Consumer

     2,271       12       13       2,377       13       14       2,263       12       16  

Residential real estate

     6,094       30       29       5,989       30       29       5,846       31       30  

Unallocated

     57       -       -       12       -       -       49       -       -  

Total

   $ 20,017       100 %     100 %   $ 19,666       100 %     100 %   $ 18,886       100 %     100 %

 

As of March 31, 2025, the commercial real estate loan portfolio comprised 46% of the total allowance for credit losses, up 1 percentage point from December 31, 2024. As of March 31, 2025, the commercial real estate loan portfolio was 42% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

 

As of March 31, 2025, the commercial and industrial portfolio comprised 12% of the total allowance for credit losses, unchanged from December 31, 2024. As of March 31, 2025, the commercial and industrial portfolio was 16% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the municipal portfolio.

 

As of March 31, 2025, the consumer portfolio comprised 12% of the total allowance for credit losses, down 1 percentage point from December 31, 2024. As of March 31, 2025, the consumer portfolio is 13% of the total loan and lease portfolio indicative of a lower relative reserve, which is attributed to the shorter average duration of this portfolio and lower relative risk, specifically from the indirect recourse and direct finance lease portfolios. 

 

As of March 31, 2025, the residential portfolio comprised 30% of the total allowance for credit losses, unchanged from December 31, 2024. As of March 31, 2025, the residential portfolio is 29% of the total loan and lease portfolio indicative of a higher relative reserve, which is attributed to the longer average duration and inherent risk of the portfolio.

 

As of March 31, 2025, the unallocated reserve, representing the portion of the allowance not specifically identified with a loan or groups of loans, was less than 1% of the total allowance for credit losses, unchanged from December 31, 2024.

 

Non-performing assets

 

The Company defines non-performing assets as accruing loans past due 90 days or more, non-accrual loans, other real estate owned (ORE) and repossessed assets. 

 

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The following table sets forth non-performing assets data as of the period indicated:

 

(dollars in thousands)

  

March 31, 2025

    

December 31, 2024

    

March 31, 2024

  
                         

Loans past due 90 days or more and accruing

   $ 32     $ 32     $ 12  

Non-accrual loans

     5,951       7,343       3,557  

Total non-performing loans

     5,983       7,375       3,569  

Other real estate owned and repossessed assets

     119       430       220  

Total non-performing assets

   $ 6,102     $ 7,805     $ 3,789  
                         

Total loans, including loans held-for-sale

   $ 1,817,509     $ 1,800,856     $ 1,697,299  

Total assets

   $ 2,711,310     $ 2,584,616     $ 2,468,896  

Non-accrual loans to total loans

     0.33 %     0.41 %     0.21 %

Non-performing loans to total loans

     0.33 %     0.41 %     0.21 %

Non-performing assets to total assets

     0.23 %     0.30 %     0.15 %

 

Management continually monitors the loan portfolio to identify loans that are either delinquent or are otherwise deemed by management unable to repay in accordance with contractual terms. Generally, loans of all types are placed on non-accrual status if a loan of any type is past due 90 or more days or if collection of principal and interest is in doubt. Further, unsecured consumer loans are charged-off when the principal and/or interest is 90 days or more past due. Uncollected interest income accrued on all loans placed on non-accrual is reversed and charged to interest income.

 

Non-performing assets represented 0.23% of total assets at March 31, 2025 compared with 0.30% at December 31, 2024. The decrease resulted from a $1.7 million, or 22%, decline in non-performing assets, specifically non-accrual loans, which declined $1.4 million due to the sale of a $1.3 million commercial owner occupied real estate loan to a third-party purchaser during the quarter.

 

On March 31, 2025, there were a total of 30 non-accrual loans to 26 unrelated borrowers with balances that ranged from less than $1 thousand to $2.6 million, or $6.0 million in the aggregate. On December 31, 2024, there were a total of 33 non-accrual loans to 30 unrelated borrowers with balances that ranged from less than $1 thousand to $2.6 million, or $7.3 million in the aggregate.

 

Loans past due 90 days or more accruing totaled $32 thousand, which was comprised of two direct finance leases as of March 31, 2025, compared to two direct finance leases totaling $32 thousand as of December 31, 2024. All loans were well secured and in the process of collection.

 

The Company seeks payments from all past due customers through an aggressive customer communication process. Unless well-secured and in the process of collection, past due loans will be placed on non-accrual at the 90-day point when it is deemed that a customer is non-responsive and uncooperative to collection efforts.

 

The composition of non-performing loans as of March 31, 2025 is as follows:

 

           

Past due

                          
   

Gross

    

90 days or

    

Non-

    

Total non-

    

% of

  
   

loan

    

more and

    

accrual

    

performing

    

gross

  

(dollars in thousands)

  

balances

    

still accruing

    

loans

    

loans

    

loans

  

Commercial and industrial:

                                        

Commercial

   $ 174,555     $ -     $ 2,707     $ 2,707       1.55 %

Municipal

     109,959       -       -       -       -  

Commercial real estate:

                                        

Non-owner occupied

     401,771       -       627       627       0.16 %

Owner occupied

     316,414       -       1,262       1,262       0.40 %

Construction

     46,793       -       -       -       -  

Consumer:

                                        

Home equity installment

     54,481       -       160       160       0.29 %

Home equity line of credit

     59,030       -       451       451       0.76 %

Auto loans-Recourse

     10,477       -       -       -       -  

Auto loans-Non Recourse

     67,383       -       3       3       0.00 %

Direct finance leases *

     23,060       32       -       32       0.14 %

Other

     24,069       -       -       -       -  

Residential:

                                        

Real estate

     510,844       -       741       741       0.15 %

Construction

     16,655       -       -       -       -  

Loans held-for-sale

     2,018       -       -       -       -  

Total

   $ 1,817,509     $ 32     $ 5,951     $ 5,983       0.33 %

 

*Net of unearned lease revenue of $1.8 million.

 

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Payments received from non-accrual loans are recognized on a cost recovery method. Payments are first applied to the outstanding principal balance, then to the recovery of any charged-off loan amounts. Any excess is treated as a recovery of interest income. If the non-accrual loans that were outstanding as of March 31, 2025 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $141 thousand.

 

Foreclosed assets held-for-sale

 

From December 31, 2024 to March 31, 2025, other real estate owned (ORE) decreased from $429 thousand to $119 thousand, a $310 thousand decrease, which was attributed to the sale of one commercial property totaling $196 thousand and sale of two residential properties totaling $233 thousand. These sales were partially offset by the addition of two properties totaling $119 thousand.

 

The following table sets forth the activity in the ORE component of foreclosed assets held-for-sale:

 

   

March 31, 2025

    

December 31, 2024

  

(dollars in thousands)

  

Amount

    

#

    

Amount

    

#

  
                                 

Balance at beginning of period

   $ 429       3     $ 1       1  
                                 

Additions

     119       2       648       4  

Pay downs

     -       -       -       -  

Write downs

     -       -       -       -  

Transfers

     -       -       -       -  

Sales

     (429 )     (3 )     (220 )     (2 )

Balance at end of period

   $ 119       2     $ 429       3  

 

As of March 31, 2025, the Company had two properties totaling $119 thousand with one property under agreement of sale and one property listed for sale.

 

As of March 31, 2025, the Company had no other repossessed assets. As of December 31, 2024, the Company had one other repossessed asset totaling $1 thousand which was a vehicle.

 

Cash surrender value of bank owned life insurance

 

The Company maintains bank owned life insurance (BOLI) for a chosen group of employees at the time of purchase, namely its officers, where the Company is the owner and sole beneficiary of the policies. BOLI is classified as a non-interest earning asset. Increases or decreases in the cash surrender value are recorded as components of non-interest income. The BOLI is profitable from the appreciation of the cash surrender values of the pool of insurance and its tax-free advantage to the Company. This profitability is used to offset a portion of current and future employee benefit costs. The BOLI cash surrender value build-up can be liquidated if necessary, with associated tax costs. However, the Company intends to hold this pool of insurance, because it provides income that supports employee benefit cost increases which enhances the Company’s capital position. Therefore, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value. 

 

Premises and equipment

 

Net of depreciation, premises and equipment decreased $0.9 million during the first three months of 2025 primarily due to depreciation expense. These decreases were offset by $0.1 million in additions to premises and equipment.

 

The Company is in the process of corporate headquarters construction which will increase construction in process. On December 23, 2020, the Commonwealth of Pennsylvania authorized the first of three Redevelopment Assistance Capital Program (RACP) grant funding in the amount of $2.0 million, a second on December 6, 2021 in the amount of $2.0 million, and the final grant award on November 1, 2024 in the amount of $4.0 million, bringing the total RACP grant award to $9.0 million.  The $9.0 million RACP grants will offset the total construction costs of the renovation and rehabilitation of the historic Scranton Electric Building. As of March 31, 2025, the Company incurred $5.8 million in costs for the corporate headquarters building in downtown Scranton which included planning, engineering, and architectural fees as well as interior demolition and investigative work. The remaining building costs could range from $20 million to $22 million. This estimated range may expand due to unknown supply chain issues, labor pricing, design changes, or upgrades required to meet current codes.  The Company currently estimates furniture and office equipment costs at $2.0 million and technology equipment and infrastructure at $0.6 million. The historic nature of this building has qualified the Company for an estimated $3.4 million in state and federal historic tax credits. The project is expected to be completed in the middle of 2026.

 

Other assets

 

During the first three months of 2025, other assets decreased by $0.9 million. The decrease was primarily due to $1.1 million less in internal DDA overdrafts from the timing of payroll coupled with a decrease of $0.8 million in deferred tax assets. The primary asset to offset the decrease was an increase of $1.4 million in prepaid assets. 

 

 

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Funds Provided:

 

Deposits

 

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

 

The following table represents the components of deposits as of the date indicated:

 

   

March 31, 2025

    

December 31, 2024

  

(dollars in thousands)

  

Amount

    

%

    

Amount

    

%

  
                                 

Interest-bearing checking

   $ 699,893       28.5

%

   $ 672,290       28.7

%

Savings and clubs

     194,820       7.9       189,534       8.1  

Money market

     660,213       26.9       606,161       25.9  

Certificates of deposit

     346,849       14.1       338,900       14.5  

Total interest-bearing

     1,901,775       77.4       1,806,885       77.2  

Non-interest bearing

     555,684       22.6       533,935       22.8  

Total deposits

   $ 2,457,459       100.0

%

   $ 2,340,820       100.0

%

 

Total deposits increased $116.6 million, or 5%, to $2.5 billion at March 31, 2025 from $2.3 billion at December 31, 2024. Money market accounts increased $54.1 million primarily driven by growth in existing account balances from the continued focus on obtaining the best rate, our relationship strategy, and targeted direct marketing driving new client acquisitions. Interest-bearing checking accounts grew by $27.6 million primarily caused by the increase in existing account balances. At December 31, 2024, the Company utilized $24.6 million in Insured Cash Sweep (ICS) one-way buy funds which were replaced at March 31, 2025 by the $21.9 million increase in trust managed ICS balances. Non-interest bearing checking balances increased $21.7 million primarily due to business and personal demand deposit accounts. CDs increased $7.9 million, or 2%, as of March 31, 2025; this again attributed to interest rate sensitivity and maintaining a highly competitive rate offer for both new accounts and retention of the product. Savings account balances increased $5.3 million during the first three months of 2025 primarily due to growth in personal account and club balances. The Company focuses on obtaining a full-banking relationship with existing core operating checking account customers as well as forming new customer relationships. The Company will continue to execute its relationship development and client segment strategy, explore the demographics within its marketplace and develop targeted programs for its customers to maintain and grow core deposits. Seasonal public deposit fluctuations are expected to remain volatile and at times may partially offset future deposit growth. The Company will continue to closely monitor the competitive rate environment to align relationship retention and growth. Subsequent to quarter end March 31, 2025 through the date of filing, the Company began experiencing declines in total deposit balances due to seasonal spending of balances specifically in the money market and non-interest bearing checking deposit balances. 

 

The Company utilizes Certificate of Deposit Account Registry Service (CDARS) reciprocal program and ICS reciprocal program to obtain FDIC insurance protection for customers who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $48.5 million and $49.4 million in CDARS as of March 31, 2025 and December 31, 2024. As of March 31, 2025 and December 31, 2024, ICS reciprocal deposits represented $151.6 million and $150.6 million, or 6% and 6%, of total deposits which are included in interest-bearing checking accounts in the table above.

 

As of March 31, 2025, total uninsured deposits were estimated to be $959.1 million, or 39% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies into ownership categories to estimate amounts over the FDIC insurance limit. As of March 31, 2025, the ratio of uninsured and non-collateralized deposits to total deposits was $624.3 million, or 25%. Collateralized deposits totaled $334.8 million, or 14%, of total deposits as of March 31, 2025.

 

The maturity distribution of certificates of deposit that meet or exceed the FDIC limit, by account, at March 31, 2025 is as follows:

 

(dollars in thousands)

        

Three months or less

   $ 29,270  

More than three months to six months

     21,049  

More than six months to twelve months

     54,954  

More than twelve months

     3,931  

Total

   $ 109,204  

 

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Approximately 69% of the CDs, with a weighted-average interest rate of 4.25%, are scheduled to mature in 2025 and an additional 28%, with a weighted-average interest rate of 3.82%, are scheduled to mature in 2026. Renewing CDs are currently expected to reprice to lower market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company continues to address maturing CDs on a relationship pricing basis, with both CD retention and promotional programs and a rate match when prudent to maintain relationships. For the three months ended March 31, 2025, CD retention is approximately 84%. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company.

 

Short-term borrowings

 

Borrowings are used as a complement to deposit generation as an alternative funding source whereby the Company will borrow under advances from the FHLB of Pittsburgh and other correspondent banks for asset growth and liquidity needs.

 

Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent banks federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. As of March 31, 2025, the Company did not use any short-term borrowings to fund loan growth. As of March 31, 2025, the Company had the ability to borrow $152.3 million from the Federal Reserve borrower-in-custody program, full availability of $150.0 million in overnight borrowings with the FHLB open-repo line of credit and $20.0 million from lines of credit with correspondent banks.

 

Secured borrowings

 

As of March 31, 2025, the Company had 5 secured borrowing agreements with third parties with a carrying value of $6.1 million compared to 5 secured borrowing agreements with third parties with a carrying value of $6.2 million, related to certain sold loan participations that did not qualify for sales treatment. Secured borrowings are expected to decrease throughout 2025 from scheduled amortization and, when possible, early pay-offs.

 

FHLB advances

 

The Company had no FHLB advances as of March 31, 2025 and December 31, 2024. As of March 31, 2025, the Company had the ability to borrow up to $752.5 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances during 2025.

 

Liquidity

 

Liquidity management ensures that adequate funds will be available to meet customers’ needs for borrowings, deposit withdrawals and maturities, facility expansion and normal operating expenses. Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits, utilization of borrowing capacities from the FHLB, correspondent banks, IntraFi's ICS and One-Way Buy program, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB), Atlantic Community Bankers Bank (ACBB) and proceeds from the issuance of capital stock. Though regularly scheduled investment and loan payments are dependable sources of daily liquidity, sales of both loans HFS and investments AFS, deposit activity and investment and loan prepayments are significantly influenced by general economic conditions including the interest rate environment. During low and declining interest rate environments, prepayments from interest-sensitive assets tend to accelerate and provide significant liquidity that can be used to invest in other interest-earning assets but at lower market rates. Conversely, in periods of high or rising interest rates, prepayments from interest-sensitive assets tend to decelerate causing prepayment cash flows from mortgage loans and mortgage-backed securities to decrease. Rising interest rates may also cause deposit inflow but priced at higher market interest rates or could also cause deposit outflow due to higher rates offered by the Company’s competition for similar products. The Company closely monitors activity in the capital markets and takes appropriate action to ensure that the liquidity levels are adequate for funding, investing and operating activities.

 

The Company’s contingency funding plan (CFP) sets a framework for handling liquidity issues in the event circumstances arise which the Company deems to be less than normal. The Company established guidelines for identifying, measuring, monitoring and managing the resolution of potentially serious liquidity crises. The CFP outlines required monitoring tools, acceptable alternative funding sources and required actions during various liquidity scenarios. Thus, the Company has implemented a proactive means for the measurement and resolution for handling potentially significant adverse liquidity conditions. At least quarterly, the CFP monitoring tools, current liquidity position and monthly projected liquidity sources and uses are presented and reviewed by the Company’s Asset/Liability Committee. As of  March 31, 2025, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.

 

During the three months ended March 31, 2025, the Company grew cash and cash equivalents by $127.8 million. During the period, the Company’s operations provided $11.7 million mostly from $17.9 million of net cash inflow from the components of net interest income partially offset by net non-interest expense/income related payments of $4.7 million. Cash inflow from interest-earning assets, deposit growth and loan payments were used to fund the loan portfolio, pay down short-term borrowings, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past few years. The seasonal nature of deposits from municipalities and other public funding sources requires the Company to be prepared for the inherent volatility and the unpredictable timing of cash outflow from this customer base, including maintaining the requirements to pledge investment securities. Accordingly, the use of short-term overnight borrowings could be used to fulfill funding gap needs. As of March 31, 2025, the Company had $185.0 million in unpledged securities. Subsequent to quarter end March 31, 2025 through the date of filing, the Company began experiencing a decrease in cash balances to fund the temporary deposit outflow due to the seasonal spending within specific products, as well as, assisting in funding loan growth. 

 

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During 2021 and 2022, the Company also experienced deposit inflow resulting from businesses and municipalities that received relief from the CARES Act, American Rescue Plan Act ("ARPA") and other government stimulus. As of March 31, 2025, the Company has approximately $8.0 million, down from $13.5 million at the end of 2024, in remaining ARPA balances. The Company expects that the funds will be depleted by year end 2026.

 

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers and in connection with the overall interest rate management strategy. These instruments involve, to a varying degree, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments.

 

Lending commitments include commitments to originate loans and commitments to fund unused lines of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Unfunded commitments of existing loan facilities totaled $456.2 million, standby letters of credit totaled $29.8 million and the level of uninsured and non-collateralized deposits was $624.3 million at March 31, 2025. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

 

As of March 31, 2025, the Company maintained $211.2 million in cash and cash equivalents and $316.8 million of investments AFS and loans HFS. Also, as of March 31, 2025, the Company had approximately $752.5 million available borrowing capacity from the FHLB, $20.0 million from correspondent banks, $152.3 million from the FRB, and $363.0 million from the IntraFi Network One-Way Buy program. The combined total of $1.8 billion represented 67% of total assets at March 31, 2025. Management believes this level of liquidity to be strong and adequate to support current operations.

 
Capital

 

During the three months ended March 31, 2025, total shareholders' equity increased $7.7 million, or 4%, due principally to $3.7 million higher retained earnings from net income of $6.0 million plus a $3.6 million, after tax, improvement in accumulated other comprehensive income from lower net unrealized losses recorded on available-for-sale securities. Capital was further enhanced by $0.2 million from investments in the Company’s common stock via the Employee Stock Purchase Plan (ESPP) and $0.3 million from stock-based compensation expense from the ESPP and restricted stock. Partially offsetting these increases, there were $2.3 million of cash dividends declared on the Company’s common stock. The Company’s dividend payout ratio, defined as the rate at which current earnings are paid to shareholders, was 38.79% for the three months ended March 31, 2025. The balance of earnings is retained to further strengthen the Company’s capital position.

 

As of March 31, 2025, the Company reported a net unrealized loss position of $52.0 million, net of tax, from the securities portfolio compared to a net unrealized loss of $55.6 million as of December 31, 2024. The $3.6 million improvement to accumulated other comprehensive loss during the three months ended March 31, 2025 was primarily from the $3.9 million increase in net unrealized gains on AFS securities. Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and market conditions, and not in the creditworthiness of the issuers.

 

Generally, when U.S. Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline. Although the yield curve has been volatile over the past year, a declining rate environment began in 2024 and has continued into fiscal year 2025. During the period of declining rates, the Company expects pricing in the bond portfolio to improve. There is no assurance that future realized and unrealized losses will not be recognized from the Company’s portfolio of investment securities.

 

The tangible common equity (TCE) ratio (non-GAAP) was 7.11% and 6.98% for the three months ended March 31, 2025 and 2024, respectively. At March 31, 2025 and 2024, the held-to-maturity securities portfolio had $23.9 million and $24.2 million in unrealized losses, net of deferred taxes. If the TCE ratio was adjusted to include the unrealized losses on held-to-maturity securities, the adjusted TCE ratio (non-GAAP) would have been 6.22% and 5.99% (1) at March 31, 2025 and 2024, respectively.

 
To help maintain a healthy capital position, the Company can issue stock to participants in the DRP and ESPP plans. The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. During the first three months of 2025, the Company re-issued treasury shares to fulfill the needs of the DRP. Both the DRP and the ESPP plans have been a consistent source of capital from the Company’s loyal employees and shareholders and their participation in these plans will continue to help strengthen the Company’s balance sheet.

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Since the Company (on a consolidated basis) is currently considered a small bank holding company, it is not subject to regulatory capital requirements.

 

Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%. A capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements of 2.50%. As of  March 31, 2025 and December 31, 2024, the Bank exceeded all capital adequacy requirements to which it was subject.
 
(1) See non-GAAP financial measures reconciliation on page 36.

 

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The following table depicts the actual and required capital and related capital ratios of the Company, on a consolidated basis, and the Bank as of  March 31, 2025 and December 31, 2024. No amounts were deducted from capital for interest-rate risk in either 2025 or 2024.
 
                                       

For capital adequacy

  

To be well capitalized

  
                 

For capital

      

purposes with capital

  

under prompt corrective

  
   

Actual

  

adequacy purposes

      

conservation buffer

  

action provisions

  

(dollars in thousands)

  

Amount

    

Ratio

  

Amount

    

Ratio

      

Amount

    

Ratio

  

Amount

    

Ratio

  

As of March 31, 2025

                                                                      
                                                                       

Total capital (to risk-weighted assets)

                                                                      

Consolidated

   $ 264,281       14.7 %

≥

   $ 143,421       8.0 %

≥

   $ 188,240       10.5 %       N/A       N/A  

Bank

   $ 262,906       14.7 %

≥

   $ 143,414       8.0 %

≥

   $ 188,231       10.5 %

≥

   $ 179,268       10.0 %
                                                                       

Tier 1 common equity (to risk-weighted assets)

                                                                      

Consolidated

   $ 243,265       13.6 %

≥

   $ 80,674       4.5 %

≥

   $ 125,493       7.0 %       N/A       N/A  

Bank

   $ 241,890       13.5 %

≥

   $ 80,671       4.5 %

≥

   $ 125,487       7.0 %

≥

   $ 116,524       6.5 %
                                                                       

Tier I capital (to risk-weighted assets)

                                                                      

Consolidated

   $ 243,265       13.6 %

≥

   $ 107,565       6.0 %

≥

   $ 152,384       8.5 %       N/A       N/A  

Bank

   $ 241,890       13.5 %

≥

   $ 107,561       6.0 %

≥

   $ 152,378       8.5 %

≥

   $ 143,414       8.0 %
                                                                       

Tier I capital (to average assets)

                                                                      

Consolidated

   $ 243,265       9.2 %

≥

   $ 105,558       4.0 %

≥

   $ 105,558       4.0 %       N/A       N/A  

Bank

   $ 241,890       9.2 %

≥

   $ 105,558       4.0 %

≥

   $ 105,558       4.0 %

≥

   $ 131,948       5.0 %

 

                                       

For capital adequacy

  

To be well capitalized

  
                 

For capital

      

purposes with capital

  

under prompt corrective

  
   

Actual

  

adequacy purposes

      

conservation buffer

  

action provisions

  

(dollars in thousands)

  

Amount

    

Ratio

  

Amount

    

Ratio

      

Amount

    

Ratio

  

Amount

    

Ratio

  

As of December 31, 2024

                                                                      
                                                                       

Total capital (to risk-weighted assets)

                                                                      

Consolidated

   $ 259,790       14.8 %

≥

   $ 140,617       8.0 %

≥

   $ 184,560       10.5 %       N/A       N/A  

Bank

   $ 258,437       14.7 %

≥

   $ 140,596       8.0 %

≥

   $ 184,532       10.5 %

≥

   $ 175,745       10.0 %
                                                                       

Tier 1 common equity (to risk-weighted assets)

                                                                      

Consolidated

   $ 239,039       13.6 %

≥

   $ 79,097       4.5 %

≥

   $ 123,040       7.0 %       N/A       N/A  

Bank

   $ 237,687       13.5 %

≥

   $ 79,085       4.5 %

≥

   $ 123,022       7.0 %

≥

   $ 114,234       6.5 %
                                                                       

Tier I capital (to risk-weighted assets)

                                                                      

Consolidated

   $ 239,039       13.6 %

≥

   $ 105,463       6.0 %

≥

   $ 149,406       8.5 %       N/A       N/A  

Bank

   $ 237,687       13.5 %

≥

   $ 105,447       6.0 %

≥

   $ 149,384       8.5 %

≥

   $ 140,596       8.0 %
                                                                       

Tier I capital (to average assets)

                                                                      

Consolidated

   $ 239,039       9.2 %

≥

   $ 103,664       4.0 %

≥

   $ 103,664       4.0 %       N/A       N/A  

Bank

   $ 237,687       9.2 %

≥

   $ 103,653       4.0 %

≥

   $ 103,653       4.0 %

≥

   $ 129,567       5.0 %

 

The Company advises readers to refer to the Supervision and Regulation section of Management’s Discussion and Analysis of Financial Condition and Results of Operation, of its 2024 Form 10-K for a discussion on the regulatory environment and recent legislation and rulemaking.
 
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Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

Management of interest rate risk and market risk analysis.

 

The adequacy and effectiveness of an institution’s interest rate risk management process and the level of its exposures are critical factors in the regulatory evaluation of an institution’s sensitivity to changes in interest rates and capital adequacy. Management believes the Company’s interest rate risk measurement framework is sound and provides an effective means to measure, monitor, analyze, identify and control interest rate risk in the balance sheet.

 

The Company is subject to the interest rate risks inherent in its lending, investing and financing activities. Fluctuations of interest rates will impact interest income and interest expense along with affecting market values of all interest-earning assets and interest-bearing liabilities, except for those assets or liabilities with a short-term remaining to maturity. Interest rate risk management is an integral part of the asset/liability management process. The Company has instituted certain procedures and policy guidelines to manage the interest rate risk position. Those internal policies enable the Company to react to changes in market rates to protect net interest income from significant fluctuations. The primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income along with creating an asset/liability structure that maximizes earnings.

 

Asset/Liability Management. One major objective of the Company when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Company’s Asset/Liability Committee (ALCO), which is comprised of senior management and members of the board of directors. ALCO meets quarterly to monitor the relationship of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of managing the Company. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of non-contractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates.

 

Interest Rate Risk Measurement. Interest rate risk is monitored through the use of three complementary measures: static gap analysis, earnings at risk simulation and economic value at risk simulation. While each of the interest rate risk measurements has limitations, collectively, they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company and the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to changes in certain interest rate relationships.

 

Static Gap. The ratio between assets and liabilities re-pricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.

 

To manage this interest rate sensitivity gap position, an asset/liability model commonly known as cumulative gap analysis is used to monitor the difference in the volume of the Company’s interest sensitive assets and liabilities that mature or re-price within given time intervals. A positive gap (asset sensitive) indicates that more assets will re-price during a given period compared to liabilities, while a negative gap (liability sensitive) indicates the opposite effect. The Company employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO in gauging the effects of interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread. At March 31, 2025, the Company maintained a one-year cumulative gap of positive (asset sensitive) $46.7 million, or 1.7%, of total assets. The effect of this positive gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of falling interest rates. Conversely, in an increasing interest rate environment, net interest income could be positively impacted because more assets than liabilities will re-price upward during the one-year period.

 

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Certain shortcomings are inherent in the method of analysis discussed above and presented in the next table. Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the table amounts. The ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.

 

The following table reflects the re-pricing of the balance sheet or “gap” position at March 31, 2025:

 

           

More than three

    

More than

                  
   

Three months

    

months to

    

one year

    

More than

          

(dollars in thousands)

  

or less

    

twelve months

    

to three years

    

three years

    

Total

  
                                         

Cash and cash equivalents

   $ 177,289     $ -     $ -     $ 33,906     $ 211,195  

Investment securities (1)(2)

     6,532       22,039       70,078       446,332       544,981  

Loans and leases (2)

     508,271       212,431       451,578       625,212       1,797,492  

Fixed and other assets

     -       -       -       157,642       157,642  

Total assets

   $ 692,092     $ 234,470     $ 521,656     $ 1,263,092     $ 2,711,310  

Total cumulative assets

   $ 692,092     $ 926,562     $ 1,448,218     $ 2,711,310          
                                         

Non-interest-bearing transaction deposits (3)

   $ 11,318     $ 33,954     $ 90,544     $ 419,868     $ 555,684  

Interest-bearing transaction deposits (3)

     546,482       59,319       156,410       792,715       1,554,926  

Certificates of deposit

     81,478       247,219       14,573       3,579       346,849  

Secured borrowings

     41       -       -       6,149       6,190  

Short-term borrowings

     10       -       -       -       10  

Other liabilities

     -       -       -       35,977       35,977  

Total liabilities

   $ 639,329     $ 340,492     $ 261,527     $ 1,258,288     $ 2,499,636  

Total cumulative liabilities

   $ 639,329     $ 979,821     $ 1,241,348     $ 2,499,636          
                                         

Interest sensitivity gap

   $ 52,763     $ (106,022 )   $ 260,129     $ 4,804          

Cumulative gap

   $ 52,763     $ (53,259 )   $ 206,870     $ 211,674          
                                         

Off-balance sheet:

                                        

Swap - portfolio hedge

   $ 100,000     $ -     $ (100,000 )   $ -          

Cumulative gap

   $ 152,763     $ 46,741     $ 206,870     $ 211,674          
                                         

Cumulative gap to total assets

     5.6 %     1.7 %     7.6 %     7.8 %        

(1)

Includes restricted investments in bank stock and the net unrealized gains/losses on available-for-sale securities.

(2)

Investments and loans are included in the earlier of the period in which interest rates were next scheduled to adjust or the period in which they are due. In addition, loans were included in the periods in which they are scheduled to be repaid based on scheduled amortization. For amortizing loans and MBS – GSE residential, annual prepayment rates are assumed reflecting historical experience as well as management’s knowledge and experience of its loan products.

(3)

The Company’s demand and savings accounts were generally subject to immediate withdrawal. However, management considers a certain amount of such accounts to be core accounts having significantly longer effective maturities based on the retention experiences of such deposits in changing interest rate environments. The effective maturities presented are the recommended maturity distribution limits for non-maturing deposits based on historical deposit studies.

 

Earnings at Risk and Economic Value at Risk Simulations. The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet that extend beyond static re-pricing gap analysis. Although it will continue to measure its re-pricing gap position, the Company utilizes additional modeling for identifying and measuring the interest rate risk in the overall balance sheet. The ALCO is responsible for focusing on “earnings at risk” and “economic value at risk”, and how both relate to the risk-based capital position when analyzing the interest rate risk.

 

Earnings at Risk. An earnings at risk simulation measures the change in net interest income and net income should interest rates rise and fall. The simulation recognizes that not all assets and liabilities re-price one-for-one with market rates (e.g., savings rate). The ALCO looks at “earnings at risk” to determine income changes from a base case scenario under an increase and decrease of 200 basis points in interest rate simulation models.

 

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Economic Value at Risk. An earnings at risk simulation measures the short-term risk in the balance sheet. Economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from the Company’s existing assets and liabilities. The ALCO examines this ratio quarterly utilizing an increase and decrease of 200 basis points in interest rate simulation models. The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.

 

The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity). This analysis assumed that the adjusted interest-earning asset and interest-bearing liability levels at March 31, 2025 remained constant. The impact of the rate movements was developed by simulating the effect of the rate change over a twelve-month period from the March 31, 2025 levels:

 

   

% change

  
   

Rates +200

    

Rates -200

  

Earnings at risk:

                

Net interest income

     2.4 %     (8.3 )%

Net income

     5.9       (19.3 )

Economic value at risk:

                

Economic value of equity

     (0.1 )     (7.1 )

Economic value of equity as a percent of total assets

     (0.1 )     (0.9 )

 

In the scenarios in the above table, the Board-approved policy has the following guidelines: net interest income within +/- 10%, net income within +/- 25%, economic value of equity within +/- 25%, economic value of equity as a percent of total assets within +/-5%.

 

Economic value has the most meaning when viewed within the context of risk-based capital. Therefore, the economic value may normally change beyond the Company’s policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%. At March 31, 2025, the Company’s risk-based capital ratio was 14.74%.

 

Given the existing economic and interest rate conditions along with the recent increase in earnings at risk exposure to rising rates, management is evaluating to pursue balance sheet hedging opportunities on both sides of balance sheet with an independent third-party vendor with derivative expertise in response to mitigate these interest rate risks on net interest income. The Company has a derivative policy in place and any balance sheet hedges require Board pre-approval along with quarterly monitoring requirements by the Company's ALCO Committee.

 

The table below summarizes estimated changes in net interest income over a twelve-month period beginning April 1, 2025, under alternate interest rate scenarios using the income simulation model described above:

 

   

Net interest

    

$

    

%

  

(dollars in thousands)

  

income

    

variance

    

variance

  

Simulated change in interest rates

                        

+300 basis points

   $ 78,073     $ 1,668       2.2 %

+200 basis points

     78,267       1,862       2.4 %

+100 basis points

     78,330       1,925       2.5 %

Flat rate

     76,405       -       - %

-100 basis points

     72,803       (3,602 )     (4.7 )%

-200 basis points

     70,090       (6,315 )     (8.3 )%

-300 basis points

     68,326       (8,079 )     (10.6 )%

 

Simulation models require assumptions about certain categories of assets and liabilities. The models schedule existing assets and liabilities by their contractual maturity, estimated likely call date or earliest re-pricing opportunity. MBS – GSE residential securities and amortizing loans are scheduled based on their anticipated cash flow including estimated prepayments. For investment securities, the Company uses a third-party service to provide cash flow estimates in the various rate environments. Savings, money market and interest-bearing checking accounts do not have stated maturities or re-pricing terms and can be withdrawn or re-price at any time. This may impact the margin if more expensive alternative sources of deposits are required to fund loans or deposit runoff. Management projects the re-pricing characteristics of these accounts based on historical performance and assumptions that it believes reflect their rate sensitivity. The model reinvests all maturities, repayments and prepayments for each type of asset or liability into the same product for a new like term at current product interest rates. As a result, the mix of interest-earning assets and interest bearing-liabilities is held constant.

 

 

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Item 4. Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and are effective. The Company made no changes in its internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, these controls during the last fiscal quarter ended March 31, 2025.

 

PART II - Other Information

 

Item 1. Legal Proceedings

 

The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of the Company after consultation with legal counsel, no legal proceedings are pending, which, if determined adversely to the Company or the Bank, would have a material adverse effect on the Company’s retained earnings or financial condition, operations or the results of such operations. No legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal or regulatory actions against the Company or the Bank.

 

Item 1A. Risk Factors

 

Management of the Company does not believe there have been any material changes to the risk factors that were disclosed in the 2024 Form 10-K filed with the Securities and Exchange Commission on March 13, 2025, except as discussed below.

 

Changes to trade policies and tariffs can have an adverse impact on our business and our customers.

 

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers, particularly local businesses engaged in agriculture, manufacturing, and retail, may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers' ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Default Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

 

Item 5. Other Information

 

During the three months ended March 31, 2025, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K.

 

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Table of Contents
 
 

Item 6. Exhibits

 

The following exhibits are filed herewith or incorporated by reference as a part of this Form 10-Q:

 

3(i) Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Annex B of the Proxy Statement/Prospectus included in Registrant’s Amendment 4 to its Registration Statement No. 333-90273 on Form S-4, filed with the SEC on April 6, 2000.

 

3(ii) Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the SEC on April 16, 2020.

 

2.1 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank, MNB Corporation and Merchants Bank of Bangor dated as of December 9, 2019. Incorporated by reference to Annex A of the Registrant’s Registration Statement No. 333-236453 on Form S-4, filed with the Commission on February 14, 2020. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)

 

2.2 Agreement and Plan of Reorganization by and among Fidelity D & D Bancorp, Inc., NEPA Acquisition Subsidiary, LLC, The Fidelity Deposit and Discount Bank, Landmark Bancorp, Inc. and Landmark Community Bank dated as of February 25, 2021. Incorporated by reference to Annex A of the Registrant’s Registration No. 333-255479 on Form S-4, filed with the Commission on April 23, 2021. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)

 

*10.1 Registrant’s 2012 Dividend Reinvestment and Stock Repurchase Plan. Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement No. 333-183216 on Form S-3 filed with the SEC on August 10, 2012 as amended February 3, 2014.

 

*10.2 Registrant’s 2002 Employee Stock Purchase Plan. Incorporated by reference to Appendix A to Definitive proxy Statement filed with the SEC on March 28, 2002.

 

*10.3 Amended and Restated Executive Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Daniel J. Santaniello, dated March 23, 2011. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.

 

*10.4 2012 Omnibus Stock Incentive Plan. Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.

 

*10.5 2012 Director Stock Incentive Plan. Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.

 

*10.6 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Salvatore R. DeFrancesco, Jr. dated as of March 17, 2016. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2016.

 

*10.7 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Eugene J. Walsh dated as of March 29, 2017. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.

 

*10.8 Form of Supplemental Executive Retirement Plan – Applicable to Daniel J. Santaniello and Salvatore R. DeFrancesco, Jr. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.

 

*10.9 Form of Supplemental Executive Retirement Plan – Applicable to Eugene J. Walsh. Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.

 

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*10.10 Form of Split Dollar Life Insurance Agreement – Applicable to Daniel J. Santaniello, Salvatore R. DeFrancesco, Jr. and Eugene J. Walsh. Incorporated by reference to Exhibit 99.3 to Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2017.

 

*10.11 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Michael J. Pacyna dated as of March 20, 2019. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 21, 2019.

 

*10.12 Form of Supplemental Executive Retirement Plan for Michael J. Pacyna. Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on March 21, 2019.

 

*10.13 Form of Split Dollar Life Insurance Agreement for Michael J. Pacyna. Incorporated by reference to Exhibit 99.3 to Registrant’s Current Report on Form 8-K filed with the SEC on March 21, 2019.

 

*10.14 2022 Omnibus Stock Incentive Plan. Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 23, 2022.

 

*10.15 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Ruth Turkington dated as of April 20, 2023. Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K filed with the SEC on March 20, 2024.

 

*10.16 Form of Supplemental Executive Retirement Plan for Ruth Turkington. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2024.

 

*10.17 Form of Split Dollar Life Insurance Agreement for Ruth Turkington. Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2024.

 

31.1 Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.

 

31.2 Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.

 

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

101 Interactive data files: The following, from Fidelity D&D Bancorp, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, is formatted in Inline XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024; Consolidated Statements of Income for the three months ended March 31, 2025 and 2024; Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025 and 2024; Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2025 and 2024; Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024  and the Notes to the Consolidated Financial Statements. **

 

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

________________________________________________

* Management contract or compensatory plan or arrangement.

 

** Pursuant to Rule 406T of Regulation S-T, the interactive data files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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Signatures

 

 

FIDELITY D & D BANCORP, INC.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Fidelity D & D Bancorp, Inc.
   

Date: May 9, 2025

/s/ Daniel J. Santaniello
 

     Daniel J. Santaniello,

     President and Chief Executive Officer
   
 

Fidelity D & D Bancorp, Inc.
   

Date: May 9, 2025

/s/ Salvatore R. DeFrancesco, Jr.
 

     Salvatore R. DeFrancesco, Jr.,

     Treasurer and Chief Financial Officer

 

 

60
EX-31.1 2 ex_772424.htm EXHIBIT 31.1 ex_772424.htm

Exhibit 31.1



CERTIFICATION



I, Daniel J. Santaniello, certify that:



1. I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and



(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal control over financial reporting.







Date:  May 9, 2025

  



/s/ Daniel J. Santaniello

  



 Daniel J. Santaniello,



 President and Chief Executive Officer



 
EX-31.2 3 ex_772425.htm EXHIBIT 31.2 ex_772425.htm

Exhibit 31.2



CERTIFICATION





I, Salvatore R. DeFrancesco, Jr., certify that:



1. I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and



(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal control over financial reporting.





 

Date:  May 9, 2025

/s/ Salvatore R. DeFrancesco, Jr.

  



 Salvatore R. DeFrancesco, Jr.,



 Treasurer and Chief Financial Officer



 

 
EX-32.1 4 ex_772426.htm EXHIBIT 32.1 ex_772426.htm

Exhibit 32.1



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the “Company”) for the period ended March 31, 2025, as filed with the Securities and Exchange Commission (the “Report”), I, Daniel J. Santaniello, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:

 

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



 

2.

To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.





Date:  May 9, 2025

 By:

/s/ Daniel J. Santaniello

  



  

 Daniel J. Santaniello



  

 President and Chief Executive Officer



 

 
EX-32.2 5 ex_772427.htm EXHIBIT 32.2 ex_772427.htm

Exhibit 32.2





CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the “Company”) for the period ended March 31, 2025, as filed with the Securities and Exchange Commission (the “Report”), I, Salvatore R. DeFrancesco, Jr., Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:



 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



 

2.

To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.



 

Date:   May 9, 2025

 By:

/s/ Salvatore R. DeFrancesco, Jr.

  



  

 Salvatore R. DeFrancesco, Jr.,



  

 Treasurer and Chief Financial Officer