What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-12 compared with 2024-03-07 · 680 added, 506 removed, 1305 unchanged (48% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Supplementary data regarding quarterly results of operations is included in Item 7.

Supplementary data regarding results of operations is included in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Report of Independent Registered Public Accounting Firm

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Also, in our opinion Isabella Bank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.

Adoption of New Accounting Standard

As discussed in Notes 1 and 4 to the consolidated financial statements, Isabella Bank Corporation changed its method for accounting for credit losses on loans in 2023.

As explained below, auditing the Corporation's allowance for credit losses on loans, including adoption of the new accounting guidance related to the estimate of allowance for credit losses on loans, was a critical audit matter.

Basis for Opinions

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A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation;

(2) provide reasonable assurance that transactions are recorded as

necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the consolidated financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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One Critical Audit Matter

The critical audit matter communicated below arising from the current period audit of the financial statements was communicated or is required to be communicated to the Corporation's audit committee and (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, nor our opinion on internal control over financial reporting, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or requires to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Credit Losses

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As described in Notes 1 and 3 to the consolidated financial statements, in the cases of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected.

As described in Notes 1 and 9 to the consolidated financial statements, in the case of unfunded loan commitments, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities.

The Corporation adopted ASC 326 effective January 1, 2023.

As described in Notes 1 and 14 to the consolidated financial statements, in the case of unfunded loan commitments, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of other liabilities.

The amount of each allowance account represented management’s best estimate of current expected credit losses on these financial instruments considering all available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument.

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We obtained an understanding of the Corporation’s process for establishing the ACL, including the implementation of Models and the qualitative factor adjustments of the ACL.

We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL, the

accuracy of the calculation of the ACL, management’s review and approval of methodologies used to establish the ACL, validation procedures over the Models, analysis of changes in various components of the ACL relative to changes in the Corporation’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ACL.

We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL, the accuracy of the calculation of the ACL, management’s review and approval of methodologies used to establish the ACL, validation procedures over the Models, analysis of changes in various components of the ACL relative to changes in the Corporation’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ACL.

In doing so, we tested the operating effectiveness of review and approval controls in the Corporation’s governance process designed to identify and assess the qualitative factor adjustments which is meant to measure expected credit losses associated with factors not captured fully in the other components of the ACL.

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To test the reasonableness of the qualitative factor adjustments, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Corporation to estimate the ACL, testing the completeness and accuracy of data and information used by the Corporation in estimating the components of the ACL, assessing the reasonableness of the Models, evaluating the appropriateness of assumptions used in estimating the qualitative factor adjustments, analyzing the changes in assumptions and various components of the ACL relative to changes in the Corporation’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative factor adjustments.

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/s/ Rehmann Robson LLC

Rehmann Robson LLC

We have served as Isabella Bank Corporation's independent auditor since 1996.

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March 12, 2025

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CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

Cash and cash equivalents

Cash and demand deposits due from banks $ 22,830 $ 25,628

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AFS securities, at fair value 489,029 528,148

Mortgage loans AFS — 379

FHLB stock 12,762 12,762

Mortgage loans HFS 242 —

Loans 1,423,571 1,349,463

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Premises and equipment 27,659 27,639

Corporate owned life insurance policies 33,892 32,988

Equity securities without readily determinable fair values 15,848 15,746

Cash surrender value of BOLI 34,882 33,892

Goodwill and other intangible assets 48,283 48,284

Accrued interest receivable and other assets 35,130 33,586

Other assets 38,166 38,216

Total assets $ 2,086,241 $ 2,058,968

LIABILITIES AND SHAREHOLDERS’ EQUITY

Noninterest bearing $ 428,505 $ 494,346

Demand deposits $ 416,373 $ 428,505

Interest bearing demand deposits 341,366 320,737

Certificates of deposit under $250 and other savings 857,768 810,642

Certificates of deposit over $250 116,685 67,132

Savings 601,730 628,079

Certificates of deposit 387,591 346,374

Total deposits 1,747,060 1,723,695

Borrowed funds

Federal funds purchased and repurchase agreements 46,801 57,771

Short-term borrowings 53,567 46,801

FHLB advances 30,000 40,000

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Total borrowed funds 112,991 116,136

Accrued interest payable and other liabilities 16,735 12,766

Other liabilities 15,914 16,735

Total liabilities 1,875,965 1,856,566

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Common stock — no par value 15,000,000 shares authorized;

issued and outstanding 7,485,889 shares (including 150,581 shares held in the Rabbi Trust) in 2023 and 7,559,421 shares (including 154,879 shares held in the Rabbi Trust) in 2022

issued and outstanding 7,424,893 shares in 2024 and 7,485,889 shares in 2023

126,224 127,323

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The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands except per share amounts)

Common Shares

Outstanding Amount Common Shares to be

Obligations Retained

Earnings Accumulated

Comprehensive

Income (Loss) Totals

Balance, January 1, 2021 7,997,247 $ 142,247 $ 4,183 $ 64,460 $ 7,698 $ 218,588

Comprehensive income (loss) — — — 19,499 ( 5,839 ) 13,660

Issuance of common stock 67,436 1,593 — — — 1,593

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 71 ( 71 ) — — —

Share-based payment awards under the Directors Plan — — 433 — — 433

Share-based compensation expense recognized in earnings under the RSP — 86 — — — 86

Common stock purchased for deferred compensation obligations — ( 1,187 ) — — — ( 1,187 )

Common stock repurchased ( 532,042 ) ( 13,758 ) — — — ( 13,758 )

Cash dividends paid ($ 1.08 per common share)

— — — ( 8,367 ) — ( 8,367 )

Balance, December 31, 2021 7,532,641 129,052 4,545 75,592 1,859 211,048

Comprehensive income (loss) — — — 22,238 ( 39,053 ) ( 16,815 )

Issuance of common stock 74,445 1,762 — — — 1,762

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 3 ( 3 ) — — —

Share-based payment awards under the Directors Plan — — 463 — — 463

Share-based compensation expense recognized in earnings under the RSP — 147 — — — 147

Common stock purchased for deferred compensation obligations — ( 1,189 ) — — — ( 1,189 )

Common stock repurchased ( 47,665 ) ( 1,124 ) — — — ( 1,124 )

Cash dividends paid ($ 1.09 per common share)

— — — ( 8,082 ) — ( 8,082 )

Balance, December 31, 2022 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) — — — 18,167 11,298 29,465

Issuance of common stock 75,488 1,617 — — — 1,617

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 1,841 ( 1,841 ) — — —

Share-based payment awards under the Directors Plan — — 529 — — 529

Share-based compensation expense recognized in earnings under the RSP — 253 — — — 253

Common stock purchased for deferred compensation obligations — ( 1,624 ) — — — ( 1,624 )

Common stock repurchased ( 149,020 ) ( 3,415 ) — — — ( 3,415 )

Cash dividends paid ($ 1.12 per common share)

— — — ( 8,216 ) — ( 8,216 )

Balance, December 31, 2023 7,485,889 $ 127,323 $ 3,693 $ 97,282 $ ( 25,896 ) $ 202,402

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

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Interest income

Loans, including fees $ 65,670 $ 53,283 $ 51,410

Loans $ 77,295 $ 65,670 $ 53,283

AFS securities 11,093 12,156 11,171

Taxable 9,514 8,363 4,920

Nontaxable 2,642 2,808 3,077

FHLB stock 640 355 174

Federal funds sold and other 950 1,450 1,170

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Deposits 29,690 18,352 4,021

Federal funds purchased and repurchase agreements 961 79 53

Short-term borrowings 1,439 961 79

FHLB advances 1,949 1,309 152

Subordinated debt, net of unamortized issuance costs

Subordinated debt

1,065 1,065 1,065

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Wealth management fees 4,041 3,557 3,005

Earnings on corporate owned life insurance policies 920 884 800

Earnings on BOLI 1,007 920 884

Net gain on sale of mortgage loans 213 317 631

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Compensation and benefits 28,576 25,905 24,887

Furniture and equipment 6,519 6,006 5,462

Occupancy 3,778 3,691 3,661

Occupancy and equipment 10,524 10,297 9,697

Other professional services 2,212 2,340 2,358

ATM and debit card fees 1,975 1,767 1,909

Marketing 1,712 2,074 1,979

FDIC insurance premiums 1,132 922 537

Other losses 1,117 871 546

Memberships and subscriptions 928 1,042 876

Loan underwriting fees 866 927 1,004

Other 3,087 3,165 3,027

Total noninterest expenses 52,129 49,310 46,820

Income before federal income tax expense 21,832 26,844 23,347

Federal income tax expense 3,665 4,606 3,848

Income before income tax expense 16,398 21,832 26,844

Income tax expense 2,509 3,665 4,606

Net income $ 13,889 $ 18,167 $ 22,238

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The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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Unrealized gains (losses) on AFS securities

Unrealized gains (losses) arising during the period 13,365 ( 50,015 ) ( 8,371 )

Unrealized gains (losses) during the period 5,339 13,365 ( 50,015 )

Reclassification adjustment for net realized (gains) losses included in net income — ( 67 ) —

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Unrealized gains (losses) on AFS securities, net of tax 4,241 10,629 ( 39,701 )

Unrealized gains (losses) on derivative instruments

Unrealized gains (losses) on derivative instruments arising during the period — — 53

Tax effect (1)

Unrealized gains (losses) on derivative instruments, net of tax — — 42

Change in unrecognized pension cost on defined benefit pension plan

Change in unrecognized pension cost arising during the period 752 762 955

Change in unrecognized pension cost during the period 462 752 762

Reclassification adjustment for net periodic benefit cost included in net income ( 82 ) 95 59

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Comprehensive income (loss) $ 18,430 $ 29,465 $ ( 16,815 )

(1) See “Note 16 – Accumulated Other Comprehensive Income (Loss)” in the accompanying notes to consolidated financial statements for tax effect reconciliation.

(1) See “Note 9 – Capital Ratios and Shareholders' Equity” in the accompanying notes to consolidated financial statements for tax effect reconciliation.

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands except per share amounts)

Common Shares

Outstanding Amount Common Shares to be

Obligations Retained

Earnings Accumulated

Comprehensive

Income (Loss) Totals

Balance, December 31, 2021 7,532,641 $ 129,052 $ 4,545 $ 75,592 $ 1,859 $ 211,048

Comprehensive income (loss) — — — 22,238 ( 39,053 ) ( 16,815 )

Issuance of common stock 74,445 1,762 — — — 1,762

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 3 ( 3 ) — — —

Share-based payment awards under the Directors Plan — — 463 — — 463

Share-based compensation expense recognized in earnings under the RSP — 147 — — — 147

Common stock purchased for deferred compensation obligations — ( 1,189 ) — — — ( 1,189 )

Common stock repurchased ( 47,665 ) ( 1,124 ) — — — ( 1,124 )

Cash dividends paid ($ 1.09 per common share)

— — — ( 8,082 ) — ( 8,082 )

Balance, December 31, 2022 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) — — — 18,167 11,298 29,465

Issuance of common stock 75,488 1,617 — — — 1,617

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 1,841 ( 1,841 ) — — —

Share-based payment awards under the Directors Plan — — 529 — — 529

Share-based compensation expense recognized in earnings under the RSP — 253 — — — 253

Common stock purchased for deferred compensation obligations — ( 1,624 ) — — — ( 1,624 )

Common stock repurchased ( 149,020 ) ( 3,415 ) — — — ( 3,415 )

Cash dividends paid ($ 1.12 per common share)

— — — ( 8,216 ) — ( 8,216 )

Balance, December 31, 2023 7,485,889 127,323 3,693 97,282 ( 25,896 ) 202,402

Comprehensive income (loss) — — — 13,889 4,541 18,430

Issuance of common stock 75,341 1,523 — — — 1,523

Issuance of common stock for vested shares under the RSP 16,240 — — — — —

Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations — 1,691 ( 1,691 ) — — —

Share-based payment awards under the Directors Plan — — 381 — — 381

Share-based compensation expense recognized in earnings under the RSP — 95 — — — 95

Common stock purchased for deferred compensation obligations — ( 1,332 ) — — — ( 1,332 )

Common stock repurchased ( 152,577 ) ( 3,076 ) — — — ( 3,076 )

Cash dividends paid ($ 1.12 per common share)

— — — ( 8,147 ) — ( 8,147 )

Balance, December 31, 2024 7,424,893 $ 126,224 $ 2,383 $ 103,024 $ ( 21,355 ) $ 210,276

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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Depreciation 2,086 1,978 2,071

Amortization of OMSR 137 97 597

Amortization of acquisition intangibles 3 15 29

Amortization of subordinated debt issuance costs 90 87 52

Net amortization of AFS securities 1,332 1,474 2,018

Net gains on sale of AFS securities ( 67 ) — —

Net gain on sale of mortgage loans ( 213 ) ( 317 ) ( 631 )

Change in OMSR valuation allowance 1 — ( 532 )

Net (gains) losses on foreclosed assets ( 158 ) ( 13 ) ( 39 )

Increase in cash value of corporate owned life insurance policies, net of expenses ( 904 ) ( 818 ) ( 751 )

Gains from redemption of corporate owned life insurance policies — ( 57 ) ( 271 )

Share-based payment awards under the Directors Plan 529 463 433

Share-based payment awards under the RSP 253 147 86

Increase in cash value of BOLI ( 990 ) ( 904 ) ( 818 )

Share-based payment awards 476 782 610

Deferred income tax expense (benefit) ( 310 ) 1,008 13

Origination of loans held-for-sale ( 9,657 ) ( 21,382 ) ( 48,957 )

Origination of loans HFS ( 8,768 ) ( 9,657 ) ( 21,382 )

Proceeds from loan sales 8,739 10,353 23,369

Net changes in operating assets and liabilities which provided (used) cash:

Accrued interest receivable and other assets ( 809 ) ( 2,813 ) 1,208

Accrued interest payable and other liabilities 1,006 2,182 146

Net changes in:

Other assets 1,719 ( 427 ) ( 2,822 )

Other liabilities ( 208 ) 1,096 2,269

Net cash provided by (used in) operating activities 19,637 24,182 26,886

Investing activities

Activity in AFS securities

Sales 18,089 — —

Maturities, calls, and principal payments 57,001 68,956 100,289

Purchases ( 10,866 ) ( 210,869 ) ( 262,266 )

Purchase of equity investments ( 102 ) ( 250 ) —

Net loan principal (originations) collections ( 85,783 ) 36,672 ( 63,210 )

Proceeds from sales of foreclosed assets 569 241 716

Proceeds from sales, maturities, calls and prepayments of AFS securities 48,526 75,090 68,956

Purchases of AFS securities ( 5,400 ) ( 10,866 ) ( 210,869 )

Net change in loans HFI ( 76,862 ) ( 85,783 ) 36,672

Purchases of premises and equipment ( 2,106 ) ( 4,064 ) ( 3,205 )

Purchases of corporate owned life insurance policies — — ( 4,272 )

Proceeds from redemption of corporate owned life insurance policies — 359 1,114

Proceeds from sale of FHLB Stock — — 2,288

Purchases of FRB Stock — ( 401 ) —

Funding of low income housing tax credit investments ( 623 ) ( 46 ) ( 413 )

Low income housing tax credit investments ( 2,024 ) ( 623 ) ( 46 )

Net cash provided by (used in) investing activities ( 37,866 ) ( 26,246 ) ( 106,204 )

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

Year Ended December 31

2023 2022 2021

Financing activities

Net increase (decrease) in deposits $ 23,365 $ ( 20,580 ) $ 33,936

Net increase (decrease) in fed funds purchased and repurchase agreements ( 10,970 ) 7,609 ( 18,585 )

Net increase (decrease) in short-term borrowings 6,766 ( 10,970 ) 7,609

Net increase (decrease) in FHLB advances ( 10,000 ) 40,000 ( 20,000 )

Issuance of subordinated debt, net of unamortized issuance costs — — 29,106

Cash dividends paid on common stock ( 8,147 ) ( 8,216 ) ( 8,082 )

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The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Isabella Bank Corporation is a financial services holding company offering a wide array of financial products and services in several mid-Michigan counties.

Our banking subsidiary, Isabella Bank, offers banking services throughout 31 locations, 24 hour banking services locally and nationally through shared ATMs, online banking, mobile banking, and direct deposits to businesses, institutions, individuals and their families.

Lending services offered include commercial loans, agricultural loans, residential real estate loans, and consumer loans.

Deposit services include interest and noninterest bearing checking accounts, savings accounts, money market accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, and ATMs.

Other related financial products include trust and investment services, safe deposit box rentals, and various insurance related products.

Active competition, principally from other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and insurance companies, exists in all of our principal markets.

Our results of operations can be significantly affected by changes in interest rates, changes in the local economic environment and changes in regulations.

Our banking subsidiary, Isabella Bank, offers banking services throughout 31 locations, offering lending and deposit services, trust and investment services, and various insurance related products.

OPERATING SEGMENTS:

Segment information is prepared on the same basis that our CEO, who is our Chief Operating Decision Maker (“CODM”), manages our segments, evaluates financial results, and makes key operating decisions.

While the CODM monitors the revenue streams of our various products and services, operations are managed, and financial performance is evaluated on a corporate-wide basis.

Operating segments are aggregated into one as operating results for all segments are similar.

Accordingly, all of the banking related operations are considered by management to be aggregated in one reportable operating segment.

The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and geographical regions are similar.

The CODM will evaluate the financial performance of our business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing our reportable segment and in the determination of allocating resources.

Further, the CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets.

Consolidated net income is used to benchmark results against our competitors.

Benchmarking and the monitoring of budget to actual results are used in assessment performance and in establishing compensation.

Revenue from banking operations consists primarily of loan and investment interest, deposit related fees, and wealth fees.

Interest expense, provision for credit losses, compensation, and occupancy and equipment costs provide the significant expenses in our banking operations.

All operations are domestic.

RECLASSIFICATIONS:

Certain amounts reported in the 2023 and 2022 consolidated financial statements have been reclassified to conform with the 2024 presentation.

USE OF ESTIMATES:

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Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL, the fair value of AFS investment securities, and the valuation of goodwill and other intangible assets.

ACCOUNTING CHANGES AND RECLASSIFICATIONS:

Certain amounts reported in the 2022 and 2021 consolidated financial statements have been reclassified to conform with the 2023 presentation.

On January 1, 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements.

ASC 326 updated the measurement for credit losses for AFS debt securities and assets measured at amortized cost, which includes loans, trade receivables, and any other financial assets with the contractual right to receive cash and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.

Prior to ASU No.

2016-13, GAAP required an “incurred loss” methodology for recognizing credit losses that delayed recognition until it was probable a loss has been incurred.

Under the incurred loss approach, entities were limited to a probable initial recognition threshold when credit losses were measured;

an entity generally considered only past events and current conditions when measuring the incurred loss.

We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures.

Results for reporting periods beginning January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022.

We recorded a net decrease to retained earnings of $ 2,417 as of January 1, 2023 for the cumulative effect of adopting ASC 326.

We adopted ASC 326 using the prospective transition approach for AFS debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023.

As a result, the amortized cost basis remains the same before and after the effective date of ASC 326.

The effective interest rate on these debt securities was not changed.

Amounts previously recognized in accumulated other comprehensive income as of January 1, 2023 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset.

Recoveries of amounts previously written off relating to improvements in cash flows beginning January 1, 2023 will be recorded in earnings when received.

The following table details the impact of the adoption of ASC 326:

January 1, 2023

Allowance Impact of

Adoption Post-Adoption

Allowance Cumulative

Retained Earnings

Commercial and industrial $ 860 $ ( 58 ) $ 802 $ 46

Commercial real estate 461 5,532 5,993 ( 4,370 )

Agricultural 577 ( 247 ) 330 195

Residential real estate 617 3,535 4,152 ( 2,793 )

Consumer 961 356 1,317 ( 281 )

Unallocated 6,374 ( 6,374 ) — 5,035

Total $ 9,850 $ 2,744 $ 12,594 $ ( 2,168 )

Off-balance-sheet credit exposures $ — $ 315 $ 315 $ ( 249 )

In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are provided below.

All other 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, 2022.

SUBSEQUENT EVENTS:

We evaluated subsequent events after December 31, 2024 through the date our consolidated financial statements were issued for potential recognition and disclosure.

No subsequent events require financial statement recognition or disclosure between December 31, 2024 and the date our consolidated financial statements were issued.

FAIR VALUE MEASUREMENTS:

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We may choose to measure eligible items at fair value at specified election dates.

For assets and liabilities recorded at fair value, it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements for those financial instruments for which there is an active market.

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In cases where the market for a financial asset or liability is not active, we include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks when developing fair value measurements.

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We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

Investment securities AFS and derivative instruments are recorded at fair value on a recurring basis.

Investment securities AFS are recorded at fair value on a recurring basis.

Additionally, from time to time, we may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as mortgage loans AFS, collateral dependent loans, foreclosed assets, OMSR, goodwill, and certain other assets and liabilities.

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and (b) it is more likely than not we will not have to sell the security before recovery of its cost basis.

If either of these conditions are met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income.

If either of these conditions are met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value

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through income.

If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

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We made an accounting policy election to exclude accrued interest receivable on AFS securities from the estimate of credit losses.

Accrued interest receivable on AFS securities was $ 2,247 at December 31, 2023.

Accrued interest receivable on AFS securities was $ 1,701 and $ 2,247 at December 31, 2024, and 2023, which is included in other assets.

AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management, or when criteria regarding intent or requirement to sell is met.

Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and any deferred fees or costs.

Loans held for investment are reported at amortized cost.

Amortized cost is the principal balance outstanding net of the unamortized balance of deferred fees and costs and any unamortized premium or discount on loan purchases or acquired.

Interest income on loans 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 yield methods.

NONPERFORMING LOANS:

The accrual of interest on agricultural, commercial and mortgage loans is discontinued at the time the loan is 90 days or more past due unless the credit is well secured and in the process of collection.

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For loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

The ACL on loans is calculated in accordance with ASC 326 and is deducted from the amortized cost basis of loans to present our best estimate of the net amount expected to be collected.

The ACL is established through a provision for credit losses charged to earnings.

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We made an accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

Accrued interest receivable on loans was $ 5,920 at December 31, 2023.

Accrued interest receivable on loans was $ 6,384 and $ 5,920 at December 31, 2024, and 2023, which is included in other assets.

We evaluate the ACL on a regular basis.

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For large groups of smaller-balance, homogeneous loans, we may collectively evaluate these loans for measurement of an allowance.

LOAN MODIFICATIONS:

A loan modification includes terms outside of normal lending practices to a borrower experiencing financial difficulty.

Loans are considered to have been modified when, due to a borrower’s financial difficulties, certain concessions are made to the borrower that would not otherwise consider.

Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid

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foreclosure or repossession of collateral.

We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts.

LOANS HELD FOR SALE:

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Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

ACCRUED INTEREST:

Accrued interest receivable balances are presented within other assets on the consolidated balance sheet.

Accrued interest is excluded from the measurement of the allowance for credit losses, including investments and loans.

Generally, accrued interest is reversed when a loan is placed in nonaccrual status or charged off.

Current year accrued interest is reversed through interest income while accrued interest from prior years is charged off through the ACL.

TRANSFERS OF FINANCIAL ASSETS:

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Other than servicing, we have no substantive continuing involvement related to these loans.

CAPITALIZED MORTGAGE SERVICING RIGHTS:

Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets.

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Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

The unpaid principal balance of mortgages serviced for others was $ 248,756 and $ 264,206 with capitalized servicing rights of $ 2,422 and $ 2,559 at December 31, 2023 and 2022, respectively, which are included in other assets.

The unpaid principal balance of mortgages serviced for others was $ 231,143 and $ 248,756 with capitalized servicing rights of $ 2,185 and $ 2,422 at December 31, 2024 and 2023, respectively.

Servicing fee income is recorded for fees earned for servicing loans for others.

The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

We recorded servicing fee revenue of $ 630 , $ 669 , and $ 747 related to residential mortgage loans serviced for others during 2023, 2022, and 2021, respectively, which is included in other noninterest income.

We recorded servicing fee revenue of $ 588 , $ 630 , and $ 669 related to residential mortgage loans serviced for others during 2024, 2023, and 2022, respectively, which is included in service charges and fees.

FORECLOSED ASSETS:

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Foreclosed assets of $ 544 and $ 406 as of December 31, 2024 and 2023, respectively, are included in other assets.

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PREMISES AND EQUIPMENT:

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EQUITY SECURITIES WITHOUT READILY DETERMINABLE FAIR VALUES:

Included in equity securities without readily determinable fair values are our holdings in FHLB stock and FRB stock.

We hold equity securities without readily determinable fair values which include our holdings of FHLB stock and FRB stock.

Equity securities without readily determinable fair values, with the exception of FHLB stock, are included in other assets.

Equity securities without readily determinable fair values consist of the following holdings as of December 31:

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The impact of forfeitures of share-based payment awards on compensation expense is recognized as forfeitures occur.

Compensation costs relating to share-based payment transactions are recognized as the services are rendered, with the cost measured based on the fair value of the equity or liability instruments issued (see “Note 12 – Benefit Plans”).

CORPORATE OWNED LIFE INSURANCE:

BANK OWNED LIFE INSURANCE:

We have purchased life insurance policies on key members of management, partially for the purpose of funding certain post-retirement benefits.

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Such policies are recorded at their cash surrender value, or the amount that can be realized on the balance sheet date.

Increases in cash surrender value in excess of single premiums paid are reported as other noninterest income.

Of the purchased life insurance policies, we hold post retirement benefits with a present value estimated to be $ 2,515 and $ 2,905 as of December 31, 2023 and 2022, respectively, which is included in accrued interest payable and other liabilities.

The expenses associated with these policies totaled $ 173 , $ 61 , and $ 33 for 2023, 2022, and 2021, respectively.

Increases in cash surrender value in excess of single premiums paid are reported as earnings on BOLI policies.

Of the purchased life insurance policies, we hold post retirement benefits with a present value estimated to be $ 2,687 and $ 2,515 as of December 31, 2024 and 2023, respectively, which is included in other liabilities.

The expenses associated with these policies totaled $ 172 , $ 173 , and $ 61 for 2024, 2023, and 2022, respectively, which are included in compensation and benefits expense and other noninterest expenses.

ACQUISITION INTANGIBLES AND GOODWILL:

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Goodwill, which represents the excess of the purchase price over identifiable assets, is not amortized but is evaluated for impairment on at least an annual basis.

Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired.

If it is determined that the carrying balance is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment.

Acquisition intangibles and goodwill are qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired.

On at least an annual basis we perform a cash flow, trading multiples, and acquisition multiples valuation to determine if the carrying balance is impaired and to what extent goodwill is impaired.

This valuation method requires a significant degree of our judgment.

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The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment.

The likelihood and expected amount of funding are based on historical utilization rates.

The likelihood and expected amount of

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funding are based on historical utilization rates.

No allowance is recognized if we have the unconditional right to cancel the obligation.

The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets.

The allowance is reported as a component of other liabilities.

Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.

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Revenue is recognized when our performance obligation has been satisfied according to our contractual obligation.

For additional information, see “Note 11 – Revenue.”

WEALTH MANAGEMENT:

Wealth management assets held in a fiduciary or agent capacity are not included in our consolidated balance sheets because the ownership is held by customers.

Trust and investment management fees are primarily comprised of fees earned from investment management, trust administration, tax return preparation, and financial planning.

FEDERAL INCOME TAXES:

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We also treat interest and penalties attributable to income taxes, to the extent they arise, as a component of our noninterest expenses.

EARNINGS PER 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.

A reconciliation of basic earnings per common share and diluted earnings per common share for the reported periods is provided in Note 10 – Computation of Earnings Per Common Share .

DEFINED BENEFIT PENSION PLAN:

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007.

The service cost component of the defined benefit pension plan is included in “compensation and benefits” on the consolidated statements of income and is funded consistent with the requirements of federal laws and regulations.

All other costs related to the defined benefit pension plan are included in “other” noninterest expenses on the consolidated statements of income.

The current benefit obligation is included in "accrued interest payable and other liabilities" on the consolidated balance sheets.

The service cost component of the defined benefit pension plan is included in compensation and benefits and is funded consistent with the requirements of federal laws and regulations.

All other costs related to the defined benefit pension plan are included in other noninterest expenses.

The current benefit obligation is included in other liabilities.

Inherent in the determination of defined benefit pension costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under the plan.

These assumptions include demographic assumptions such as mortality, a discount rate used to determine the current benefit obligation and a long-term

expected rate of return on plan assets.

These assumptions include demographic assumptions such as mortality, a discount rate used to determine the current benefit obligation and a long-term expected rate of return on plan assets.

Net periodic benefit cost includes the interest cost based on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related value of assets, and amortization of unrecognized net actuarial gains or losses.

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MARKETING COSTS:

Marketing costs are expensed as incurred (see “Note 14 – Other Noninterest Expenses”).

Note 2 – Accounting Standards Updates

Pending Accounting Standards Updates

Marketing costs are expensed as incurred and are included in other noninterest expenses.

ACCOUNTING STANDARDS UPDATE:

Recently Adopted Accounting Standards

“Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”

2023-07, issued in November 2023, requires public business entities with a single reportable segment to provide the disclosures required by this standard and the existing segment disclosures in Topic 280 on an interim and annual basis.

The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance.

The new authoritative guidance is effective for annual

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periods beginning after December 15, 2023.

We adopted the this standard on a retrospective basis, which did not have a material impact on our consolidated financial statements.

Pending Accounting Standards

“Income Tax (Topic 740):

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The existing disclosure is being enhanced to provide information to help investors, lenders, creditors and all other allocators of capital asses how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2024 and is not expected to have a significant impact on our operations or financial statement disclosures.

The new authoritative guidance is effective for annual periods beginning after December 15, 2024 and will not have a significant impact on our operations or financial statement disclosures.

“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses"

In November 2024, ASU No.

2024-03 was issued to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling general and administrative expense, and research and development).

The new authoritative guidance is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, as clarified in ASU No.

2025-01 issued in January 2025.

The new authoritative guidance under ASU No.

2024-03 is not expected to have a significant impact on our operations or financial statement disclosures.

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Note 2 – AFS Securities

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Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group.

Approximately $143,000 of the amortized cost of the collateralized mortgage portfolio consist of agency commercial mortgage-backed securities with defined maturity dates of less than ten years.

A summary of the sales activity of AFS securities during the years ended December 31 is displayed in the following table.

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Applicable income tax expense (benefit) — 14 —

The information on the following tables pertains to AFS securities with gross unrealized losses at December 31, 2023 and 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

December 31, 2023

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The information in the following tables pertains to AFS securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position at December 31:

Less Than Twelve Months Twelve Months or More

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Number of securities in an unrealized loss position:

December 31, 2022

Less Than Twelve Months Twelve Months or More

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Number of securities in an unrealized loss position:

The unrealized loss on our AFS securities portfolio resulted from the increase in short-term and intermediate-term interest rates.

As of December 31, 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.

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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.

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Note 3 – Loans and ACL

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Agricultural mortgage 67,550 4.75 % 69,044 5.12 %

Agricultural 30,950 2.29 % 31,983 2.53 %

Agricultural other 32,144 2.26 % 30,950 2.29 %

Total agricultural 99,694 7.01 % 99,994 7.41 %

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Total $ 1,423,571 100.00 % $ 1,349,463 100.00 %

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan.

The ability of the 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.

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.

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Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of

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closely held corporations, partnerships, and sole proprietorships.

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Secured $ — $ — $ 491 $ 435

Commercial real estate:

Commercial mortgage 1-4 family investor — — 14 14

Agricultural:

Agricultural mortgage — — 38 38

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Total $ 282 $ 282 $ 982 $ 926

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The following tables summarize the past due and current loans for the entire loan portfolio as of December 31:

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Agricultural mortgage — — — 67,550 67,550 —

Agricultural — — — 30,950 30,950 —

Agricultural other — — — 32,144 32,144 —

Total agricultural — — — 99,694 99,694 —

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Total $ 5,271 $ 502 $ 182 $ 1,417,616 $ 1,423,571 $ 19

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or More Current Total Accruing Loans 90 or More Days Past Due

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Agricultural mortgage — — — 69,044 69,044 —

Agricultural — — — 31,983 31,983 —

Agricultural other — — — 30,950 30,950 —

Total agricultural — — — 99,994 99,994 —

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Total $ 3,546 $ 639 $ 402 $ 1,344,876 $ 1,349,463 $ 87

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Credit Quality Indicators

The following table displays commercial and agricultural loans by credit risk ratings and year of origination as of December 31:

The following tables display commercial and agricultural loans by credit risk ratings and year of origination as of December 31:

2024 2023 2022 2021 2020 Prior Revolving

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Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

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2024 2023 2022 2021 2020 Prior Revolving

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Current year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit risk ratings as of December 31:

Commercial Agricultural

Real Estate Other Advances to Mortgage Brokers Total Real Estate Other Total Total

1 - Excellent $ — $ — $ — $ — $ — $ — $ — $ —

2 - High quality 9,045 4,533 — 13,578 342 100 442 14,020

3 - High satisfactory 68,133 36,608 — 104,741 9,757 4,608 14,365 119,106

4 - Low satisfactory 462,421 126,673 — 589,094 44,258 21,214 65,472 654,566

5 - Special mention 20,770 7,447 — 28,217 12,262 4,634 16,896 45,113

6 - Substandard 5,629 3,085 — 8,714 6,316 1,260 7,576 16,290

7 - Vulnerable 14 82 — 96 67 167 234 330

8 - Doubtful — — — — — — — —

9 - Loss — — — — — — — —

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2023 2022 2021 2020 2019 Prior Revolving

Loans Revolving Loans Converted to Term Total

Commercial and industrial:

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 $ 200 $ — $ — $ — $ — $ — $ — $ — $ 200

Commercial and industrial:

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 $ 8 $ — $ — $ — $ — $ — $ 68 $ — $ 76

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 $ — $ — $ — $ — $ — $ — $ — $ — $ —

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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:

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 $ — $ — $ — $ — $ — $ — $ — $ — $ —

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We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk.

The Board reviews and approves these policies and procedures on a regular basis.

A reporting system supplements the review process by providing management and the Board with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, nonperforming loans and potential problem loans.

We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

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.

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• If loan is secured, collateral is acceptable and loan is fully protected.

LOW SATISFACTORY – Acceptable Risk

SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:

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• If secured, loan collateral coverage is marginal.

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To be classified as less than satisfactory, only one of the following criteria must be met.

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• Transition status, expect action will take place to collect loan without immediate progress being made.

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DOUBTFUL – Workout

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• Over 120 days delinquent.

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Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due status.

The following table displays residential real estate and consumer loans by payment status and year of origination as of December 31:

The following tables display residential real estate and consumer loans by payment status and year of origination as of December 31:

2024 2023 2022 2021 2020 Prior Revolving

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Current year-to-date gross charge-offs $ — $ 67 $ 64 $ — $ — $ 3 $ — $ — $ 134

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2024 2023 2022 2021 2020 Prior Revolving

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Current year-to-date gross charge-offs $ 2,047 $ 15 $ 21 $ — $ — $ 2 $ 21 $ — $ 2,106

2023 2022 2021 2020 2019 Prior Revolving

Loans Revolving Loans Converted to Term Total

Residential real estate:

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:

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 $ — $ — $ — $ — $ — $ — $ — $ — $ —

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 $ 139 $ 12 $ 6 $ — $ 3 $ — $ — $ — $ 160

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2023 2022 2021 2020 2019 Prior Revolving

Loans Revolving Loans Converted to Term Total

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 $ — $ — $ — $ — $ — $ — $ — $ — $ —

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 $ 344 $ 21 $ 13 $ 2 $ — $ 1 $ 1 $ — $ 382

Loan Modifications

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• The borrower is unlikely to continue as a going concern (if the entity is a business).

The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the year ended December 31, 2023.

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The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the years ended December 31:

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 % $ 1,782 0.80 % $ 10 0.00 % $ — 0.00 %

Commercial real estate

Commercial mortgage owner occupied — 0.00 % 818 0.46 % 1,353 0.76 % — 0.00 %

Agricultural mortgage — 0.00 % 1,305 1.93 % 281 0.42 % — 0.00 %

Agricultural other 132 0.41 % — 0.00 % — 0.00 % 1,107 3.44 %

Secured - indirect — 0.00 % — 0.00 % 1 0.00 % — 0.00 %

Total $ 132 $ 3,905 $ 1,645 $ 1,107

Other-Than-Insignificant Payment Delay Term Extension Interest Rate Reduction

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Agricultural mortgage — 0.00 % 227 0.33 % 24 0.03 %

Agricultural — — % 32 0.10 % — — %

Agricultural other — 0.00 % 32 0.10 % — 0.00 %

Residential real estate

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We do not modify any loans by forgiving principal or accrued interest.

We had committed to advance $ 0 in additional funds in connection with modified loans at December 31, 2023, as displayed in the table above.

The following table summarizes the financial effect of the modifications granted to borrowers experiencing financial difficulty for the year ended December 31:

We had committed to advance $ 43 and $ 0 in additional funds in connection with modified loans at December 31, 2024 and 2023, respectively, as displayed in the tables above.

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The following tables summarize the financial effect of the modifications granted to borrowers experiencing financial difficulty for the years ended December 31:

Payment Delay Term Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (Years)

Commercial and industrial

Secured 4 months N/A 3.00

Commercial real estate

Commercial mortgage owner occupied 7 months N/A 3.00

Agricultural mortgage 5 months N/A 6.27

Agricultural other 4 months 0.50 % 0.33

Secured - indirect N/A N/A 1.33

Payment Delay Term Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (Years)

Commercial real estate

Commercial mortgage owner occupied 6 months N/A N/A

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Agricultural mortgage N/A 4.50 % 1.08

Agricultural N/A N/A 1.00

Agricultural other N/A N/A 1.00

Residential real estate

Senior lien N/A N/A 2.60

For the year ended December 31, 2022, there were four loans restructured, three with a below market interest rate in the amount of $ 2,871 , and one with both a below market interest rate and extension of amortization period in the amount of $ 98 .

Total restructured loans for the year ended December 31, 2022 was $ 2,969 .

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 table summarizes the performance of such loans that were modified during the year ended December 31, 2023.

December 31, 2023

30-59 Days 60-89 Days 90 Days or More Total Past Due

The following tables summarize the performance of such loans that were modified within the past 12 months prior to December 31:

Current 30-59 Days

Past Due 60-89 Days

Past Due 90 Days or

More Past Due Total

Commercial and industrial

Secured $ 1,782 $ 10 $ — $ — $ 1,792

Commercial real estate

Commercial mortgage owner occupied 2,171 — — — 2,171

Agricultural mortgage 1,586 — — — 1,586

Agricultural other 1,239 — — — 1,239

Secured - indirect 1 — — — 1

Total $ 6,779 $ 10 $ — $ — $ 6,789

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Current 30-59 Days

Past Due 60-89 Days

Past Due 90 Days or

More Past Due Total

Commercial real estate

Commercial mortgage owner occupied $ 118 $ — $ — $ — $ 118

Commercial mortgage non-owner occupied 1,030 — — — 1,030

Commercial mortgage multifamily 2,977 — — — 2,977

Agricultural mortgage 251 — — — 251

Agricultural other 32 — — — 32

Residential real estate

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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.

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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.

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• Changes in interest rates;

• Changes in international, national, regional, and local economic factors (international, national, regional, and local);

• Changes in international, national, regional, and local economic factors;

• Changes in the nature and volume of the portfolio and in the terms of loans;

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• Changes in the value of underlying collateral.

Upon the adoption of ASC 326, the estimated ACL using the CECL methodology increased $2,744 compared to the ACL as of December 31, 2022 using the prior incurred loss model.

The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes.

The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool.

In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio.

Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated.

Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.

A summary of changes in the ACL and the recorded investment in loans by segments follows:

Allowance for Credit Losses

Year Ended December 31, 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

A summary of changes in the ACL and the recorded investment in loans by segments are as follows for the years ended December 31:

Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Total

December 31, 2023 $ 968 $ 5,878 $ 270 $ 4,336 $ 1,656 $ 13,108

Charge-offs ( 381 ) — — ( 10 ) ( 2,393 ) ( 2,784 )

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December 31, 2024 $ 1,316 $ 5,171 $ 287 $ 4,521 $ 1,600 $ 12,895

Allowance for Loan Losses

Year Ended December 31, 2022

Commercial Agricultural Residential Real Estate Consumer Unallocated Total

January 1, 2022 $ 1,740 $ 289 $ 747 $ 908 $ 5,419 $ 9,103

Commercial and Industrial Commercial Real Estate Agricultural Residential Real Estate Consumer Unallocated Total

December 31, 2022 $ 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 ( 276 ) — ( 4 ) ( 2 ) ( 542 ) — ( 824 )

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December 31, 2023 $ 968 $ 5,878 $ 270 $ 4,336 $ 1,656 $ — $ 13,108

Allowance for Loan Losses and Recorded Investment in Loans

As of December 31, 2022

Commercial Agricultural Residential Real Estate Consumer Unallocated Total

Individually evaluated for impairment $ 12 $ — $ 439 $ — $ — $ 451

Collectively evaluated for impairment 1,309 577 178 961 6,374 9,399

The following table illustrates the two main components of the ACL as of December 31:

Individually evaluated $ — $ 84

Collectively evaluated 12,895 13,024

Total $ 12,895 $ 13,108

Individually evaluated for impairment $ 8,342 $ 10,935 $ 2,741 $ — $ 22,018

Collectively evaluated for impairment 736,098 94,050 333,953 78,054 1,242,155

ACL to gross loans

Individually evaluated — % 0.01 %

Collectively evaluated 0.91 % 0.96 %

Total 0.91 % 0.97 %

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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 December 31:

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Amortization expense associated with identifiable intangible assets was $ 1 , $ 3 , and $ 15 in 2024, 2023, and 2022, respectively.

Estimated amortization expense associated with identifiable intangibles for each of the next two years succeeding December 31, 2023, and thereafter is as follows:

Estimated Amortization Expense

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Note 6 – Deposits

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Note 7 – Borrowed Funds

Federal funds purchased and repurchase agreements

Short-term borrowings

Securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date.

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Total $ 548,987 $ 543,392

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AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at December 31:

Treasury $ 57,271 $ 55,623

States and political subdivisions — 11,037

Mortgage-backed securities 7,979 9,462

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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 maturity and weighted average interest rate of FHLB advances as of:

The following table lists the maturity and weighted average interest rate of FHLB advances as of December 31:

Amount Rate Amount Rate

Fixed rate due 2024 $ — 0.00 % $ 40,000 5.55 %

Fixed rate due 2025 30,000 4.52 % — 0.00 %

FHLB advances outstanding as of December 31, 2024 were short-term, with maturities within one week after December 31, 2024.

Subordinated Notes

On June 2, 2021, we completed a private placement of $30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "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.

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Total subordinated debt, net $ 29,424 $ 29,335

Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters

Credit-Related Financial Instruments

We are party to credit related financial instruments with off-balance-sheet risk.

These financial instruments are entered into in the normal course of business to meet the financing needs of our customers.

These financial instruments involve, to varying degrees, elements of credit and IRR in excess of the amounts recognized in the consolidated balance sheets.

The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.

The following table summarizes our credit related financial instruments with off-balance-sheet risk as of December 31:

Unfunded commitments under lines of credit $ 313,646 $ 264,902

Commercial and standby letters of credit 1,624 1,321

Commitments to grant loans 6,460 24,770

Total $ 321,730 $ 290,993

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers.

These commitments may expire without being drawn upon and do not necessarily represent future cash requirements.

Advances to mortgage brokers are also included in unfunded commitments under lines of credit.

The unfunded commitment amount is the difference between our outstanding balances and maximum outstanding aggregate amount.

Commitments to grant loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The amount of collateral obtained, if it is deemed necessary, is based on management's credit evaluation of the customer.

Commitments to grant loans include residential mortgage loans that may be committed to be sold to the secondary market.

Commercial and standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party.

Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions.

These commitments to extend credit and letters of credit generally mature within one year .

The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers.

We evaluate each customer’s credit worthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on our credit evaluation of the borrower.

While we consider standby letters of credit to be guarantees, the amount of the liability related to such guarantees on the commitment date is not significant and a liability related to such guarantees is not recorded on the consolidated balance sheets.

Our exposure to credit-related loss in the event of nonperformance by the counter parties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments.

We use the same credit policies as we do for extending loans to customers.

No significant losses are anticipated as a result of these commitments.

ACL - Off-Balance-Sheet Credit Commitments

In connection with the commitments for credit-related financial instruments discussed above, we established an allowance for credit losses related to this off-balance-sheet credit exposure.

The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit.

The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment.

The likelihood and expected amount of funding are based on historical utilization rates.

No allowance is recognized if we have the unconditional right to cancel the obligation.

The allowance was $ 315 at December 31, 2023 and is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets.

Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.

Derivative Loan Commitments

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.

We enter into commitments to fund residential mortgage loans at specific times in the future, with the intention that these loans will subsequently be sold in the secondary market.

A mortgage loan commitment binds us to lend funds to a potential borrower at a specified interest rate within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose us to the risk that the price of the loans arising from the exercise of the loan commitment might decline from the inception of the rate lock to funding of the loan due to increases in mortgage interest rates.

If interest rates increase, the value of these loan commitments decreases.

Conversely, if interest rates decrease, the value of these loan commitments increase.

There were no undesignated interest rate lock commitments at December 31, 2023 and 2022.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, we utilize both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loan that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.

If we fail to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, we are obligated to pay a “pair-off” fee, based on then current market prices, to the investor to compensate the investor for the shortfall.

With a “best efforts” contract, we commit to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes.

Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g.

on the same day the lender commits to lend funds to a potential borrower).

We expect that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

There were undesignated forward loan sale commitments of $ 0 and $ 379 at December 31, 2023 and 2022, respectively.

The fair value of these forward loan sale commitments was $ 0 and $ 394 at December 31, 2023 and 2022, respectively.

The fair values of the rate lock loan commitments related to the origination of mortgage loans that will be held for sale and the forward loan sale commitments are deemed insignificant by management and, accordingly, are not recorded in our consolidated financial statements.

Other Matters

Correspondent banks may require us to maintain minimum cash reserve balances.

The reserve balances related to correspondent banks amounted to $ 250 and $ 500 for the years ended December 31, 2023 and 2022.

Banking regulations limit the transfer of assets in the form of dividends, loans, or advances from the Bank to the Corporation.

At December 31, 2023, substantially all of the Bank’s assets were restricted from transfer to the Corporation in the form of loans or advances.

Bank dividends are the principal source of funds for the Corporation.

Payment of dividends without regulatory approval is limited to the current year’s retained net income plus retained net income for the preceding two years, less any required transfers to common stock.

At January 1, 2024, the amount available to the Corporation for dividends from the Bank, without regulatory approval, was approximately $ 27,600 .

Note 10 – Minimum Regulatory Capital Requirements

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the FRB and the FDIC.

Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by the FRB and the FDIC that, if undertaken, could have a material effect on our financial statements.

Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that include quantitative measures of assets, liabilities, capital, and certain off-balance-sheet items, as calculated under regulatory accounting standards.

Our capital amounts and classifications are also subject to qualitative judgments by the FRB and the FDIC about components, risk weightings, and other factors.

Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of total capital, tier 1 capital, and common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and tier 1 capital to average assets (as defined).

We believe, as of December 31, 2023 and 2022, that we met all capital adequacy requirements.

The FRB has established minimum risk-based capital guidelines.

Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets.

Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital.

The common equity tier 1 capital ratio has a minimum requirement of 4.50%.

The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%.

As of December 31, 2023 and 2022, 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.

There were no conditions or events since the notifications that we believe have changed our categories.

Our actual capital amounts and ratios are also presented in the table.

Actual Minimum

Requirement Minimum To Be Well

Capitalized Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

December 31, 2023

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

Actual Minimum

Requirement Minimum To Be Well

Capitalized Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

December 31, 2022

Common equity Tier 1 capital to risk weighted assets

Isabella Bank $ 190,060 14.07 % $ 94,565 7.00 % $ 87,811 6.50 %

Consolidated 175,112 12.91 % 94,948 7.00 % N/A N/A

Tier 1 capital to risk weighted assets

Isabella Bank 190,060 14.07 % 114,829 8.50 % 108,075 8.00 %

Consolidated 175,112 12.91 % 115,295 8.50 % N/A N/A

Total capital to risk weighted assets

Isabella Bank 199,910 14.80 % 141,848 10.50 % 135,093 10.00 %

Consolidated 214,207 15.79 % 142,423 10.50 % N/A N/A

Tier 1 capital to average assets

Isabella Bank 190,060 9.36 % 81,181 4.00 % 101,476 5.00 %

Consolidated 175,112 8.61 % 81,392 4.00 % N/A N/A

Note 11 – 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.

For further information related to potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP, see "Note 12 – Benefit Plans."

Earnings per common share have been computed based on the following for the years ended December 31:

2023 2022 2021

Average number of common shares outstanding for basic calculation 7,511,591 7,549,878 7,853,398

Average potential effect of common shares in the Directors Plan (1)

34,962 70,329 99,813

Average potential effect of common shares in the RSP 28,939 27,405 12,750

Average number of common shares outstanding used to calculate diluted earnings per common share 7,575,492 7,647,612 7,965,961

Net income $ 18,167 $ 22,238 $ 19,499

Earnings per common share

Basic $ 2.42 $ 2.95 $ 2.48

Diluted $ 2.40 $ 2.91 $ 2.45

(1) Exclusive of shares held in the Rabbi Trust

Note 8 – Benefit Plans

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Employees may contribute up to 100 % of their compensation subject to certain limits based on federal tax laws.

The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100 % of the first 5.0 % of an employee's compensation contributed to the Plan during the year.

The plan includes a matching safe harbor contribution for all eligible employees equal to 100 % of the first 5.0 % of an employee's compensation contributed to the Plan during the year.

Employees are 100 % vested in the safe harbor matching contributions.

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As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.

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Changes in the projected benefit obligation and plan assets during each year, the funded status of the plan, and the net amount recognized in our consolidated balance sheets using an actuarial measurement date of December 31, are summarized as follows during the years ended December 31:

Change in benefit obligation

Benefit obligation, January 1 $ 6,896 $ 9,725

Benefit obligation, beginning balance $ 6,628 $ 6,896

Interest cost 294 317

1 unchanged sentence

Benefits paid, including plan expenses ( 443 ) ( 344 )

Benefit obligation, December 31 6,628 6,896

Benefit obligation, ending balance 6,403 6,628

Change in plan assets

Fair value of plan assets, January 1 6,582 8,649

Fair value of plan assets, beginning balance 7,066 6,582

Investment return (loss) 680 828

1 unchanged sentence

Benefits paid, including plan expenses ( 443 ) ( 344 )

Fair value of plan assets, December 31 7,066 6,582

Surplus (deficiency) in funded status at December 31, included on the consolidated balance sheets in accrued interest payable and other liabilities $ 438 $ ( 314 )

Accumulated benefit obligation at December 31 $ 6,628 $ 6,896

Fair value of plan assets, ending balance 7,303 7,066

Surplus (deficiency) in funded status, ending balance $ 900 $ 438

Accumulated benefit obligation, ending balance $ 6,403 $ 6,628

Change in accrued pension benefit costs

Accrued benefit cost at January 1 $ ( 314 ) $ ( 1,076 )

Accrued benefit cost, beginning balance $ 438 $ ( 314 )

Contributions — —

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Net change in unrecognized actuarial loss and prior service cost 380 847

Prepaid (accrued) pension liability at December 31 $ 438 $ ( 314 )

We have recorded the funded status of the plan in our consolidated balance sheets.

Prepaid (accrued) pension liability, ending balance $ 900 $ 438

The funded status of the plan is recorded in our consolidated balance sheets.

We adjust the funded status in a prepaid account and the underfunded status in a liability account to reflect the current funded status of the plan.

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Pro rata settlement losses, which can occasionally occur as a result of these lump-sum distributions, are recognized only in years when the total of such distributions exceed the sum of the service and interest expense components of net periodic benefit cost.

Accumulated other comprehensive income at December 31, 2023 includes net unrecognized pension costs before income taxes of $ 882 .

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The components of accumulated other comprehensive income are as follows for the years ended December 31:

2024 2023 2022

Transition (asset) obligation $ — $ — $ —

Net (gain) loss 502 882 1,729

Past service (credit) cost — — —

Accumulated other comprehensive income $ 502 $ 882 $ 1,729

The actuarial assumptions used in determining the benefit obligation are as follows for the years ended December 31:

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Total $ 7,303 $ 7,303 $ 7,066 $ 7,066

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The following is a description of the valuation methodologies used for assets measured at fair value.

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Shares held in Rabbi Trust 142,535 3,704 150,581 3,237

Total 154,119 $ 3,313 207,840 $ 4,885

Cash Incentive Plans

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Expenses related to this plan for 2024, 2023, and 2022 were $ 103 , $ 53 , and $ 252 respectively.

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Employee Cash Incentive Plan

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of Shares Fair

Balance, January 1 27,072 $ 592 20,123 $ 418

Beginning balance 27,072 $ 592 27,072 $ 592

Granted 3,901 76 — —

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Forfeited — — — —

Balance, December 31 27,072 $ 592 27,072 $ 592

Ending balance 14,733 $ 323 27,072 $ 592

Expenses related to the RSP for 2024, 2023, 2022 were $ 95 , $ 253 , and $ 147 respectively.

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Expenses were $ 2,895 in 2024, $ 2,281 in 2023 and $ 3,026 in 2022.

Note 9 – Capital Ratios and Shareholders' Equity

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the FRB and the FDIC.

Our capital amounts and classifications are also subject to qualitative judgments by the FRB and the FDIC about components, risk weightings, and other factors.

Prompt corrective action provisions are not applicable to bank holding companies.

As of December 31, 2024 and 2023, we met all capital adequacy requirements.

The FRB has established minimum risk-based capital guidelines.

Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets.

Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital.

The common equity tier 1 capital ratio has a minimum requirement of 4.50%.

The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%.

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As of December 31, 2024 and 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 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 December 31:

Actual Minimum Capital

Required Plus Capital Conservation Buffer Minimum Capital

Required To Be Considered

Well Capitalized (1)

Amount Ratio Amount Ratio Amount Ratio

Common equity Tier 1 capital to risk weighted assets

Isabella Bank $ 172,589 11.53 % $ 104,783 7.00 % $ 97,299 6.50 %

Consolidated 183,348 12.21 % 105,136 7.00 % N/A N/A

Tier 1 capital to risk weighted assets

Isabella Bank 172,589 11.53 % 127,237 8.50 % 119,753 8.00 %

Consolidated 183,348 12.21 % 127,665 8.50 % N/A N/A

Total capital to risk weighted assets

Isabella Bank 185,997 12.43 % 157,175 10.50 % 149,691 10.00 %

Consolidated 226,179 15.06 % 157,703 10.50 % N/A N/A

Tier 1 capital to average assets

Isabella Bank 172,589 8.36 % 82,602 4.00 % 103,252 5.00 %

Consolidated 183,348 8.86 % 82,803 4.00 % N/A N/A

Actual Minimum Capital

Required Plus Capital Conservation Buffer Minimum Capital

Required To Be Considered

Well Capitalized (1)

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

(1) "Well-capitalized" minimum Common Equity Tier 1 to Risk-Weighted and Leverage Ratio are not formally defined under applicable regulations for bank holding companies.

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 December 31, 2024, the Bank exceeded all minimum capital requirements.

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The following table provides a roll-forward of the changes in AOCI by component for the years ended December 31, 2022, 2023, and 2024 (net of tax):

Securities Change in Unrecognized Pension Cost on Defined

Pension Plan Total

Balance, December 31, 2021 $ 3,873 $ ( 2,014 ) $ 1,859

OCI before reclassifications ( 50,015 ) 762 ( 49,253 )

Amounts reclassified from AOCI — 59 59

Subtotal ( 50,015 ) 821 ( 49,194 )

Tax effect 10,314 ( 173 ) 10,141

OCI, net of tax ( 39,701 ) 648 ( 39,053 )

Balance, December 31, 2022 ( 35,828 ) ( 1,366 ) ( 37,194 )

OCI before reclassifications 13,365 752 14,117

Amounts reclassified from AOCI ( 67 ) 95 28

Subtotal 13,298 847 14,145

Tax effect ( 2,669 ) ( 178 ) ( 2,847 )

OCI, net of tax 10,629 669 11,298

Balance, December 31, 2023 ( 25,199 ) ( 697 ) ( 25,896 )

OCI before reclassifications 5,339 462 5,801

Amounts reclassified from AOCI — ( 82 ) ( 82 )

Subtotal 5,339 380 5,719

Tax effect ( 1,098 ) ( 80 ) ( 1,178 )

OCI, net of tax 4,241 300 4,541

Balance, December 31, 2024 $ ( 20,958 ) $ ( 397 ) $ ( 21,355 )

Included in OCI are changes in unrealized gains and losses related to auction rate money market preferred stocks.

Auction rate money market preferred stocks, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.

A summary of the components of unrealized gains on AFS securities included in OCI follows for the years ended December 31:

2024 2023 2022

Auction Rate Money Market Preferred Stocks All Other AFS Securities Total 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 $ 113 $ 5,226 $ 5,339 $ 589 $ 12,776 $ 13,365 $ ( 900 ) $ ( 49,115 ) $ ( 50,015 )

Reclassification adjustment for net (gains) losses included in net income — — — — ( 67 ) ( 67 ) — — —

Net unrealized gains (losses) 113 5,226 5,339 589 12,709 13,298 ( 900 ) ( 49,115 ) ( 50,015 )

Tax effect — ( 1,098 ) ( 1,098 ) — ( 2,669 ) ( 2,669 ) — 10,314 10,314

Unrealized gains (losses), net of tax $ 113 $ 4,128 $ 4,241 $ 589 $ 10,040 $ 10,629 $ ( 900 ) $ ( 38,801 ) $ ( 39,701 )

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The following table details reclassification adjustments and the related affected line items in our consolidated statements of income for the years ended December 31:

Details about AOCI components Amount

Reclassified from

AOCI Affected Line Item in the

Statements of Income

2024 2023 2022

Unrealized gains (losses) on AFS securities

$ — $ 67 $ — Other noninterest income

— 14 — Income tax expense

$ — $ 53 $ — Net income

Change in unrecognized pension cost on defined benefit pension plan

$ ( 82 ) $ 95 $ 59 Other noninterest expenses

( 17 ) 20 12 Income tax expense

$ ( 65 ) $ 75 $ 47 Net income

Note 10 – 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.

For further information related to potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP, see "Note 8 – Benefit Plans."

Earnings per common share have been computed based on the following for the years ended December 31:

2024 2023 2022

Average number of common shares outstanding for basic calculation 7,465,343 7,511,591 7,549,878

Average potential effect of common shares in the Directors Plan (1)

— 34,962 70,329

Average potential effect of common shares in the RSP 17,031 28,939 27,405

Average number of common shares outstanding used to calculate diluted earnings per common share 7,482,374 7,575,492 7,647,612

Net income $ 13,889 $ 18,167 $ 22,238

Earnings per common share

Basic $ 1.86 $ 2.42 $ 2.95

Diluted $ 1.86 $ 2.40 $ 2.91

(1) Exclusive of shares held in the Rabbi Trust

Note 11 – Revenue

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We estimate no returns or allowances for the years ended December 31, 2024, 2023 and 2022.

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Our contracts with customers define our performance obligations with clearly established pricing which did not require us to allocate or disaggregate revenue by performance obligation.

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A significant portion of our revenue consists of interest income which is not subject to the requirements set forth in ASC 606.

Note 14 – Other Noninterest Expenses

A summary of expenses included in other noninterest expenses is as follows for the years ended December 31:

2023 2022 2021

Audit, consulting, and legal fees $ 2,340 $ 2,358 $ 2,066

ATM and debit card fees 1,767 1,909 1,810

Marketing costs 1,159 1,056 939

Memberships and subscriptions 1,042 876 877

Loan underwriting fees 927 1,004 849

FDIC insurance premiums 922 537 690

Donations and community relations 915 923 705

Other losses 871 546 194

Director fees 764 790 703

All other 2,401 2,237 1,989

Total other noninterest expenses $ 13,108 $ 12,236 $ 10,822

Note 12 – Federal Income Taxes

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2024 2023 2022

Currently payable $ 2,657 $ 4,593 $ 4,371

Federal tax expense $ 2,819 $ 2,657 $ 4,593

Deferred expense (benefit) ( 310 ) 1,008 13

Income tax expense $ 2,509 $ 3,665 $ 4,606

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 21 % of income before federal income tax expense is as follows for the year ended December 31:

2024 2023 2022

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The unrecognized deferred tax benefit recorded during 2023 related to a low income housing tax credit investment.

The unrecognized deferred tax benefit recorded during 2021 related to our joint venture investment in Corporate Settlement Solutions, LLC, which was sold during the fourth quarter of 2020.

The sale of each investment resulted in a capital loss carryforward that is unlikely to be recognized in the foreseeable future.

As such, we did not recognize a deferred tax asset as of December 31, 2023, 2022 and 2021 related to our low income housing tax credit investment or the investment in Corporate Settlement Solutions, LLC.

The sale of this investment resulted in a capital loss carryforward that is unlikely to be recognized in the foreseeable future.

As such, we did not recognize a deferred tax asset as of December 31, 2024 and 2023 related to our low income housing tax credit investment.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes.

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We do not have any amounts accrued for interest and penalties at December 31, 2024 and 2023 and we are not aware of any claims for such amounts by federal income tax authorities.

Note 16 – Accumulated Other Comprehensive Income (Loss)

AOCI includes net income as well as unrealized gains and losses, net of tax, on AFS securities and derivative instruments, as well as changes in the funded status of our defined benefit pension plan.

Unrealized gains and losses and changes in the funded status of the pension plan, net of tax, are excluded from net income, and are reflected as a direct charge or credit to shareholders’ equity.

Comprehensive income (loss) and the related components are disclosed in the consolidated statements of comprehensive income.

The following table provides a roll-forward of the changes in AOCI by component for the years ended December 31, 2021, 2022 and 2023 (net of tax):

Securities Unrealized

(Losses) on Derivative Instruments Change in Unrecognized Pension Cost on Defined

Pension Plan Total

Balance, January 1, 2021 $ 10,485 $ ( 42 ) $ ( 2,745 ) $ 7,698

OCI before reclassifications ( 8,371 ) 53 955 ( 7,363 )

Amounts reclassified from AOCI — — ( 31 ) ( 31 )

Subtotal ( 8,371 ) 53 924 ( 7,394 )

Tax effect 1,759 ( 11 ) ( 193 ) 1,555

OCI, net of tax ( 6,612 ) 42 731 ( 5,839 )

Balance, December 31, 2021 3,873 — ( 2,014 ) 1,859

OCI before reclassifications ( 50,015 ) — 762 ( 49,253 )

Amounts reclassified from AOCI — — 59 59

Subtotal ( 50,015 ) — 821 ( 49,194 )

Tax effect 10,314 — ( 173 ) 10,141

OCI, net of tax ( 39,701 ) — 648 ( 39,053 )

Balance, December 31, 2022 ( 35,828 ) — ( 1,366 ) ( 37,194 )

OCI before reclassifications 13,365 — 752 14,117

Amounts reclassified from AOCI ( 67 ) — 95 28

Subtotal 13,298 — 847 14,145

Tax effect ( 2,669 ) — ( 178 ) ( 2,847 )

OCI, net of tax 10,629 — 669 11,298

Balance, December 31, 2023 $ ( 25,199 ) $ — $ ( 697 ) $ ( 25,896 )

Included in OCI are changes in unrealized gains and losses related to auction rate money market preferred stocks.

Auction rate money market preferred stocks, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.

A summary of the components of unrealized gains on AFS securities included in OCI follows for the years ended December 31:

2023 2022 2021

Unrealized gains (losses) arising during the period $ 589 $ 12,776 $ 13,365 $ ( 900 ) $ ( 49,115 ) $ ( 50,015 ) $ 5 $ ( 8,376 ) $ ( 8,371 )

Reclassification adjustment for net (gains) losses included in net income — ( 67 ) ( 67 ) — — — — — —

Net unrealized gains (losses) 589 12,709 13,298 ( 900 ) ( 49,115 ) ( 50,015 ) 5 ( 8,376 ) ( 8,371 )

Tax effect — ( 2,669 ) ( 2,669 ) — 10,314 10,314 — 1,759 1,759

Unrealized gains (losses), net of tax $ 589 $ 10,040 $ 10,629 $ ( 900 ) $ ( 38,801 ) $ ( 39,701 ) $ 5 $ ( 6,617 ) $ ( 6,612 )

The following table details reclassification adjustments and the related affected line items in our consolidated statements of income for the years ended December 31:

Details about AOCI components Amount

Reclassified from

AOCI Affected Line Item in the

Statements of Income

2023 2022 2021

Unrealized gains (losses) on AFS securities

$ 67 $ — $ — Net gains on sale of AFS securities

14 — — Federal income tax expense

$ 53 $ — $ — Net income

Change in unrecognized pension cost on defined benefit pension plan

$ 95 $ 59 $ ( 31 ) Other noninterest expenses

20 12 ( 7 ) Federal income tax (benefit) expense

$ 75 $ 47 $ ( 24 ) Net income

Note 13 – 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:

Valuation is based upon quoted prices for identical instruments traded in active markets.

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.

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.

The 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:

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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.

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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 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 fair value information about loans measured at fair value on a nonrecurring basis as of:

December 31, 2023

The following tables list the quantitative fair value information about loans measured at fair value on a nonrecurring basis as of December 31:

Valuation Technique Fair Value Unobservable Input Actual Range Weighted Average

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Discounted value $ 254 Real Estate 20 % 20 %

Equipment 25 % - 35 %

Accounts receivable 25 % 25 %

December 31, 2022

Valuation Technique Fair Value Unobservable Input Actual Range Weighted Average

Discount applied to collateral:

Real Estate 20 % - 30 %

Impaired Loans - Equipment 25 % - 35 %

Discounted value $ 17,143 Cash crop inventory 40 % 40 %

Livestock 30 % 30 %

Collateral Dependent Loans Discount applied to collateral:

Discounted value $ 1,083 Real Estate 20 % 20 %

Equipment 25 % - 35 %

Accounts receivable 25 % 25 %

Furniture, fixtures & equipment 45 % 45 %

Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.

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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 December 31:

Valuation Technique Fair Value Unobservable Input Rate

Discounted cash flow $ 2,483 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 $ 2,483 as of December 31, 2024.

There were no other transfers to or from Levels 1, 2, or 3 as of December 31, 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.

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These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

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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 December 31:

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Cash and cash equivalents $ 24,542 $ 24,542 $ 24,542 $ — $ —

Mortgage loans AFS — — — — —

FHLB stock (1)

12,762 N/A — — —

Mortgage loans HFS 242 247 — 247 —

Gross loans 1,423,571 1,363,883 — — 1,363,883

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Deposits with stated maturities 387,591 385,200 — 385,200 —

Federal funds purchased and repurchase agreements 46,801 46,704 — 46,704 —

Short-term borrowings 53,567 53,503 — 53,503 —

FHLB advances 30,000 30,000 — 30,000 —

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Cash and cash equivalents $ 33,672 $ 33,672 $ 33,672 $ — $ —

Mortgage loans AFS 379 395 — 395 —

FHLB stock (1)

12,762 N/A — — —

Mortgage loans HFS — — — — —

Gross loans 1,349,463 1,292,458 — — 1,292,458

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Deposits with stated maturities 346,374 341,489 — 341,489 —

Federal funds purchased and repurchase agreements 57,771 57,581 — 57,581 —

Short-term borrowings 46,801 46,704 — 46,704 —

FHLB advances 40,000 40,000 — 40,000 —

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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 .

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Financial Instruments Recorded at Fair Value

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Nonrecurring items

Collateral dependent (net of ACL) in 2023

Impaired loans (net of the ALLL) in 2022 1,083 — — 1,083 17,143 — — 17,143

Collateral dependent (net of ACL) 254 — — 254 1,083 — — 1,083

OMSR 2,185 — — 2,185 2,422 — 2,422 —

Foreclosed assets 544 — — 544 406 — — 406

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Percent of assets and liabilities measured at fair value 0.00 % 99.39 % 0.61 % 0.00 % 99.72 % 0.28 %

We recorded losses of $ 132 and $ 6 through earnings related fair value changes in foreclosed assets for the years ended December 31, 2023 and 2022.

We recorded losses of $ 1 and $ 0 through earnings related to fair value changes in OMSR for the years ended December 31, 2024 and 2023.

We also recorded losses of $ 0 and $ 132 through earnings related to fair value changes in foreclosed assets for the years ended December 31, 2024 and 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 December 31, 2024 and 2023.

Note 14 – Off-Balance-Sheet Activities, Commitments and Other Matters

Credit-Related Financial Instruments

We are party to credit related financial instruments with off-balance-sheet risk.

These financial instruments are entered into in the normal course of business to meet the financing needs of our customers.

These financial instruments involve, to varying degrees, elements of credit and IRR in excess of the amounts recognized in the consolidated balance sheets.

The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.

The following table summarizes our credit related financial instruments with off-balance-sheet risk as of December 31:

Unfunded commitments under lines of credit $ 312,577 $ 313,646

Commercial and standby letters of credit 2,125 1,624

Commitments to originate new loans 26,558 6,460

Total $ 341,260 $ 321,730

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers.

These commitments may expire without being drawn upon and do not necessarily represent future cash requirements.

Advances to mortgage brokers are also included in unfunded commitments under lines of credit.

The unfunded commitment amount is the difference between our outstanding balances and maximum outstanding aggregate amount.

Commitments to originate new loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The amount of collateral obtained, if it is deemed necessary, is based on management's credit evaluation of the customer.

Commitments to grant loans include residential mortgage loans that may be committed to be sold to the secondary market.

Commercial and standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party.

Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper,

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bond financing, and similar transactions.

These commitments to extend credit and letters of credit generally mature within one year .

The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers.

We evaluate each customer’s credit worthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on our credit evaluation of the borrower.

We use the same credit policies as we do for extending loans to customers.

No significant losses are anticipated as a result of these commitments.

Derivative Loan Commitments

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.

We enter into commitments to fund residential mortgage loans at specific times in the future, with the intention that these loans will subsequently be sold in the secondary market.

A mortgage loan commitment binds us to lend funds to a potential borrower at a specified interest rate within a specified period of time, generally up to 60 days after inception of the rate lock.

If interest rates increase, the value of these loan commitments decreases.

Conversely, if interest rates decrease, the value of these loan commitments increase.

There were no undesignated interest rate lock commitments at December 31, 2024 and 2023.

Forward Loan Sale Commitments

With a “mandatory delivery” contract, we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.

With a “best efforts” contract, we commit to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes.

Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g.

on the same day the lender commits to lend funds to a potential borrower).

We expect that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

There were undesignated forward loan sale commitments of $ 242 and $ 0 at December 31, 2024 and 2023, respectively.

The fair value of these forward loan sale commitments was $ 247 and $ 0 at December 31, 2024 and 2023, respectively.

ACL - Off-Balance-Sheet Credit Commitments

In connection with the commitments for credit-related financial instruments discussed above, we established an allowance for credit losses related to this off-balance-sheet credit exposure.

The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment.

The likelihood and expected amount of funding are based on historical utilization rates.

No allowance is recognized if we have the unconditional right to cancel the obligation.

The allowance was $ 512 and $ 315 at December 31, 2024 and 2023, and is reported as a component of other liabilities.

Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.

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Other Matters

Correspondent banks may require us to maintain minimum cash reserve balances.

The reserve balances related to correspondent banks amounted to $ 450 and $ 250 for the years ended December 31, 2024 and 2023.

Banking regulations limit the transfer of assets in the form of dividends, loans, or advances from the Bank to the Corporation.

At December 31, 2024, substantially all of the Bank’s assets were restricted from transfer to the Corporation in the form of loans or advances.

Bank dividends are the principal source of funds for the Corporation.

At January 1, 2025, the amount available to the Corporation for dividends from the Bank, without regulatory approval, was approximately $ 3,700 .

Note 15 – Related Party Transactions

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Donations — — 50

Note 19 – Operating Segments

Our reportable segments are based on legal entities that account for at least 10% of net operating results.

The operations of the Bank as of December 31, 2023, 2022, and 2021 represent approximately 90 % or more of our consolidated total assets and operating results.

As such, no additional segment reporting is presented.

Note 16 – Parent Company Only Financial Information

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Total liabilities and shareholders' equity $ 239,787 $ 231,826

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Condensed Statements of Income

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Total income 22,522 30,204 6,029

Interest expense 1,065 1,065 615

Management fee 1,188 952 900

Interest expense 1,065 1,065 1,065

Audit, consulting, and legal fees 561 577 522

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Net income $ 13,889 $ 18,167 $ 22,238

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Condensed Statements of Cash Flows

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Undistributed earnings of subsidiaries 5,726 9,335 ( 18,782 )

Share-based payment awards under the Directors Plan 529 463 433

Share-based payment awards under the RSP 253 147 86

Share-based payment awards 476 782 610

Amortization of subordinated debt issuance costs 89 90 87

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Deferred income tax expense (benefit) 313 228 ( 133 )

Changes in operating assets and liabilities which provided (used) cash

Net changes in:

Other assets ( 27 ) ( 255 ) 1,383

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Financing activities

Issuance of subordinated debt, net of unamortized issuance costs

Cash dividends paid on common stock ( 8,147 ) ( 8,216 ) ( 8,082 )

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Cash and cash equivalents at end of period $ 34,498 $ 25,010 $ 8,525

Note 21 – Subsequent Events

We evaluated subsequent events after December 31, 2023 through the date our condensed consolidated financial statements were issued for potential recognition and disclosure.

No subsequent events require financial statement recognition or disclosure between December 31, 2023 and the date our condensed consolidated financial statements were issued.

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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data