ISABELLA BANK CORP 10-Q

Item 1. Financial Statements. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) September 30 2024 December 31 2023 ASSETS Cash and demand deposits due from banks $ 27,019 $ 25,628 Fed Funds sold and interest bearing balances due from banks 359 8,044 Total cash and cash equivalents 27,378 33,672 AFS securities, at fair value 506,806 528,148 FHLB stock 12,762 12,762 Mortgage loans HFS 504 — Loans 1,424,283 1,349,463 Less allowance for credit losses 12,635 13,108 Net loans 1,411,648 1,336,355 Premises and equipment 27,674 27,639 BOLI policies 34,625 33,892 Goodwill and other intangible assets 48,283 48,284 Other assets 37,221 38,216 Total assets $ 2,106,901 $ 2,058,968 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Demand deposits $ 421,493 $ 428,505 Interest bearing demand deposits 376,592 320,737 Savings 600,150 628,079 Certificates of deposit 383,597 346,374 Total deposits 1,781,832 1,723,695 Short-term borrowings 52,434 46,801 FHLB advances 15,000 40,000 Subordinated debt, net of unamortized issuance costs 29,402 29,335 Total borrowed funds 96,836 116,136 Other liabilities 15,248 16,735 Total liabilities 1,893,916 1,856,566 Shareholders’ equity Common stock — no par value 15,000,000 shares authorized: issued and outstanding 7,438,720 shares in 2024 and 7,485,889 shares in 2023 125,218 127,323 Shares to be issued for deferred compensation obligations 3,981 3,693 Retained earnings 101,065 97,282 Accumulated other comprehensive income (loss) ( 17,279 ) ( 25,896 ) Total shareholders’ equity 212,985 202,402 Total liabilities and shareholders' equity $ 2,106,901 $ 2,058,968 See notes to interim condensed consolidated financial statements (unaudited). 4 Table of Contents INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands except per share amounts) Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 Interest income Loans $ 20,230 $ 17,270 $ 57,150 $ 48,090 AFS securities 2,749 2,963 8,437 9,230 FHLB stock 168 91 472 226 Federal funds sold and other 194 161 750 1,029 Total interest income 23,341 20,485 66,809 58,575 Interest expense Deposits 7,631 5,015 22,107 11,953 Short-term borrowings 384 284 1,026 604 FHLB advances 571 617 1,597 887 Subordinated debt, net of unamortized issuance costs 267 267 799 799 Total interest expense 8,853 6,183 25,529 14,243 Net interest income 14,488 14,302 41,280 44,332 Provision for credit losses 946 ( 292 ) 1,508 ( 55 ) Net interest income after provision for credit losses 13,542 14,594 39,772 44,387 Noninterest income Service charges and fees 2,159 2,060 6,333 6,085 Wealth management fees 1,003 858 2,990 2,625 Earnings on BOLI policies 252 229 748 681 Net gain on sale of mortgage loans 37 109 138 232 Other 77 158 395 688 Total noninterest income 3,528 3,414 10,604 10,311 Noninterest expenses Compensation and benefits 7,251 6,639 21,236 19,789 Occupancy and equipment 2,645 2,535 7,970 7,743 Other professional services 588 672 1,628 1,764 ATM and debit card fees 503 471 1,459 1,280 FDIC insurance premiums 291 228 823 689 Other 1,950 2,113 5,683 6,130 Total noninterest expenses 13,228 12,658 38,799 37,395 Income before income tax expense 3,842 5,350 11,577 17,303 Income tax expense 561 937 1,684 2,939 Net income $ 3,281 $ 4,413 $ 9,893 $ 14,364 Earnings per common share Basic $ 0.44 $ 0.59 $ 1.32 $ 1.91 Diluted 0.44 0.58 1.32 1.89 Cash dividends per common share 0.28 0.28 0.84 0.84 See notes to interim condensed consolidated financial statements (unaudited). 5 Table of Contents INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Dollars in thousands) Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 Net income $ 3,281 $ 4,413 $ 9,893 $ 14,364 Unrealized gains (losses) on AFS securities 13,081 ( 6,708 ) 10,858 ( 5,736 ) Reclassification adjustment for net (gains) losses included in net income — — — ( 67 ) Tax effect (1) ( 2,724 ) 1,394 ( 2,241 ) 1,266 Unrealized gains (losses) on AFS securities, net of tax 10,357 ( 5,314 ) 8,617 ( 4,537 ) Comprehensive income (loss) $ 13,638 $ ( 901 ) $ 18,510 $ 9,827 (1) See “Note 6 – Capital Ratios and Shareholders' Equity” for tax effect reconciliation. See notes to interim condensed consolidated financial statements (unaudited). 6 Table of Contents INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands except per share amounts) Common Stock Common Shares Outstanding Amount Common Shares to be Issued for Deferred Compensation Obligations Retained Earnings Accumulated Other Comprehensive Income (Loss) Totals July 1, 2023 7,496,826 $ 126,278 $ 5,395 $ 93,175 $ ( 36,417 ) $ 188,431 Comprehensive income (loss) — — — 4,413 ( 5,314 ) ( 901 ) Issuance of common stock 17,473 362 — — — 362 Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 1,803 ( 1,803 ) — — — Share-based payment awards under the Directors Plan — — 49 — — 49 Share-based compensation expense recognized in earnings under the RSP — 91 — — — 91 Common stock purchased for deferred compensation obligations — ( 357 ) — — — ( 357 ) Common stock repurchased ( 23,742 ) ( 497 ) — — — ( 497 ) Cash dividends paid ($ 0.28 per common share) — — — ( 2,055 ) — ( 2,055 ) September 30, 2023 7,490,557 $ 127,680 $ 3,641 $ 95,533 $ ( 41,731 ) $ 185,123 July 1, 2024 7,474,016 $ 126,126 $ 3,951 $ 99,808 $ ( 27,636 ) $ 202,249 Comprehensive income (loss) — — — 3,281 10,357 13,638 Issuance of common stock 17,580 350 — — — 350 Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 23 ( 23 ) — — — Share-based payment awards under the Directors Plan — — 53 — — 53 Share-based compensation expense recognized in earnings under the RSP — 26 — — — 26 Common stock purchased for deferred compensation obligations — ( 290 ) — — — ( 290 ) Common stock repurchased ( 52,876 ) ( 1,017 ) — — — ( 1,017 ) Cash dividends paid ($ 0.28 per common share) — — — ( 2,024 ) — ( 2,024 ) September 30, 2024 7,438,720 $ 125,218 $ 3,981 $ 101,065 $ ( 17,279 ) $ 212,985 7 Table of Contents INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) continued (Dollars in thousands except per share amounts) Common Stock Common Shares Outstanding Amount Common Shares to be Issued for Deferred Compensation Obligations Retained Earnings Accumulated Other Comprehensive Income (Loss) Totals January 1, 2023 7,559,421 $ 128,651 $ 5,005 $ 89,748 $ ( 37,194 ) $ 186,210 Cumulative effect of accounting change - adoption of ASC 326 — — — ( 2,417 ) — ( 2,417 ) Comprehensive income (loss) — — — 14,364 ( 4,537 ) 9,827 Issuance of common stock 55,456 1,208 — — — 1,208 Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 1,841 ( 1,841 ) — — — Share-based payment awards under the Directors Plan — — 477 — — 477 Share-based compensation expense recognized in earnings under the RSP — 219 — — — 219 Common stock purchased for deferred compensation obligations — ( 1,333 ) — — — ( 1,333 ) Common stock repurchased ( 124,320 ) ( 2,906 ) — — — ( 2,906 ) Cash dividends paid ($ 0.84 per common share) — — — ( 6,162 ) — ( 6,162 ) September 30, 2023 7,490,557 $ 127,680 $ 3,641 $ 95,533 $ ( 41,731 ) $ 185,123 January 1, 2024 7,485,889 $ 127,323 $ 3,693 $ 97,282 $ ( 25,896 ) $ 202,402 Comprehensive income (loss) — — — 9,893 8,617 18,510 Issuance of common stock 61,560 1,190 — — — 1,190 Issuance of common stock for vested shares under the RSP 16,240 — — — — — Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 44 ( 44 ) — — — Share-based payment awards under the Directors Plan — — 332 — — 332 Share-based compensation expense recognized in earnings under the RSP — 71 — — — 71 Common stock purchased for deferred compensation obligations — ( 991 ) — — — ( 991 ) Common stock repurchased ( 124,969 ) ( 2,419 ) — — — ( 2,419 ) Cash dividends paid ($ 0.84 per common share) — — — ( 6,110 ) — ( 6,110 ) September 30, 2024 7,438,720 $ 125,218 $ 3,981 $ 101,065 $ ( 17,279 ) $ 212,985 See notes to interim condensed consolidated financial statements (unaudited). 8 Table of Contents INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) Nine Months Ended September 30 2024 2023 OPERATING ACTIVITIES Net income $ 9,893 $ 14,364 Reconciliation of net income to net cash provided by operating activities: Provision for credit losses 1,508 ( 55 ) Depreciation 1,555 1,482 Net amortization of AFS securities 1,017 1,120 Increase in cash value of BOLI policies, net of expenses ( 733 ) ( 666 ) Share-based payment awards 403 696 Origination of loans HFS ( 6,168 ) ( 6,972 ) Proceeds from loan sales 5,802 7,478 Net changes in: Other assets ( 1,033 ) 1,481 Other liabilities 270 ( 151 ) Net cash provided by (used in) operating activities 12,514 18,777 INVESTING ACTIVITIES Proceeds from sales, maturities, calls and prepayments of AFS securities 31,183 62,894 Purchases of AFS securities — ( 6,166 ) Net loan principal (originations) collections ( 77,151 ) ( 70,614 ) Purchases of premises and equipment ( 1,590 ) ( 2,889 ) Funding of low income housing tax credit investments ( 1,690 ) ( 612 ) Net cash provided by (used in) investing activities ( 49,248 ) ( 17,387 ) FINANCING ACTIVITIES Net increase (decrease) in deposits 58,137 25,199 Net increase (decrease) in short-term borrowings 5,633 ( 5,441 ) Net increase (decrease) in FHLB advances ( 25,000 ) 65,000 Cash dividends paid on common stock ( 6,110 ) ( 6,162 ) Proceeds from issuance of common stock 1,190 1,208 Common stock repurchased ( 2,419 ) ( 2,906 ) Common stock purchased for deferred compensation obligations ( 991 ) ( 1,333 ) Net cash provided by (used in) financing activities 30,440 75,565 Increase (decrease) in cash and cash equivalents ( 6,294 ) 76,955 Cash and cash equivalents at beginning of period 33,672 38,924 Cash and cash equivalents at end of period $ 27,378 $ 115,879 SUPPLEMENTAL CASH FLOWS INFORMATION: Interest paid $ 25,203 $ 13,442 Income taxes paid 1,800 2,250 SUPPLEMENTAL NONCASH INFORMATION: Investment in low income housing tax credits — 5,000 Transfers of loans to foreclosed assets 350 341 See notes to interim condensed consolidated financial statements (unaudited). 9 Table of Contents NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands except per share amounts) Note 1 – Basis of Presentation As used in these notes, as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, references to “the Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or “the Bank” refers to Isabella Bank Corporation’s subsidiary, Isabella Bank. The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2023. Certain amounts reported in the interim 2023 consolidated financial statements have been reclassified to conform with the 2024 presentation. Our accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Note 2 – AFS Securities The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury $ 230,909 $ — $ 10,080 $ 220,829 States and political subdivisions 85,599 61 2,761 82,899 Auction rate money market preferred 3,200 — 83 3,117 Mortgage-backed securities 30,577 — 1,622 28,955 Collateralized mortgage obligations 169,339 5 5,580 163,764 Corporate 8,150 — 908 7,242 Total $ 527,774 $ 66 $ 21,034 $ 506,806 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury $ 231,218 $ — $ 16,417 $ 214,801 States and political subdivisions 94,837 1,032 2,993 92,876 Auction rate money market preferred 3,200 — 269 2,931 Mortgage-backed securities 35,321 — 2,506 32,815 Collateralized mortgage obligations 187,248 — 9,473 177,775 Corporate 8,150 — 1,200 6,950 Total $ 559,974 $ 1,032 $ 32,858 $ 528,148 10 Table of Contents The amortized cost and fair value of AFS securities by contractual maturity at September 30, 2024 are as follows: Maturing Securities with Variable Monthly Payments or Noncontractual Maturities Due in One Year or Less After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Total U.S. Treasury $ 19,944 $ 210,965 $ — $ — $ — $ 230,909 States and political subdivisions 15,915 22,900 18,429 28,355 — 85,599 Auction rate money market preferred — — — — 3,200 3,200 Mortgage-backed securities — — — — 30,577 30,577 Collateralized mortgage obligations — — — — 169,339 169,339 Corporate — — 8,150 — — 8,150 Total amortized cost $ 35,859 $ 233,865 $ 26,579 $ 28,355 $ 203,116 $ 527,774 Fair value $ 35,539 $ 223,815 $ 24,943 $ 26,673 $ 195,836 $ 506,806 Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations. As the auction rate money market preferred investments have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group. A summary of the sales activity of AFS securities is as follows for the: Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 Proceeds from sales of AFS securities $ — $ — $ — $ 18,089 Realized gains (losses) — — — 67 Applicable income tax expense (benefit) — — — 14 11 Table of Contents The information in the following tables pertains to AFS securities with gross unrealized losses at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position. September 30, 2024 Less Than Twelve Months Twelve Months or More Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Total Unrealized Losses U.S. Treasury $ — $ — $ 10,080 $ 220,829 $ 10,080 States and political subdivisions 50 5,741 2,711 39,536 2,761 Auction rate money market preferred — — 83 3,117 83 Mortgage-backed securities — — 1,622 28,955 1,622 Collateralized mortgage obligations — — 5,580 157,945 5,580 Corporate — — 908 7,242 908 Total $ 50 $ 5,741 $ 20,984 $ 457,624 $ 21,034 Number of securities in an unrealized loss position: 51 181 232 December 31, 2023 Less Than Twelve Months Twelve Months or More Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Total Unrealized Losses U.S. Treasury $ — $ — $ 16,417 $ 214,801 $ 16,417 States and political subdivisions 42 7,172 2,951 37,011 2,993 Auction rate money market preferred — — 269 2,931 269 Mortgage-backed securities 1 10 2,505 32,805 2,506 Collateralized mortgage obligations 116 4,554 9,357 173,221 9,473 Corporate — — 1,200 6,950 1,200 Total $ 159 $ 11,736 $ 32,699 $ 467,719 $ 32,858 Number of securities in an unrealized loss position: 22 186 208 The unrealized loss on our AFS securities portfolio resulted from the increase in short-term and intermediate-term interest rates. As of September 30, 2024, no allowance for credit losses has been recognized on AFS securities in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality. This is based on our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our AFS securities and consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not intend to sell any of the securities classified as AFS in the table above, and believes it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their respective maturity date or repricing date, or if the market yields for such investments decline. 12 Table of Contents Note 3 – Loans and ACL Loan Composition The following table provides a detailed listing of our loan portfolio at: September 30, 2024 December 31, 2023 Balance Percent of Total Balance Percent of Total Commercial and industrial Secured $ 217,693 15.28 % $ 189,186 14.02 % Unsecured 22,896 1.61 % 20,552 1.52 % Total commercial and industrial 240,589 16.89 % 209,738 15.54 % Commercial real estate Commercial mortgage owner occupied 169,779 11.92 % 180,636 13.39 % Commercial mortgage non-owner occupied 215,481 15.13 % 216,292 16.03 % Commercial mortgage 1-4 family investor 92,154 6.47 % 89,208 6.61 % Commercial mortgage multifamily 69,624 4.89 % 78,108 5.79 % Total commercial real estate 547,038 38.41 % 564,244 41.82 % Advances to mortgage brokers 76,187 5.35 % 18,541 1.37 % Agricultural Agricultural mortgage 66,789 4.69 % 69,044 5.12 % Agricultural other 30,005 2.11 % 30,950 2.29 % Total agricultural 96,794 6.80 % 99,994 7.41 % Residential real estate Senior lien 324,078 22.75 % 313,459 23.23 % Junior lien 8,105 0.57 % 5,945 0.44 % Home equity lines of credit 37,663 2.64 % 37,014 2.74 % Total residential real estate 369,846 25.96 % 356,418 26.41 % Consumer Secured - direct 37,269 2.62 % 37,948 2.81 % Secured - indirect 52,990 3.72 % 59,324 4.40 % Unsecured 3,570 0.25 % 3,256 0.24 % Total consumer 93,829 6.59 % 100,528 7.45 % Total $ 1,424,283 100.00 % $ 1,349,463 100.00 % We grant commercial, agricultural, residential real estate, and consumer loans to customers primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. A portion of loans are unsecured. Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and deferred fees or costs. Unless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate amortization method. 13 Table of Contents Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $ 18,000 . Borrowers with direct credit needs of more than $ 18,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80 % or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, property, or equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports. We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac. Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100 % of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80 % unless the loan qualifies for government guarantees. Underwriting criteria for originated residential real estate loans generally include: • Evaluation of the borrower’s ability to make monthly payments. • Evaluation of the value of the property securing the loan. • Ensuring the payment of principal, interest, taxes, and hazard insurance generally does not exceed 28 % of a borrower’s gross income. • Ensuring all debt servicing does not exceed 40 % of income. • Verification of acceptable credit reports. • Verification of employment, income, and financial information. Appraisals are performed by independent appraisers and are reviewed for appropriateness. Generally, mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market underwriting system; loans in excess of $ 1,000 require the approval of one or more of the following committees: Internal Loan Committee, the Executive Loan Committee, or the Board of Directors. Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 15 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market. Nonaccrual and Past Due Loans The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a loan is placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ACL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status. 14 Table of Contents The following table summarizes nonaccrual loan data by class of loans as of: September 30, 2024 December 31, 2023 Total Nonaccrual Loans Nonaccrual Loans with No ACL Total Nonaccrual Loans Nonaccrual Loans with No ACL Commercial and industrial Secured $ 95 $ 95 $ 491 $ 435 Unsecured 25 25 — — Agricultural Agricultural mortgage — — 38 38 Agricultural other — — 167 167 Residential real estate Senior lien 427 427 286 286 Total $ 547 $ 547 $ 982 $ 926 The following tables summarize the past due and current loans for the entire loan portfolio as of: September 30, 2024 Past Due: Accruing Loans 90 or More Days Past Due 30-59 Days 60-89 Days 90 Days or More Current Total Commercial and industrial Secured $ 36 $ — $ 95 $ 217,562 $ 217,693 $ — Unsecured — — 25 22,871 22,896 — Total commercial and industrial 36 — 120 240,433 240,589 — Commercial real estate Commercial mortgage owner occupied — 304 — 169,475 169,779 — Commercial mortgage non-owner occupied — — — 215,481 215,481 — Commercial mortgage 1-4 family investor 62 — — 92,092 92,154 — Commercial mortgage multifamily — — — 69,624 69,624 — Total commercial real estate 62 304 — 546,672 547,038 — Advances to mortgage brokers — — — 76,187 76,187 — Agricultural Agricultural mortgage 3 — — 66,786 66,789 — Agricultural other 1,100 — — 28,905 30,005 — Total agricultural 1,103 — — 95,691 96,794 — Residential real estate Senior lien 54 356 194 323,474 324,078 — Junior lien — 19 — 8,086 8,105 — Home equity lines of credit — — — 37,663 37,663 — Total residential real estate 54 375 194 369,223 369,846 — Consumer Secured - direct 115 28 — 37,126 37,269 — Secured - indirect 292 5 64 52,629 52,990 64 Unsecured 11 3 — 3,556 3,570 — Total consumer 418 36 64 93,311 93,829 64 Total $ 1,673 $ 715 $ 378 $ 1,421,517 $ 1,424,283 $ 64 15 Table of Contents December 31, 2023 Past Due: Accruing Loans 90 or More Days Past Due 30-59 Days 60-89 Days 90 Days or More Current Total Commercial and industrial Secured $ 165 $ 290 $ 201 $ 188,530 $ 189,186 $ — Unsecured — — — 20,552 20,552 — Total commercial and industrial 165 290 201 209,082 209,738 — Commercial real estate Commercial mortgage owner occupied — — — 180,636 180,636 — Commercial mortgage non-owner occupied — — — 216,292 216,292 — Commercial mortgage 1-4 family investor — — — 89,208 89,208 — Commercial mortgage multifamily — — — 78,108 78,108 — Total commercial real estate — — — 564,244 564,244 — Advances to mortgage brokers — — — 18,541 18,541 — Agricultural Agricultural mortgage — — — 69,044 69,044 — Agricultural other — — — 30,950 30,950 — Total agricultural — — — 99,994 99,994 — Residential real estate Senior lien 3,188 349 201 309,721 313,459 87 Junior lien — — — 5,945 5,945 — Home equity lines of credit — — — 37,014 37,014 — Total residential real estate 3,188 349 201 352,680 356,418 87 Consumer Secured - direct 3 — — 37,945 37,948 — Secured - indirect 181 — — 59,143 59,324 — Unsecured 9 — — 3,247 3,256 — Total consumer 193 — — 100,335 100,528 — Total $ 3,546 $ 639 $ 402 $ 1,344,876 $ 1,349,463 $ 87 16 Table of Contents Credit Quality Indicators The following tables display commercial and agricultural loans by credit risk ratings and year of origination as of: September 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial and industrial: Secured Risk ratings 1-3 $ 11,104 $ 17,451 $ 4,126 $ 5,557 $ 5,135 $ 462 $ 7,947 $ — $ 51,782 Risk rating 4 30,323 39,808 29,100 16,531 2,656 2,774 31,072 — 152,264 Risk rating 5 3,628 241 362 175 46 69 3,520 — 8,041 Risk rating 6 154 283 2,001 81 166 61 2,765 — 5,511 Risk rating 7 — — — — 95 — — — 95 Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 45,209 $ 57,783 $ 35,589 $ 22,344 $ 8,098 $ 3,366 $ 45,304 $ — $ 217,693 Current year-to-date gross charge-offs $ — $ 277 $ 33 $ — $ 17 $ — $ — $ — $ 327 Commercial and industrial: Unsecured Risk ratings 1-3 $ 375 $ 1,977 $ 203 $ 84 $ 48 $ 615 $ 1,599 $ — $ 4,901 Risk rating 4 2,455 3,505 2,452 418 398 — 8,700 — 17,928 Risk rating 5 — — — — — — 42 — 42 Risk rating 6 — — — — — — — — — Risk rating 7 — — — — — — 25 — 25 Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 2,830 $ 5,482 $ 2,655 $ 502 $ 446 $ 615 $ 10,366 $ — $ 22,896 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ 8 $ 1 $ — $ 9 Commercial real estate: Owner occupied Risk ratings 1-3 $ 481 $ 3,871 $ 1,594 $ 12,158 $ 13,476 $ 3,034 $ 120 $ — $ 34,734 Risk rating 4 15,403 11,503 30,018 35,965 10,310 22,628 1,239 — 127,066 Risk rating 5 198 904 893 73 670 803 372 — 3,913 Risk rating 6 75 823 — 1,409 1,146 513 100 — 4,066 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 16,157 $ 17,101 $ 32,505 $ 49,605 $ 25,602 $ 26,978 $ 1,831 $ — $ 169,779 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Non-owner occupied Risk ratings 1-3 $ 334 $ 56 $ 4,528 $ 6,297 $ 554 $ 1,821 $ — $ — $ 13,590 Risk rating 4 16,800 35,649 62,959 34,962 10,718 29,667 1,084 — 191,839 Risk rating 5 — — 221 5,690 — 3,078 — — 8,989 Risk rating 6 — 1,012 — — 51 — — — 1,063 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 17,134 $ 36,717 $ 67,708 $ 46,949 $ 11,323 $ 34,566 $ 1,084 $ — $ 215,481 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 17 Table of Contents September 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial real estate: 1-4 family investor Risk ratings 1-3 $ 640 $ — $ 1,139 $ 810 $ 860 $ 979 $ 2,062 $ — $ 6,490 Risk rating 4 7,004 12,902 10,578 29,190 14,203 4,175 6,406 — 84,458 Risk rating 5 — 147 343 73 — 53 — — 616 Risk rating 6 — 541 — — — 49 — — 590 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 7,644 $ 13,590 $ 12,060 $ 30,073 $ 15,063 $ 5,256 $ 8,468 $ — $ 92,154 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Multifamily Risk ratings 1-3 $ — $ 3,631 $ 4,400 $ 1,947 $ 551 $ 1,410 $ — $ — $ 11,939 Risk rating 4 1,375 2,512 19,010 10,791 672 19,500 557 — 54,417 Risk rating 5 — — — 22 — 329 — — 351 Risk rating 6 — — — — — 2,917 — — 2,917 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 1,375 $ 6,143 $ 23,410 $ 12,760 $ 1,223 $ 24,156 $ 557 $ — $ 69,624 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Advances to mortgage brokers Risk ratings 1-3 $ 76,187 $ — $ — $ — $ — $ — $ — $ — $ 76,187 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agricultural mortgage Risk ratings 1-3 $ 80 $ — $ 2,727 $ 1,100 $ 2,576 $ 1,136 $ 2 $ — $ 7,621 Risk rating 4 3,144 4,569 13,161 8,534 6,312 9,243 1,418 — 46,381 Risk rating 5 — 1,338 2,894 5,640 — 1,133 661 — 11,666 Risk rating 6 60 — — — — 1,061 — — 1,121 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 3,284 $ 5,907 $ 18,782 $ 15,274 $ 8,888 $ 12,573 $ 2,081 $ — $ 66,789 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agricultural other Risk ratings 1-3 $ 476 $ 523 $ 62 $ 101 $ 4 $ 299 $ 1,885 $ — $ 3,350 Risk rating 4 1,878 1,339 2,049 2,018 511 560 13,152 — 21,507 Risk rating 5 1,694 44 4 30 438 — 1,457 — 3,667 Risk rating 6 — 172 — 90 — — 1,219 — 1,481 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 4,048 $ 2,078 $ 2,115 $ 2,239 $ 953 $ 859 $ 17,713 $ — $ 30,005 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 18 Table of Contents December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial and industrial: Secured Risk ratings 1-3 $ 15,061 $ 4,324 $ 6,188 $ 6,666 $ 422 $ 449 $ 12,305 $ — $ 45,415 Risk rating 4 38,680 35,245 22,065 4,523 2,469 1,762 29,826 — 134,570 Risk rating 5 391 2,634 233 305 111 101 1,994 — 5,769 Risk rating 6 — — 4 207 6 128 2,596 — 2,941 Risk rating 7 465 — — 24 2 — — — 491 Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 54,597 $ 42,203 $ 28,490 $ 11,725 $ 3,010 $ 2,440 $ 46,721 $ — $ 189,186 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and industrial: Unsecured Risk ratings 1-3 $ 2,200 $ 259 $ 129 $ 71 $ 96 $ 707 $ 1,663 $ — $ 5,125 Risk rating 4 3,988 3,117 517 470 — — 7,274 — 15,366 Risk rating 5 — 31 — — — — 30 — 61 Risk rating 6 — — — — — — — — — Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 6,188 $ 3,407 $ 646 $ 541 $ 96 $ 707 $ 8,967 $ — $ 20,552 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Owner occupied Risk ratings 1-3 $ 3,592 $ 1,712 $ 12,655 $ 14,228 $ 761 $ 3,313 $ 211 $ — $ 36,472 Risk rating 4 12,148 33,392 39,406 14,086 13,384 19,942 1,506 — 133,864 Risk rating 5 1,460 727 195 220 3,829 1,761 464 — 8,656 Risk rating 6 — — 870 234 — 540 — — 1,644 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 17,200 $ 35,831 $ 53,126 $ 28,768 $ 17,974 $ 25,556 $ 2,181 $ — $ 180,636 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Non-owner occupied Risk ratings 1-3 $ 67 $ 4,383 $ 6,496 $ 827 $ 172 $ 1,766 $ — $ — $ 13,711 Risk rating 4 37,906 62,979 37,583 11,534 7,589 32,941 1,650 — 192,182 Risk rating 5 — — 5,838 — — 3,478 — — 9,316 Risk rating 6 1,029 — — 54 — — — — 1,083 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 39,002 $ 67,362 $ 49,917 $ 12,415 $ 7,761 $ 38,185 $ 1,650 $ — $ 216,292 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 19 Table of Contents December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial real estate: 1-4 family investor Risk ratings 1-3 $ 286 $ 1,445 $ 864 $ 905 $ 666 $ 887 $ 1,352 $ — $ 6,405 Risk rating 4 13,492 11,641 30,604 15,124 3,036 3,111 4,538 — 81,546 Risk rating 5 152 354 77 — 55 — — — 638 Risk rating 6 555 — — — 59 5 — — 619 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 14,485 $ 13,440 $ 31,545 $ 16,029 $ 3,816 $ 4,003 $ 5,890 $ — $ 89,208 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Multifamily Risk ratings 1-3 $ 4,509 $ 4,682 $ 2,053 $ 568 $ — $ 1,515 $ — $ — $ 13,327 Risk rating 4 2,792 19,465 15,981 813 549 21,263 554 — 61,417 Risk rating 5 — — — 4 — — — — 4 Risk rating 6 — — 32 — — 3,328 — — 3,360 Risk rating 7 — — — — — — — — — Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 7,301 $ 24,147 $ 18,066 $ 1,385 $ 549 $ 26,106 $ 554 $ — $ 78,108 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Advances to mortgage brokers Risk ratings 1-3 $ 18,541 $ — $ — $ — $ — $ — $ — $ — $ 18,541 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agricultural mortgage Risk ratings 1-3 $ 292 $ 2,834 $ 1,241 $ 2,786 $ 604 $ 964 $ 94 $ — $ 8,815 Risk rating 4 5,622 12,903 8,970 5,940 3,926 7,883 566 — 45,810 Risk rating 5 126 4,098 5,886 689 175 60 756 — 11,790 Risk rating 6 842 — — — — 1,749 — — 2,591 Risk rating 7 — — — — — 38 — — 38 Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 6,882 $ 19,835 $ 16,097 $ 9,415 $ 4,705 $ 10,694 $ 1,416 $ — $ 69,044 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ 4 $ — $ — $ 4 Agricultural other Risk ratings 1-3 $ 801 $ 81 $ 121 $ 38 $ 183 $ 141 $ 2,659 $ — $ 4,024 Risk rating 4 1,830 2,481 2,280 619 146 75 14,405 — 21,836 Risk rating 5 753 8 163 507 — 480 2,731 — 4,642 Risk rating 6 — — 32 — — — 249 — 281 Risk rating 7 — — — — — — 167 — 167 Risk rating 8 — — — — — — — — — Risk rating 9 — — — — — — — — — Total $ 3,384 $ 2,570 $ 2,596 $ 1,164 $ 329 $ 696 $ 20,211 $ — $ 30,950 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 20 Table of Contents Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows: 1. EXCELLENT – Substantially Risk Free Credit has strong financial condition and solid earnings history, characterized by: • High liquidity, strong cash flow, low leverage. • Unquestioned ability to meet all obligations when due. • Experienced management, with management succession in place. • Secured by cash. 2. HIGH QUALITY – Limited Risk Credit with sound financial condition and a positive trend in earnings supplemented by: • Favorable liquidity and leverage ratios. • Ability to meet all obligations when due. • Management with successful track record. • Steady and satisfactory earnings history. • If loan is secured, collateral is of high quality and readily marketable. • Access to alternative financing. • Well defined primary and secondary source of repayment. • If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident. 3. HIGH SATISFACTORY – Reasonable Risk Credit with satisfactory financial condition and further characterized by: • Working capital adequate to support operations. • Cash flow sufficient to pay debts as scheduled. • Management experience and depth appear favorable. • Loan performing according to terms. • If loan is secured, collateral is acceptable, and loan is fully protected. 4. SATISFACTORY – Acceptable Risk Credit with bankable risks, although some signs of weaknesses are shown: • Would include most start-up businesses. • Occasional instances of trade slowness or repayment delinquency – may have been 10 - 30 days slow within the past year. • Management’s abilities are apparent yet unproven. • Weakness in primary source of repayment with adequate secondary source of repayment. • Loan structure generally in accordance with policy. • If secured, loan collateral coverage is marginal. 21 Table of Contents To be classified as less than satisfactory, only one of the following criteria must be met. 5. SPECIAL MENTION – Criticized Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan: • Downward trend in sales, profit levels, and margins. • Impaired working capital position. • Cash flow is strained in order to meet debt repayment. • Loan delinquency ( 30 - 60 days) and overdrafts may occur. • Shrinking equity cushion. • Diminishing primary source of repayment and questionable secondary source. • Management abilities are questionable. • Weak industry conditions. • Litigation pending against the borrower. • Loan may need to be restructured to improve collateral position or reduce payments. • Collateral or guaranty offers limited protection. • Negative debt service coverage, however, the credit is well collateralized, and payments are current. 6. SUBSTANDARD – Classified Credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. There is a distinct possibility we will implement collection procedures if the loan deficiencies are not corrected. Any commercial loan placed in nonaccrual status will be rated “7” or worse. In addition, the following characteristics may apply: • Sustained losses have severely eroded the equity and cash flow. • Deteriorating liquidity. • Serious management problems or internal fraud. • Original repayment terms liberalized. • Likelihood of bankruptcy. • Inability to access other funding sources. • Reliance on secondary source of repayment. • Litigation filed against borrower. • Interest non-accrual may be warranted. • Collateral provides little or no value. • Requires excessive attention of the loan officer. • Borrower is uncooperative with loan officer. 7. VULNERABLE – Classified Credit is considered “Substandard” and warrants placing in nonaccrual status. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply: • Insufficient cash flow to service debt. • Minimal or no payments being received. • Limited options available to avoid the collection process. • Transition status, expect action will take place to collect loan without immediate progress being made. 22 Table of Contents 8. DOUBTFUL – Workout Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply: • Normal operations are severely diminished or have ceased. • Seriously impaired cash flow. • Original repayment terms materially altered. • Secondary source of repayment is inadequate. • Survivability as a “going concern” is impossible. • Collection process has begun. • Bankruptcy petition has been filed. • Judgments have been filed. • Portion of the loan balance has been charged-off. 9. LOSS – Charge-off Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by: • Liquidation or reorganization under bankruptcy, with poor prospects of collection. • Fraudulently overstated assets and/or earnings. • Collateral has marginal or no value. • Debtor cannot be located. • Over 120 days delinquent. 23 Table of Contents Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due status. The following tables display residential real estate and consumer loans by payment status and year of origination as of: September 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Residential real estate: Senior lien Current $ 38,341 $ 42,674 $ 49,365 $ 75,791 $ 49,085 $ 68,147 $ — $ — $ 323,403 Past due 30-89 days — — — — — 248 — — 248 Past due 90 or more days — — — — — — — — — Nonaccrual — 142 — 163 29 93 — — 427 Total $ 38,341 $ 42,816 $ 49,365 $ 75,954 $ 49,114 $ 68,488 $ — $ — $ 324,078 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ 10 $ — $ — $ 10 Residential real estate: Junior lien Current $ 3,265 $ 3,296 $ 911 $ 100 $ 78 $ 436 $ — $ — $ 8,086 Past due 30-89 days — — — 19 — — — — 19 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 3,265 $ 3,296 $ 911 $ 119 $ 78 $ 436 $ — $ — $ 8,105 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate: Home equity lines of credit Current $ — $ — $ — $ — $ — $ — $ 37,663 $ — $ 37,663 Past due 30-89 days — — — — — — — — — Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 37,663 $ — $ 37,663 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Secured - direct Current $ 9,965 $ 10,612 $ 7,386 $ 4,482 $ 2,434 $ 2,247 $ — $ — $ 37,126 Past due 30-89 days 110 — 24 4 — 5 — — 143 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 10,075 $ 10,612 $ 7,410 $ 4,486 $ 2,434 $ 2,252 $ — $ — $ 37,269 Current year-to-date gross charge-offs $ — $ 73 $ — $ — $ 27 $ 2 $ — $ — $ 102 Consumer: Secured - indirect Current $ 6,669 $ 24,463 $ 8,426 $ 5,384 $ 4,327 $ 3,360 $ — $ — $ 52,629 Past due 30-89 days 38 137 58 — 41 23 — — 297 Past due 90 or more days — — 64 — — — — — 64 Nonaccrual — — — — — — — — — Total $ 6,707 $ 24,600 $ 8,548 $ 5,384 $ 4,368 $ 3,383 $ — $ — $ 52,990 Current year-to-date gross charge-offs $ — $ 43 $ — $ — $ — $ — $ — $ — $ 43 24 Table of Contents September 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Consumer: Unsecured Current $ 1,513 $ 825 $ 323 $ 32 $ 25 $ 1 $ 837 $ — $ 3,556 Past due 30-89 days 6 3 — — — — 5 — 14 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 1,519 $ 828 $ 323 $ 32 $ 25 $ 1 $ 842 $ — $ 3,570 Current year-to-date gross charge-offs $ 1,939 $ 12 $ 21 $ — $ — $ 1 $ 21 $ — $ 1,994 December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Residential real estate: Senior lien Current $ 45,878 $ 52,989 $ 80,122 $ 52,648 $ 23,356 $ 54,556 $ — $ — $ 309,549 Past due 30-89 days — 784 714 123 478 1,438 — — 3,537 Past due 90 or more days — — — — — 87 — — 87 Nonaccrual 48 — — 31 — 207 — — 286 Total $ 45,926 $ 53,773 $ 80,836 $ 52,802 $ 23,834 $ 56,288 $ — $ — $ 313,459 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ 2 $ — $ — $ 2 Residential real estate: Junior lien Current $ 3,706 $ 1,325 $ 168 $ 134 $ 167 $ 445 $ — $ — $ 5,945 Past due 30-89 days — — — — — — — — — Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 3,706 $ 1,325 $ 168 $ 134 $ 167 $ 445 $ — $ — $ 5,945 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate: Home equity lines of credit Current $ — $ — $ — $ — $ — $ — $ 37,014 $ — $ 37,014 Past due 30-89 days — — — — — — — — — Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 37,014 $ — $ 37,014 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Secured - direct Current $ 14,813 $ 10,037 $ 6,468 $ 3,473 $ 1,682 $ 1,472 $ — $ — $ 37,945 Past due 30-89 days — — — 3 — — — — 3 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 14,813 $ 10,037 $ 6,468 $ 3,476 $ 1,682 $ 1,472 $ — $ — $ 37,948 Current year-to-date gross charge-offs $ — $ — $ 5 $ — $ — $ — $ — $ — $ 5 25 Table of Contents December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Consumer: Secured - indirect Current $ 30,900 $ 10,977 $ 6,887 $ 5,376 $ 2,030 $ 2,973 $ — $ — $ 59,143 Past due 30-89 days 123 — — 30 3 25 — — 181 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 31,023 $ 10,977 $ 6,887 $ 5,406 $ 2,033 $ 2,998 $ — $ — $ 59,324 Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Unsecured Current $ 1,576 $ 740 $ 144 $ 86 $ 7 $ — $ 694 $ — $ 3,247 Past due 30-89 days — 9 — — — — — — 9 Past due 90 or more days — — — — — — — — — Nonaccrual — — — — — — — — — Total $ 1,576 $ 749 $ 144 $ 86 $ 7 $ — $ 694 $ — $ 3,256 Current year-to-date gross charge-offs $ 172 $ — $ 6 $ — $ — $ 4 $ — $ — $ 182 Loan Modifications A loan modification includes terms outside of normal lending practices to a borrower experiencing financial difficulty. Typical modifications granted include, but are not limited to: • Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics. • Extending the maturity date or amortization period beyond typical lending guidelines for loans with similar risk characteristics. • Agreeing to an interest-only payment structure, delaying principal payments, or delaying payments. • Forgiving principal. To determine if a borrower is experiencing financial difficulty, factors we consider include: • The borrower is currently in default on any debt. • The borrower would likely default on any debt if the concession is not granted. • The borrower’s cash flow is insufficient to service all debt if the concession is not granted. • The borrower has declared, or is in the process of declaring, bankruptcy. • The borrower is unlikely to continue as a going concern (if the entity is a business). 26 Table of Contents There were no loan modification for the three months ended September 30, 2023. The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the: Three Months Ended September 30, 2024 Interest Rate Reduction Amortized Cost Basis % of Total Class of Financial Receivable Agricultural Agricultural other 181 0.60 % Total $ 181 Nine Months Ended September 30, 2024 Interest Rate Reduction Other-Than-Insignificant Payment Delay Term Extension Other-Than-Insignificant Payment Delay and Term Extension Amortized Cost Basis % of Total Class of Financial Receivable Amortized Cost Basis % of Total Class of Financial Receivable Amortized Cost Basis % of Total Class of Financial Receivable Amortized Cost Basis % of Total Class of Financial Receivable Commercial and industrial Secured $ — 0.00 % $ 1,926 0.88 % $ 11 0.01 % $ — 0.00 % Commercial real estate Commercial mortgage owner occupied — 0.00 % 823 0.48 % — 0.00 % — 0.00 % Agricultural Agricultural mortgage — 0.00 % 1,305 1.95 % — 0.00 % — 0.00 % Agricultural other 181 0.60 % — 0.00 % — 0.00 % 1,038 3.46 % Consumer Secured - indirect — 0.00 % — 0.00 % 1 0.00 % — 0.00 % Total $ 181 $ 4,054 $ 12 $ 1,038 Nine Months Ended September 30, 2023 Term Extension Interest Rate Reduction and Term Extension Amortized Cost Basis % of Total Class of Financial Receivable Amortized Cost Basis % of Total Class of Financial Receivable Commercial real estate Commercial mortgage non-owner occupied $ 1,034 0.48 % $ — 0.00 % Agricultural Agricultural mortgage 232 0.33 % 26 0.04 % Agricultural other 34 0.12 % — 0.00 % Residential real estate Senior lien 5 0.00 % — 0.00 % Total $ 1,305 $ 26 We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $ 112 and $ 0 in additional funds to be disbursed in connection with modified loans at September 30, 2024 and 2023, respectively, as displayed in the tables above. 27 Table of Contents The following is a summary of the financial effect of the modifications granted to borrowers experiencing financial difficulty for the: Three Months Ended September 30 2024 2023 Weighted-Average Interest Rate Reduction Weighted-Average Interest Rate Reduction Agricultural Agricultural other 0.50 % N/A Nine Months Ended September 30 2024 2023 Weighted-Average Interest Rate Reduction Payment Delay Term Weighted-Average Term Extension (Years) Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (Years) Commercial and industrial Secured N/A 4 months 3.00 N/A N/A Commercial real estate Commercial mortgage owner occupied N/A 7 months N/A N/A N/A Commercial mortgage non-owner occupied N/A N/A N/A N/A 3.00 Agricultural Agricultural mortgage N/A 5 months 0.50 4.50 % 1.08 Agricultural other 0.50 % 4 months 0.33 N/A 1.00 Residential real estate Senior lien N/A N/A N/A N/A 2.60 Consumer Secured - indirect N/A N/A 1.33 N/A N/A 28 Table of Contents We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following tables summarize the amortized cost basis of loans that have been modified within the past 12 months prior to: September 30, 2024 Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Commercial and industrial Secured $ 1,937 $ — $ — $ — $ 1,937 Commercial real estate Commercial mortgage owner occupied 823 — — — 823 Commercial mortgage multifamily 2,917 — — — 2,917 Agricultural Agricultural mortgage 1,305 — — — 1,305 Agricultural other 1,219 — — — 1,219 Consumer Secured - indirect 1 — — — 1 Total $ 8,202 $ — $ — $ — $ 8,202 September 30, 2023 (1) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Commercial real estate Commercial mortgage non-owner occupied $ 1,034 $ — $ — $ — $ 1,034 Agricultural Agricultural mortgage 258 — — — 258 Agricultural other 34 — — — 34 Residential real estate Senior lien 5 — — — 5 Total $ 1,331 $ — $ — $ — $ 1,331 (1) We adopted ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023, therefore, the September 30, 2023 presentation only includes loans since the guidance became effective. We had no loans that defaulted in the three and nine-month periods ended September 30, 2024 and 2023 which were modified within 12 months prior to the default date. 29 Table of Contents ACL - Loans The credit quality of our loan portfolio is continuously monitored and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within our loan portfolio. The ACL is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. The ACL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The primary factors behind the determination of the level of the ACL are specific allocations for loans individually evaluated, historical loss percentages, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods. The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a component of individual loans that do not share risk characteristics with other loans; and a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. For a loan that does not share risk characteristics with other loans, an individual analysis is performed to measure an allowance. Loans in nonaccrual status are individually evaluated for specific allocation of the allowance using the fair value of collateral, less costs to sell if foreclosure is probable, or the discounted cash flow method. We do not recognize interest income on loans in nonaccrual status. For loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding. In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and credit risk ratings or delinquency bucket. This model calculates an expected loss percentage for each loan class by considering the probability of default, based on the migration of loans from performing to loss by credit risk ratings or delinquency buckets using life-of-loan analysis, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. These qualitative factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the model reverts back to the historical rates of default and severity of loss. Qualitative factors include: • Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, recovery practices not considered elsewhere in estimating credit losses; • Changes in the experience, ability, and depth of lending management and other relevant staff; • Changes in interest rates; • Changes in international, national, regional, and local economic factors; • Changes in the nature and volume of the portfolio and in the terms of loans; • Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; • Lack of current financial information; • Competition, legal, and regulatory; and • Changes in the value of underlying collateral. 30 Table of Contents A summary of activity in the ACL by portfolio segment and the recorded investment in loans by segments follows for the: Three Months Ended September 30, 2024 Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Total July 1, 2024 $ 1,264 $ 5,569 $ 258 $ 4,351 $ 1,653 $ 13,095 Charge-offs — — — — ( 1,767 ) ( 1,767 ) Recoveries 6 318 — 20 64 408 Credit loss expense ( 46 ) ( 710 ) — ( 40 ) 1,695 899 September 30, 2024 $ 1,224 $ 5,177 $ 258 $ 4,331 $ 1,645 $ 12,635 Nine Months Ended September 30, 2024 Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Total January 1, 2024 $ 968 $ 5,878 $ 270 $ 4,336 $ 1,656 $ 13,108 Charge-offs ( 336 ) — — ( 10 ) ( 2,139 ) ( 2,485 ) Recoveries 10 353 2 112 210 687 Credit loss expense 582 ( 1,054 ) ( 14 ) ( 107 ) 1,918 1,325 September 30, 2024 $ 1,224 $ 5,177 $ 258 $ 4,331 $ 1,645 $ 12,635 Three Months Ended September 30, 2023 Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Total July 1, 2023 $ 822 $ 5,968 $ 264 $ 4,173 $ 1,606 $ 12,833 Charge-offs ( 29 ) — — — ( 150 ) ( 179 ) Recoveries 70 3 — 266 94 433 Credit loss expense ( 34 ) ( 101 ) 5 ( 281 ) 91 ( 320 ) September 30, 2023 $ 829 $ 5,870 $ 269 $ 4,158 $ 1,641 $ 12,767 Nine Months Ended September 30, 2023 Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Unallocated Total January 1, 2023 $ 860 $ 461 $ 577 $ 617 $ 961 $ 6,374 $ 9,850 Impact of the adoption of ASC 326 ( 58 ) 5,532 ( 247 ) 3,535 356 ( 6,374 ) 2,744 Charge-offs ( 29 ) — ( 4 ) ( 2 ) ( 337 ) — ( 372 ) Recoveries 74 23 6 315 220 — 638 Credit loss expense ( 18 ) ( 146 ) ( 63 ) ( 307 ) 441 — ( 93 ) September 30, 2023 $ 829 $ 5,870 $ 269 $ 4,158 $ 1,641 $ — $ 12,767 31 Table of Contents The following table illustrates the two main components of the ACL as of: September 30 2024 June 30 2024 March 31 2024 December 31 2023 September 30 2023 ACL Individually evaluated $ — $ 137 $ 349 $ 84 $ — Collectively evaluated 12,635 12,958 13,041 13,024 12,767 Total $ 12,635 $ 13,095 $ 13,390 $ 13,108 $ 12,767 ACL to gross loans Individually evaluated 0.00 % 0.01 % 0.03 % 0.01 % 0.00 % Collectively evaluated 0.89 % 0.94 % 0.95 % 0.96 % 0.96 % Total 0.89 % 0.95 % 0.98 % 0.97 % 0.96 % The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of: September 30, 2024 December 31, 2023 Loan Balance Specific Allocation Loan Balance Specific Allocation Commercial and industrial $ — $ — $ 465 $ 56 Commercial real estate — — 234 28 Agricultural — — 181 — Residential real estate 357 — 203 — Consumer — — — — Total $ 357 $ — $ 1,083 $ 84 We have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis include $ 357 in collateral dependent loans. 32 Table of Contents Note 4 – Borrowed Funds Short-term borrowings Short-term borrowings include securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances, which all generally mature within one to four days from the transaction date. A summary of short-term borrowed funds without stated maturity dates was as follows for the: Three Months Ended September 30 2024 2023 Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Securities sold under agreements to repurchase without stated maturity dates $ 56,051 $ 48,151 3.18 % $ 54,327 $ 46,574 1.90 % Federal funds purchased — — 0.00 % — 1 6.13 % FRB Discount Window 5,300 153 5.18 % — 135 5.30 % Nine Months Ended September 30 2024 2023 Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Securities sold under agreements to repurchase without stated maturity dates $ 56,051 $ 43,140 3.17 % $ 54,327 $ 40,601 1.64 % Federal funds purchased — 1 6.52 % — 17 6.08 % FRB Discount Window 5,300 56 5.21 % — 89 5.28 % Securities sold under agreements to repurchase are classified as secured borrowings and are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of $ 68,327 and $ 67,764 at September 30, 2024 and December 31, 2023, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities. Securities sold under repurchase agreements without stated maturity dates were as follows as of: September 30, 2024 December 31, 2023 Amount Rate Amount Rate Securities sold under agreements to repurchase without stated maturity dates $ 47,134 3.17 % $ 46,801 3.11 % We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at: September 30 2024 December 31 2023 Pledged to secure borrowed funds $ 387,466 $ 391,529 Pledged to secure repurchase agreements 68,327 67,764 Pledged for public deposits and for other purposes necessary or required by law 96,356 84,099 Total $ 552,149 $ 543,392 AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at: September 30 2024 December 31 2023 U.S. Treasury $ 57,296 $ 55,623 Mortgage-backed securities 8,559 9,462 Collateralized mortgage obligations 2,472 2,679 Total $ 68,327 $ 67,764 33 Table of Contents AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate level of AFS securities to pledge to satisfy collateral requirements. As of September 30, 2024, we had the ability to borrow up to an additional $ 360,440 without pledging additional collateral. FHLB advances FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, specific AFS securities, and FHLB stock. The following table lists the maturities and weighted average interest rates of FHLB advances as of: September 30, 2024 December 31, 2023 Amount Rate Amount Rate Fixed rate due 2024 $ 15,000 5.00 % $ 40,000 5.55 % Subordinated notes We have $30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). The Notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the interest rate will reset quarterly to an annual floating rate equal to the then-current 3-month SOFR plus 256 basis points. The Notes are redeemable by us at our option, in whole or in part, on or after June 15, 2026. The Notes are not subject to redemption at the option of the holders. The following table summarizes our outstanding notes as of: September 30, 2024 December 31, 2023 Amount Rate Amount Rate Fixed rate at 3.25% to floating, due 2031 $ 30,000 3.25 % $ 30,000 3.25 % Unamortized issuance costs ( 598 ) ( 665 ) Total subordinated debt, net $ 29,402 $ 29,335 Note 5 – Computation of Earnings Per Common Share Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP. Earnings per common share have been computed based on the following for the: Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 Average number of common shares outstanding for basic calculation 7,454,097 7,495,168 7,475,571 7,517,680 Average potential effect of common shares in the Directors Plan (1) — 45,637 — 44,415 Average potential effect of common shares in the RSP 19,087 29,569 16,833 29,569 Average number of common shares outstanding used to calculate diluted earnings per common share 7,473,184 7,570,374 7,492,404 7,591,664 Net income $ 3,281 $ 4,413 $ 9,893 $ 14,364 Earnings per common share Basic $ 0.44 $ 0.59 $ 1.32 $ 1.91 Diluted 0.44 0.58 1.32 1.89 (1) Exclusive of shares held in the Rabbi Trust 34 Table of Contents Note 6 – Capital Ratios and Shareholders' Equity As of September 30, 2024 and December 31, 2023, the most recent notifications from the FRB and the FDIC categorized us as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain total risk-based, Tier 1 risk-based, Common Equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. The minimum requirements presented below include the minimum required capital levels based on the Basel III Capital Rules. Capital requirements to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. There were no conditions or events since the notifications that we believe have changed our categories. The following tables set forth these requirements and our ratios as of: September 30, 2024 Actual Minimum Capital Requirement Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio Common equity Tier 1 capital to risk weighted assets Isabella Bank $ 173,019 11.52 % $ 105,136 7.00 % $ 97,627 6.50 % Consolidated 181,981 12.08 % 105,507 7.00 % N/A N/A Tier 1 capital to risk weighted assets Isabella Bank 173,019 11.52 % 127,665 8.50 % 120,156 8.00 % Consolidated 181,981 12.08 % 128,116 8.50 % N/A N/A Total capital to risk weighted assets Isabella Bank 186,151 12.39 % 157,704 10.50 % 150,195 10.00 % Consolidated 224,516 14.90 % 158,261 10.50 % N/A N/A Tier 1 capital to average assets Isabella Bank 173,019 8.35 % 82,851 4.00 % 103,564 5.00 % Consolidated 181,981 8.77 % 83,044 4.00 % N/A N/A December 31, 2023 Actual Minimum Capital Requirement Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio Common equity Tier 1 capital to risk weighted assets Isabella Bank $ 178,316 12.48 % $ 100,043 7.00 % $ 92,897 6.50 % Consolidated 180,014 12.54 % 100,449 7.00 % N/A N/A Tier 1 capital to risk weighted assets Isabella Bank 178,316 12.48 % 121,481 8.50 % 114,335 8.00 % Consolidated 180,014 12.54 % 121,973 8.50 % N/A N/A Total capital to risk weighted assets Isabella Bank 191,739 13.42 % 150,065 10.50 % 142,919 10.00 % Consolidated 222,772 15.52 % 150,673 10.50 % N/A N/A Tier 1 capital to average assets Isabella Bank 178,316 8.71 % 81,935 4.00 % 102,419 5.00 % Consolidated 180,014 8.76 % 82,154 4.00 % N/A N/A Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for credit losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At September 30, 2024, the Bank exceeded all minimum capital requirements. 35 Table of Contents The following table summarizes the changes in AOCI by component for the: Three Months Ended September 30 2024 2023 Unrealized Gains (Losses) on AFS Securities Defined Benefit Pension Plan Total Unrealized Gains (Losses) on AFS Securities Defined Benefit Pension Plan Total Balance, July 1 $ ( 26,939 ) $ ( 697 ) $ ( 27,636 ) $ ( 35,051 ) $ ( 1,366 ) $ ( 36,417 ) OCI before reclassifications 13,081 — 13,081 ( 6,708 ) — ( 6,708 ) Amounts reclassified from AOCI — — — — — — Subtotal 13,081 — 13,081 ( 6,708 ) — ( 6,708 ) Tax effect ( 2,724 ) — ( 2,724 ) 1,394 — 1,394 OCI, net of tax 10,357 — 10,357 ( 5,314 ) — ( 5,314 ) Balance, September 30 $ ( 16,582 ) $ ( 697 ) $ ( 17,279 ) $ ( 40,365 ) $ ( 1,366 ) $ ( 41,731 ) Nine Months Ended September 30 2024 2023 Unrealized Gains (Losses) on AFS Securities Defined Benefit Pension Plan Total Unrealized Gains (Losses) on AFS Securities Defined Benefit Pension Plan Total Balance, January 1 $ ( 25,199 ) $ ( 697 ) $ ( 25,896 ) $ ( 35,828 ) $ ( 1,366 ) $ ( 37,194 ) OCI before reclassifications 10,858 — 10,858 ( 5,736 ) — ( 5,736 ) Amounts reclassified from AOCI — — — ( 67 ) — ( 67 ) Subtotal 10,858 — 10,858 ( 5,803 ) — ( 5,803 ) Tax effect ( 2,241 ) — ( 2,241 ) 1,266 — 1,266 OCI, net of tax 8,617 — 8,617 ( 4,537 ) — ( 4,537 ) Balance, September 30 $ ( 16,582 ) $ ( 697 ) $ ( 17,279 ) $ ( 40,365 ) $ ( 1,366 ) $ ( 41,731 ) Included in OCI for the three and nine-month periods ended September 30, 2024 and 2023 are changes in unrealized gains and losses related to certain auction rate money market preferred stocks. These investments, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments. 36 Table of Contents A summary of the components of unrealized gains on AFS securities included in OCI follows for the: Three Months Ended September 30 2024 2023 Auction Rate Money Market Preferred Stocks All Other AFS Securities Total Auction Rate Money Market Preferred Stocks All Other AFS Securities Total Unrealized gains (losses) arising during the period $ 109 $ 12,972 $ 13,081 $ ( 67 ) $ ( 6,641 ) $ ( 6,708 ) Tax effect — ( 2,724 ) ( 2,724 ) — 1,394 1,394 Unrealized gains (losses), net of tax $ 109 $ 10,248 $ 10,357 $ ( 67 ) $ ( 5,247 ) $ ( 5,314 ) Nine Months Ended September 30 2024 2023 Auction Rate Money Market Preferred Stocks All Other AFS Securities Total Auction Rate Money Market Preferred Stocks All Other AFS Securities Total Unrealized gains (losses) arising during the period $ 186 $ 10,672 $ 10,858 $ 228 $ ( 5,964 ) $ ( 5,736 ) Reclassification adjustment for net (gains) losses included in net income — — — — ( 67 ) ( 67 ) Net unrealized gains (losses) 186 10,672 10,858 228 ( 6,031 ) ( 5,803 ) Tax effect — ( 2,241 ) ( 2,241 ) — 1,266 1,266 Unrealized gains (losses), net of tax $ 186 $ 8,431 $ 8,617 $ 228 $ ( 4,765 ) $ ( 4,537 ) Note 7 – Fair Value Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are: Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods. Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally, we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion. Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources. Loans: We do not record loans at fair value on a recurring basis. However, some loans are individually evaluated for ACL purposes, and a specific ACL may be established. To measure reserve, the fair value of the loan is estimated using the fair value of the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the 37 Table of Contents loan’s effective interest rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. We review the net realizable values of the underlying collateral for collateral dependent loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated. The following tables list the quantitative information about loans measured at fair value on a nonrecurring basis as of: September 30, 2024 Valuation Technique Fair Value Unobservable Input Actual Range Weighted Average Collateral Dependent Loans - Discount applied to collateral: Discounted value $ 357 Real Estate 20 % 20 % December 31, 2023 Valuation Technique Fair Value Unobservable Input Actual Range Weighted Average Collateral Dependent Loans - Discount applied to collateral: Discounted value $ 1,083 Real Estate 20 % 20 % Equipment 25 % - 35 % 33 % Accounts receivable 25 % 25 % Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation. OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 3. The following table lists the quantitative information about OMSR fair value measurement as of: September 30, 2024 Valuation Technique Fair Value Unobservable Input Rate Discounted cash flow $ 2,277 Constant prepayment rate 7 % Discount rate 11 % During the third quarter of 2024, the classification of OMSR was changed from Level 2 to Level 3. We elected to reevaluate our process for testing for impairment, which included a change in the third-party provider for the valuation. Our valuation is generated using a model-based approach that relies upon significant assumptions not observable in the market. As such, the Level 3 classification is most appropriate based on the valuation approach. As a result of the change described above, Level 3 transfers in and Level 2 transfer out totaled $2,277 as of September 30, 2024. There were no other transfers to or from Levels 1, 2, or 3 as of September 30, 2024 or December 31, 2023. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement. Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. 38 Table of Contents The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of: September 30, 2024 Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 ASSETS Cash and cash equivalents $ 27,378 $ 27,378 $ 27,378 $ — $ — FHLB stock (1) 12,762 N/A — — — Mortgage loans HFS 504 513 — 513 — Gross loans 1,424,283 1,367,235 — — 1,367,235 Less allowance for credit losses 12,635 12,635 — — 12,635 Net loans 1,411,648 1,354,600 — — 1,354,600 Accrued interest receivable 8,567 8,567 8,567 — — Equity securities without readily determinable fair values (1) 3,086 N/A — — — OMSR 2,218 2,277 — — 2,277 LIABILITIES Deposits without stated maturities 1,398,235 1,398,235 1,398,235 — — Deposits with stated maturities 383,597 381,378 — 381,378 — Short-term borrowings 52,434 52,360 — 52,360 — FHLB advances 15,000 15,000 — 15,000 — Subordinated debt, net of unamortized issuance costs 29,402 27,147 — 27,147 — Accrued interest payable 973 973 973 — — December 31, 2023 Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 ASSETS Cash and cash equivalents $ 33,672 $ 33,672 $ 33,672 $ — $ — FHLB stock (1) 12,762 N/A — — — Mortgage loans HFS — — — — — Gross loans 1,349,463 1,292,458 — — 1,292,458 Less allowance for credit losses 13,108 13,108 — — 13,108 Net loans 1,336,355 1,279,350 — — 1,279,350 Accrued interest receivable 8,167 8,167 8,167 — — Equity securities without readily determinable fair values (1) 3,086 N/A — — — OMSR 2,422 3,164 — 3,164 — LIABILITIES Deposits without stated maturities 1,377,321 1,377,321 1,377,321 — — Deposits with stated maturities 346,374 341,489 — 341,489 — Short-term borrowings 46,801 46,704 — 46,704 — FHLB advances 40,000 40,000 — 40,000 — Subordinated debt, net of unamortized issuance costs 29,335 26,146 — 26,146 — Accrued interest payable 890 890 890 — — (1) Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment. 39 Table of Contents Financial Instruments Recorded at Fair Value The table below presents the recorded amount of assets and liabilities measured at fair value on: September 30, 2024 December 31, 2023 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Recurring items AFS securities U.S. Treasury $ 220,829 $ — $ 220,829 $ — $ 214,801 $ — $ 214,801 $ — States and political subdivisions 82,899 — 82,899 — 92,876 — 92,876 — Auction rate money market preferred 3,117 — 3,117 — 2,931 — 2,931 — Mortgage-backed securities 28,955 — 28,955 — 32,815 — 32,815 — Collateralized mortgage obligations 163,764 — 163,764 — 177,775 — 177,775 — Corporate 7,242 — 7,242 — 6,950 — 6,950 — Total AFS securities 506,806 — 506,806 — 528,148 — 528,148 — Nonrecurring items Collateral dependent (net of ACL) 357 — — 357 1,083 — — 1,083 OMSR 2,218 — — 2,218 2,422 — 2,422 — Foreclosed assets 546 — — 546 406 — — 406 Total $ 509,927 $ — $ 506,806 $ 3,121 $ 532,059 $ — $ 530,570 $ 1,489 Percent of assets and liabilities measured at fair value 0.00 % 99.39 % 0.61 % 0.00 % 99.72 % 0.28 % We recorded an impairment related to OMSR of $ 21 through earnings for the three and nine month periods ended September 30, 2024 and $ 0 for the three and nine month periods ended September 30, 2023. We also recorded an impairment related to foreclosed assets of $ 0 through earnings for the three and nine month periods ended September 30, 2024 and $ 27 and $ 36 for the three and nine month periods ended September 30, 2023 We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of September 30, 2024. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period. 40 Table of Contents