The Bank is limited as to the amount it may lend to the Corporation, unless such loans are collateralized by specific obligations. State regulations also limit the amount of dividends the Bank can pay to the Corporation and are generally limited to the Bank’s accumulated net earnings, which were $177.9 million at December 31, 2025. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly 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 the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Although not adopted in regulation form, the Pennsylvania Department of Banking utilizes capital standards requiring a minimum leverage capital ratio of 6% and a total risk-based capital ratio of 10%, defined substantially the same as those by the FDIC. Management believes, as of December 31, 2025, that the Bank met all capital adequacy requirements to which it is subject.

The Corporation and the Bank are subject to the capital requirements contained in the regulation generally referred to as Basel III. The Basel III standards were effective for the Corporation and the Bank, effective January 1, 2015. Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place. The capital ratios to be considered “well capitalized” under Basel III are: (1) Common Equity Tier 1(CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3) Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%. The CET1 ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. The rules also included changes in the risk weights of certain assets to better reflect credit and other risk exposures. In addition, a capital conservation buffer of 2.50% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum (“adequately capitalized”) for each respective capital measurement. The Bank’s capital conservation buffer at December 31, 2025 was 5.27%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends. As of December 31, 2025, the Bank was “well capitalized’ under the Basel III requirements.

On December 31, 2025, the Corporation had $11.0 million of unsecured subordinated debt notes payable of which $6.0 million mature on September 1, 2030 and $5.0 million mature on September 1, 2035. The notes are recorded on the consolidated balance sheet net of remaining debt issuance costs totaling $155 thousand which is being amortized on a pro-rata basis, based on the maturity date of the notes, on an effective interest method. The subordinated notes totaling $6.0 million have a variable interest rate of 90-day Average Secured Overnight Financing Rate (SOFR) plus 4.93% and will reset quarterly. The subordinated notes totaling $5.0 million have a fixed interest rate of 5.25% through June 29, 2030, then convert to a variable rate of 90-day SOFR plus 4.92% for the applicable interest periods through maturity. The Corporation may, at its option, redeem the notes at par, in whole or in part, at any time 5-years prior to the maturity. The notes are structured to qualify as Tier 2 Capital (subject to regulatory deductions after the last 5 years of the term) for the Corporation and there are no debt covenants on the notes.

In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO). If a bank qualifies as a QCBR and maintains a CBLR of 9% or greater, the bank would be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the Basel III risk-based capital rule. The CBLR rule was effective January 1, 2020 and banks could opt-in through an election in the first quarter 2020 regulatory filings. The Bank meets the criteria of a QCBO but did not opt-in to the CBLR.

The consolidated asset limit on small bank holding companies is $3.0 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios. The Corporation has elected to file those reports.

The following table presents the regulatory capital ratio requirements for the Corporation and the Bank.



	As of December 31, 2025
				Regulatory Ratios
				Adequately Capitalized			Well Capitalized
	Actual			Minimum			Minimum
(Dollars in thousands)		Amount	Ratio	Amount		Ratio	Amount		Ratio
Common Equity Tier 1 ‎Risk-based Capital Ratio (1)
Corporation	$	187,815	11.45%	$	73,802	N/A		N/A	N/A
Bank		197,096	12.02%		73,798	4.50%	$	106,597	6.50%

Tier 1 Risk-based Capital Ratio (2)
Corporation	$	187,815	11.45%	$	98,403	N/A		N/A	N/A
Bank		197,096	12.02%		98,397	6.00%	$	131,196	8.00%

Total Risk-based Capital Ratio (3)
Corporation	$	217,639	13.27%	$	131,204	N/A		N/A	N/A
Bank		217,620	13.27%		131,196	8.00%	$	163,995	10.00%

Tier 1 Leverage Ratio (4)
Corporation	$	187,815	8.17%	$	92,000	N/A		N/A	N/A
Bank		197,096	8.57%		91,994	4.00%	$	114,993	5.00%



	As of December 31, 2024
				Regulatory Ratios
				Adequately Capitalized			Well Capitalized
	Actual			Minimum			Minimum
(Dollars in thousands)		Amount	Ratio	Amount		Ratio	Amount		Ratio
Common Equity Tier 1 ‎Risk-based Capital Ratio (1)
Corporation	$	171,208	11.31%	$	68,095	N/A		N/A	N/A
Bank		179,837	11.71%		69,088	4.50%	$	99,794	6.50%

Tier 1 Risk-based Capital Ratio (2)
Corporation	$	171,208	11.31%	$	90,793	N/A		N/A	N/A
Bank		179,837	11.71%		92,117	6.00%	$	122,823	8.00%

Total Risk-based Capital Ratio (3)
Corporation	$	209,603	13.85%	$	121,057	N/A		N/A	N/A
Bank		199,033	12.96%		122,823	8.00%	$	153,529	10.00%

Tier 1 Leverage Ratio (4)
Corporation	$	171,208	7.92%	$	86,449	N/A		N/A	N/A
Bank		179,837	8.20%		87,715	4.00%	$	109,644	5.00%