ISABELLA BANK CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands except per share amounts and ratios, unless otherwise noted) The following is management's discussion and analysis of our financial condition and results of operations for the unaudited periods covered by this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2025 (this “Form 10-Q”). This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 12, 2025 (the “2024 Annual Report on Form 10-K”) and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this Form 10-Q. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us,” and “the Corporation” refer to Isabella Bank Corporation, a Michigan corporation and registered financial holding company, our wholly-owned banking subsidiary, Isabella Bank, and our other consolidated subsidiaries. References to “the Bank” refer to Isabella Bank. General Isabella Bank Corporation is a registered financial holding company that was incorporated in September 1988 under Michigan law. The Corporation's wholly owned subsidiary, Isabella Bank, has 31 offices located throughout Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties. The area includes significant agricultural production, manufacturing, retail, gaming and tourism, and several colleges and universities. Cautionary Notice Regarding Forward-Looking Statements This Form 10-Q contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: • slower economic growth rates or potential recession in the United States and our market areas; • the impacts related to or resulting from uncertainty in the banking industry as a whole; • increased competition for deposits among traditional and nontraditional financial services companies, and related changes in deposit customer behavior; • the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas, and its impact on market interest rates, the economy and credit quality; • our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions; • business and economic conditions, particularly those affecting our market areas, as well as the concentration of our business in such market areas; • adverse changes in customer spending, borrowing, and savings habits; • the impact of pandemics, epidemics, or any other health-related crisis; • high concentrations of loans secured by real estate located in our market areas; • changes in unemployment rates in the United States and our market areas; • risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that secure such loans; • potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans; 40 Table of Contents • risks associated with our agricultural loan portfolio, including the heightened sensitivity to weather conditions, commodity prices, and other factors generally outside the borrowers and our control; • risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area; • public funds deposits comprising a relatively high percentage of our deposits; • potential impairment on the goodwill we have recorded or may record in connection with business acquisitions; • our ability to maintain our reputation; • our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; • our ability to attract, hire and retain qualified management personnel; • our dependence on our management team, including our ability to retain executive officers and key employees and their customer and community relationships; • interest rate fluctuations, which could have an adverse effect on our profitability; • competition from banks, credit unions and other financial services providers; • our ability to keep pace with technological change or difficulties we may experience when implementing new technologies; • cybersecurity risk, including cyber incidents or other failures, disruptions or breaches of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of a cyber-attack, could impact the Corporation’s reputation, increase regulatory oversight, and impact the financial results of the Corporation; • our ability to maintain effective internal control over financial reporting; • employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties; • increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; • our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels; • costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation; • natural disasters, severe weather, acts of god, acts of war or terrorism, geopolitical instability, public health outbreaks (such as coronavirus), other international or domestic calamities, and other events beyond our control, including as a result of in the policies of the current U.S. presidential administration or Congress; • a deterioration of the credit rating for United States long-term sovereign debt or uncertainty regarding United States fiscal debt, deficit and budget matters; • the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts and the resulting impact on the Corporation and its customers; • compliance with governmental and regulatory requirements, including the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), and others relating to banking, consumer protection, securities and tax matters; • changes in the laws, rules, regulations, interpretations or policies that apply to the Corporation’s business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, which could cause the Corporation to incur additional costs and adversely affect the Corporation’s business environment, operations and financial results; and • our ability to navigate the uncertain impacts of current and future governmental monetary and fiscal policies, including the current and future policies of the Board of Governors of the Federal Reserve System (“Federal Reserve”) and as a result of initiatives of the Trump administration. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-Q and the risk factors set forth in our 2024 Annual Report on Form 10-K. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q. In addition, our past results of operations are not 41 Table of Contents necessarily indicative of our future results. Accordingly, you should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law. Non-GAAP Financial Measures Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Quarterly Report on Form 10-Q that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both. We believe that, from time to time, these non-GAAP financial measures provide additional understanding of ongoing operations, enhance the comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in our underlying performance. However, there may be limits in the usefulness of these measures to investors. The way we calculate the non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q may differ from that of other companies reporting measures with similar names. Investors should understand how such other banking organizations calculate their financial measures similar to, or with names like, the non-GAAP financial measures we have discussed in this Quarterly Report on Form 10-Q when comparing such non-GAAP financial measures. As a result, the non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names. Available Information The Corporation maintains an Internet web site at ir.isabellabank.com. The Corporation makes available, free of charge, on its web site (under ir.isabellabank.com/sec-filings/default) the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Corporation files such material with, or furnishes it to, the SEC. The Corporation also makes available, free of charge, through its web site (under ir.isabellabank.com/governance/governance-documents/default) links to the Corporation’s Code of Conduct and Business Ethics and the charters for its board committees. In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Corporation routinely posts important information for investors on its web site (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news/default). The Corporation intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Corporation’s web site, in addition to following the Corporation’s press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, the Corporation’s web site is not incorporated by reference into, and is not a part of, this Form 10-Q. 42 Table of Contents Executive Summary Comparison of Operating Results for the three and nine months ended September 30, 2025, and 2024, unless otherwise noted Net income in the third quarter of 2025 was $5,240, or $0.71 per diluted share, compared with $3,281, or $0.44 per diluted share, in the same quarter of 2024. Net income for the year-to-date period of 2025 was $14,220, or $1.92 per diluted share, compared with $9,893, or $1.32 per diluted share, in the same period of 2024. Net interest income was $16,162 in the third quarter of 2025 and $14,488 in the same quarter of 2024, representing 3.15% and 2.96% of earning assets, or NIM on an FTE basis, respectively. The book yield from securities was 2.42% and 2.17% during the third quarters of 2025 and 2024, respectively. Our yield on loans expanded to 5.78% in the third quarter of 2025, up from 5.72% in the same quarter of 2024. The expansion in loan yields was a result of higher rates on new loans and variable rate commercial loans that continue to reprice. Our cost of interest-bearing liabilities in the third quarter of 2025 decreased to 2.25% from 2.42% in the third quarter of 2024 due to reductions to rates in the money market and certificate of deposit products. NIM is expected to continue to expand as assets reprice and the cost of interest-bearing liabilities stabilizes. For the first nine months of 2025, net interest income was $45,816 compared with $41,280 in the same period of 2024. The comparison of NIM and yield on interest earning assets for the nine months ending September 30, 2025 were 3.12% and 4.80%, respectively, compared to 2.87% and 4.62%, respectively, for the same period in 2024. The yield on loans expanded to 5.75%, from 5.55%, and our cost of interest bearing liabilities decreased to 2.25% from 2.36% for the first nine months of 2025 and 2024, respectively. The explanations for the improvement in NIM are consistent with those provided in the year-over-year three month comparison above. The provision for credit losses was a credit of $209 in the third quarter of 2025, which reflects a $172 increase in the ACL on loans, net charge offs totaling $74, and an increase in the reserve for unfunded commitments. The provision for loan losses in the same period of 2024 was $946 due to growth in core loans (non-GAAP), which excludes advances to mortgage brokers, unfunded commitments, and $1,767 in charge offs. The increase in charge offs was related to overdrawn deposit accounts from a single customer. For the first nine months of 2025, the provision for credit losses was a credit of $997 compared to a provision of $1,508 in the same period of 2024. Recoveries totaled $2,147, of which $1,556 were related to the overdrawn deposit accounts from a single customer charged off during the third quarter of 2024. Credit quality remains strong with low levels of past due and nonaccrual loans and net charge offs. The Corporation continues to closely monitor credit quality in light of the continued economic uncertainty caused by, among other factors, the interest rate environment, employment data in recent periods, continued uncertainty regarding U.S. trade and tariff policy, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas. Accordingly, additional provisions for credit losses may be necessary in future periods. Noninterest income for the three months ended September 30, 2025 and 2024 was $4,308 and $3,528, respectively. Service charges and fees increased $219 as a result of profitability initiatives designed to increase fee income. Wealth management fees grew $71 due to growth in assets under management throughout the year. Earnings on BOLI policies increased $216 over the prior year quarter due to new investments in a separate account BOLI, which was offset in part by a one-time expense of $120 due to restructuring charges. Other noninterest income includes a $163 gain on the redemption of a BOLI policy. For the first nine months of 2025, noninterest income was $11,522, compared to $10,604 in the same period of 2024. Service charges and fees, wealth management fees, earnings on BOLI policies, and other income increased $308, $147, $392, and $94, respectively. The reasons for the increase in noninterest income for the nine month comparison are the same as the three month comparison. Noninterest expenses for the three-month period ended September 30, 2025 increased $757 in comparison to the same period in 2024. Compensation and benefit expenses increased $379 reflecting annual merit increases in 2025, incentives, and higher medical insurance claims compared to the third quarter of 2024. Other professional services increased $263 primarily due to a temporary increase in outsourced services. For the first nine months of 2025, noninterest expenses were $41,029, compared to $38,799 in the same period of 2024. Compensation and benefits increased $1,273 for the same reasons as the three month comparison. Other professional service fees increased $797 principally due to $173 of profitability initiative costs, $168 in legal fees related to our Nasdaq uplisting, and temporary increases in outsourced services. Offsetting these increases was a $407 decline in other losses, largely due to fraudulent related activity. Income tax expense for the three months ended September 30, 2025 and 2024 was $1,036 and $561 and the ETR was 17% and 15%, respectively. The increase in the ETR was primarily due to a higher annual forecast of pretax income. Income tax expense for the first nine months of 2025 was $3,086, compared to $1,684 in the same period of 2024 and the ETR was 18% and 15%, respectively. The ETR in the first nine months of 2025 included a one-time tax expense totaling $166 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during the first quarter of 2025. Excluding the one- 43 Table of Contents time charge, the ETR was 17% for the first nine months of 2025, which is higher than the prior year due to a higher annual forecast of pretax income. Financial Condition (September 30, 2025 to December 31, 2024 comparison) Total assets increased $173,413 to $2,259,654 as of September 30, 2025, primarily due to an increase of $127,465 in interest bearing cash, a $22,941 increase in AFS securities, and a $10,769 increase in BOLI policies. Our AFS securities portfolio totaled $511,970 at September 30, 2025, increasing $22,941 at the end of third quarter 2025. The increase was driven by $62,148 in purchases, offset by amortization and maturities of $52,359. Net unrealized losses at September 30, 2025 totaled $12,564, or 2.40%, of the portfolio and improved during the quarter due to the treasury portfolio rapidly approaching maturity and an increase in bond prices. Gross loans increased $8,334 to $1,431,905 as of September 30, 2025. While core loans (non-GAAP) grew $66,358, advances to mortgage brokers decreased $58,024 due to lower participation demand from our counterparty. Core loans (non-GAAP) grew $66,358, led by growth in the commercial and industrial and commercial real estate portfolios of $17,509 and $34,924, respectively. Residential mortgages increased $31,184 since year-end 2024 with $13,388 of growth in the third quarter as construction drawdowns and seasonal patterns occurred. Most residential originations were adjustable rate products, which are put on the balance sheet rather than sold in the secondary market. The consumer loan portfolio continues to slowly roll off amid decreasing demand, competition, and our adherence to credit quality standards. The ACL was $13,149 at September 30, 2025, an increase of $254 from $12,895 at December 31, 2024. The increase is due to core loan growth (non-GAAP), offset by improvement in historical loss experience driven by the recovery of previously charged-off loans during the year. Nonaccrual loans were $3,443 as of September 30, 2025 compared to $282 at December 31, 2024. This increase relates to one commercial real estate loan. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.03% at September 30, 2025, compared to 0.40% at year-end 2024. Overall, credit quality remains strong. BOLI assets were $45,651 at September 30, 2025, an increase of $10,769 from December 31, 2024. The growth was mostly driven by a $10,583 investment of new policies in a separate account product at the beginning of January. In the first half of 2025, we also surrendered and/or exchanged over $13,000 of existing general account policies and redeployed the funds into a separate account BOLI structure, which yields a higher rate compared to existing general account policies. Total deposits increased $178,542 from December 31, 2024, to $1,925,602 at September 30, 2025. The growth was driven by demand and money market deposits. Approximately half of the $134,329 increase in money market deposits was driven by one customer with large deposits during the second and third quarters that are expected to be withdrawn by the customer by the end of the year. Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $17,207 increase in the balance during the first nine months of 2025. Total equity was $227,420, or $30.94 per share, at September 30, 2025 compared to $210,276, or $28.32 per share, at year-end 2024. Our tangible book value per share (non-GAAP) was $24.37 as of September 30, 2025, compared to $21.82 on December 31, 2024. Net unrealized losses on AFS securities reduced tangible book value per share (non-GAAP) by $1.36 and $2.82 for the respective periods. Share repurchases totaled 122,502 during the first nine months of 2025 for a value of $3,259 at an average price of $26.60. We continue to have robust liquidity levels and capital. As of September 30, 2025, we had $975,856 of unencumbered sources of liquidity and strong capital ratios; the Tier 1 Leverage Ratio was 8.71%, Tier 1 risk-based capital was 12.37%, and Total risk-based capital was 15.20%. 44 Table of Contents Recent Events On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law by President Trump, which includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain key provisions from the Tax Cuts and Jobs Act of 2017 and expanding certain incentives from the Inflation Reduction Act of 2022 while accelerating the phase-out of others. The Corporation continues to evaluate the OBBBA but does not anticipate that the OBBBA will have a material impact on the Corporation’s Consolidated Financial Statements. Nasdaq Listing Beginning with the opening of trading on Monday, May 12, 2025, our shares of common stock were listed for trading on The Nasdaq Capital Market under our current symbol, “ISBA.” Prior to this listing on Nasdaq, our shares of common stock were listed on the OTCQX under the same symbol through May 9, 2025. Reclassifications Certain amounts reported in the interim 2024 consolidated financial statements have been reclassified to conform to the 2025 presentation. Subsequent Events We evaluated subsequent events after September 30, 2025 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure. We determined that no subsequent events require financial statement recognition or disclosure between September 30, 2025 and the date our interim condensed consolidated financial statements were issued. 45 Table of Contents Selected Financial Data (Unaudited) The following table outlines our results of operations and provides certain performance measures as of, and for the: Three Months Ended Nine Months Ended September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 September 30 2025 September 30 2024 PER SHARE Basic earnings $ 0.71 $ 0.68 $ 0.53 $ 0.54 $ 0.44 $ 1.93 $ 1.32 Diluted earnings 0.71 0.68 0.53 0.54 0.44 1.92 1.32 Dividends 0.28 0.28 0.28 0.28 0.28 0.84 0.84 Book value (1) 30.94 29.95 29.10 28.32 28.63 30.94 28.63 Tangible book value (1) (2) 24.37 23.39 22.58 21.82 22.14 24.37 22.14 Market price (1) 35.25 30.15 23.59 25.99 21.21 35.25 21.21 PERFORMANCE RATIOS Return on average total assets 0.94 % 0.96 % 0.77 % 0.76 % 0.62 % 0.89 % 0.64 % Return on average shareholders' equity 9.28 % 9.19 % 7.48 % 7.47 % 6.26 % 8.67 % 6.47 % Return on average tangible shareholders' equity (2) 11.83 % 11.78 % 9.65 % 9.66 % 8.15 % 11.12 % 8.48 % Net interest margin yield (FTE) 3.15 % 3.14 % 3.06 % 2.98 % 2.96 % 3.12 % 2.87 % Efficiency ratio 67.51 % 70.53 % 71.73 % 71.08 % 72.30 % 69.80 % 73.65 % Gross loan to deposit ratio (1) 74.36 % 75.57 % 76.07 % 81.48 % 79.93 % 74.36 % 79.93 % Shareholders' equity to total assets (1) 10.06 % 10.23 % 10.25 % 10.08 % 10.11 % 10.06 % 10.11 % Tangible shareholders' equity to tangible assets (1) (2) 8.10 % 8.17 % 8.14 % 7.95 % 8.00 % 8.10 % 8.00 % FINANCIAL DATA (in millions) Total assets (1) $ 2,260 $ 2,156 $ 2,103 $ 2,086 $ 2,107 $ 2,260 $ 2,107 AFS securities (1) 512 501 513 489 507 512 507 Gross loans (1) 1,432 1,398 1,368 1,424 1,424 1,432 1,424 ACL (1) 13 13 13 13 13 13 13 Deposits (1) 1,926 1,849 1,798 1,747 1,782 1,926 1,782 Borrowed funds (1) 92 73 77 113 97 92 97 Shareholders' equity (1) 227 221 216 210 213 227 213 Wealth assets under management (1) 680 679 657 658 680 680 680 Net income 5 5 4 4 3 14 10 Interest income 25 23 23 23 23 71 67 Interest expense 9 8 8 9 9 25 26 Net interest income 16 15 15 15 14 46 41 Provision for (reversal of) credit losses — (1) — — 1 (1) 2 Noninterest income 4 4 4 4 4 12 11 Noninterest expenses 14 14 13 13 13 41 39 (1) At end of period. (2) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q. 46 Table of Contents Average Balances, Interest Rates, and Net Interest Income The following schedules present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB restricted equity holdings are included in other interest earning assets. Three Months Ended September 30, 2025 June 30, 2025 September 30, 2024 Average Balance Tax Equivalent Interest Average Yield / Rate Average Balance Tax Equivalent Interest Average Yield / Rate Average Balance Tax Equivalent Interest Average Yield / Rate INTEREST EARNING ASSETS Loans (1) $ 1,409,928 $ 20,583 5.78 % $ 1,388,684 $ 19,832 5.71 % $ 1,403,810 $ 20,230 5.72 % AFS securities (2) 517,286 3,172 2.42 % 534,352 3,210 2.38 % 536,379 2,981 2.17 % FHLB stock 5,600 70 4.95 % 5,600 125 8.94 % 12,762 168 5.26 % Fed funds sold 186 2 4.35 % 6 — 3.83 % 4 — 5.36 % Other (3) 123,183 1,233 3.92 % 20,487 253 4.92 % 14,597 194 5.18 % Total interest earning assets 2,056,183 25,060 4.83 % 1,949,129 23,420 4.81 % 1,967,552 23,573 4.75 % NONEARNING ASSETS Allowance for credit losses (13,057) (13,369) (13,125) Cash and demand deposits due from banks 25,591 22,026 25,903 Premises and equipment 28,313 28,306 27,868 Other assets 109,692 106,595 87,002 Total assets $ 2,206,722 $ 2,092,687 $ 2,095,200 INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 234,105 144 0.24 % $ 236,076 220 0.37 % $ 232,018 161 0.28 % Money market deposits 534,127 3,533 2.63 % 449,110 2,857 2.55 % 451,216 3,148 2.77 % Savings 289,442 560 0.77 % 286,434 544 0.76 % 274,828 423 0.61 % Certificates of deposit 399,781 3,775 3.75 % 395,450 3,770 3.82 % 375,936 3,899 4.13 % Short-term borrowings 52,700 441 3.32 % 41,661 324 3.11 % 48,304 384 3.17 % FHLB advances — — — % 11,539 132 4.53 % 40,435 571 5.52 % Subordinated debt, net of unamortized issuance costs 29,477 267 3.61 % 29,455 266 3.61 % 29,388 267 3.62 % Total interest bearing liabilities 1,539,632 8,720 2.25 % 1,449,725 8,113 2.24 % 1,452,125 8,853 2.42 % NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 428,144 409,262 418,973 Other liabilities 14,976 14,158 15,658 Shareholders’ equity 223,970 219,542 208,444 Total liabilities and shareholders’ equity $ 2,206,722 $ 2,092,687 $ 2,095,200 Net interest income (FTE) $ 16,340 $ 15,307 $ 14,720 Net yield on interest earning assets (FTE) 3.15 % 3.14 % 2.96 % 47 Table of Contents Nine Months Ended September 30, 2025 September 30, 2024 Average Balance Tax Equivalent Interest Average Yield/Rate Average Balance Tax Equivalent Interest Average Yield/Rate INTEREST EARNING ASSETS Loans (1) $ 1,389,936 $ 59,763 5.75 % $ 1,376,122 $ 57,150 5.55 % AFS securities (2) 522,049 9,210 2.34 % 546,376 9,153 2.23 % FHLB stock 7,384 355 6.41 % 12,762 472 4.93 % Fed funds sold 66 2 4.35 % 6 — 5.35 % Other (3) 63,959 1,968 3.92 % 17,941 750 5.49 % Total interest earning assets 1,983,394 71,298 4.80 % 1,953,207 67,525 4.62 % NONEARNING ASSETS Allowance for credit losses (13,104) (13,216) Cash and demand deposits due from banks 23,844 24,623 Premises and equipment 28,195 27,962 Other assets 106,430 83,878 Total assets $ 2,128,759 $ 2,076,454 INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 236,989 606 0.34 % $ 238,703 542 0.30 % Money market deposits 481,571 9,319 2.59 % 445,604 9,437 2.83 % Savings 287,425 1,642 0.76 % 280,447 1,154 0.55 % Certificates of deposit 394,395 11,299 3.83 % 366,672 10,974 4.00 % Short-term borrowings 46,008 1,106 3.21 % 43,197 1,026 3.18 % FHLB advances 4,945 170 4.53 % 37,883 1,597 5.54 % Subordinated debt, net of unamortized issuance costs 29,455 799 3.61 % 29,365 799 3.63 % Total interest bearing liabilities 1,480,788 24,941 2.25 % 1,441,871 25,529 2.36 % NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits 413,568 414,179 Other liabilities 15,131 16,183 Shareholders’ equity 219,272 204,221 Total liabilities and shareholders’ equity $ 2,128,759 $ 2,076,454 Net interest income (FTE) $ 46,357 $ 41,996 Net yield on interest earning assets (FTE) 3.12 % 2.87 % (1) Includes loans HFS and nonaccrual loans. (2) Average balances for AFS securities are based on amortized cost. (3) Includes average interest-bearing deposits with other banks, net of Federal Reserve daily cash letter. 48 Table of Contents Loans The following table displays loan balances as of: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 Annualized Growth % Quarter to Date Annualized Growth % Year to Date Commercial and industrial $ 218,132 $ 207,719 $ 205,172 $ 200,623 $ 197,372 20.05 % 11.64 % Commercial real estate 626,642 614,383 596,282 591,718 590,255 7.98 % 7.87 % Advances to mortgage brokers 5,056 3,005 3,015 63,080 76,187 N/M (122.65) % Agricultural 97,794 96,842 94,359 99,694 96,794 3.93 % (2.54) % Total commercial loans 947,624 921,949 898,828 955,115 960,608 11.14 % (1.05) % Residential real estate 412,056 398,668 387,348 380,872 369,846 13.43 % 10.92 % Consumer 72,225 76,896 81,548 87,584 93,829 (24.30) % (23.38) % Total $ 1,431,905 $ 1,397,513 $ 1,367,724 $ 1,423,571 $ 1,424,283 9.84 % 0.78 % The following table presents the composition of our commercial real estate portfolio by industry as of: September 30, 2025 December 31, 2024 Balance Percent of Total Balance Percent of Total Residential 1-4 family investor $ 91,307 14.57 % $ 86,736 14.66 % Multifamily 71,148 11.35 % 61,033 10.31 % Real estate 171,139 27.31 % 158,739 26.83 % Hotels 85,935 13.71 % 83,756 14.15 % Health care 55,397 8.84 % 50,083 8.46 % Retail trade 33,139 5.29 % 35,063 5.93 % Manufacturing 19,129 3.05 % 17,030 2.88 % Accommodation services 15,781 2.52 % 16,804 2.84 % Construction 14,259 2.28 % 12,825 2.17 % Educational services 10,727 1.71 % 11,160 1.89 % Wholesale trade 11,262 1.80 % 11,073 1.87 % Other 47,419 7.57 % 47,416 8.01 % Total commercial real estate $ 626,642 100.00 % $ 591,718 100.00 % Commercial real estate loans are subject to a varying degree of risk from changes in interest rates and economic conditions. To control these risks, we maintain strict underwriting standards, lending limits to a single borrower, loan to collateral value limits, and a defined market area. We also monitor and limit loan concentrations to specific industries. Our practices also include appropriate loan reviews, and monitoring of past due levels, concentrations, industry trends, and other qualitative factors. Deposits The following table displays deposit balances as of: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 Annualized Growth % Quarter to Date Annualized Growth % Year to Date Noninterest bearing demand deposits $ 421,027 $ 493,477 $ 404,194 $ 416,373 $ 421,493 (58.73) % 1.49 % Interest bearing demand deposits 248,666 223,376 243,939 237,548 228,902 45.29 % 6.24 % Money market deposits 558,212 446,845 473,138 423,883 471,745 99.69 % 42.25 % Savings 292,899 289,746 286,399 281,665 276,095 4.35 % 5.32 % Certificates of deposit 404,798 395,932 390,239 387,591 383,597 8.96 % 5.92 % Total $ 1,925,602 $ 1,849,376 $ 1,797,909 $ 1,747,060 $ 1,781,832 16.49 % 13.63 % 49 Table of Contents Asset Quality Analysis The following table outlines our asset quality analysis as of, and for the three-month periods ended: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 NONPERFORMING ASSETS Commercial and industrial $ 16 $ 17 $ — $ — $ 120 Commercial real estate 3,000 533 — — — Agricultural — — — — — Residential real estate 427 614 173 282 427 Consumer — — — — — Total nonaccrual loans 3,443 1,164 173 282 547 Accruing loans past due 90 days or more 18 31 26 19 64 Total nonperforming loans 3,461 1,195 199 301 611 Foreclosed assets 1,018 667 649 544 546 Debt securities — — — — 12 Total nonperforming assets $ 4,479 $ 1,862 $ 848 $ 845 $ 1,169 Nonperforming loans to gross loans 0.24 % 0.09 % 0.01 % 0.02 % 0.04 % Nonperforming assets to total assets 0.20 % 0.09 % 0.04 % 0.04 % 0.06 % Nonaccrual loans to gross loans 0.24 % 0.08 % 0.01 % 0.02 % 0.04 % ACL as a % of nonaccrual loans 381.91 % N/M N/M N/M N/M ALLOWANCE FOR CREDIT LOSSES Allowance at beginning of period $ 12,977 $ 12,735 $ 12,895 $ 12,635 $ 13,095 Charge-offs 175 390 172 299 1,767 Recoveries 101 1,822 224 197 408 Net loan charge-offs (recoveries) 74 (1,432) (52) 102 1,359 (Reversal of) provision for credit losses - loans 246 (1,190) (212) 362 899 Allowance at end of period $ 13,149 $ 12,977 $ 12,735 $ 12,895 $ 12,635 ACL to gross loans 0.92 % 0.93 % 0.93 % 0.91 % 0.89 % Reserve for unfunded commitments 671 708 617 512 498 Provision for credit losses - unfunded commitments (37) 91 105 14 47 Reserve to unfunded commitments 0.16 % 0.16 % 0.14 % 0.15 % 0.15 % NET LOAN CHARGE-OFFS (RECOVERIES) Commercial and industrial $ (6) $ 68 $ (80) $ 13 $ (6) Commercial real estate (4) (50) (2) (2) (318) Agricultural — — — (4) — Residential real estate (16) (16) (13) (16) (20) Consumer 100 (1,434) 43 111 1,703 Total $ 74 $ (1,432) $ (52) $ 102 $ 1,359 Net (recoveries) charge-offs (Quarter to Date annualized to average loans) 0.02 % (0.41) % (0.02) % 0.03 % 0.39 % Net (recoveries) charge-offs (Year to Date annualized to average loans) (0.14) % (0.22) % (0.02) % 0.14 % 0.17 % DELINQUENT AND NONACCRUAL LOANS Accruing loans 30-89 days past due $ 500 $ 1,076 $ 5,555 $ 5,682 $ 2,226 Accruing loans past due 90 days or more 18 31 26 19 64 Total accruing past due loans 518 1,107 5,581 5,701 2,290 Nonaccrual loans 3,443 1,164 173 282 547 Total past due and nonaccrual loans $ 3,961 $ 2,271 $ 5,754 $ 5,983 $ 2,837 50 Table of Contents Capital Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 36,809 shares or $1,031 of common stock during the first nine months of 2025, as compared to 61,560 shares or $1,190 of common stock during the same period in 2024. We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $233 and $332 during the nine-month periods ended September 30, 2025 and 2024, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $45 during the first nine months of 2025, as compared to $71 during the same period in 2024. We have publicly announced a common stock repurchase program. Pursuant to this repurchase program, we repurchased 122,502 shares or $3,259 of common stock during the first nine months of 2025 and 124,969 shares or $2,419 of common stock during the first nine months of 2024. As of September 30, 2025, we were authorized to repurchase up to an additional 495,727 shares of common stock under the repurchase program. 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. At September 30, 2025, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since September 30, 2025 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status. The following table sets forth our consolidated capital ratios as of: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 Common equity tier 1 capital 12.37 % 12.46 % 12.58 % 12.21 % 12.08 % Tier 1 capital 12.37 % 12.46 % 12.58 % 12.21 % 12.08 % Total capital 15.20 % 15.34 % 15.50 % 15.06 % 14.90 % Tier 1 leverage 8.71 % 9.04 % 8.96 % 8.86 % 8.77 % Liquidity Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources. Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities. Cash, cash equivalents and unencumbered AFS securities totaled $487,212, or 21.56% of assets, as of September 30, 2025, compared to $330,876, or 15.86%, as of December 31, 2024. The increase in the amount and percentage of primary liquidity is a direct result of an increase in cash, driven by deposit growth. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly. Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and lines of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of September 30, 2025, we had available lines of credit of $384,555. We monitor our daily liquidity position to meet our cash flow needs. We also forecast anticipated funding needs for changes in interest rates and economic conditions, the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits, and regulatory capital requirements. Our liquidity stress testing is designed with consideration of these and other factors that could pose undue risk to liquidity. 51 Table of Contents Our liquidity position remained strong at September 30, 2025, which is illustrated in the following table: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 Total cash and cash equivalents $ 161,301 $ 108,554 $ 69,179 $ 24,542 $ 27,378 Brokered CD capacity 130,000 120,000 120,000 120,000 120,000 Available lines of credit Fed funds lines with correspondent banks 93,000 93,000 93,000 93,000 93,000 FHLB borrowings 257,288 249,890 250,884 215,432 233,552 FRB Discount Window 29,267 29,084 28,940 28,698 28,888 Other lines of credit 5,000 5,000 5,000 5,000 5,000 Total available lines of credit 384,555 376,974 377,824 342,130 360,440 Unencumbered lendable value of FRB collateral, estimated (1) 300,000 320,000 340,000 290,000 290,000 Total cash and liquidity $ 975,856 $ 925,528 $ 907,003 $ 776,672 $ 797,818 Uninsured deposits $ 726,514 $ 726,240 $ 687,341 $ 645,764 $ 687,990 Coverage ratio of uninsured deposits with total cash and liquidity 134 % 127 % 132 % 120 % 116 % (1) In cludes estimated unencumbered lendable value of FHLB collateral of $230,000 as of September 30, 2025. Fair Value We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities, cash flow hedge derivative instruments and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, collateral dependent loans, goodwill, foreclosed assets, OMSR, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write downs of individual assets. For further information regarding fair value measurements see “Note 7 – Fair Value” of our interim condensed consolidated financial statements included with this Form 10-Q. Interest Rate Sensitivity and Market Risk As a financial institution, our primary market risks are interest rate risk and liquidity risk. IRR is the exposure of our net interest income to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution's interest earning assets and its interest-bearing liabilities. Managing IRR is the fundamental method by which financial institutions earn income and create shareholder value. Excessive exposure to IRR could pose a significant risk to our earnings and capital. The FRB has adopted a policy requiring banks to effectively manage the various risks that can have a material impact on safety and soundness. The risks include credit, interest rate, liquidity, operational, and reputational. We have policies, procedures, and internal controls for measuring and managing these risks. Specifically, our ALCO policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long-term assets, limiting the mismatch in repricing opportunities of assets and liabilities, and the frequency of measuring and reporting to our Board of Directors. The primary technique to measure IRR is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of yield curves, interest rate relationships, loan prepayments, and funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic rate environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance 52 Table of Contents sheet components, interest rate changes, changes in market conditions, and management strategies. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits. Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of our interest-bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the embedded repricing options contained in assets and liabilities. Residential real estate and consumer loans allow the borrower to repay the balance prior to maturity without penalty, while commercial and agricultural loans may have prepayment penalties. The amount of prepayments is dependent upon many factors, including the interest rate of a given loan in comparison to the current offering rates, the level of home sales, and the overall availability of credit in the marketplace. Generally, a decrease in interest rates will result in an increase in cash flows from these assets. Savings and demand accounts may generally be withdrawn on request without prior notice. The timing of cash flows from these deposits is estimated based on historical experience. Certificates of deposit have penalties that discourage early withdrawals. Gap analysis is also utilized as a method to measure interest rate sensitivity. Interest rate sensitivity is determined by the amount of earning assets and interest-bearing liabilities repricing within a specific time period, and their relative sensitivity to a change in interest rates. We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates. We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes to our market risk methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques. Contractual Obligations and Loan Commitments We have various financial obligations, including contractual obligations and commitments related to deposits and borrowings, which may require future cash payments. We also have loan related commitments that may impact liquidity. The commitments include unused lines of credit, commercial and standby letters of credit, and commitments to grant loans. These commitments to grant loans include residential mortgage loans with the majority committed to be sold to the secondary market. Many of these commitments historically have expired without being drawn upon and do not necessarily represent our future cash requirements. 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 interest rate risk 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. Our exposure to credit-related loss in the event of nonperformance by the counterparties 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 when analyzing the creditworthiness of counterparties as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments. Reconciliation of Non-GAAP Financial Measures The following tables provide a detailed analysis, and reconciliation for, our non-GAAP financial measures as of: September 30 2025 June 30 2025 March 31 2025 December 31 2024 September 30 2024 Gross loans $ 1,431,905 $ 1,397,513 $ 1,367,724 $ 1,423,571 $ 1,424,283 Advances to mortgage brokers 5,056 3,005 3,015 63,080 76,187 Core loans $ 1,426,849 $ 1,394,508 $ 1,364,709 $ 1,360,491 $ 1,348,096 Total shareholders’ equity $ 227,420 $ 220,500 $ 215,556 $ 210,276 $ 212,985 Goodwill and other intangible assets 48,282 48,282 48,282 48,283 48,283 Tangible equity (A) 179,138 172,218 167,274 161,993 164,702 Common shares outstanding (1) (B) 7,350,567 7,361,684 7,408,010 7,424,893 7,438,720 Tangible book value per share (A/B) $ 24.37 $ 23.39 $ 22.58 $ 21.82 $ 22.14 (1) Whole shares. 53 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk. The information presented in the section captioned “Interest Rate Sensitivity and Market Risk” in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q is incorporated herein by reference.