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LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2025

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

6. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at September 30, 2025 and December 31, 2024 are summarized as follows:

Summary of Loans by Type

(In Thousands)


	September 30,		December 31,
	2025		2024
Commercial real estate - non-owner occupied	$	765,366	$	739,565
Commercial real estate - owner occupied		260,365		261,071
All other commercial loans		449,175		423,277
Residential mortgage loans		396,810		408,009
Consumer loans		73,391		63,926
Total		1,945,107		1,895,848
Less: allowance for credit losses on loans		(23,474)		(20,035)
Loans, net	$	1,921,633	$	1,875,813

In the table above, outstanding loan balances are presented net of deferred loan origination fees of $4,021,000 at September 30, 2025 and $4,136,000 at December 31, 2024.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in Northcentral Pennsylvania, the Southern tier of New York State, Southeastern Pennsylvania and Southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

The following tables present an analysis of past due loans as of September 30, 2025 and December 31, 2024:


(In Thousands)	As of September 30, 2025
	Past Due		Past Due
	30-89		90+ Days		Nonaccrual		Current		Total
	Days		Still Accruing		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	31	$	0	$	6,845	$	758,490	$	765,366
Commercial real estate - owner occupied		717		0		4,791		254,857		260,365
All other commercial loans		272		995		9,801		438,107		449,175
Residential mortgage loans		1,278		0		4,055		391,477		396,810
Consumer loans		211		30		270		72,880		73,391
Total	$	2,509	$	1,025	$	25,762	$	1,915,811	$	1,945,107


(In Thousands)	As of December 31, 2024
	Past Due		Past Due
	30-89		90+ Days		Nonaccrual		Current		Total
	Days		Still Accruing		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	266	$	0	$	7,370	$	731,929	$	739,565
Commercial real estate - owner occupied		0		62		1,725		259,284		261,071
All other commercial loans		296		0		10,006		412,975		423,277
Residential mortgage loans		4,934		0		4,310		398,765		408,009
Consumer loans		162		57		431		63,276		63,926
Total	$	5,658	$	119	$	23,842	$	1,866,229	$	1,895,848

The Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” rows in the table that follows.

The following table presents the amortized cost of loans by credit quality indicators by year of origination as of September 30, 2025:


(In Thousands)	Term Loans by Year of Origination
	2025		2024		2023		2022		2021		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	53,250	$	65,536	$	107,900	$	149,368	$	76,627	$	268,253	$	0	$	720,934
Special Mention		78		31		582		15,998		804		4,738		0		22,231
Substandard		0		106		840		9,782		0		11,473		0		22,201
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	53,328	$	65,673	$	109,322	$	175,148	$	77,431	$	284,464	$	0	$	765,366
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	9	$	0	$	9
Commercial real estate - owner occupied
Pass	$	19,593	$	24,980	$	31,686	$	49,970	$	46,419	$	71,348	$	0	$	243,996
Special Mention		0		360		378		829		814		5,563		0		7,944
Substandard		0		0		0		0		2,217		6,208		0		8,425
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	19,593	$	25,340	$	32,064	$	50,799	$	49,450	$	83,119	$	0	$	260,365
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	65,748	$	42,675	$	66,799	$	37,466	$	35,968	$	43,265	$	123,303	$	415,224
Special Mention		19		501		36		80		28		2,509		8,359		11,532
Substandard		0		10,749		0		3,610		4,892		1,119		2,049		22,419
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	65,767	$	53,925	$	66,835	$	41,156	$	40,888	$	46,893	$	133,711	$	449,175
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	333	$	0	$	253	$	586
Residential mortgage loans
Pass	$	26,375	$	39,628	$	43,545	$	73,911	$	46,258	$	162,643	$	0	$	392,360
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		407		333		129		3,581		0		4,450
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	26,375	$	39,628	$	43,952	$	74,244	$	46,387	$	166,224	$	0	$	396,810
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	5	$	0	$	5
Consumer loans
Pass	$	2,331	$	2,340	$	2,031	$	1,978	$	557	$	733	$	62,870	$	72,840
Special Mention		0		0		0		5		0		0		0		5
Substandard		2		4		2		0		0		65		473		546
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	2,333	$	2,344	$	2,033	$	1,983	$	557	$	798	$	63,343	$	73,391
Year-to-date gross charge-offs	$	0	$	0	$	33	$	40	$	0	$	0	$	148	$	221
Total Loans
Pass	$	167,297	$	175,159	$	251,961	$	312,693	$	205,829	$	546,242	$	186,173	$	1,845,354
Special Mention		97		892		996		16,912		1,646		12,810		8,359		41,712
Substandard		2		10,859		1,249		13,725		7,238		22,446		2,522		58,041
Doubtful		0		0		0		0		0		0		0		0
Total	$	167,396	$	186,910	$	254,206	$	343,330	$	214,713	$	581,498	$	197,054	$	1,945,107
Year-to-date gross charge-offs	$	0	$	0	$	33	$	40	$	333	$	14	$	401	$	821

The following table presents the amortized cost of loans by credit quality indicators by year of origination as of December 31, 2024:


	Term Loans by Year of Origination
(In Thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	59,708	$	99,900	$	161,497	$	78,884	$	51,851	$	243,578	$	0	$	695,418
Special Mention		0		0		16,233		1,371		0		8,188		0		25,792
Substandard		116		0		9,928		0		0		8,311		0		18,355
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	59,824	$	99,900	$	187,658	$	80,255	$	51,851	$	260,077	$	0	$	739,565
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	757	$	0	$	757
Commercial real estate - owner occupied
Pass	$	25,552	$	33,533	$	52,207	$	49,410	$	11,444	$	76,558	$	0	$	248,704
Special Mention		0		0		0		0		0		961		0		961
Substandard		0		5,125		729		2,367		0		3,185		0		11,406
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	25,552	$	38,658	$	52,936	$	51,777	$	11,444	$	80,704	$	0	$	261,071
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	73,812	$	74,301	$	44,245	$	44,367	$	23,084	$	30,656	$	109,121	$	399,586
Special Mention		533		0		2,306		2		0		0		2,147		4,988
Substandard		44		0		3,478		5,229		109		1,078		8,765		18,703
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	74,389	$	74,301	$	50,029	$	49,598	$	23,193	$	31,734	$	120,033	$	423,277
Year-to-date gross charge-offs	$	0	$	0	$	427	$	60	$	21	$	122	$	0	$	630
Residential mortgage loans
Pass	$	41,450	$	48,937	$	80,789	$	50,108	$	35,601	$	146,231	$	0	$	403,116
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		380		0		85		82		4,346		0		4,893
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	41,450	$	49,317	$	80,789	$	50,193	$	35,683	$	150,577	$	0	$	408,009
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Consumer loans
Pass	$	3,859	$	3,441	$	2,848	$	1,013	$	599	$	679	$	50,860	$	63,299
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		8		4		0		0		71		544		627
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	3,859	$	3,449	$	2,852	$	1,013	$	599	$	750	$	51,404	$	63,926
Year-to-date gross charge-offs	$	0	$	69	$	130	$	7	$	8	$	1	$	114	$	329
Total Loans
Pass	$	204,381	$	260,112	$	341,586	$	223,782	$	122,579	$	497,702	$	159,981	$	1,810,123
Special Mention		533		0		18,539		1,373		0		9,149		2,147		31,741
Substandard		160		5,513		14,139		7,681		191		16,991		9,309		53,984
Doubtful		0		0		0		0		0		0		0		0
Total	$	205,074	$	265,625	$	374,264	$	232,836	$	122,770	$	523,842	$	171,437	$	1,895,848
Year-to-date gross charge-offs	$	0	$	69	$	557	$	67	$	29	$	880	$	114	$	1,716

The following tables are a summary of the Corporation’s nonaccrual loans by major categories for the periods indicated.


	September 30, 2025
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans
Commercial real estate - non-owner occupied	$	6,582	$	263	$	6,845
Commercial real estate - owner occupied		4,791		0		4,791
All other commercial loans		9,801		0		9,801
Residential mortgage loans		4,055		0		4,055
Consumer loans		270		0		270
Total	$	25,499	$	263	$	25,762


	December 31, 2024
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans
Commercial real estate - non-owner occupied	$	7,370	$	0	$	7,370
Commercial real estate - owner occupied		1,467		258		1,725
All other commercial loans		10,006		0		10,006
Residential mortgage loans		4,310		0		4,310
Consumer loans		431		0		431
Total	$	23,584	$	258	$	23,842

The Corporation recognized interest income on nonaccrual loans of $203,000 and $660,000 in the three and nine months ended September 30, 2025, respectively and $234,000 and $750,000 in the three and nine months ended September 30, 2024, respectively.

The following table represents the accrued interest receivable written off by reversing interest income during the three-month and nine-month periods ended September 30, 2025 and 2024:


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
(In Thousands)	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
Commercial real estate - non-owner occupied	$	2	$	0	$	2	$	19
Commercial real estate - owner occupied		0		0		51		10
All other commercial loans		6		79		6		197
Residential mortgage loans		5		6		13		24
Consumer loans		0		4		0		8
Total	$	13	$	89	$	72	$	258

The Corporation has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following discussion provides more detail about the types of collateral that secure collateral dependent loans:

●

Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

●

All other commercial loans include loans typically secured by business assets, including inventory, equipment and receivables. This category also included commercial construction and land loans and some commercial lines of credit that are secured by real estate.

●

Residential mortgage loans are typically secured by first mortgages, and, in some cases, could be secured by a second mortgage.

●

Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table details the amortized cost of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:


	September 30, 2025				December 31, 2024
	Amortized				Amortized
(In Thousands)	Cost		Allowance		Cost		Allowance
Commercial real estate - non-owner occupied	$	6,845	$	51	$	7,370	$	0
Commercial real estate - owner occupied		4,791		0		6,749		122
All other commercial loans		9,801		0		16,006		0
Total	$	21,437	$	51	$	30,125	$	122

Allowance for Credit Losses

The allowance for credit losses (“ACL”) on loans represents management’s estimate of lifetime credit losses inherent in loans as of the consolidated balance sheet date. The ACL on loans includes two primary components: (i) an allowance established on loans which share similar risk characteristics which are collectively evaluated for credit losses, and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses.

Management determines the ACL on loans that are collectively evaluated by considering the following: (a) the weighted-average remaining maturity (WARM) method is used to estimate credit losses, based on the Corporation’s historical loss experience, for pools of loans with similar risk and cash flow characteristics; (b) subjective adjustments are made, generally increasing the ACL, for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience; and (c) an additional adjustment to expected credit losses is made, based on an economic forecast, and applied for the first 2 years of the weighted-average remaining life of the portfolio.

The following table summarizes the activity related to the allowance for credit losses for the three and nine months ended September 30, 2025 and 2024.


	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, June 30, 2025	$	13,093	$	3,055	$	3,891	$	1,314	$	346	$	21,699
Charge-offs		0		0		(45)		0		(77)		(122)
Recoveries		0		0		0		1		27		28
Provision for credit losses on loans		730		176		530		394		39		1,869
Balance, September 30, 2025	$	13,823	$	3,231	$	4,376	$	1,709	$	335	$	23,474


	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, December 31, 2024	$	11,964	$	2,844	$	3,361	$	1,356	$	510	$	20,035
Charge-offs		(9)		0		(586)		(5)		(221)		(821)
Recoveries		0		0		2		3		83		88
Provision (credit) for credit losses on loans		1,868		387		1,599		355		(37)		4,172
Balance, September 30, 2025	$	13,823	$	3,231	$	4,376	$	1,709	$	335	$	23,474


	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, June 30, 2024	$	12,177	$	2,901	$	3,678	$	1,112	$	514	$	20,382
Charge-offs		(640)		0		(570)		0		(58)		(1,268)
Recoveries		0		0		5		1		25		31
Provision (credit) for credit losses on loans		381		(28)		311		647		(14)		1,297
Balance, September 30, 2024	$	11,918	$	2,873	$	3,424	$	1,760	$	467	$	20,442


	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, December 31, 2023	$	12,010	$	2,116	$	2,918	$	1,764	$	400	$	19,208
Charge-offs		(757)		0		(630)		0		(297)		(1,684)
Recoveries		0		0		40		4		51		95
Provision (credit) for credit losses on loans		665		757		1,096		(8)		313		2,823
Balance, September 30, 2024	$	11,918	$	2,873	$	3,424	$	1,760	$	467	$	20,442

The ACL on loans individually evaluated decreased to $51,000 at September 30, 2025 from $122,000 at December 31, 2024. At September 30, 2025, there was a loan to one borrower with a amortized cost basis of $263,000 for which an individual ACL was recorded. At December 31, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which an individual ACL was recorded.

The ACL on loans collectively evaluated was $23,423,000 at September 30, 2025, up from $19,913,000 at December 31, 2024. The increase in the collectively evaluated portion of the ACL at September 30, 2025 as compared to December 31, 2024 included a net increase related to changes in qualitative adjustments, partially offset by a decrease in the portion of the ACL based on the WARM method estimated losses resulting partially from a reduction in the estimated average life of the portfolio. The increase in the ACL at September 30, 2025 from December 31, 2024 related to changes in qualitative adjustments included increases in estimates based on: the volume and severity of past due, nonaccrual and criticized or adversely classified loans; regional and local economic conditions; and regional values of residential housing.

Modifications Made to Borrowers Experiencing Financial Difficulty

The Corporation closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. During the three and nine months ended September 30, 2025 and September 30, 2024, the Corporation made no modifications of loans to borrowers experiencing financial difficulty.

The following table presents the performance of such loans that have been modified in the twelve-month period preceding September 30, 2025 and the twelve-month period preceding September 30, 2024 (in thousands):


(In Thousands)	Payment Status (Amortized Cost Basis)
September 30, 2025	Current or Past Due Less than 30 Days		90+ Days Past Due		Total
Commercial real estate - non-owner occupied	$	2,572	$	0	$	2,572
Commercial real estate - owner occupied		217		0		217
Total	$	2,789	$	0	$	2,789


(In Thousands)	Payment Status (Amortized Cost Basis)
September 30, 2024	Current or Past Due Less than 30 Days		90+ Days Past Due		Total
Commercial real estate - non-owner occupied	$	1,846	$	1,357	$	3,203

Included in performance of loans modified in the twelve-month period preceding September 30, 2025 table above, was one loan secured by non-owner occupied commercial real estate with an amortized cost basis of $1,781,000 that was in nonaccrual status at September 30, 2025. The Corporation had extended the maturity of that loan for 12 months in the fourth quarter 2023. In 2024, the borrower continued to experience financial difficulty, and the Corporation provided another six-month extension of the maturity. The Corporation recorded a partial charge-off of $640,000 on this loan in 2024. There was no specific ACL on this loan at September 30, 2025 and December 31, 2024.

The loan that was past due more than 90 days at September 30, 2024 in the table above was in default with its modified terms at September 30, 2024. The Corporation received payments totaling $264,000 in the twelve-month period ended September 30, 2025, all of which were applied to principal. The amortized cost basis of the loan was $1,093,000 at September 30, 2025.

The Corporation had no commitments to lend any additional funds on modified loans during the three and nine months ended September 30, 2025 and 2024, and the Corporation had no loans that defaulted during the three and nine months ended September 30, 2025 and 2024 that had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:


(In Thousands)	September 30,		December 31,
	2025		2024
Foreclosed residential real estate	$	246	$	25

The amortized cost of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:


(In Thousands)	September 30,		December 31,
	2025		2024
Residential real estate in process of foreclosure	$	433	$	717

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The contract amounts of these financial instruments at September 30, 2025 and December 31, 2024 are as follows:


	September 30,		December 31,
(In Thousands)	2025		2024
Commitments to extend credit	$	426,396	$	380,003
Standby letters of credit		58,653		64,586

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted through the provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $1,036,000 at September 30, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the three and nine months ended September 30, 2025 and 2024:


		Three Months Ended				Nine Months Ended
(In Thousands)	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
Beginning Balance	$	742	$	683	$	455	$	690
Provision (credit) for unfunded commitments		294		(90)		581		(97)
Ending Balance, September 30	$	1,036	$	593	$	1,036	$	593