•Portion of the loan balance has been charged-off.

9. LOSS – Charge-off

Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off. loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by:

•Liquidation or reorganization under Bankruptcy, with poor prospects of collection.

•Fraudulently overstated assets and/or earnings.

•Collateral has marginal or no value.

•Debtor cannot be located.

•Over 120 days delinquent.

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Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due ~~aging.~~status. The following ~~tables summarize the past due and current loans as of:~~

September 30, 2017
Accruing Interest
and Past Due: Total Past Due and Nonaccrual

30-59
Days 60-89
Days 90 Days
or More Nonaccrual Current Total
Commercial
Commercial real estate $ 466
$ —
$ —
$ 211
$ 677
$ 462,243
$ 462,920
Commercial other 823
29
—
3
855
133,526
134,381
Advances to mortgage brokers —
—
—
—
—
22,834
22,834
Total commercial 1,289
29
—
214
1,532
618,603
620,135
Agricultural
Agricultural real estate —
—
590
488
1,078
88,210
89,288
Agricultural other 490
3
—
497
990
42,720
43,710
Total agricultural 490
3
590
985
2,068
130,930
132,998
Residential real estate
Senior liens 1,514
—
56
383
1,953
225,215
227,168
Junior liens 8
—
—
23
31
7,348
7,379
Home equity lines of credit 217
—
—
—
217
36,716
36,933
Total residential real estate 1,739
—
56
406
2,201
269,279
271,480
Consumer
Secured 39
11
—
—
50
49,027
49,077
Unsecured 2
—
—
—
2
3,852
3,854
Total consumer 41
11
—
—
52
52,879
52,931
Total $ 3,559
$ 43
$ 646
$ 1,605
$ 5,853
$ 1,071,691
$ 1,077,544

December 31, 2016
Accruing Interest
and Past Due: Total Past Due and Nonaccrual

30-59
Days 60-89
Days 90 Days
or More Nonaccrual Current Total
Commercial
Commercial real estate $ 1,580
$ —
$ 35
$ 4
$ 1,619
$ 422,762
$ 424,381
Commercial other 1,693
35
—
—
1,728
129,867
131,595
Advances to mortgage brokers —
—
—
—
—
19,688
19,688
Total commercial 3,273
35
35
4
3,347
572,317
575,664
Agricultural
Agricultural real estate 191
—
508
—
699
83,138
83,837
Agricultural other 19
—
—
533
552
42,103
42,655
Total agricultural 210
—
508
533
1,251
125,241
126,492
Residential real estate
Senior liens 1,638
174
22
498
2,332
216,681
219,013
Junior liens 15
—
—
25
40
8,317
8,357
Home equity lines of credit 270
6
68
—
344
38,336
38,680
Total residential real estate 1,923
180
90
523
2,716
263,334
266,050
Consumer
Secured 110
—
—
—
110
38,582
38,692
Unsecured 5
—
—
—
5
3,712
3,717
Total consumer 115
—
—
—
115
42,294
42,409
Total $ 5,521
$ 215
$ 633
$ 1,060
$ 7,429
$ 1,003,186
$ 1,010,615

~~Impaired Loans~~

~~Loans may be classified as impaired if they meet one or more of the following criteria:~~


1.	~~There has been a~~ ~~charge-off~~ ~~of its principal balance (in whole or in part);~~


2.	~~The loan has been classified as a~~ ~~TDR; or~~


3.	~~The loan is in~~ ~~nonaccrual~~ ~~status.~~

~~Impairment is measured on a~~ ~~loan-by-loan~~ basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a ~~loan-by-loan~~ ~~basis for~~table displays residential real estate and consumer loans by ~~comparing~~payment status and year of origination as of:


	March 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Residential real estate: Senior lien
Current	$	8,276	$	46,877	$	81,024	$	57,419	$	25,618	$	63,835	$	11,101	$	3,304	$	297,454
Past due 30-89 days	—		111		269		48		364		1,359		—		—		2,151
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		44		135		—		—		179
Total	$	8,276	$	46,988	$	81,293	$	57,467	$	26,026	$	65,329	$	11,101	$	3,304	$	299,784
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	2
Residential real estate: Junior lien
Current	$	538	$	1,524	$	207	$	199	$	241	$	677	$	—	$	—	$	3,386
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	538	$	1,524	$	207	$	199	$	241	$	677	$	—	$	—	$	3,386
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate: Home equity lines of credit
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	32,995	$	—	$	32,995
Past due 30-89 days	—		—		—		—		—		—		21		—		21
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	33,016	$	—	$	33,016
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer: Secured - direct
Current	$	4,646	$	13,150	$	9,077	$	5,315	$	2,512	$	2,441	$	—	$	—	$	37,141
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	4,646	$	13,150	$	9,077	$	5,315	$	2,512	$	2,441	$	—	$	—	$	37,141
Current year-to-date gross charge-offs	$	—	$	—	$	5	$	—	$	—	$	—	$	—	$	—	$	5
Consumer: Secured - indirect
Current	$	7,563	$	13,918	$	8,565	$	6,811	$	2,724	$	4,178	$	—	$	—	$	43,759
Past due 30-89 days	—		16		—		12		—		15		—		—		43
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	7,563	$	13,934	$	8,565	$	6,823	$	2,724	$	4,193	$	—	$	—	$	43,802
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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	March 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer: Unsecured
Current	$	530	$	1,355	$	361	$	225	$	37	$	7	$	652	$	—	$	3,167
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	530	$	1,355	$	361	$	225	$	37	$	7	$	652	$	—	$	3,167
Current year-to-date gross charge-offs	$	91	$	—	$	3	$	—	$	—	$	—	$	—	$	—	$	94

Loan Modifications

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

Typical modifications granted include, but are not limited to:

•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

•Extending the ~~loan’s unpaid~~maturity date or amortization period beyond typical lending guidelines for loans with similar risk characteristics.

•Agreeing to an interest-only payment structure, delaying principal ~~balance~~payments,or delaying payments.

•Forgiving principal.

To determine if a borrower is experiencing financial difficulty, factors we consider include:

•The borrower is currently in default on any debt.

•The borrower would likely default on any debt if the concession is not granted.

•The borrower’s cash flow is insufficient to service all debt if the concession is not granted.

•The borrower has declared, or is in the process of declaring, bankruptcy.

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

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


	March 31, 2023
	Interest Rate Reduction				Other-Than-Insignificant Payment Delay				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
Agricultural:
Agricultural mortgage	$	—	—	%	$	—	—	%	$	232	0.33	%
Agricultural other	—		—	%	—		—	%	34		0.14	%
Residential real estate:
Senior lien	—		—	%	—		—	%	5		—	%
Total	$	—	—	%	$	—	—	%	$	271	0.47	%

We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $0 in additional funds to be disbursed in connection with modified loans at March 31, 2023, as displayed in the table above, at March 31, 2023.

Table of Contents

We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table summarizes the performance of such loans that were modified during the three months ended March 31, 2023.

March 31, 2023

Past Due:

30-59
Days

60-89
Days

90 Days
or More

Total Past Due

Agricultural

—

Residential real estate

—

Total

—

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


	March 31, 2023
	Weighted-Average Interest Rate Reduction	Weighted-Average Term Extension
Agricultural	N/A	1 year
Residential real estate	N/A	2.6 years

There was one loan restructured during the three-month period ended March 31, 2022, with a below market interest rate and extension of amortization period, in the amount of $98.

We had no loans that defaulted in the three-month periods ended March 31, 2023 and 2022 which were modified within 12 months prior to the ~~present~~default date.

ACL - Loans

The credit quality of our loan portfolio is continuously monitored and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within our loan portfolio. The ACL is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The ACL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ACL are specific allocations for loans individually evaluated, historical loss percentages, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The methodology for estimating the amount of expected ~~future~~credit losses reported in the ACL has two basic components: a component of individual loans that do not share risk characteristics with other loans; and a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

For a loan that does not share risk characteristics with other loans, an individual analysis is performed to measure an allowance. Loans in nonaccrual status are individually evaluated for specific allocation of the allowance using the fair value of collateral, less costs to sell if foreclosure is probable, or the discounted cash ~~flows discounted at the loan’s effective interest rate.~~

flow method. We do not recognize interest income on ~~impaired~~ loans in nonaccrual status. For ~~impaired~~ loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding.

In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and credit risk ratings or delinquency bucket. This model calculates an expected loss percentage for each loan class by considering the probability of default, based on the migration of loans from performing to loss by credit risk ratings or delinquency buckets using life-of-loan analysis, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class.

Table of Contents

The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. These qualitative factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the model reverts back to the historical rates of default and severity of loss. Qualitative factors include:

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, recovery practices not considered elsewhere in estimating credit losses;

•Changes in the experience, ability, and depth of lending management and other relevant staff;

•Changes in interest rates;

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

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

•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

•Lack of current financial information;

•Competition, Legal, and Regulatory; and

•The 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 activity in the ACL by portfolio segment and the recorded investment in loans by segments follows:


	Allowance for Credit Losses
	Three Months Ended March 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
Charge-offs	—		—		—		(2)		(99)		—		(101)
Recoveries	—		10		4		24		72		—		110
Credit loss expense	15		33		(69)		(61)		119		—		37
March 31, 2023	$	817	$	6,036	$	265	$	4,113	$	1,409	$	—	$	12,640

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	Allowance for Loan Losses
	Three Months Ended March 31, 2022
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
January 1, 2022	$	1,740	$	289	$	747	$	908	$	5,419	$	9,103
Charge-offs	—		—		—		(91)		—		(91)
Recoveries	14		2		28		111		—		155
Credit loss expense	(509)		92		(50)		(220)		724		37
March 31, 2022	$	1,245	$	383	$	725	$	708	$	6,143	$	9,204


	Allowance for Loan Losses and Recorded Investment in Loans
	As of December 31, 2022
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
Allowance
Individually evaluated for impairment	$	12	$	—	$	439	$	—	$	—	$	451
Collectively evaluated for impairment	1,309		577		178		961		6,374		9,399
Total	$	1,321	$	577	$	617	$	961	$	6,374	$	9,850
Loans
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
Total	$	744,440	$	104,985	$	336,694	$	78,054			$	1,264,173

The following ~~is a summary of information pertaining to impaired~~table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of:


	March 31, 2023				December 31, 2022
	Loan Balance		Specific Allocation		Loan Balance		Specific Allocation
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	—		—		8,342		12
Agricultural	199		—		10,935		—
Residential real estate	81		—		2,741		439
Consumer	—		—		—		—
Total	$	280	$	—	$	22,018	$	451

September 30, 2017 December 31, 2016

Recorded Balance Unpaid Principal Balance Valuation Allowance Recorded Balance Unpaid Principal Balance Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate $ 4,209
$ 4,328
$ 766
$ 5,811
$ 5,992
$ 716
Commercial other 2,239
2,239
167
1,358
1,358
25
Agricultural real estate —
—
—
—
—
—
Agricultural other —
—
—
134
134
1
Residential real estate senior liens 8,273
8,903
1,605
8,464
9,049
1,615
Residential real estate junior liens 70
70
13
72
82
14
Home equity lines of credit —
—
—
—
—
—
Consumer secured —
—
—
—
—
—
Total impaired loans with a valuation allowance 14,791
15,540
2,551
15,839
16,615
2,371
Impaired loans without a valuation allowance
Commercial real estate 1,988
2,062
604
617

Commercial other 89
89
86
97

Agricultural real estate 7,834
7,834
4,037
4,037

Agricultural other 3,142
3,142
1,374
1,374

Home equity lines of credit 83
383
102
402

Consumer secured 18
18
26
26

Total impaired loans without a valuation allowance 13,154
13,528
6,229
6,553

Impaired loans
Commercial 8,525
8,718
933
7,859
8,064
741
Agricultural 10,976
10,976
—
5,545
5,545
1
Residential real estate 8,426
9,356
1,618
8,638
9,533
1,629
Consumer 18
18
—
26
26
—
Total impaired loans $ 27,945
$ 29,068
$ 2,551
$ 22,068
$ 23,168
$ 2,371

~~The following~~We have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is ~~a summary of information pertaining to impaired loans for the:~~

Three Months Ended September 30
2017 2016

Average Recorded Balance Interest Income Recognized Average Recorded Balance Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate $ 4,636
$ 68
$ 5,699
$ 90
Commercial other 1,669
28
746
2
Agricultural real estate —
—
181
4
Agricultural other —
—
67
1
Residential real estate senior liens 8,333
79
8,896
85
Residential real estate junior liens 73
1
105
—
Home equity lines of credit 35
—
—
—
Consumer secured —
—
—
—
Total impaired loans with a valuation allowance 14,746
176
15,694
182
Impaired loans without a valuation allowance
Commercial real estate 1,546
31
705
10
Commercial other 93
2
67
2
Agricultural real estate 7,830
98
3,360
42
Agricultural other 3,221
39
767
11
Home equity lines of credit 86
5
112
4
Consumer secured 19
—
31
1
Total impaired loans without a valuation allowance 12,795
175
5,042
70
Impaired loans
Commercial 7,944
129
7,217
104
Agricultural 11,051
137
4,375
58
Residential real estate 8,527
85
9,113
89
Consumer 19
—
31
1
Total impaired loans $ 27,541
$ 351
$ 20,736
$ 252

Nine Months Ended September 30
2017 2016

Average Recorded Balance Interest Income Recognized Average Recorded Balance Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate $ 4,765
$ 225
$ 5,748
$ 259
Commercial other 1,363
75
298
5
Agricultural real estate —
—
91
6
Agricultural other 22
—
78
1
Residential real estate senior liens 8,379
245
9,439
278
Residential real estate junior liens 75
2
126
2
Home equity lines of credit 23
—
—
—
Consumer secured —
—
—
—
Total impaired loans with a valuation allowance 14,627
547

15,780

551
Impaired loans without a valuation allowance
Commercial real estate 1,483
83
995
57
Commercial other 109
6
92
6
Agricultural real estate 5,936
218
3,454
130
Agricultural other 2,353
85
574
27
Home equity lines of credit 115
15
118
12
Consumer secured 22
—
33
3
Total impaired loans without a valuation allowance 10,018
407
5,266
235
Impaired loans
Commercial 7,720
389
7,133
327
Agricultural 8,311
303
4,197
164
Residential real estate 8,592
262
9,683
292
Consumer 22
—
33
3
Total impaired loans $ 24,645
$ 954
$ 21,046
$ 786

~~We had committed to advance $125 and $117 in connection with impaired loans, which includes TDRs, as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~

~~Troubled Debt Restructurings~~

~~Loan modifications are considered~~expected to be ~~TDRs~~ ~~when~~provided substantially by the ~~modification includes terms outside~~sale or operation of ~~normal lending practices to a borrower who is experiencing financial difficulties.~~

~~Typical concessions granted include, but are not limited to:~~

•~~Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.~~

•~~Extending~~ the ~~amortization period beyond typical lending guidelines for loans with similar risk characteristics.~~

•~~Agreeing to an interest only payment structure~~collateral and ~~delaying principal payments.~~

•~~Forgiving principal.~~

•~~Forgiving accrued interest.~~

~~To determine if a~~the borrower is experiencing financial ~~difficulties, factors we consider include:~~difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis with no allowance include $280 in collateral dependent loans.

~~The borrower is currently in default on any~~

Table of ~~their debt.~~

~~The borrower would likely default on any of their debt if the concession was not granted.~~

~~The borrower’s cash flow was insufficient to service all of their debt if the concession was not granted.~~

~~The borrower has declared, or is in the process of declaring, bankruptcy.~~

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

~~The following is a summary of information pertaining to~~ ~~TDRs~~ ~~granted for the:~~

Contents

Three Months Ended September 30
2017 2016

Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment
Commercial other 3
$ 1,385
$ 1,385
1
$ 1,315
$ 1,315
Agricultural other —
—
—
2
319
319
Residential real estate
Senior liens 2
179
179
—
—
—
Junior liens —
—
—
—
—
—
Total residential real estate 2
179
179
—
—
—
Consumer unsecured —
—
—
—
—
—
Total 5

$ 1,564

$ 1,564
3

$ 1,634

$ 1,634
Note 4 – Borrowed Funds

Federal funds purchased and repurchase agreements

Nine Months Ended September 30
2017 2016

Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment
Commercial other 6
$ 1,698
$ 1,698
1
$ 1,315
$ 1,315
Agricultural other 7
5,445
5,445
5
520
520
Residential real estate
Senior liens 5
434
434
2
26
26
Junior liens 1
8
8
—
—
—
Total residential real estate 6
442
442
2
26
26
Consumer unsecured —
—
—
1
2
2
Total 19
$ 7,585
$ 7,585
9
$ 1,863
$ 1,863

~~The following tables summarize concessions we granted~~Securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to ~~borrowers in financial difficulty for the:~~

Three Months Ended September 30
2017 2016

Below Market Interest Rate Below Market Interest Rate and Extension of Amortization Period Below Market Interest Rate Below Market Interest Rate and Extension of Amortization Period
Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment
Commercial other —
$ —
3
$ 1,385
—
$ —
1
$ 1,315
Agricultural other —
—
—
—
1
14
1
305
Residential real estate
Senior liens —
—
2
179
—
—
—
—
Junior liens —
—
—
—
—
—
—
—
Total residential real estate —
—
2
179
—
—
—
—
Consumer unsecured —
—
—
—
—
—
—
—
Total —

$ —

5

$ 1,564
1

$ 14

2

$ 1,620

Nine Months Ended September 30

2017 2016

Below Market Interest Rate Below Market Interest Rate and Extension of Amortization Period Below Market Interest Rate Below Market Interest Rate and Extension of Amortization Period
Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment
Commercial other —
$ —
6
$ 1,698
—
$ —
1
$ 1,315
Agricultural other 4
1,349
3
4,096
1
14
4
506
Residential real estate

Senior liens —
—
5
434
2
26
—
—
Junior liens 1
8
—
—
—
—
—
—
Total residential real estate 1
8
5
434
2
26
—
—
Consumer unsecured —
—
—
—
—
—
1
2
Total 5
$ 1,357
14
$ 6,228
3
$ 40
6
$ 1,823

~~We did not restructure any loans by forgiving principal or accrued interest in~~four days from the ~~three and nine~~ ~~month periods ended~~ ~~September 30, 2017~~ or ~~2016~~.

~~Based on our historical loss experience, losses associated with~~ ~~TDRs~~ ~~are not significantly different than other impaired loans within the same loan segment. As such,~~ ~~TDRs, including~~ ~~TDRs~~ ~~that have been modified in the past~~ ~~12 months~~ ~~that subsequently defaulted, are analyzed in the same manner as other impaired loans within their respective loan segment.~~

transaction date. We had no ~~loans that defaulted in~~FRB Discount Window advances during the ~~three and nine~~ ~~month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016 which were modified within~~ ~~12 months~~ ~~prior to the default date.~~2022.

~~The following is a~~A summary of ~~TDR~~ ~~loan balances~~securities sold under repurchase agreements without stated maturity dates was as ~~of:~~

September 30, 2017 December 31, 2016
TDRs $ 27,259
$ 21,382

~~Note 6 – Equity Securities Without Readily Determinable Fair Values~~

~~Included in equity securities without readily determinable fair values are restricted securities, which are carried at cost, and investments in unconsolidated entities accounted~~follows for ~~under the equity method of accounting.~~

~~Equity securities without readily determinable fair values consist of the following as of:~~

September 30
2017 December 31
2016
FHLB Stock $ 13,700
$ 11,900
Corporate Settlement Solutions, LLC 7,428
7,461
FRB Stock 1,999
1,999
Other 334
334
Total $ 23,461
$ 21,694

~~Note 7 – Foreclosed Assets~~

~~Foreclosed assets are included in other assets in the consolidated balance sheets and consist of other real estate owned and repossessed assets. The following is a summary of foreclosed assets as of:~~

September 30
2017 December 31
2016
Consumer mortgage loans collateralized by residential real estate foreclosed as a result of obtaining physical possession $ 20
$ 18
All other foreclosed assets 220
213
Total $ 240
$ 231

~~There were $260 and $18 of consumer mortgage loans collateralized by residential real estate in the process of foreclosure as of September 30, 2017 and December 31, 2016.~~

~~Below is a summary of changes in foreclosed assets during~~ the:

Three Months Ended September 30
2017 2016
Balance, July 1 $ 229
$ 249
Properties transferred 118
95
Impairments (2 ) —
Proceeds from sale (105 ) (60 )
Balance, September 30 $ 240

$ 284

Nine Months Ended September 30

2017 2016
Balance, January 1 $ 231
$ 421
Properties transferred 214
211
Impairments (2 ) —
Proceeds from sale (203 ) (348 )
Balance, September 30 $ 240
$ 284

~~Note 8 –~~ ~~Borrowed Funds~~

~~Borrowed funds consist of the following obligations as of:~~

September 30, 2017 December 31, 2016

Amount Rate Amount Rate
FHLB advances $ 310,000
1.83 % $ 270,000
1.82 %
Securities sold under agreements to repurchase without stated maturity dates 54,977
0.12 % 60,894
0.13 %
Federal funds purchased 2,050
1.39 % 6,800
1.00 %
Total $ 367,027
1.57 % $ 337,694
1.50 %

~~FHLB~~ ~~advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, specific AFS securities, and~~ ~~FHLB~~ ~~stock.~~

~~The following table lists the maturities and weighted average interest rates of~~ ~~FHLB~~ ~~advances as of:~~

September 30, 2017 December 31, 2016

Amount Rate Amount Rate
Fixed rate due 2017 $ 40,000
1.13 % $ 70,000
1.39 %
Fixed rate due 2018 50,000
2.16 % 50,000
2.16 %
Fixed rate due 2019 85,000
1.87 % 60,000
1.99 %
Fixed rate due 2020 35,000
1.52 % 10,000
1.98 %
Fixed rate due 2021 50,000
1.91 % 50,000
1.91 %
Variable rate due 2021 ¹
10,000
1.61 % 10,000
1.21 %
Fixed rate due 2022 20,000
1.97 % —
— %
Fixed rate due 2023 10,000
3.90 % 10,000
3.90 %
Fixed rate due 2026 10,000
1.17 % 10,000
1.17 %
Total $ 310,000
1.83 % $ 270,000
1.82 %

⁽¹⁾

~~Hedged advance (see "Derivative Instruments" section below)~~


	Three Months Ended March 31
	2023						2022
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	54,236	$	39,706	1.33	%	$	53,970	$	49,058	0.07	%
Federal funds purchased	$	—	$	3	5.27	%	$	—	$	1	0.61	%

Securities sold under agreements to repurchase are classified as secured borrowings and are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of ~~$54,996~~$35,848 and ~~$60,918~~$58,291 at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~,2022, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.

Securities sold under repurchase agreements without stated maturity dates federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date. The following table provides a summary of securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances.

Three Months Ended September 30
2017 2016
Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates $ 58,464
$ 53,846
0.13 % $ 56,057
$ 54,446
0.13 %
Federal funds purchased 3,815
1,474
1.20 % 20,600
8,848
0.69 %
FRB Discount Window —
82
1.60 % —
—
— %
were as follows as of:


	March 31, 2023				December 31, 2022
	Amount		Rate		Amount		Rate
Securities sold under agreements to repurchase without stated maturity dates	$	31,995	1.80	%	$	57,771	0.49	%

Nine Months Ended September 30
2017 2016

Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period Maximum Month End Balance Average Balance Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates $ 58,464
$ 55,051
0.13 % $ 61,783
$ 57,159
0.13 %
Federal funds purchased 5,965
3,280
1.13 % 20,600
8,614
0.69 %
FRB Discount Window —
57
1.54 % —
—
— %

We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at:


	March 31 2023		December 31 2022
Pledged to secure borrowed funds	$	347,101	$	347,331
Pledged to secure repurchase agreements	35,848		58,291
Pledged for public deposits and for other purposes necessary or required by law	74,017		48,698
Total	$	456,966	$	454,320

September 30
2017 December 31
2016
Pledged to secure borrowed funds $ 416,279
$ 363,427
Pledged to secure repurchase agreements 54,996
60,918
Pledged for public deposits and for other purposes necessary or required by law 29,774
33,916
Total $ 501,049
$ 458,261

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

September 30
2017 December 31
2016
States and political subdivisions $ 4,256
$ 5,676
Mortgage-backed securities 15,419
11,383
Collateralized mortgage obligations 35,321
43,859
Total $ 54,996
$ 60,918


	March 31 2023		December 31 2022
U.S. Treasury	$	32,242	$	29,351
States and political subdivisions	2,960		11,037
Mortgage-backed securities	646		6,819
Collateralized mortgage obligations	—		11,084
Total	$	35,848	$	58,291

AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate ~~levels~~level of AFS securities to pledge to satisfy ~~required collateral.~~collateral requirements.

As of ~~September 30, 2017~~,March 31, 2023, we had the ability to borrow up to an additional ~~$114,839~~,$348,829, without pledging additional collateral.

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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"). The Notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the interest rate will reset quarterly to an annual floating rate equal to the then-current 3-month SOFR plus 256 basis points. The Notes are redeemable by us at our option, in whole or in part, on or after June 15, 2026. The Notes are not subject to redemption at the option of the holders.

The following table summarizes our outstanding notes as of:


	March 31, 2023				December 31, 2022
	Amount		Rate		Amount		Rate
Fixed rate at 3.25% to floating, due 2031	$	30,000	3.25	%	$	30,000	3.25	%
Unamortized issuance costs	(733)				(755)
Total subordinated debt, net	$	29,267			$	29,245

Note 5 – Computation of Earnings Per Common Share

Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP.

Earnings per common share have been computed based on ~~assets pledged as collateral.~~ the following for the:


	Three Months Ended March 31
		2023		2022
Average number of common shares outstanding for basic calculation		7,556,585		7,533,711
Average potential effect of common shares in the Directors Plan (1)		49,484		83,538
Average potential effect of common shares in the RSP		28,348		22,439
Average number of common shares outstanding used to calculate diluted earnings per common share		7,634,417		7,639,688
Net income		$	5,321	$	4,734
Earnings per common share
Basic		$	0.70	$	0.63
Diluted		$	0.70	$	0.62

(1)Exclusive of shares held in the Rabbi Trust

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Note 6 – Restricted Stock Plan

We ~~had no investment securities~~adopted the RSP, an equity-based bonus plan, in 2020. Under the RSP, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable or vested until certain conditions are met. Currently, the eligible employees are the Bank's CEO, President, and CFO. The RSP authorizes the issuance of unvested restricted stock to an eligible employee with a maximum award ranging from 25% to 40% of the employee’s annual salary, on a calendar year basis. The employee must also satisfy the annual performance targets and measures established by the Board of Directors. If these grant conditions are not satisfied, then the award of restricted shares will lapse or be ~~pledged for specific purposes.~~adjusted appropriately, at the discretion of the Board of Directors. All Grant Agreements contain vesting conditions and clawback provisions.

~~Derivative Instruments~~

We enter into interest rate swaps to manage exposure to interest rate risk and variability in cash flows. The interest rate swaps, associated with our variable rate borrowings, are designated upon inception as cash flow hedges of forecasted interest payments. We enter into LIBOR-based interest rate swaps that involve the receipt of variable amounts in exchange for fixed rate payments, in effect converting variable rate debt to fixed rate debt.

~~Cash flow hedges are assessed for effectiveness using regression analysis. The effective portion~~A summary of changes in ~~fair value are recorded in OCI~~nonvested restricted stock awards is as follows for the:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
	Number of Shares	Fair Value		Number of Shares	Fair Value
Balance, January 1	27,072	$	592	20,123	$	418
Granted	3,705	91		6,723	174
Vested	—	—		—	—
Forfeited	—	—		—	—
Balance, March 31	30,777	$	683	26,846	$	592

Expense related to RSP awards were $42 and ~~subsequently reclassified into interest~~$31 for the three-month periods ended March 31, 2023 and 2022. As of March 31, 2023, there was $394 of total remaining unrecognized compensation expense inrelated to nonvested restricted stock awards granted under the ~~same period in which the related interest on the variable rate borrowings affects earnings. In the event that a portion of the changes in fair value were determined~~RSP. The remaining expense is expected to be ~~ineffective, the ineffective amount would be recorded in earnings.~~recognized over a weighted-average service period of 2.86 years.

~~The following tables provide information on derivatives related to variable rate borrowings as of:~~

September 30, 2017
Pay Rate Receive Rate Remaining Life (Years) Notional Amount Balance Sheet Location Fair Value
Derivatives designated as hedging instruments
Cash Flow Hedges:
Interest rate swaps 1.56 % 3-Month LIBOR 3.6 $ 10,000
Other Assets $ 215

December 31, 2016
Pay Rate Receive Rate Remaining Life (Years) Notional Amount Balance Sheet Location Fair Value
Derivatives designated as hedging instruments
Cash Flow Hedges:
Interest rate swaps 1.56 % 3-Month LIBOR 4.3 $ 10,000
Other Assets $ 248

Derivatives contain an element of credit risk which arises from the possibility that we will incur a loss as a result of a counterparty failing to meet its contractual obligations. Credit risk is minimized through counterparty collateral, transaction limits and monitoring procedures. We also manage dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements and counterparties limits. We do not anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.

Note 97 – Other Noninterest Expenses

A summary of expenses included in other noninterest expenses is as follows for the:


	Three Months Ended March 31
		2023		2022
Audit, consulting, and legal fees		$	535	$	549
ATM and debit card fees		400		434
Marketing costs		245		239
Memberships and subscriptions		240		217
FDIC insurance premiums		228		125
Loan underwriting fees		215		182
Director fees		204		201
Donations and community relations		184		287
All other		756		596
Total other noninterest expenses		$	3,007	$	2,830

Three Months Ended
September 30 Nine Months Ended
September 30
2017 2016 2017 2016
ATM and debit card fees $ 253
$ 210
$ 873
$ 627
Audit and related fees 322
319
757
664
Consulting fees 259
198
672
567
Director fees 212
207
634
630
Loan underwriting fees 237
142
546
377
Donations and community relations 190
134
488
399
FDIC insurance premiums 172
224
480
646
Marketing costs 172
101
361
359
Education and travel 143
73
332
309
Printing and supplies 110
105
320
325
Postage and freight 85
96
304
293
All other 438
486
1,427
1,692
Total other $ 2,593
$ 2,295
$ 7,194
$ 6,888

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Note 108 – Federal Income Taxes

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of ~~34%~~21% of income before federal income tax expense is as follows for the:


	Three Months Ended March 31
		2023		2022
Income taxes at statutory rate		$	1,345	$	1,190
Effect of nontaxable income
Interest income on tax exempt municipal securities		(148)		(134)
Earnings on corporate owned life insurance policies		(47)		(55)
Other		(7)		(4)
Total effect of nontaxable income		(202)		(193)
Effect of nondeductible expenses		9		11
Effect of tax credits		(68)		(73)
Federal income tax expense		$	1,084	$	935

Note 9 – Accumulated Other Comprehensive Income

The following table summarizes the changes in AOCI by component for the:


	Three Months Ended March 31
	2023						2022
	Unrealized Gains (Losses) on AFS Securities		Defined Benefit Pension Plan		Total		Unrealized Gains (Losses) on AFS Securities		Defined Benefit Pension Plan		Total
Balance, January 1	$	(35,828)	$	(1,366)	$	(37,194)	$	3,873	$	(2,014)	$	1,859
OCI before reclassifications	8,610		—		8,610		(22,928)		—		(22,928)
Amounts reclassified from AOCI	(1)		—		(1)		—		—		—
Subtotal	8,609		—		8,609		(22,928)		—		(22,928)
Tax effect	(1,729)		—		(1,729)		4,736		—		4,736
OCI, net of tax	6,880		—		6,880		(18,192)		—		(18,192)
Balance, March 31	$	(28,948)	$	(1,366)	$	(30,314)	$	(14,319)	$	(2,014)	$	(16,333)

Included in OCI for the three-month periods ended March 31, 2023 and 2022 are changes in unrealized gains and losses related to auction rate money market preferred stocks. These investments, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.

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


	Three Months Ended March 31
	2023						2022
	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	$	374	$	8,236	$	8,610	$	(375)	$	(22,553)	$	(22,928)
Reclassification adjustment for net (gains) losses included in net income	—		(1)		(1)		—		—		—
Net unrealized gains (losses)	374		8,235		8,609		(375)		(22,553)		(22,928)
Tax effect	—		(1,729)		(1,729)		—		4,736		4,736
Unrealized gains (losses), net of tax	$	374	$	6,506	$	6,880	$	(375)	$	(17,817)	$	(18,192)

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Three Months Ended
September 30 Nine Months Ended
September 30
2017 2016 2017 2016
Income taxes at 34% statutory rate $ 1,458
$ 1,481
$ 4,317
$ 4,036
Effect of nontaxable income
Interest income on tax exempt municipal securities (452 ) (457 ) (1,361 ) (1,400 )
Earnings on corporate owned life insurance policies (60 ) (62 ) (183 ) (192 )
Effect of tax credits (186 ) (188 ) (566 ) (575 )
Other (18 ) (19 ) (54 ) (55 )
Total effect of nontaxable income (716 ) (726 ) (2,164 ) (2,222 )
Effect of nondeductible expenses 8
8
27
41
Federal income tax expense $ 750
$ 763
$ 2,180
$ 1,855

Note 1110 – Fair Value

Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:


Level 1:			Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:			Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3:			Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.

Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.

Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

~~Cash and cash equivalents~~: ~~The carrying amounts of cash and demand deposits due from banks and interest bearing balances due from banks approximate fair values. As such, we classify cash and cash equivalents as Level 1.~~

AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other ~~model based~~model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.

~~Mortgage loans AFS~~:~~Mortgage loans AFS~~ are carried at the lower of cost or fair value. The fair value of mortgage loans AFS are based on the price secondary markets are currently offering for portfolios with similar characteristics. As such, we classify mortgage loans AFS subject to nonrecurring fair value adjustments as Level 2.

~~Loans~~: For variable rate loans with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. As such, we classify loans as Level 3 assets.

Loans:We do not record loans at fair value on a recurring basis. However, ~~from~~ ~~time-to-time~~,some loans are ~~classified as impaired~~individually evaluated for ACL purposes, and a specific ~~allowance for loan losses~~ACL may be established. ~~Loans for which it is probable that payment of interest and principal will be significantly different than~~To measure reserve, the ~~contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The~~ fair value of ~~impaired loans~~the loan is estimated using ~~one~~the fair value of ~~several methods, including~~the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest ~~rate, the loan’s obtainable market price, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Those impaired loans~~rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

We review the net realizable values of the underlying collateral for collateral dependent ~~impaired~~ loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.

Table of Contents

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



	~~September 30, 2017~~
~~Valuation Technique~~	~~Fair Value~~	~~Unobservable Input~~	~~Range~~
		~~Discount applied to collateral:~~
		~~Real Estate~~	~~20% - 30%~~
		~~Equipment~~	~~20% - 45%~~
		~~Accounts receivable~~	~~50%~~
~~Discounted value~~	~~$16,158~~	~~Cash crop inventory~~	~~30% - 40%~~
		~~Other inventory~~	~~50% - 75%~~
		~~Liquor license~~	~~75%~~
		~~Furniture, fixtures & equipment~~	~~35% - 45%~~



	~~December 31, 2016~~
~~Valuation Technique~~	~~Fair Value~~	~~Unobservable Input~~	~~Range~~
		~~Discount applied to collateral:~~
		~~Real Estate~~	~~20% - 30%~~
		~~Equipment~~	~~20% - 45%~~
~~Discounted value~~	~~$9,166~~	~~Cash crop inventory~~	~~30% - 40%~~
		~~Liquor license~~	~~75%~~
		~~Furniture, fixtures & equipment~~	~~45%~~

March 31, 2023

Valuation Technique

Fair Value

Unobservable Input

Actual Range

Weighted Average

Collateral Dependent Loans -

Discount applied to collateral:

Discounted value

$280

Real Estate

20%

Equipment

25%


	December 31, 2022
Valuation Technique	Fair Value	Unobservable Input	Actual Range	Weighted Average
		Discount applied to collateral:
		Real Estate	20% - 30%	24%
Impaired Loans -		Equipment	25% - 35%	31%
Discounted value	$17,143	Cash crop inventory	40%	40%
		Livestock	30%	30%
		Accounts receivable	25%	27%
		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.

~~Accrued interest receivable~~: ~~The carrying amounts of accrued interest receivable approximate fair value. As such, we classify accrued interest receivable as Level 1.~~

~~Equity securities without readily determinable fair values~~: ~~Included in equity securities without readily determinable fair values are~~ ~~FHLB~~ ~~stock and~~ ~~FRB~~ ~~stock as well as our minority ownership interest in~~ ~~Corporate Settlement Solutions, LLC. The investment in~~ ~~Corporate Settlement Solutions, LLC, a title insurance agency, was made in the first quarter 2008 and we account for our investment under the equity method of accounting.~~

The lack of an active market, or other independent sources to validate fair value estimates coupled with the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. As the fair values of these investments are not readily determinable, they are not disclosed under a specific fair value hierarchy; however, they are reviewed quarterly for impairment. If we were to record an impairment adjustment related to these securities, it would be classified as a nonrecurring Level 3 fair value adjustment. During ~~2017~~ ~~and~~ ~~2016, there were~~ no ~~impairments recorded on equity securities without readily determinable fair values.~~

~~Foreclosed assets~~: Upon transfer from the loan portfolio, foreclosed assets (which are included in other assets) are adjusted to and subsequently carried at the lower of carrying value or fair value less costs to sell. Net realizable value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. Due to the inherent level of estimation in the valuation process, we classify foreclosed assets as nonrecurring Level 3.

~~The table below lists the quantitative fair value information related to foreclosed assets as of:~~

September 30, 2017
Valuation Technique Fair Value Unobservable Input Range
Discount applied to collateral:
Discounted value $ 240
Real Estate 20% - 30%

December 31, 2016
Valuation Technique Fair Value Unobservable Input Range
Discount applied to collateral:
Discounted value $ 231
Real Estate 20% - 30%

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

~~Goodwill and other intangible assets~~: Acquisition intangibles and goodwill are evaluated for potential 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 of acquisition intangibles or goodwill is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. If the testing resulted in impairment, we would classify goodwill and other acquisition intangibles subjected to nonrecurring fair value adjustments as Level 3. During ~~2017~~ ~~and~~ ~~2016, there were~~ no ~~impairments recorded on goodwill and other acquisition intangibles.~~

OMSR: OMSR:~~OMSR~~ (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2.

~~Deposits~~: The fair value of demand, savings, and money market deposits are equal to their carrying amounts and are classified as Level 1. Fair values for variable rate certificates of deposit approximate their carrying value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. As such, fixed rate certificates of deposit are classified as Level 2.

~~Borrowed funds~~: ~~The carrying amounts of federal funds purchased, borrowings under overnight repurchase agreements, and other~~ ~~short-term~~ ~~borrowings maturing within~~ ~~ninety days~~ approximate their fair values. The fair values of other borrowed funds are estimated using discounted cash flow analyses based on current incremental borrowing arrangements. As such, borrowed funds are classified as Level 2.

~~Accrued interest payable:~~ ~~The carrying amounts of accrued interest payable approximate fair value. As such, we classify accrued interest payable as Level 1.~~

~~Derivative instruments:~~ Derivative instruments, consisting solely of interest rate swaps, are recorded at fair value on a recurring basis. Derivatives qualifying as cash flow hedges, when highly effective, are reported at fair value in other assets or other liabilities on our Consolidated Balance Sheets with changes in value recorded in OCI. Should the hedge no longer be considered effective, the ineffective portion of the change in fair value is recorded directly in earnings in the period in which the change occurs. The fair value of a derivative is determined by quoted market prices and model based valuation techniques. As such, we classify derivative instruments as Level 2.

~~Commitments to extend credit, standby letters of credit, and undisbursed loans:~~ Our commitments to extend credit, standby letters of credit, and undisbursed funds have no carrying amount and are estimated to have no realizable fair value. Historically, a majority of the unused commitments to extend credit have not been drawn upon and, generally, we do not receive fees in connection with these commitments other than standby letter of credit fees, which are not significant.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

Table of Contents

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of:

September 30, 2017

Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
ASSETS
Cash and cash equivalents $ 21,067
$ 21,067
$ 21,067
$ —
$ —
Mortgage loans AFS 1,237
1,245
—
1,245
—
Gross loans 1,077,544
1,056,912
—
—
1,056,912
Less allowance for loan and lease losses 7,700
7,700
—
—
7,700
Net loans 1,069,844
1,049,212
—
—
1,049,212
Accrued interest receivable 7,388
7,388
7,388
—
—
Equity securities without readily determinable fair values (1) 23,461
N/A
—
—
—
OMSR 2,413
2,413
—
2,413
—
LIABILITIES
Deposits without stated maturities 791,567
791,567
791,567
—
—
Deposits with stated maturities 424,495
423,536
—
423,536
—
Borrowed funds 367,027
367,873
—
367,873
—
Accrued interest payable 633
633
633
—
—


	March 31, 2023
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	98,723	$	98,723	$	98,723	$	—	$	—
Mortgage loans AFS	171		177		—		177		—
Gross loans	1,270,651		1,228,594		—		—		1,228,594
Less allowance for credit losses	12,640		12,640		—		—		12,640
Net loans	1,258,011		1,215,954		—		—		1,215,954
Accrued interest receivable	6,779		6,779		6,779		—		—
Equity securities without readily determinable fair values (1)	15,746		N/A		—		—		—
OMSR	2,524		3,231		—		3,231		—
LIABILITIES
Deposits without stated maturities	1,524,926		1,524,926		1,524,926		—		—
Deposits with stated maturities	288,602		280,860		—		280,860		—
Federal funds purchased and repurchase agreements	31,995		31,912		—		31,912		—
Subordinated debt, net of unamortized issuance costs	29,267		24,564		—		24,564		—
Accrued interest payable	437		437		437		—		—


	December 31, 2022
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	38,924	$	38,924	$	38,924	$	—	$	—
Mortgage loans AFS	379		395		—		395		—
Gross loans	1,264,173		1,225,669		—		—		1,225,669
Less allowance for credit losses	9,850		9,850		—		—		9,850
Net loans	1,254,323		1,215,819		—		—		1,215,819
Accrued interest receivable	7,472		7,472		7,472		—		—
Equity securities without readily determinable fair values (1)	15,746		N/A		—		—		—
OMSR	2,559		3,174		—		3,174		—
LIABILITIES
Deposits without stated maturities	1,492,235		1,492,235		1,492,235		—		—
Deposits with stated maturities	252,040		240,964		—		240,964		—
Federal funds purchased and repurchase agreements	57,771		57,581		—		57,581		—
Subordinated debt, net of unamortized issuance costs	29,245		26,365		—		26,365		—
Accrued interest payable	255		255		255		—		—

December 31, 2016
Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
ASSETS
Cash and cash equivalents $ 22,894
$ 22,894
$ 22,894
$ —
$ —
Mortgage loans AFS 1,816
1,836
—
1,836
—
Gross loans 1,010,615
991,009
—
—
991,009
Less allowance for loan and lease losses 7,400
7,400
—
—
7,400
Net loans 1,003,215
983,609
—
—
983,609
Accrued interest receivable 6,580
6,580
6,580
—
—
Equity securities without readily determinable fair values (1) 21,694
N/A
—
—
—
OMSR 2,306
2,306
—
2,306
—
LIABILITIES
Deposits without stated maturities 761,626
761,626
761,626
—
—
Deposits with stated maturities 433,414
430,088
—
430,088
—
Borrowed funds 337,694
336,975
—
336,975
—
Accrued interest payable 574
574
574
—
—
(1)Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment.


⁽¹⁾ Table of Contents	Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

Financial Instruments Recorded at Fair Value

The table below presents the recorded amount of assets and liabilities measured at fair value on:

September 30, 2017 December 31, 2016

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Recurring items
AFS securities
Government-sponsored enterprises $ 232
$ —
$ 232
$ —
$ 10,259
$ —
$ 10,259
$ —
States and political subdivisions 213,457
—
213,457
—
212,919
—
212,919
—
Auction rate money market preferred 3,172
—
3,172
—
2,794
—
2,794
—
Preferred stocks 3,651
3,651
—
—
3,425
3,425
—
—
Mortgage-backed securities 215,914
—
215,914
—
227,256
—
227,256
—
Collateralized mortgage obligations 116,499
—
116,499
—
101,443
—
101,443
—
Total AFS securities 552,925
3,651
549,274
—
558,096
3,425
554,671
—
Derivative instruments 215
—
215
—
248
—
248
—
Nonrecurring items
Impaired loans (net of the ALLL) 16,158
—
—
16,158
9,166
—
—
9,166
Foreclosed assets 240
—
—
240
231
—
—
231
Total $ 569,538
$ 3,651
$ 549,489
$ 16,398
$ 567,741
$ 3,425
$ 554,919
$ 9,397
Percent of assets and liabilities measured at fair value 0.64 % 96.48 % 2.88 % 0.60 % 97.74 % 1.66 %


	March 31, 2023											December 31, 2022
	Total		Level 1			Level 2			Level 3			Total		Level 1			Level 2			Level 3
Recurring items
AFS securities
U.S. Treasury	$	212,086	$	—		$	212,086		$	—		$	208,701	$	—		$	208,701		$	—
States and political subdivisions	108,719		—			108,719			—			117,512		—			117,512			—
Auction rate money market preferred	2,716		—			2,716			—			2,342		—			2,342			—
Mortgage-backed securities	37,797		—			37,797			—			39,070		—			39,070			—
Collateralized mortgage obligations	200,252		—			200,252			—			205,728		—			205,728			—
Corporate	7,080		—			7,080			—			7,128		—			7,128			—
Total AFS securities	568,650		—			568,650			—			580,481		—			580,481			—
Nonrecurring items
Collateral dependent (net of ACL) in 2023 Impaired loans (net of the ALLL) in 2022	280		—			—			280			17,143		—			—			17,143
Total	$	568,930	$	—		$	568,650		$	280		$	597,624	$	—		$	580,481		$	17,143
Percent of assets and liabilities measured at fair value			—		%	99.95		%	0.05		%			—		%	97.13		%	2.87		%

We had no assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis as of September 30, 2017. Foreclosed assets, which are recorded at fair value with changes in fair value recognized through earnings on a nonrecurring basis, were written down to $240 as of September 30, 2017 which resulted in an impairment recorded through earnings in the amount of $2 for the nine month period ended September 30, 2017. We had no other assets or ~~liabilities recorded at fair value with changes in fair value recognized through earnings, on a~~ nonrecurring basis, as of ~~September 30, 2017.~~

~~Note 12 – Accumulated Other Comprehensive Income~~

~~The following table summarizes the changes in AOCI by component for the:~~

Three Months Ended September 30
2017 2016

Unrealized
Holding Gains
(Losses) on
AFS
Securities Unrealized
Gains
(Losses) on Derivative Instruments Defined
Benefit
Pension Plan Total Unrealized
Holding Gains
(Losses) on
AFS
Securities Unrealized
Gains
(Losses) on Derivative Instruments Defined
Benefit
Pension Plan Total
Balance, July 1 $ 2,923
$ 135
$ (2,972 ) $ 86
$ 10,982
$ (100 ) $ (3,315 ) $ 7,567
OCI before reclassifications (96 ) 11
—
(85 ) (2,548 ) 91
—
(2,457 )
Amounts reclassified from AOCI —
—
—
—
—
—
—
—
Subtotal (96 ) 11
—
(85 ) (2,548 ) 91
—
(2,457 )
Tax effect 54
(4 ) —
50
937
(31 ) —
906
OCI, net of tax (42 ) 7
—
(35 ) (1,611 ) 60
—
(1,551 )
Balance, September 30 $ 2,881

$ 142

$ (2,972 )
$ 51

$ 9,371

$ (40 )
$ (3,315 )
$ 6,016

Nine Months Ended September 30
2017 2016

Unrealized
Holding Gains
(Losses) on
AFS
Securities Unrealized
Gains
(Losses) on Derivative Instruments Defined
Benefit
Pension Plan Total Unrealized
Holding Gains
(Losses) on
AFS
Securities Unrealized
Gains
(Losses) on Derivative Instruments Defined
Benefit
Pension Plan Total
Balance, January 1 $ 30
$ 164
$ (2,972 ) $ (2,778 ) $ 3,536
$ —
$ (3,315 ) $ 221
OCI before reclassifications 4,151
(33 ) —
4,118
8,793
(61 ) —
8,732
Amounts reclassified from AOCI (142 ) —
—
(142 ) (245 ) —
—
(245 )
Subtotal 4,009
(33 ) —
3,976
8,548
(61 ) —
8,487
Tax effect (1,158 ) 11
—
(1,147 ) (2,713 ) 21
—
(2,692 )
OCI, net of tax 2,851
(22 ) —
2,829
5,835
(40 ) —
5,795
Balance, September 30 $ 2,881
$ 142
$ (2,972 ) $ 51
$ 9,371
$ (40 ) $ (3,315 ) $ 6,016

~~Included~~March 31, 2023. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the three and nine month periods ended September 30, 2017 and 2016 are changes in unrealized holding gains and losses related to auction rate money market preferred and preferred stocks. For federal income tax purposes, these securities are considered equity investments. As such, no ~~deferred federal income taxes related to unrealized holding gains or losses are expected or recorded.~~

~~A summary~~end of the ~~components of unrealized holding gains on AFS securities included in OCI follows for the:~~

reporting period.

Three Months Ended September 30
2017 2016

Auction Rate Money Market Preferred and Preferred Stocks All Other AFS Securities Total Auction Rate Money Market Preferred and Preferred Stocks All Other AFS Securities Total
Unrealized gains (losses) arising during the period $ 63
$ (159 ) $ (96 ) $ 208
$ (2,756 ) $ (2,548 )
Reclassification adjustment for net realized (gains) losses included in net income —
—
—
—
—
—
Net unrealized gains (losses) 63
(159 ) (96 ) 208
(2,756 ) (2,548 )
Tax effect —
54
54
—
937
937
Unrealized gains (losses), net of tax $ 63

$ (105 )
$ (42 )
$ 208

$ (1,819 )
$ (1,611 )

Nine Months Ended September 30
2017 2016

Auction Rate Money Market Preferred and Preferred Stocks All Other AFS Securities Total Auction Rate Money Market Preferred and Preferred Stocks All Other AFS Securities Total
Unrealized gains (losses) arising during the period $ 604
$ 3,547
$ 4,151
$ 568
$ 8,225
$ 8,793
Reclassification adjustment for net realized (gains) losses included in net income —
(142 ) (142 ) —
(245 ) (245 )
Net unrealized gains (losses) 604
3,405
4,009
568
7,980
8,548
Tax effect —
(1,158 ) (1,158 ) —
(2,713 ) (2,713 )
Unrealized gains (losses), net of tax $ 604
$ 2,247
$ 2,851
$ 568
$ 5,267
$ 5,835

Note ~~13 – Parent Company Only Financial Information~~

~~Interim Condensed Balance Sheets~~

September 30
2017 December 31
2016
ASSETS
Cash on deposit at the Bank $ 945
$ 1,297
AFS securities —
251
Investments in subsidiaries 146,138
138,549
Premises and equipment 1,961
1,991
Other assets 52,795
52,846
TOTAL ASSETS $ 201,839
$ 194,934
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities $ 5,376
$ 7,035
Shareholders' equity 196,463
187,899
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 201,839
$ 194,934

~~Interim Condensed Statements of Income~~

Three Months Ended
September 30 Nine Months Ended
September 30

2017 2016 2017 2016
Income
Dividends from subsidiaries $ 2,900
$ 2,000
$ 7,200
$ 5,600
Interest income —
3
2
11
Management fee and other 1,660
1,680
4,901
4,962
Total income 4,560
3,683
12,103
10,573
Expenses
Compensation and benefits 1,118
1,196
3,608
3,580
Occupancy and equipment 456
438
1,332
1,281
Audit and related fees 148
193
412
389
Other 556
427
1,731
1,561
Total expenses 2,278
2,254
7,083
6,811
Income before income tax benefit and equity in undistributed earnings of subsidiaries 2,282
1,429
5,020
3,762
Federal income tax benefit 209
199
737
616
Income before equity in undistributed earnings of subsidiaries 2,491
1,628
5,757
4,378
Undistributed earnings of subsidiaries 1,045
1,965
4,759
5,639
Net income $ 3,536
$ 3,593
$ 10,516
$ 10,017

~~Interim Condensed Statements of Cash Flows~~

Nine Months Ended
September 30

2017 2016
Operating activities
Net income $ 10,516
$ 10,017
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries (4,759 ) (5,639 )
Undistributed earnings of equity securities without readily determinable fair values 33
(287 )
Share-based payment awards under equity compensation plan 502
443
Depreciation 116
117
Changes in operating assets and liabilities which provided (used) cash
Other assets 19
177
Accrued interest and other liabilities (1,659 ) (2,575 )
Net cash provided by (used in) operating activities 4,768
2,253
Investing activities
Maturities, calls, principal payments, and sales of AFS securities 249
—
Purchases of premises and equipment (86 ) (86 )
Net cash provided by (used in) investing activities 163
(86 )
Financing activities
Cash dividends paid on common stock (5,950 ) (5,697 )
Proceeds from the issuance of common stock 4,999
3,683
Common stock repurchased (4,005 ) (2,749 )
Common stock purchased for deferred compensation obligations (327 ) (279 )
Net cash provided by (used in) financing activities (5,283 ) (5,042 )
Increase (decrease) in cash and cash equivalents (352 ) (2,875 )
Cash and cash equivalents at beginning of period 1,297
4,125
Cash and cash equivalents at end of period $ 945
$ 1,250

~~Note 14~~11 – 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 ~~September 30, 2017~~March 31, 2023 and ~~2016~~December 31, 2022 and ~~each of~~for the ~~three~~three-month periods ended March 31, 2023 and ~~nine~~ ~~month periods then ended, represent~~2022, represents approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.

Table of Contents

Note 12 – Parent Company Only Financial Information

Interim Condensed Balance Sheets


	March 31 2023		December 31 2022
ASSETS
Cash on deposit at the Bank	$	10,182	$	8,525
Investments in subsidiaries	163,540		158,125
Premises and equipment	1,158		1,171
Other assets	48,058		47,922
TOTAL ASSETS	$	222,938	$	215,743
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt, net of unamortized issuance costs	$	29,267	$	29,245
Other liabilities	338		288
Shareholders' equity	193,333		186,210
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	222,938	$	215,743

Interim Condensed Statements of Income


	Three Months Ended March 31
		2023		2022
Income
Dividends from subsidiaries		$	5,000	$	800
Interest income		22		3
Other income		3		4
Total income		5,025		807
Expenses
Interest expense		266		266
Management fee		238		225
Audit, consulting, and legal fees		119		120
Director fees		111		106
Other		91		72
Total expenses		825		789
Income before income tax benefit and equity in undistributed earnings of subsidiaries		4,200		18
Federal income tax benefit		168		163
Income before equity in undistributed earnings of subsidiaries		4,368		181
Undistributed earnings of subsidiaries		953		4,553
Net income		$	5,321	$	4,734

Table of Contents

Interim Condensed Statements of Cash Flows


	Three Months Ended March 31
	2023		2022
Operating activities
Net income	$	5,321	$	4,734
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	(953)		(4,553)
Share-based payment awards under the Directors Plan	346		149
Share-based payment awards under the RSP	42		31
Amortization of subordinated debt issuance costs	22		23
Depreciation	13		13
Changes in operating assets and liabilities which provided (used) cash
Other assets	(135)		(140)
Other liabilities	50		230
Net cash provided by (used in) operating activities	4,706		487
Investing activities
Financing activities
Cash dividends paid on common stock	(2,066)		(2,031)
Proceeds from the issuance of common stock	462		439
Common stock repurchased	(937)		(185)
Common stock purchased for deferred compensation obligations	(508)		(151)
Net cash provided by (used in) financing activities	(3,049)		(1,928)
Increase (decrease) in cash and cash equivalents	1,657		(1,441)
Cash and cash equivalents at beginning of period	8,525		11,535
Cash and cash equivalents at end of period	$	10,182	$	10,094

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~.Operations.

ISABELLA BANK CORPORATION FINANCIAL REVIEW

(Dollars in thousands except per share ~~amounts~~)amounts)

~~This section reviews~~The following is management's discussion and analysis of our financial condition and results of ~~our~~ operations for the unaudited ~~three and nine month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. This analysis should be read in conjunction with our ~~2016~~ Annual Report on Form 10-K for the year ended December 31, 2022 and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this report.

Executive Summary

During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2023, we reported net income of ~~$3,536 and $10,516~~$5,321 and earnings per common share of ~~$0.45 and $1.34, respectively.~~$0.70. Net income and earnings per common share for the same ~~periods~~period of ~~2016~~2022 were ~~$3,593~~$4,734 and ~~$10,017 and $0.46 and $1.28,~~$0.63, respectively. ~~The increase in year-to-date earnings was primarily driven by~~Net interest income ~~which~~ increased ~~$3,429~~$1,872, or 13.89%, for the ~~first nine months of 2017~~three-month period ended March 31, 2023 in comparison to the same period in ~~2016. Increased~~2022. Rising interest rates and growth in loans and AFS securities led to a $3,833 increase in gross interest income ~~resulted primarily from strong loan growth~~ during the ~~past year.~~

~~During the nine month~~three-month period ended ~~September 30, 2017,~~March 31, 2023 compared to the same period in 2022. While we've benefited from a reduction in higher-cost borrowings, the recent growth in deposits and rising interest rates on deposit accounts led to a $1,961 increase in interest expense for the three-month period ended March 31, 2023 when compared to the same period in 2022.

Noninterest income decreased $254 during the first three months of 2023 compared to the same period in 2022. This decline was driven by a $300 reduction in OMSR income. Noninterest expenses for the first three months of 2023 increased $878, in comparison to the same period in 2022, and was primarily a result of increased compensation, professional services, and FDIC insurance expenses.

As of March 31, 2023, total assets ~~grew by 3.45% to $1,791,967,~~ and assets under management ~~increased to $2,528,385 which includes~~were $2,084,624 and $2,915,589, respectively. Assets under management include loans sold and serviced of $259,512 and investment and trust assets managed by Isabella Wealth of $571,453, in addition to assets on our ~~Investment and Trust Services Department~~consolidated balance sheet. Loans outstanding as of ~~$736,418. Total~~March 31, 2023 totaled $1,270,651. Since December 31, 2022, gross loans increased ~~by $66,929 from December 31, 2016 which was largely driven by~~$6,478 as a result of growth ~~of $44,471~~ in the commercial and consumer loan portfolio, offset by a decline in our agricultural loan portfolio. ~~The growth in the loan portfolio was funded by an increase~~Total deposits were $1,813,528 as of ~~$21,022 in deposits~~March 31, 2023, increasing $69,253 since December 31, ~~2016, with~~2022. We experienced deposit growth in savings and CD accounts as a result of establishing new deposit relationships, and customers shifting funds to higher interest earning products. All regulatory capital ratios for the ~~remainder being funded through additional borrowed funds.~~Bank exceeded the minimum thresholds to be considered a “well capitalized” institution.

Our securities portfolio totaled $568,650 at March 31, 2023 and included unrealized losses of $36,515, or 6.03%, of the portfolio. Market conditions led to a $8,609 improvement in unrealized losses at March 31, 2023 when compared to December 31, 2022. The unrealized loss position on our AFS securities portfolio resulted from increases in short-term and intermediate-term benchmark interest rates. As a result, this change in unrealized losses has reduced our balance of shareholders' equity and negatively impacted our tangible book value. Management does not anticipate the need to sell securities and incur a loss as a result of such sale.

Our net yield on interest earning assets (FTE) ~~remained low at 3.03%~~was 3.22% for the ~~nine month period~~three months ended ~~September 30, 2017.~~March 31, 2023, as compared to 2.86% for the three months ended March 31, 2022. The ~~growth~~marked improvement is a result of strategies management began implementing in ~~net interest income will increase primarily through continued growth~~2019, focused on positioning the Bank to benefit in a ~~strategic mix~~rising interest rate environment, including a reduced reliance on higher-cost borrowed funds and brokered deposits. To maintain a competitive edge in a rising interest rate environment, we increased most of ~~loans, investments,~~our deposit rates over the past two quarters. As a result, this has negatively impacted our net yield on interest earning assets and ~~other income earning assets. We do not anticipate that~~further increases could slow the ~~Federal Reserve Bank will increase short term interest rates significantly in the near future; therefore, we anticipate marginal improvements~~rate of growth in our net yield on interest earning assets during the remainder of the year.

Table of Contents

Recent Events and Legislation

Recent Bank Failures and the Condition of the Banking Industry: In March 2023, disruptions in the ~~short term.~~industry resulted in FDIC seizures of three banking institutions. Each bank had its own unique balance sheet issues, neither of which exist at Isabella Bank. Shortly after the FDIC takeovers, the Federal Reserve Bank and the Department of Treasury announced enhanced insurance coverage and a borrowing program to help banks in need of funding. Isabella Bank continually performs extensive interest rate, liquidity, and deposit stress testing on a regular basis to ensure our ability to timely address and survive economic uncertainty. We have dramatically improved our liquidity profile by eliminating our reliance on non-market funding while increasing our capacity to quickly acquire funds should the need arise.

Impact of the Adoption of ASC 326 (CECL): We adopted ASU No. 2016-13, as subsequently updated for certain clarifications, targeted relief and codification improvements, as of January 1, 2023. Based on portfolio characteristics and economic conditions and expectations as of January 1, 2023, we recorded a combined pre-tax increase of $3,059 to the ACL and reserve for unfunded commitments on January 1, 2023 upon the adoption of ASU 2016-13; this resulted in a reduction to retained earnings of $2,417, net of tax, as of January 1, 2023. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are ~~committed~~included in “Note 1 – Significant Accounting Policies” of our interim condensed consolidated financial statements.

Impact of COVID-19: Unexpected and unprecedented changes have occurred since early 2020 as the result of COVID-19. The full impact of the pandemic, including the uncertainties surrounding the pandemic, remain in 2023. However, significant progress has been made with vaccinations and medical treatments. Additionally, improved safety guidelines and the easing of restrictions have occurred since the onset of the pandemic. We expect the significance of the pandemic, including the extent of its effect on our financial and operational results, to ~~increasing earnings~~be dictated by continued developments related to the COVID-19 pandemic. We continue to closely monitor external events and ~~shareholder value through growth~~are in continual discussion with our ~~loan portfolio, investment~~customers to assess, prepare, and ~~trust services, and in deposits while managing operating costs.~~respond to conditions as they evolve.

~~Reclassifications:~~Reclassifications

Certain amounts reported in the ~~2016~~interim 2022 consolidated financial statements have been reclassified to conform to the 2023 presentation. Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the ~~2017 presentation.~~accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, the adoption of ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.

Subsequent Events

We evaluated subsequent events after March 31, 2023 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between March 31, 2023 and the date our interim condensed consolidated financial statements were issued.

Table of Contents

Results of Operations (Unaudited)

The following table outlines our quarter-to-date results of operations and provides certain performance measures as of, and for the ~~three month~~three-month periods ended:


	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
INCOME STATEMENT DATA
Interest income	$	18,595		$	17,915		$	17,019		$	16,102		$	14,762
Interest expense	3,244			1,643			1,216			1,175			1,283
Net interest income	15,351			16,272			15,803			14,927			13,479
Provision for credit losses	41			(57)			18			485			37
Noninterest income	3,293			3,272			3,252			3,595			3,547
Noninterest expenses	12,198			11,922			11,917			11,661			11,320
Federal income tax expense	1,084			1,357			1,233			1,081			935
Net income	$	5,321		$	6,322		$	5,887		$	5,295		$	4,734
PER SHARE
Basic earnings	$	0.70		$	0.84		$	0.78		$	0.70		$	0.63
Diluted earnings	$	0.70		$	0.83		$	0.77		$	0.69		$	0.62
Dividends	$	0.28		$	0.28		$	0.27		$	0.27		$	0.27
Tangible book value	$	19.24		$	18.25		$	16.96		$	18.85		$	19.56
Quoted market value
High	$	25.10		$	24.02		$	24.95		$	26.25		$	26.00
Low	$	22.08		$	21.00		$	21.39		$	23.00		$	24.50
Close (1)	$	24.80		$	23.50		$	21.40		$	24.80		$	25.85
Common shares outstanding (1)	7,540,015			7,559,421			7,564,348			7,553,113			7,542,758
PERFORMANCE RATIOS
Return on average total assets	1.04		%	1.24		%	1.13		%	1.04		%	0.92		%
Return on average shareholders' equity	11.35		%	14.01		%	12.13		%	10.83		%	9.02		%
Return on average tangible shareholders' equity	15.28		%	19.14		%	16.15		%	14.38		%	11.72		%
Net interest margin yield (FTE)	3.22		%	3.43		%	3.28		%	3.16		%	2.86		%
BALANCE SHEET DATA (1)
Gross loans	$	1,270,651		$	1,264,173		$	1,236,151		$	1,271,910		$	1,218,371
AFS securities	$	568,650		$	580,481		$	581,233		$	557,590		$	544,919
Total assets	$	2,084,624		$	2,030,267		$	2,063,977		$	2,048,373		$	2,060,933
Deposits	$	1,813,528		$	1,744,275		$	1,791,033		$	1,759,866		$	1,764,161
Borrowed funds	$	61,262		$	87,016		$	81,704		$	86,450		$	90,534
Shareholders' equity	$	193,333		$	186,210		$	176,612		$	190,680		$	195,842
Gross loans to deposits	70.07		%	72.48		%	69.02		%	72.27		%	69.06		%
ASSETS UNDER MANAGEMENT (1)
Loans sold with servicing retained	$	259,512		$	264,206		$	268,879		$	273,294		$	275,556
Assets managed by Isabella Wealth	$	571,453		$	513,918		$	464,136		$	454,535		$	501,829
Total assets under management	$	2,915,589		$	2,808,391		$	2,796,992		$	2,776,202		$	2,838,318
ASSET QUALITY (1)
Nonperforming loans to gross loans	0.04		%	0.04		%	0.05		%	0.05		%	0.06		%
Nonperforming assets to total assets	0.05		%	0.05		%	0.04		%	0.05		%	0.05		%
ACL to gross loans	0.99		%	0.78		%	0.78		%	0.76		%	0.76		%
CAPITAL RATIOS (1)
Shareholders' equity to assets	9.27		%	9.17		%	8.56		%	9.31		%	9.50		%
Tier 1 leverage	8.58		%	8.61		%	8.44		%	8.38		%	8.12		%
Common equity tier 1 capital	12.71		%	12.91		%	12.92		%	12.44		%	12.83		%
Tier 1 risk-based capital	12.71		%	12.91		%	12.92		%	12.44		%	12.83		%
Total risk-based capital	15.77		%	15.79		%	15.85		%	15.33		%	15.84		%

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
INCOME STATEMENT DATA
Interest income $ 14,976
$ 14,498
$ 13,861
$ 13,760
$ 13,607
Interest expense 3,200
3,028
2,831
2,826
2,747
Net interest income 11,776
11,470
11,030
10,934
10,860
Provision for loan losses 49
9
27
(320 ) 17
Noninterest income 2,698
2,788
2,616
3,187
2,946
Noninterest expenses 10,139
9,507
9,951
10,166
9,433
Federal income tax expense 750
898
532
493
763
Net Income $ 3,536
$ 3,844
$ 3,136
$ 3,782
$ 3,593
PER SHARE
Basic earnings $ 0.45
$ 0.49
$ 0.40
$ 0.48
$ 0.46
Diluted earnings $ 0.44
$ 0.48
$ 0.39
$ 0.47
$ 0.45
Dividends $ 0.26
$ 0.25
$ 0.25
$ 0.25
$ 0.25
Tangible book value* $ 18.82
$ 18.62
$ 18.34
$ 18.16
$ 17.93
Quoted market value
High $ 29.10
$ 28.45
$ 29.00
$ 28.35
$ 28.08
Low $ 27.65
$ 27.60
$ 27.60
$ 27.60
$ 27.60
Close* $ 29.00
$ 28.00
$ 27.60
$ 27.85
$ 27.70
Common shares outstanding* 7,856,664
7,862,553
7,843,120
7,821,069
7,833,481
PERFORMANCE RATIOS
Return on average total assets 0.79 % 0.87 % 0.72 % 0.88 % 0.85 %
Return on average shareholders' equity 7.11 % 7.85 % 6.56 % 7.77 % 7.27 %
Return on average tangible shareholders' equity 9.61 % 10.59 % 8.77 % 10.70 % 10.28 %
Net interest margin yield (FTE) 3.08 % 3.03 % 2.99 % 3.01 % 3.05 %
BALANCE SHEET DATA*
Gross loans $ 1,077,544
$ 1,048,497
$ 1,012,920
$ 1,010,615
$ 989,366
AFS securities $ 552,925
$ 567,862
$ 590,114
$ 558,096
$ 564,229
Total assets $ 1,791,967
$ 1,777,298
$ 1,760,860
$ 1,732,151
$ 1,706,498
Deposits $ 1,216,062
$ 1,210,152
$ 1,231,061
$ 1,195,040
$ 1,175,833
Borrowed funds $ 367,027
$ 360,940
$ 327,375
$ 337,694
$ 325,409
Shareholders' equity $ 196,463
$ 195,070
$ 190,976
$ 187,899
$ 195,184
Gross loans to deposits 88.61 % 86.64 % 82.28 % 84.57 % 84.14 %
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained $ 268,817
$ 269,595
$ 270,217
$ 272,882
$ 275,037
Assets managed by our Investment and Trust Services Department $ 467,601
$ 454,294
$ 444,749
$ 427,693
$ 424,573
Total assets under management $ 2,528,385
$ 2,501,187
$ 2,475,826
$ 2,432,726
$ 2,406,108
ASSET QUALITY*
Nonperforming loans to gross loans 0.21 % 0.26 % 0.24 % 0.17 % 0.16 %
Nonperforming assets to total assets 0.14 % 0.17 % 0.15 % 0.11 % 0.11 %
ALLL to gross loans 0.71 % 0.72 % 0.74 % 0.73 % 0.79 %
CAPITAL RATIOS*
Shareholders' equity to assets 10.96 % 10.98 % 10.85 % 10.85 % 11.44 %
Tier 1 leverage 8.50 % 8.50 % 8.54 % 8.56 % 8.59 %
Common equity tier 1 capital 12.20 % 12.43 % 12.49 % 12.39 % 12.41 %
Tier 1 risk-based capital 12.20 % 12.43 % 12.49 % 12.39 % 12.41 %
Total risk-based capital 12.84 % 13.07 % 13.14 % 13.04 % 13.10 %

*(1) At end of period

Table of Contents

The following table outlines our year-to-date results of operations and provides certain performance measures as of, and for the ~~nine month~~three-month periods ended:


	March 31 2023			March 31 2022			March 31 2021
INCOME STATEMENT DATA
Interest income	$	18,595		$	14,762		$	15,290
Interest expense	3,244			1,283			2,089
Net interest income	15,351			13,479			13,201
Provision for credit losses	41			37			(523)
Noninterest income	3,293			3,547			3,532
Noninterest expenses	12,198			11,320			10,817
Federal income tax expense	1,084			935			1,041
Net income	$	5,321		$	4,734		$	5,398
PER SHARE
Basic earnings	$	0.70		$	0.63		$	0.68
Diluted earnings	$	0.70		$	0.62		$	0.67
Dividends	$	0.28		$	0.27		$	0.27
Tangible book value	$	19.24		$	19.56		$	21.35
Quoted market value
High	$	25.10		$	26.00		$	22.50
Low	$	22.08		$	24.50		$	19.45
Close (1)	$	24.80		$	25.85		$	21.75
Common shares outstanding (1)	7,540,015			7,542,758			7,958,883
PERFORMANCE RATIOS
Return on average total assets	1.04		%	0.92		%	1.09		%
Return on average shareholders' equity	11.35		%	9.02		%	9.78		%
Return on average tangible shareholders' equity	15.28		%	11.72		%	12.53		%
Net interest margin yield (FTE)	3.22		%	2.86		%	2.98		%
BALANCE SHEET DATA (1)
Gross loans	$	1,270,651		$	1,218,371		$	1,195,918
AFS securities	$	568,650		$	544,919		$	367,324
Total assets	$	2,084,624		$	2,060,933		$	2,015,432
Deposits	$	1,813,528		$	1,764,161		$	1,643,581
Borrowed funds	$	61,262		$	90,534		$	141,967
Shareholders' equity	$	193,333		$	195,842		$	218,282
Gross loans to deposits	70.07		%	69.06		%	72.76		%
ASSETS UNDER MANAGEMENT (1)
Loans sold with servicing retained	$	259,512		$	275,556		$	298,514
Assets managed by Isabella Wealth	$	571,453		$	501,829		$	454,459
Total assets under management	$	2,915,589		$	2,838,318		$	2,768,405
ASSET QUALITY (1)
Nonperforming loans to gross loans	0.04		%	0.06		%	0.38		%
Nonperforming assets to total assets	0.05		%	0.05		%	0.26		%
ACL to gross loans	0.99		%	0.76		%	0.78		%
CAPITAL RATIOS (1)
Shareholders' equity to assets	9.27		%	9.50		%	10.83		%
Tier 1 leverage	8.58		%	8.12		%	8.56		%
Common equity tier 1 capital	12.71		%	12.83		%	13.77		%
Tier 1 risk-based capital	12.71		%	12.83		%	13.77		%
Total risk-based capital	15.77		%	15.84		%	14.54		%

September 30
2017 September 30
2016 September 30
2015 September 30
2014 September 30
2013
INCOME STATEMENT DATA
Interest income $ 43,335
$ 39,906
$ 38,479
$ 38,118
$ 37,695
Interest expense 9,059
8,039
7,586
7,466
8,338
Net interest income 34,276
31,867
30,893
30,652
29,357
Provision for loan losses 85
185
(1,999 ) (604 ) 866
Noninterest income 8,102
7,921
7,858
6,899
8,045
Noninterest expenses 29,597
27,731
26,166
26,180
25,057
Federal income tax expense 2,180
1,855
2,750
1,696
1,893
Net Income $ 10,516
$ 10,017

$ 11,834
$ 10,279
$ 9,586
PER SHARE
Basic earnings $ 1.34
$ 1.28
$ 1.52
$ 1.33
$ 1.25
Diluted earnings $ 1.31
$ 1.25
$ 1.49
$ 1.30
$ 1.22
Dividends $ 0.76
$ 0.73
$ 0.70
$ 0.66
$ 0.63
Tangible book value* $ 18.82
$ 17.93
$ 17.06
$ 16.33
$ 15.43
Quoted market value
High $ 29.10
$ 29.90
$ 23.85
$ 24.00
$ 26.00
Low $ 27.60
$ 27.25
$ 22.00
$ 21.73
$ 21.55
Close* $ 29.00
$ 27.70
$ 23.69
$ 23.60
$ 24.85
Common shares outstanding* 7,856,664
7,833,481
7,765,333
7,740,730
7,709,781
PERFORMANCE RATIOS
Return on average total assets 0.79 % 0.80 % 1.00 % 0.90 % 0.89 %
Return on average shareholders' equity 7.18 % 6.90 % 8.80 % 8.13 % 7.84 %
Return on average tangible shareholders' equity 9.67 % 9.68 % 12.06 % 10.95 % 11.02 %
Net interest margin yield (FTE) 3.03 % 3.00 % 3.12 % 3.20 % 3.22 %
BALANCE SHEET DATA*
Gross loans $ 1,077,544
$ 989,366
$ 836,671
$ 825,238
$ 810,335
AFS securities $ 552,925
$ 564,229
$ 628,612
$ 575,080
$ 501,057
Total assets $ 1,791,967
$ 1,706,498
$ 1,619,250
$ 1,553,974
$ 1,459,341
Deposits $ 1,216,062
$ 1,175,833
$ 1,128,003
$ 1,081,890
$ 1,023,931
Borrowed funds $ 367,027
$ 325,409
$ 297,610
$ 290,438
$ 266,001
Shareholders' equity $ 196,463
$ 195,184
$ 182,998
$ 172,076
$ 161,305
Gross loans to deposits 88.61 % 84.14 % 74.17 % 76.28 % 79.14 %
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained $ 268,817
$ 275,037
$ 289,268
$ 290,697
$ 294,999
Assets managed by our Investment and Trust Services Department $ 467,601
$ 424,573
$ 392,124
$ 374,878
$ 351,505
Total assets under management $ 2,528,385
$ 2,406,108
$ 2,300,642
$ 2,219,549
$ 2,105,845
ASSET QUALITY*
Nonperforming loans to gross loans 0.21 % 0.16 % 0.10 % 0.56 % 0.53 %
Nonperforming assets to total assets 0.14 % 0.11 % 0.09 % 0.37 % 0.37 %
ALLL to gross loans 0.71 % 0.79 % 0.98 % 1.26 % 1.44 %
CAPITAL RATIOS*
Shareholders' equity to assets 10.96 % 11.44 % 11.30 % 11.07 % 11.05 %
Tier 1 leverage 8.50 % 8.59 % 8.54 % 8.47 % 8.45 %
Common equity tier 1 capital 12.20 % 12.41 % 13.57 % N/A
N/A
Tier 1 risk-based capital 12.20 % 12.41 % 13.57 % 13.86 % 13.75 %
Total risk-based capital 12.84 % 13.10 % 14.20 % 15.11 % 15.00 %

*(1) At end of period

Table of Contents

Average Balances, Interest ~~Rate,~~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 ~~34%~~ federal income tax ~~rate.~~rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB and FHLB restricted equity holdings are included in ~~accrued income and~~ other interest earning assets.

Three Months Ended

September 30, 2017
June 30, 2017
September 30, 2016

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 $ 1,062,439

$ 11,297

4.25 %
$ 1,028,875

$ 10,685

4.15 %
$ 948,465

$ 9,965

4.20 %
Taxable investment securities 353,266

2,075

2.35 %
374,156

2,226

2.38 %
365,612

2,037

2.23 %
Nontaxable investment securities 202,180

2,302

4.55 %
206,668

2,314

4.48 %
203,236

2,312

4.55 %
Fed Funds Sold 4
—
— % 95
—
— % —
—
— %
Other 27,086

198

2.92 %
23,299

174

2.99 %
25,134

194

3.09 %
Total earning assets 1,644,975

15,872

3.86 %
1,633,093

15,399

3.77 %
1,542,447

14,508

3.76 %
NONEARNING ASSETS

Allowance for loan losses (7,632 )

(7,554 )

(7,731 )

Cash and demand deposits due from banks 19,919

18,425

18,672

Premises and equipment 28,859

28,895

28,865

Accrued income and other assets 101,417

99,468

104,125

Total assets $ 1,787,538

$ 1,772,327

$ 1,686,378

INTEREST BEARING LIABILITIES

Interest bearing demand deposits $ 218,570

$ 64

0.12 %
$ 209,638

$ 55

0.10 %
$ 203,994

$ 41

0.08 %
Savings deposits 360,689

303

0.34 %
360,870

259

0.29 %
330,872

178

0.22 %
Time deposits 428,758

1,348

1.26 %
436,716

1,301

1.19 %
433,591

1,277

1.18 %
Borrowed funds 361,706

1,485

1.64 %
356,096

1,413

1.59 %
314,218

1,251

1.59 %
Total interest bearing liabilities 1,369,723

3,200

0.93 %
1,363,320

3,028

0.89 %
1,282,675

2,747

0.86 %
NONINTEREST BEARING LIABILITIES

Demand deposits 208,078

202,597

196,682

Other 10,763

10,579

9,332

Shareholders’ equity 198,974

195,831

197,689

Total liabilities and shareholders’ equity $ 1,787,538

$ 1,772,327

$ 1,686,378

Net interest income (FTE)

$ 12,672

$ 12,371

$ 11,761

Net yield on interest earning assets (FTE)

3.08 %

3.03 %

3.05 %

Nine Months Ended
September 30, 2017 September 30, 2016

Average
Balance Tax
Equivalent
Interest Average
Yield /
Rate Average
Balance Tax
Equivalent
Interest Average
Yield /
Rate
INTEREST EARNING ASSETS
Loans $ 1,029,824
$ 32,102
4.16 % $ 900,021
$ 28,320
4.20 %
Taxable investment securities 363,851
6,452
2.36 % 405,722
6,740
2.21 %
Nontaxable investment securities 204,728
6,929
4.51 % 207,769
7,091
4.55 %
Fed Funds Sold 823
4
0.65 % —
—
— %
Other 25,796
543
2.81 % 25,208
509
2.69 %
Total earning assets 1,625,022
46,030
3.78 % 1,538,720
42,660
3.70 %
NONEARNING ASSETS
Allowance for loan losses (7,556 ) (7,576 )
Cash and demand deposits due from banks 19,003
18,130

Premises and equipment 28,996
28,495

Accrued income and other assets 99,537
102,072

Total assets $ 1,765,002
$ 1,679,841

INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 213,960
$ 172
0.11 % $ 205,444
$ 123
0.08 %
Savings deposits 358,544
784
0.29 % 337,863
466
0.18 %
Time deposits 433,799
3,914
1.20 % 427,441
3,724
1.16 %
Borrowed funds 348,846
4,189
1.60 % 315,061
3,726
1.58 %
Total interest bearing liabilities 1,355,149
9,059
0.89 % 1,285,809
8,039
0.83 %
NONINTEREST BEARING LIABILITIES
Demand deposits 203,784
191,082

Other 10,729
9,435

Shareholders’ equity 195,340
193,515

Total liabilities and shareholders’ equity $ 1,765,002
$ 1,679,841

Net interest income (FTE) $ 36,971
$ 34,621

Net yield on interest earning assets (FTE) 3.03 % 3.00 %

~~Net Interest Income~~


	Three Months Ended
	March 31, 2023						December 31, 2022						March 31, 2022
	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	$	1,268,269	$	14,889	4.70	%	$	1,244,972	$	14,163	4.55	%	$	1,235,788	$	12,378	4.01	%
Taxable investment securities	504,889		2,471		1.96	%	520,139		2,499		1.92	%	421,503		1,615		1.53	%
Nontaxable investment securities	106,240		1,021		3.84	%	107,508		999		3.72	%	101,604		920		3.62	%
Fed funds sold	17		—		4.50	%	14		—		4.00	%	3		—		0.06	%
Other	60,583		486		3.21	%	56,142		522		3.72	%	163,353		109		0.27	%
Total earning assets	1,939,998		18,867		3.89	%	1,928,775		18,183		3.77	%	1,922,251		15,022		3.13	%
NONEARNING ASSETS
Allowance for credit losses	(12,660)						(9,792)						(9,128)
Cash and demand deposits due from banks	25,039						24,312						26,839
Premises and equipment	25,864						25,382						24,461
Accrued income and other assets	71,063						63,553						102,805
Total assets	$	2,049,304					$	2,032,230					$	2,067,228
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	379,717	$	146	0.15	%	$	358,809	$	104	0.12	%	$	383,474	$	50	0.05	%
Savings deposits	645,987		1,466		0.91	%	635,771		535		0.34	%	615,335		159		0.10	%
Time deposits	267,463		1,217		1.82	%	254,604		684		1.07	%	290,146		727		1.00	%
Federal funds purchased and repurchase agreements	39,709		149		1.50	%	55,478		53		0.38	%	49,058		9		0.07	%
FHLB advances	—		—		—	%	—		—		—	%	14,889		72		1.93	%
Subordinated debt, net of unamortized issuance costs	29,253		266		3.64	%	29,233		267		3.65	%	29,166		266		3.65	%
Total interest bearing liabilities	1,362,129		3,244		0.95	%	1,333,895		1,643		0.49	%	1,382,068		1,283		0.37	%
NONINTEREST BEARING LIABILITIES
Demand deposits	486,491						504,791						458,343
Other	13,094						13,103						16,898
Shareholders’ equity	187,590						180,441						209,919
Total liabilities and shareholders’ equity	$	2,049,304					$	2,032,230					$	2,067,228
Net interest income (FTE)			$	15,623					$	16,540					$	13,739
Net yield on interest earning assets (FTE)					3.22	%					3.43	%					2.86	%

Net interest income is the amount by which interest income on earning assets exceeds the interest ~~expenses~~expense on interest bearing liabilities. Net interest income ~~which includes loan fees,~~ is influenced by changes in the balance and mix of assets and liabilities, ~~and~~as well as market

Table of Contents

interest rates. WeWhile we exert some control over these ~~factors; however,~~factors, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to an FTE basis by ~~adding~~including the income tax savings from interest on tax exempt loans and nontaxable investment securities, thus making year to year comparisons more meaningful.

Volume and Rate Variance Analysis

The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. ~~For the purpose of this table, changes~~Changes in interest due to volume and rate were determined as follows:

Volume—change in volume multiplied by the previous period's rate.

Rate—change in the FTE rate multiplied by the previous period's volume.

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.


	Three Months Ended March 31, 2023 Compared to December 31, 2022 Increase (Decrease) Due to						Three Months Ended March 31, 2023 Compared to March 31, 2022 Increase (Decrease) Due to
	Volume		Rate		Net			Volume		Rate		Net
Changes in interest income
Loans	$	268	$	458	$	726		$	333	$	2,178	$	2,511
Taxable investment securities	(74)		46		(28)			356		500		856
Nontaxable investment securities	(12)		34		22			43		58		101
Other	39		(75)		(36)			(109)		486		377
Total changes in interest income	221		463		684			623		3,222		3,845
Changes in interest expense
Interest bearing demand deposits	6		36		42			—		96		96
Savings deposits	9		922		931			8		1,299		1,307
Time deposits	36		497		533			(61)		551		490
Federal funds purchased and repurchase agreements	(19)		115		96			(2)		142		140
FHLB advances	—		—		—			(36)		(36)		(72)
Subordinated debt, net of unamortized issuance costs	—		(1)		(1)			1		(1)		—
Total changes in interest expense	32		1,569		1,601			(90)		2,051		1,961
Net change in interest margin (FTE)	$	189	$	(1,106)	$	(917)		$	713	$	1,171	$	1,884

Three Months Ended
September 30, 2017 Compared to
June 30, 2017
Increase (Decrease) Due to Three Months Ended
September 30, 2017 Compared to
September 30, 2016
Increase (Decrease) Due to Nine Months Ended
September 30, 2017 Compared to
September 30, 2016
Increase (Decrease) Due to

Volume Rate Net Volume Rate Net Volume Rate Net
Changes in interest income
Loans $ 353
$ 259
$ 612
$ 1,211
$ 121
$ 1,332
$ 4,049
$ (267 ) $ 3,782
Taxable investment securities (123 ) (28 ) (151 ) (70 ) 108
38
(724 ) 436
(288 )
Nontaxable investment securities (51 ) 39
(12 ) (12 ) 2
(10 ) (103 ) (59 ) (162 )
Fed Funds Sold —
—
—
—
—
—
4
—
4
Other 28
(4 ) 24
15
(11 ) 4
12
22
34
Total changes in interest income 207
266
473
1,144
220
1,364
3,238
132
3,370
Changes in interest expense
Interest bearing demand deposits 2
7
9
3
20
23
5
44
49
Savings deposits —
44
44
17
108
125
30
288
318
Time deposits (24 ) 71
47
(14 ) 85
71
56
134
190
Borrowed funds 23
49
72
194
40
234
405
58
463
Total changes in interest expense 1
171
172
200
253
453
496
524
1,020
Net change in interest margin (FTE) $ 206
$ 95
$ 301
$ 944
$ (33 ) $ 911
$ 2,742
$ (392 ) $ 2,350

~~While~~The interest rate increases during 2022 and the first quarter of 2023 have alleviated much of the pressure placed on our net interest margin. Over the past two quarters, rising rates on deposit accounts has slowed growth in our net interest margin. With future rate increases expected during the remainder of the year, we should see improvement in net yield on interest earning assets ~~increased during the quarter, yields continue to be~~but at ~~low levels. The persistent low interest rate environment coupled with a high concentration~~slower rates than recent periods.


	Average Yield / Rate for the Three-Month Periods Ended:
	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
Total earning assets	3.89	%	3.77	%	3.53	%	3.41	%	3.13	%
Total interest bearing liabilities	0.95	%	0.49	%	0.35	%	0.34	%	0.37	%
Net yield on interest earning assets (FTE)	3.22	%	3.43	%	3.28	%	3.16	%	2.86	%


	Quarter to Date Net Interest Income (FTE)
	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
Total interest income (FTE)	$	18,867	$	18,183	$	17,276	$	16,373	$	15,022
Total interest expense	3,244		1,643		1,216		1,175		1,283
Net interest income (FTE)	$	15,623	$	16,540	$	16,060	$	15,198	$	13,739

Table of AFS securities as a percentage of earning assets has also placed downward pressure on net interest margin. While we do not anticipate significant improvement in our net yield on interest earning assets, we do expect marginal improvement as a result of loan growth throughout 2017.

Average Yield / Rate for the Three Month Periods Ended:

September 30
2017
June 30
2017
March 31
2017
December 31
2016
September 30
2016
Total earning assets 3.86 % 3.77 % 3.70 % 3.73 % 3.76 %
Total interest bearing liabilities 0.93 % 0.89 % 0.85 % 0.87 % 0.86 %
Net yield on interest earning assets (FTE) 3.08 %
3.03 % 2.99 % 3.01 % 3.05 %

Quarter to Date Net Interest Income (FTE)

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Total interest income (FTE) $ 15,872
$ 15,399
$ 14,759
$ 14,642
$ 14,508
Total interest expense 3,200
3,028
2,831
2,826
2,747
Net interest income (FTE) $ 12,672
$ 12,371
$ 11,928
$ 11,816
$ 11,761
Contents

~~Allowance for Loan and Lease Losses~~

~~The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent our single largest concentration of risk. The~~ ~~ALLL~~ ~~is our estimation of incurred losses within the existing loan portfolio. We allocate the~~ ~~ALLL~~ throughout the loan portfolio based on our assessment of the underlying risks associated with each loan segment. Our assessments include allocations based on specific impairment valuation allowances, historical ~~charge-offs, internally assigned credit risk ratings, and past due and nonaccrual balances. A portion of the~~ ~~ALLL~~ is not allocated to any one loan segment, but is instead a representation of other qualitative risks that reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

~~The following table summarizes our~~ ~~charge-offs, recoveries, provisions for loan losses, and ALLL balances as of, and for the:~~

Three Months Ended
September 30 Nine Months Ended
September 30

2017 2016 2017 2016
ALLL at beginning of period $ 7,600
$ 7,600
$ 7,400
$ 7,400
Charge-offs
Commercial and agricultural 8
—
60
48
Residential real estate 77
57
120
426
Consumer 72
74
190
206
Total charge-offs 157
131
370
680
Recoveries
Commercial and agricultural 134
118
322
488
Residential real estate 41
153
140
248
Consumer 33
43
123
159
Total recoveries 208
314
585
895
Net loan charge-offs (recoveries) (51 ) (183 ) (215 ) (215 )
Provision for loan losses 49
17
85
185
ALLL at end of period $ 7,700
$ 7,800
$ 7,700
$ 7,800
Net loan charge-offs (recoveries) to average loans outstanding — % (0.02 )% (0.02 )% (0.02 )%

~~The following table summarizes our charge-offs, recoveries, provisions for loan losses, and ALLL balances as of, and for the three month periods ended:~~

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Total charge-offs $ 157
$ 69
$ 144
$ 236
$ 131
Total recoveries 208
160
217
156
314
Net loan charge-offs (recoveries) (51 ) (91 ) (73 ) 80
(183 )
Net loan charge-offs (recoveries) to average loans outstanding — % (0.01 )% (0.01 )% 0.01 % (0.02 )%
Provision for loan losses $ 49
$ 9
$ 27
$ (320 ) $ 17
Provision for loan losses to average loans outstanding — % — % — % (0.03 )% — %
ALLL $ 7,700
$ 7,600
$ 7,500
$ 7,400
$ 7,800
ALLL as a % of loans at end of period 0.71 % 0.72 % 0.74 % 0.73 % 0.79 %

Net loan recoveries and the continuation of strong credit quality indicators have resulted in a reduction of the required ALLL as a percentage of loans over the past year. During this time, credit quality indicators, specifically historical loss factors, remain strong and have led to lower levels of required reserves. While the ALLL as a percentage of loans has declined, the balance of the ALLL has increased in recent periods as a result of our strong loan growth. The addition of advances to mortgage brokers contributed to the overall decline in the level of ALLL to gross loans as there are no historical losses requiring reserves. While these advances contribute to other qualitative factors, the impact is not significant on the required level of the ALLL.

~~The following table illustrates our changes within the two main components of the ALLL as of:~~

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
ALLL
Individually evaluated for impairment $ 2,551
$ 2,455
$ 2,381
$ 2,371
$ 2,523
Collectively evaluated for impairment 5,149
5,145
5,119
5,029
5,277
Total $ 7,700
$ 7,600
$ 7,500
$ 7,400
$ 7,800
ALLL to gross loans
Individually evaluated for impairment 0.24 % 0.23 % 0.24 % 0.23 % 0.26 %
Collectively evaluated for impairment 0.47 % 0.49 % 0.50 % 0.50 % 0.53 %
Total 0.71 % 0.72 % 0.74 % 0.73 % 0.79 %

~~For further discussion of the allocation of the ALLL, see “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.~~

~~Loans~~ Past Due and ~~Loans in~~ Nonaccrual ~~Status~~Loans

Fluctuations in past due and nonaccrual ~~status~~ loans can have a significant impact on the ~~ALLL~~.ACL. To determine the potential impact, and corresponding estimated losses, we analyze our historical loss trends on loans past due greater than 30 days and nonaccrual ~~status loans. We monitor all~~ loans ~~that are past due and in nonaccrual status~~ for indications of additional deterioration.


	Total Past Due and Nonaccrual Loans
	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
Commercial and industrial	$	291		$	307		$	348		$	350		$	132
Commercial real estate	2,844			7,197			2,399			82			280
Agricultural	588			234			574			271			283
Residential real estate	2,365			3,333			507			345			1,560
Consumer	43			59			180			457			109
Total	$	6,131		$	11,130		$	4,008		$	1,505		$	2,364
Total past due and nonaccrual loans to gross loans	0.48		%	0.88		%	0.32		%	0.12		%	0.19		%

Total Past Due and Nonaccrual Loans

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Commercial and agricultural $ 3,600
$ 4,920
$ 5,758
$ 4,598
$ 3,148
Residential real estate 2,201
2,358
3,168
2,716
2,436
Consumer 52
64
35
115
51
Total $ 5,853
$ 7,342
$ 8,961
$ 7,429
$ 5,635
Total past due and nonaccrual loans to gross loans 0.54 % 0.70 % 0.88 % 0.74 % 0.57 %

~~While~~The recent fluctuations in past due and nonaccrual ~~status~~ loans ~~have fluctuated over~~within the ~~last year, they continue to be at low levels and are~~commercial loan portfolio were the result of ~~strong loan performance. A summary of loans~~one past due relationship. Therefore, we do not believe the recent increase is an indicator of credit deterioration.

The accrual of interest on commercial and in ~~nonaccrual~~ ~~status, including the composition of the ending balance of~~ ~~nonaccrual~~ ~~status~~agricultural loans, ~~by type,~~as well as residential real estate loans, is ~~included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.~~

~~Troubled Debt Restructurings~~

We have taken a proactive approach to avoid foreclosures on borrowers who are willing to work with us in modifying their loans, thus making them more affordable. While this approach has permitted certain borrowers to develop a payment structure that will allow them to continue making payments in lieu of foreclosure, it has contributed to a significant level of loans classified as TDR. The modifications have been successful for us and our customers as very few of the modified loans have resulted in foreclosures. Atdiscontinued at the time ~~of the~~ ~~TDR~~, the loan is reviewed to determine whether or not to classify the loan as accrual or nonaccrual status. The majority of new modifications result in terms that satisfy our criteria for continued interest accrual. ~~TDRs~~ ~~that have been placed on nonaccrual status may be placed back on accrual status after~~ ~~six months~~ ~~of continued performance and achievement of current payment status.~~

We restructure debt with borrowers who, due to financial difficulties, are unable to service their debt under the original terms. We may extend the amortization period, reduce interest rates, allow interest only payment structures, forgive principal, forgive interest, or a combination of these modifications. Typically, the modifications are for a period of five years or less. There were no ~~TDRs~~ ~~that were government sponsored as of~~ ~~September 30, 2017~~ or ~~December 31, 2016~~.

~~Losses associated with~~ ~~TDRs, if any, are included in the estimation of the~~ ~~ALLL~~ ~~in the quarter in which a loan is identified as a~~ ~~TDR, and we review the analysis of the~~ ~~ALLL~~ ~~estimation each reporting period to ensure its continued appropriateness.~~

~~The following tables provide a roll-forward of TDRs for the:~~

Three Months Ended September 30, 2017
Accruing Interest Nonaccrual Total
Number
of
Loans Balance Number
of
Loans Balance Number
of
Loans Balance
July 1, 2017 155
$ 25,182
5
$ 1,159
160
$ 26,341
New modifications 3
1,354
2
210
5
1,564
Principal advances (payments) —
(165 ) —
(12 ) —
(177 )
Loans paid-off (6 ) (460 ) —
—
(6 ) (460 )
Partial charge-offs —
—
—
—
—
—
Balances charged-off (1 ) (9 ) —
—
(1 ) (9 )
Transfers to OREO —
—
—
—
—
—
Transfers to accrual status 1
51
(1 ) (51 ) —
—
Transfers to nonaccrual status —
—
—
—
—
—
September 30, 2017 152
$ 25,953
6
$ 1,306
158
$ 27,259

Nine Months Ended September 30, 2017
Accruing Interest Nonaccrual Total
Number
of
Loans Balance Number
of
Loans Balance Number
of
Loans Balance
January 1, 2017 153
$ 20,593
5
$ 789
158
$ 21,382
New modifications 16
6,909
3
676
19
7,585
Principal advances (payments) —
(587 ) —
(34 ) —
(621 )
Loans paid-off (16 ) (987 ) —
—
(16 ) (987 )
Partial charge-offs —
—
—
—
—
—
Balances charged-off (1 ) (9 ) —
—
(1 ) (9 )
Transfers to OREO —
—
(2 ) (91 ) (2 ) (91 )
Transfers to accrual status 2
126
(2 ) (126 ) —
—
Transfers to nonaccrual status (2 ) (92 ) 2
92
—
—
September 30, 2017 152
$ 25,953
6
$ 1,306
158
$ 27,259

Three Months Ended September 30, 2016
Accruing Interest Nonaccrual Total
Number
of
Loans Balance Number
of
Loans Balance Number
of
Loans Balance
July 1, 2016 151
$ 18,843
6
$ 587
157
$ 19,430
New modifications 3
1,634
—
—
3
1,634
Principal advances (payments) —
(204 ) —
(9 ) —
(213 )
Loans paid-off (5 ) (272 ) —
—
(5 ) (272 )
Partial charge-offs —
—
—
—
—
—
Balances charged-off (1 ) (57 ) —
—
(1 ) (57 )
Transfers to OREO —
—
—
—
—
—
Transfers to accrual status 3
218
(3 ) (218 ) —
—
Transfers to nonaccrual status (2 ) (103 ) 2
103
—
—
September 30, 2016 149
$ 20,059
5
$ 463
154
$ 20,522

Nine Months Ended September 30, 2016
Accruing Interest Nonaccrual Total
Number
of
Loans Balance Number
of
Loans Balance Number
of
Loans Balance
January 1, 2016 155
$ 20,931
5
$ 394
160
$ 21,325
New modifications 9
1,863
—
—
9
1,863
Principal advances (payments) —
(831 ) —
(26 ) —
(857 )
Loans paid-off (11 ) (1,348 ) (1 ) (221 ) (12 ) (1,569 )
Partial charge-offs —
—
—
(133 ) —
(133 )
Balances charged-off (2 ) (72 ) —
—
(2 ) (72 )
Transfers to OREO —
—
(1 ) (35 ) (1 ) (35 )
Transfers to accrual status 3
218
(3 ) (218 ) —
—
Transfers to nonaccrual status (5 ) (702 ) 5
702
—
—
September 30, 2016 149
$ 20,059
5
$ 463
154
$ 20,522

~~The following table summarizes our~~ ~~TDRs~~ ~~as of:~~

September 30, 2017 December 31, 2016

Accruing
Interest Nonaccrual Total Accruing
Interest Nonaccrual Total Total
Change
Current $ 24,641
$ 233
$ 24,874
$ 17,557
$ 559
$ 18,116
$ 6,758
Past due 30-59 days 1,086
216
1,302
2,898
230
3,128
(1,826 )
Past due 60-89 days 3
—
3
138
—
138
(135 )
Past due 90 days or more 223
857
1,080
—
—
—
1,080
Total $ 25,953
$ 1,306
$ 27,259
$ 20,593
$ 789
$ 21,382
$ 5,877

~~Additional disclosures about~~ ~~TDRs~~ ~~are included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.~~

~~Impaired Loans~~

~~The following is a summary of information pertaining to impaired loans as of:~~

September 30, 2017 December 31, 2016

Recorded
Balance Unpaid
Principal
Balance Valuation
Allowance Recorded
Balance Unpaid
Principal
Balance Valuation
Allowance
TDRs
Commercial real estate $ 6,062
$ 6,181
$ 766
$ 6,264
$ 6,383
$ 713
Commercial other 2,324
2,324
167
1,444
1,455
25
Agricultural real estate 7,834
7,834
—
4,037
4,037
—
Agricultural other 3,014
3,014
—
1,380
1,380
1
Residential real estate senior liens 7,854
8,234
1,524
8,058
8,437
1,539
Residential real estate junior liens 70
70
13
71
71
13
Home equity lines of credit 83
383
—
102
402
—
Consumer secured 18
18
—
26
26
—
Total TDRs 27,259
28,058
2,470
21,382
22,191
2,291
Other impaired loans
Commercial real estate 136
210
—
151
226
3
Commercial other 3
3
—
—
—
—
Agricultural real estate —
—
—
—
—
—
Agricultural other 128
128
—
128
128
—
Residential real estate senior liens 419
669
81
406
612
76
Residential real estate junior liens —
—
—
1
11
1
Home equity lines of credit —
—
—
—
—
—
Consumer secured —
—
—
—
—
—
Total other impaired loans 686
1,010
81
686
977
80
Total impaired loans $ 27,945
$ 29,068
$ 2,551
$ 22,068
$ 23,168
$ 2,371

~~Additional disclosure related to impaired loans is included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.~~

~~Nonperforming~~ ~~Assets~~

~~The following table summarizes our~~ ~~nonperforming~~ ~~assets as of:~~

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Nonaccrual status loans $ 1,605
$ 1,563
$ 1,138
$ 1,060
$ 690
Accruing loans past due 90 days or more 646
1,203
1,339
633
847
Total nonperforming loans 2,251
2,766
2,477
1,693
1,537
Foreclosed assets 240
229
158
231
284
Total nonperforming assets $ 2,491
$ 2,995
$ 2,635
$ 1,924
$ 1,821
Nonperforming loans as a % of total loans 0.21 % 0.26 % 0.24 % 0.17 % 0.16 %
Nonperforming assets as a % of total assets 0.14 % 0.17 % 0.15 % 0.11 % 0.11 %

~~Typically after~~ a loan is 90 days or more past due itunless the credit is ~~placed on~~ ~~nonaccrual~~ ~~status unless it is well secured~~well-secured and in the process of short-term collection. Upon transferring ~~the loans~~a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if ~~any~~ ~~charge-offs~~a charge-off is necessary. Consumer loans are ~~necessary.~~typically charged-off no later than 180 days past due. Loans may be placed back on accrual status after six months of continued performance and achievement of current payment status. ~~Nonperforming loans have declined in recent periods with current levels~~The level of nonperforming loans ~~continuing~~continued to ~~be at~~decline and remains low ~~levels.~~in comparison to peer banks.

~~Included in the~~ The following table summarizes nonaccrual ~~loan balances above were~~ loans ~~currently classified as TDR~~ as of:


	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
Commercial and industrial	$	20		$	22		$	100		$	102		$	107
Commercial real estate	57			74			78			82			212
Agricultural	232			234			266			271			283
Residential real estate	179			127			136			85			145
Total	$	488		$	457		$	580		$	540		$	747
Nonaccrual loans as a % of loans at end of period	0.04		%	0.04		%	0.05		%	0.04		%	0.06		%

September 30
2017 December 31
2016
Commercial and agricultural $ 1,068
$ 405
Residential real estate 238
384
Total $ 1,306
$ 789

~~Additional disclosures about~~ A summary of loans past due and in nonaccrual status, including the composition of the ending balance of nonaccrual status loans ~~are~~by type, is included in “~~Note 5~~“Note 3 – Loans and ~~ALLL~~”ACL” of our interim condensed consolidated financial statements.

Nonperforming Assets

The following table summarizes our nonperforming assets as of:


	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
Nonaccrual loans	$	488		$	457		$	580		$	540		$	747
Accruing loans past due 90 days or more	—			—			21			119			—
Total nonperforming loans	488			457			601			659			747
Foreclosed assets	414			439			240			241			187
Debt securities	77			77			77			131			131
Total nonperforming assets	$	979		$	973		$	918		$	1,031		$	1,065
Nonperforming loans as a % of total loans	0.04		%	0.04		%	0.05		%	0.05		%	0.06		%
Nonperforming assets as a % of total assets	0.05		%	0.05		%	0.04		%	0.05		%	0.05		%

Table of Contents

ACL - Loans

The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent our single largest concentration of risk. The ACL is our estimation of expected losses within the existing loan portfolio. We ~~continue~~allocate the ACL throughout the loan portfolio based on our assessment of the underlying risks associated within each loan segment. Our assessments include allocations based on specific valuation allowances, historical charge-offs, internally assigned credit risk ratings, past due and nonaccrual balances, historical loss percentages, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Upon the adoption of ASC 326 on January 1, 2023, the total amount of the allowance for credit losses on loans estimated using the CECL methodology increased $2,744 compared to ~~devote considerable attention to identifying impaired~~the total amount of the allowance for credit losses on loans ~~and adjusting the net carrying value of these loans to their current net realizable values through the establishment of a specific reserve or the recording of a~~ ~~charge-off. We believe that we have identified all impaired loans~~estimated as of ~~September 30, 2017.~~

~~We believe that~~December 31, 2022 using the ~~level~~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 ~~ALLL~~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 ~~appropriate~~available to absorb any credit losses within the entire loan portfolio.

The following table summarizes our charge-offs, recoveries, provision for credit losses, and ACL balances as of, ~~September 30, 2017~~.and for the:


	Three Months Ended March 31
		2023			2022
Allowance at beginning of period		$	9,850		$	9,103
Adoption of ASC 326		2,744			—
Charge-offs
Commercial and industrial		—			—
Commercial real estate		—			—
Agricultural		—			—
Residential real estate		2			—
Consumer		99			91
Total charge-offs		101			91
Recoveries
Commercial and industrial		—			14
Commercial real estate		10			—
Agricultural		4			2
Residential real estate		24			28
Consumer		72			111
Total recoveries		110			155
Net loan charge-offs (recoveries)		(9)			(64)
Provision for credit losses		37			37
Allowance at end of period		$	12,640		$	9,204
Net loan charge-offs (recoveries) to average loans outstanding		0.00		%	(0.01)		%

Table of Contents

The following table summarizes our charge-offs, recoveries, provisions for credit losses, and ACL balances as of, and for the three-month periods ended:


	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
Total charge-offs	$	101		$	249		$	173		$	106		$	91
Total recoveries	110			479			132			117			155
Net loan charge-offs (recoveries)	(9)			(230)			41			(11)			(64)
Net loan charge-offs (recoveries) to average loans outstanding	0.00		%	(0.02)		%	0.00		%	0.00		%	(0.01)		%
Provision for credit losses	$	37		$	(57)		$	18		$	485		$	37
Provision for credit losses to average loans outstanding	0.00		%	0.00		%	0.00		%	0.04		%	0.00		%
ACL	$	12,640		$	9,850		$	9,677		$	9,700		$	9,204
ACL as a % of loans at end of period	0.99		%	0.78		%	0.78		%	0.76		%	0.76		%
ACL as a % of nonaccrual loans	2,590.16		%	2,155.36		%	1,668.45		%	1,796.30		%	1,232.13		%

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


	March 31 2023			December 31 2022			September 30 2022			June 30 2022			March 31 2022
ACL
Individually evaluated	$	—		$	451		$	474		$	515		$	573
Collectively evaluated	12,640			9,399			9,203			9,185			8,631
Total	$	12,640		$	9,850		$	9,677		$	9,700		$	9,204
ACL to gross loans
Individually evaluated	0.00		%	0.04		%	0.04		%	0.04		%	0.05		%
Collectively evaluated	0.99		%	0.74		%	0.74		%	0.72		%	0.71		%
Total	0.99		%	0.78		%	0.78		%	0.76		%	0.76		%

While we utilize our best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond our control, including the performance of our borrowers, the economy, and changes in interest rates. We ~~will continue to~~ closely monitor overall credit quality indicators and our policies and procedures related to the analysis of the ~~ALLL~~ACL to ensure that the ~~ALLL~~ACL remains at ~~the~~an appropriate level.

For further discussion of the allocation of the ACL, see “Note 3 – Loans and ACL” of our interim condensed consolidated financial statements.

Table of Contents

Noninterest Income and Noninterest Expenses

Significant noninterest income ~~account~~ balances are highlighted in the following ~~table with additional descriptions of significant fluctuations:~~

Three Months Ended September 30
Change
2017 2016 $ %
Service charges and fees
ATM and debit card fees $ 667
$ 606
$ 61
10.07 %
NSF and overdraft fees 481
480
1
0.21 %
Freddie Mac servicing fee 169
172
(3 ) (1.74 )%
Service charges on deposit accounts 88
92
(4 ) (4.35 )%
Net OMSR income (loss) (77 ) (108 ) 31
28.70 %
All other 107
34
73
214.71 %
Total service charges and fees 1,435
1,276
159
12.46 %
Net gain on sale of mortgage loans 153
263
(110 ) (41.83 )%
Earnings on corporate owned life insurance policies 174
183
(9 ) (4.92 )%
Net gains (losses) on sale of AFS securities —
—
—
— %
Other
Trust and brokerage advisory fees 724
1,000
(276 ) (27.60 )%
Corporate Settlement Solutions joint venture 84
145
(61 ) (42.07 )%
Other 128
79
49
62.03 %
Total other 936
1,224
(288 ) (23.53 )%
Total noninterest income $ 2,698
$ 2,946
$ (248 ) (8.42 )%
tables for the:


	Three Months Ended March 31
					Change
	2023		2022		$		%
Service charges and fees
ATM and debit card fees	$	1,160	$	1,093	$	67	6.13	%
Service charges and fees on deposit accounts	611		609		2		0.33	%
Freddie Mac servicing fee	159		171		(12)		(7.02)	%
Net OMSR income (loss)	(36)		264		(300)		(113.64)	%
Other fees for customer services	84		72		12		16.67	%
Total service charges and fees	1,978		2,209		(231)		(10.46)	%
Wealth management fees	786		754		32		4.24	%
Earnings on corporate owned life insurance policies	226		210		16		7.62	%
Net gain on sale of mortgage loans	67		224		(157)		(70.09)	%
All other	236		150		86		57.33	%
Total noninterest income	$	3,293	$	3,547	$	(254)	(7.16)	%

Nine Months Ended September 30
Change
2017 2016 $ %
Service charges and fees
ATM and debit card fees $ 1,945
$ 1,840
$ 105
5.71 %
NSF and overdraft fees 1,383
1,360
23
1.69 %
Freddie Mac servicing fee 508
529
(21 ) (3.97 )%
Service charges on deposit accounts 259
263
(4 ) (1.52 )%
Net OMSR income (loss) 107
(437 ) 544
124.49 %
All other 168
97
71
73.20 %
Total service charges and fees 4,370
3,652
718
19.66 %
Net gain on sale of mortgage loans 507
472
35
7.42 %
Earnings on corporate owned life insurance policies 537
566
(29 ) (5.12 )%
Net gains (losses) on sale of AFS securities 142
245
(103 ) (42.04 )%
Other
Trust and brokerage advisory fees 1,961
2,135
(174 ) (8.15 )%
Corporate Settlement Solutions joint venture 171
362
(191 ) (52.76 )%
Other 414
489
(75 ) (15.34 )%
Total other 2,546
2,986
(440 ) (14.74 )%
Total noninterest income $ 8,102
$ 7,921
$ 181
2.29 %

~~Significant~~OMSR income results are driven, in part, by changes in ~~noninterest~~ ~~income are detailed below:~~

~~Offering~~offering rates on residential mortgage loans, anticipated prepayments in the servicing-retained portfolio, and the volume of loans within the servicing-retained portfolio. Decreased prepayment speeds, have been the most significant drivers behind fluctuations in net OMSR income (loss). We anticipate increases in mortgage rates and decreased prepayment speeds; therefore, we anticipate year-to-date net OMSR income to be positive during the remainder of 2017.

~~We anticipate increases in our originations in purchase money mortgage activity~~ as a result of ~~our various initiatives~~an increase in interest rates, was the primary driver of the income recognized during 2022. A decline in volume of originated loans and the balance of loans serviced led to ~~drive growth. As~~OMSR losses during the first three months of 2023. Income during 2023 will be driven by the volume of loans originated within the servicing-retained portfolio, along with any further future increases in interest rates.

The amount of loans sold is driven by customer demand and balance sheet management strategies. Loan demand declined in the first quarter of 2023 compared to the prior year resulting in fewer mortgage loans being originated and sold and as a result, ~~we expect~~a decline in net ~~gains~~gain on ~~the~~ sale of mortgage ~~loans to increase during the remainder of 2017.~~

We continue to invest considerable efforts to increase our market share in trust and brokerage advisory services. These efforts have translated into increases in such fee income. We anticipate that fee income will continue to increase during the remainder of 2017; however, 2017 year-to-date income will remain lower than income in 2016 due to a fee income assessment change during the third quarter of 2016 which resulted in higher earnings in 2016.

Corporate Settlement Solutions income is down in 2017 compared to 2016 resulting from decreased revenue related to lower levels of loan origination and refinancing activities. Year-to-date income for 2017loans. Demand is expected to continue to ~~fall below 2016~~slow during the remainder of 2023 due to the continual rise in interest rates and as a result, net gain on sale of mortgage loans is not expected to exceed 2022 levels.

The fluctuations in all other noninterest income isare spread throughout various categories, none of which are individually significant.

Table of Contents

Significant noninterest expense ~~account~~ balances are highlighted in the following ~~table with additional descriptions~~tables for the:


	Three Months Ended March 31
					Change
	2023		2022		$		%
Compensation and benefits	$	6,589	$	6,074	$	515	8.48	%
Furniture and equipment	1,597		1,450		147		10.14	%
Occupancy	1,005		966		39		4.04	%
Other
Audit, consulting, and legal fees	535		549		(14)		(2.55)	%
ATM and debit card fees	400		434		(34)		(7.83)	%
Marketing costs	245		239		6		2.51	%
Memberships and subscriptions	240		217		23		10.60	%
FDIC insurance premiums	228		125		103		82.40	%
Loan underwriting fees	215		182		33		18.13	%
Director fees	204		201		3		1.49	%
Donations and community relations	184		287		(103)		(35.89)	%
All other	756		596		160		26.85	%
Total other noninterest expenses	3,007		2,830		177		6.25	%
Total noninterest expenses	$	12,198	$	11,320	$	878	7.76	%

The FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis point, beginning in the first quarterly assessment period of ~~significant fluctuations:~~

2023. The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. FDIC expense for the remainder of 2023 will continue to exceed 2022 levels.

Three Months Ended September 30

Change
2017 2016 $ %
Compensation and benefits
Employee salaries $ 4,005
$ 3,610
$ 395
10.94 %
Employee benefits 1,355
1,330
25
1.88 %
Total compensation and benefits 5,360
4,940
420
8.50 %
Furniture and equipment
Service contracts 814
825
(11 ) (1.33 )%
Depreciation 511
483
28
5.80 %
All other 52
45
7
15.56 %
Total furniture and equipment 1,377
1,353
24
1.77 %
Occupancy
Depreciation 212
195
17
8.72 %
Outside services 178
171
7
4.09 %
Property taxes 142
141
1
0.71 %
Utilities 132
168
(36 ) (21.43 )%
All other 145
170
(25 ) (14.71 )%
Total occupancy 809
845
(36 ) (4.26 )%
Other
ATM and debit card fees 253
210
43
20.48 %
Audit and related fees 322
319
3
0.94 %
Consulting fees 259
198
61
30.81 %
Director fees 212
207
5
2.42 %
Loan underwriting fees 237
142
95
66.90 %
Donations and community relations 190
134
56
41.79 %
FDIC insurance premiums 172
224
(52 ) (23.21 )%
Marketing costs 172
101
71
70.30 %
Education and travel 143
73
70
95.89 %
Printing and supplies 110
105
5
4.76 %
Postage and freight 85
96
(11 ) (11.46 )%
All other 438
486
(48 ) (9.88 )%
Total other 2,593
2,295
298
12.98 %
Total noninterest expenses $ 10,139
$ 9,433
$ 706
7.48 %

Nine Months Ended September 30

Change
2017 2016 $ %
Compensation and benefits
Employee salaries $ 12,127
$ 10,387
$ 1,740
16.75 %
Employee benefits 3,742
4,025
(283 ) (7.03 )%
Total compensation and benefits 15,869
14,412
1,457
10.11 %
Furniture and equipment
Service contracts 2,386
2,323
63
2.71 %
Depreciation 1,531
1,533
(2 ) (0.13 )%
All other 156
132
24
18.18 %
Total furniture and equipment 4,073
3,988
85
2.13 %
Occupancy
Depreciation 632
583
49
8.40 %
Outside services 577
555
22
3.96 %
Property taxes 434
429
5
1.17 %
Utilities 390
429
(39 ) (9.09 )%
All other 428
447
(19 ) (4.25 )%
Total occupancy 2,461
2,443
18
0.74 %
Other
ATM and debit card fees 873
627
246
39.23 %
Audit and related fees 757
664
93
14.01 %
Consulting fees 672
567
105
18.52 %
Director fees 634
630
4
0.63 %
Loan underwriting fees 546
377
169
44.83 %
Donations and community relations 488
399
89
22.31 %
FDIC insurance premiums 480
646
(166 ) (25.70 )%
Marketing costs 361
359
2
0.56 %
Education and travel 332
309
23
7.44 %
Printing and supplies 320
325
(5 ) (1.54 )%
Postage and freight 304
293
11
3.75 %
All other 1,427
1,692
(265 ) (15.66 )%
Total other 7,194
6,888
306
4.44 %
Total noninterest expenses $ 29,597
$ 27,731
$ 1,866
6.73 %

~~Significant changes in~~ ~~noninterest~~ ~~expenses are detailed below:~~

~~Employee salaries have~~Donations and community relations increased ~~in 2017~~during 2022 as a result of ~~new positions required for future growth within~~initiatives designed to deepen and strengthen our ~~new markets, normal merit increases~~relationship with the communities in which we operate and ~~increased incentive compensation. As~~serve, which includes an expanded footprint. Although such ~~we anticipate employee salaries expense to continue to trend higher~~expenses were lower during the first quarter of 2023, for the remainder of ~~2017 compared to the expense levels of 2016.~~

~~Employee benefits have declined in 2017 due to a settlement with an insurance claim administrator in favor of Isabella Bank.~~

~~ATM and debit card fees have increased in 2017 due to an early contract termination fee.~~

~~Consulting fees have increased in 2017 due to compliance related services due to staff vacancies. Fees are expected to exceed 2016 levels for the remainder of 2017.~~

~~Loan underwriting fees have increased due to increased consumer loan originations. Fees~~2023 expenses are expected to increase ~~during the remainder of 2017~~ and ~~exceed 2016 levels.~~

~~FDIC insurance premiums have declined in 2017~~approximate 2022 levels as ~~a result of changes to the premium calculation set forth by the FDIC in 2016; therefore, 2017 expenses are expected to be lower than 2016 for the remainder of the year.~~we continue this initiative.

The fluctuations in all other noninterest expenses are spread throughout various categories, none of which are individually significant.

Table of Contents

Analysis of Changes in Financial Condition


	September 30 2017		December 31 2016		$ Change			% Change (unannualized)			March 31 2023		December 31 2022		$ Change		% Change (unannualized)
ASSETS										ASSETS
Cash and cash equivalents	$	21,067	$	22,894	$	(1,827	)	(7.98	)%	Cash and cash equivalents	$	98,723	$	38,924	$	59,799	153.63	%
AFS securities										AFS securities
Amortized cost of AFS securities	548,468		557,648		(9,180		)	(1.65	)%	Amortized cost of AFS securities	605,165		625,605		(20,440)		(3.27)	%
Unrealized gains (losses) on AFS securities	4,457		448		4,009			N/M		Unrealized gains (losses) on AFS securities	(36,515)		(45,124)		8,609		N/M
AFS securities	552,925		558,096		(5,171		)	(0.93	)%	AFS securities	568,650		580,481		(11,831)		(2.04)	%
Mortgage loans AFS	1,237		1,816		(579		)	(31.88	)%	Mortgage loans AFS	171		379		(208)		(54.88)	%
Loans										Loans
Gross loans	1,077,544		1,010,615		66,929			6.62	%	Gross loans	1,270,651		1,264,173		6,478		0.51	%
Less allowance for loan and lease losses	7,700		7,400		300			4.05	%
Less allowance for credit losses										Less allowance for credit losses	12,640		9,850		2,790		28.32	%
Net loans	1,069,844		1,003,215		66,629			6.64	%	Net loans	1,258,011		1,254,323		3,688		0.29	%
Premises and equipment	28,761		29,314		(553		)	(1.89	)%	Premises and equipment	26,304		25,553		751		2.94	%
Corporate owned life insurance policies	26,837		26,300		537			2.04	%	Corporate owned life insurance policies	33,208		32,988		220		0.67	%
Accrued interest receivable	7,388		6,580		808			12.28	%
Equity securities without readily determinable fair values	23,461		21,694		1,767			8.15	%	Equity securities without readily determinable fair values	15,746		15,746		—		—	%
Goodwill and other intangible assets	48,575		48,666		(91		)	(0.19	)%	Goodwill and other intangible assets	48,286		48,287		(1)		—	%
Other assets	11,872		13,576		(1,704		)	(12.55	)%
Accrued interest receivable and other assets										Accrued interest receivable and other assets	35,525		33,586		1,939		5.77	%
TOTAL ASSETS	$	1,791,967	$	1,732,151	$	59,816		3.45	%	TOTAL ASSETS	$	2,084,624	$	2,030,267	$	54,357	2.68	%
LIABILITIES AND SHAREHOLDERS’ EQUITY										LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities										Liabilities
Deposits	$	1,216,062	$	1,195,040	$	21,022		1.76	%	Deposits	$	1,813,528	$	1,744,275	$	69,253	3.97	%
Borrowed funds	367,027		337,694		29,333			8.69	%	Borrowed funds	61,262		87,016		(25,754)		(29.60)	%
Accrued interest payable and other liabilities	12,415		11,518		897			7.79	%	Accrued interest payable and other liabilities	16,501		12,766		3,735		29.26	%
Total liabilities	1,595,504		1,544,252		51,252			3.32	%	Total liabilities	1,891,291		1,844,057		47,234		2.56	%
Shareholders’ equity	196,463		187,899		8,564			4.56	%	Shareholders’ equity	193,333		186,210		7,123		3.83	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,791,967	$	1,732,151	$	59,816		3.45	%	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,084,624	$	2,030,267	$	54,357	2.68	%

As shown above, total assets ~~have~~ increased ~~$59,816 since~~$54,357 from December 31, ~~2016 which was~~2022, driven primarily ~~driven by loan growth of $66,929. This growth was funded~~ by an increase in ~~deposits~~cash. Deposit growth, creating excess cash, totaled $69,253 during the first quarter. We experienced a decline in AFS securities due primarily to maturities and principal paydowns in ~~borrowed funds~~the normal course of ~~$21,022~~business. Unrealized losses on AFS securities improved during the first quarter as a result of market conditions at March 31, 2023. Loans grew $6,478, largely driven by growth in the commercial and ~~$29,333, respectively, since December 31, 2016. While generating quality loans will continue to be competitive, we expect that loans will continue to grow~~consumer loan portfolios, offset by a decline in ~~2017.~~our agricultural loan portfolio.

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The following table outlines the changes in ~~loans:~~

loan balances:


	March 31 2023		December 31 2022		$ Change		% Change (unannualized)
Commercial	$	755,595	$	744,440	$	11,155	1.50	%
Agricultural	94,760		104,985		(10,225)		(9.74)	%
Residential real estate	336,186		336,694		(508)		(0.15)	%
Consumer	84,110		78,054		6,056		7.76	%
Total	$	1,270,651	$	1,264,173	$	6,478	0.51	%

September 30
2017 December 31
2016 $ Change % Change
(unannualized)
Commercial $ 620,135
$ 575,664
$ 44,471
7.73 %
Agricultural 132,998
126,492
6,506
5.14 %
Residential real estate 271,480
266,050
5,430
2.04 %
Consumer 52,931
42,409
10,522
24.81 %
Total $ 1,077,544
$ 1,010,615
$ 66,929
6.62 %

The following table displays loan balances as of:


	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
Commercial	$	755,595	$	744,440	$	730,504	$	772,567	$	727,614
Agricultural	94,760		104,985		96,850		94,726		88,169
Residential real estate	336,186		336,694		334,412		329,795		328,559
Consumer	84,110		78,054		74,385		74,822		74,029
Total	$	1,270,651	$	1,264,173	$	1,236,151	$	1,271,910	$	1,218,371

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Commercial $ 620,135
$ 600,584
$ 576,822
$ 575,664
$ 554,847
Agricultural 132,998
130,954
126,049
126,492
133,637
Residential real estate 271,480
270,207
267,141
266,050
260,122
Consumer 52,931
46,752
42,908
42,409
40,760
Total $ 1,077,544
$ 1,048,497
$ 1,012,920
$ 1,010,615
$ 989,366

~~While competition for~~Advances to mortgage brokers, within the commercial ~~loans continues~~loan portfolio, which is not considered a component of our core lending business, was the primary driver behind the fluctuations experienced since March 31, 2022, as participation in this mortgage purchase program paused during most of 2022 and into 2023. We've experienced an increase in core commercial loan demand in recent periods. As demand is expected to ~~be strong,~~continue, we ~~experienced significant growth in these segments of the portfolio during 2016 and 2017 and~~ anticipate ~~continued~~ growth in the commercial loan portfolio during the remainder of ~~2017. Residential real estate and consumer~~2023. While Agricultural loans have ~~also experienced growth~~increased over the last year and are ~~both~~ expected to ~~increase for~~continue during the remainder of ~~2017.~~2023, we do not anticipate the same level of growth experienced in 2022 as the result of the competitive lending environment. Residential mortgage lending activities have slowed over the last year as a result of rising interest rates. As interest rates are expected to continue to increase in 2023, growth in residential loans is anticipated to continue but at a slower pace. We've experienced steady growth in consumer loans and expect this trend to continue during the reminder of 2023.

The following table outlines the changes in ~~deposits:~~

deposit balances:


	March 31 2023		December 31 2022		$ Change		% Change (unannualized)
Noninterest bearing demand deposits	$	478,829	$	494,346	$	(15,517)	(3.14)	%
Interest bearing demand deposits	383,602		372,155		11,447		3.08	%
Savings deposits	662,495		625,734		36,761		5.87	%
Certificates of deposit	288,103		251,541		36,562		14.54	%
Internet certificates of deposit	499		499		—		—	%
Total	$	1,813,528	$	1,744,275	$	69,253	3.97	%

September 30
2017 December 31
2016 $ Change % Change
(unannualized)
Noninterest bearing demand deposits $ 212,608
$ 205,071
$ 7,537
3.68 %
Interest bearing demand deposits 220,601
209,325
11,276
5.39 %
Savings deposits 358,358
347,230
11,128
3.20 %
Certificates of deposit 309,778
321,914
(12,136 ) (3.77 )%
Brokered certificates of deposit 95,979
88,632
7,347
8.29 %
Internet certificates of deposit 18,738
22,868
(4,130 ) (18.06 )%
Total $ 1,216,062
$ 1,195,040
$ 21,022
1.76 %

The following table displays deposit balances as of:


	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
Noninterest bearing demand deposits	$	478,829	$	494,346	$	510,127	$	488,110	$	461,473
Interest bearing demand deposits	383,602		372,155		368,537		370,284		387,187
Savings deposits	662,495		625,734		651,129		635,397		635,195
Certificates of deposit	288,103		251,541		260,741		265,477		279,708
Internet certificates of deposit	499		499		499		598		598
Total	$	1,813,528	$	1,744,275	$	1,791,033	$	1,759,866	$	1,764,161

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Noninterest bearing demand deposits $ 212,608
$ 210,122
$ 207,448
$ 205,071
$ 201,804
Interest bearing demand deposits 220,601
212,365
216,975
209,325
205,817
Savings deposits 358,358
357,756
365,287
347,230
331,414
Certificates of deposit 309,778
314,482
320,345
321,914
324,910
Brokered certificates of deposit 95,979
94,948
98,442
88,632
87,583
Internet certificates of deposit 18,738
20,479
22,564
22,868
24,305
Total $ 1,216,062
$ 1,210,152
$ 1,231,061
$ 1,195,040
$ 1,175,833

~~Deposit demand continues to be driven by~~Total deposits have increased over the past 12 months with significant growth in non-contractual deposits, such as demand and savings ~~deposits, while~~deposits. While we experienced a decline in certificates of deposit throughout 2022, we had significant growth during the first three months of 2023 as a result of the recent increase in the interest rate environment. We expect interest rates to continue to rise in 2023 and ~~Internet certificates~~anticipate the continuation in the shift of ~~deposit have gradually declined. Brokered certificates~~customers moving to higher interest earning products.

Table of ~~deposit offer another source~~Contents

The primary objective of ~~funding~~our investing activities is to manage our overall exposure to changes in interest rates. Secondary considerations include ensuring ample access to liquidity, generating returns, and ~~fluctuate from period-to-period~~providing current income. Over the last two years, the flat yield curve encouraged the use of excess funds to reduce higher-cost borrowings as opposed to investing in AFS securities. However, based on ~~our~~balance sheet strategies, excess funds above what is required to retire future maturities of higher-cost funding ~~needs, including changes in assets such as loans and investments.~~

~~The balance of AFS securities fluctuates from period-to-period based on changes in loans and deposits. While loan growth has been strong over the last year, we purchased~~sources was prudently deployed to purchase AFS securities in periods when deposit growth outpaced loan demand. Conversely, we have sold AFS securities in periods when loan demand has outpaced deposit growth. We remain active in investments with our local schools and municipalities. Potential future ~~growth is anticipated in state and political subdivisions and purchases of mortgage-backed securities and collateralized mortgage obligations.~~ periods.

The following table displays fair values of AFS securities as of:


	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
U.S. Treasury	$	212,086	$	208,701	$	206,791	$	214,474	$	218,268
States and political subdivisions	108,719		117,512		114,000		119,649		114,015
Auction rate money market preferred	2,716		2,342		2,479		2,497		2,867
Mortgage-backed securities	37,797		39,070		41,042		45,796		49,578
Collateralized mortgage obligations	200,252		205,728		209,720		167,572		152,441
Corporate	7,080		7,128		7,201		7,602		7,750
Total	$	568,650	$	580,481	$	581,233	$	557,590	$	544,919

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
Government sponsored enterprises $ 232
$ 281
$ 10,264
$ 10,259
$ 344
States and political subdivisions 213,457
222,093
222,777
212,919
219,689
Auction rate money market preferred 3,172
3,095
2,977
2,794
3,145
Preferred stocks 3,651
3,665
3,597
3,425
3,588
Mortgage-backed securities 215,914
221,957
229,774
227,256
226,649
Collateralized mortgage obligations 116,499
116,771
120,725
101,443
110,814
Total $ 552,925
$ 567,862
$ 590,114
$ 558,096
$ 564,229

Borrowed funds include FHLB advances, securities sold under agreements to repurchase, subordinated debt, and federal funds purchased. The balance of borrowed funds fluctuates from ~~period-to-period~~period to period based on our funding needs ~~including~~that arise from changes in loans, investments, and deposits. To provide balance sheet growth, we may utilize borrowings and brokered deposits to fund earning assets. The following table displays borrowed funds balances as of:


	March 31 2023		December 31 2022		September 30 2022		June 30 2022		March 31 2022
Securities sold under agreements to repurchase without stated maturity dates	$	31,995	$	57,771	$	52,479	$	47,247	$	51,353
FHLB advances	—		—		—		10,000		10,000
Fixed rate at 3.25% to floating, due 2031	29,267		29,245		29,225		29,203		29,181
Total	$	61,262	$	87,016	$	81,704	$	86,450	$	90,534

September 30
2017 June 30
2017 March 31
2017 December 31
2016 September 30
2016
FHLB advances $ 310,000
$ 310,000
$ 270,000
$ 270,000
$ 250,000
Securities sold under agreements to repurchase without stated maturity dates 54,977
49,950
57,375
60,894
54,809
Federal funds purchased 2,050
990
—
6,800
20,600
Total $ 367,027
$ 360,940
$ 327,375
$ 337,694
$ 325,409

~~Capital~~

~~Capital consists solely~~Over the last few years, we used excess funds to reduce FHLB advances. On June 2, 2021, we completed a private placement of ~~common stock, retained earnings, and accumulated other comprehensive income (loss)~~$30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). ~~We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued~~ ~~178,712~~ ~~shares or~~ ~~$4,999~~The Notes will initially bear a fixed interest rate of ~~common stock during~~3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the ~~first~~ ~~nine~~ ~~months of~~ ~~2017, as compared to~~ ~~131,697~~ ~~shares or~~ ~~$3,683~~ ~~of common stock during the same period in~~ ~~2016~~. We also offer the Directors Plan in which participants either directly purchase stock or purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by ~~$502~~ ~~and~~ ~~$443~~ ~~during the~~ ~~nine~~ ~~month periods ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, respectively.~~

~~We have a publicly announced common stock repurchase plan. Pursuant to this plan, we repurchased~~ ~~143,117~~ ~~shares or~~ ~~$4,005~~ ~~of common stock during the first nine months of 2017 and~~ ~~98,083~~ ~~shares or~~ ~~$2,749~~ ~~during the first~~ ~~nine~~ ~~months of~~ ~~2016. As of~~ ~~September 30, 2017, we were authorized to repurchase up~~interest rate will reset quarterly to an ~~additional~~ ~~56,839~~ ~~shares of common stock.~~

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 comparedannual floating rate equal to the ~~minimum standard to determine whether a corporation has adequate capital. On July 2, 2013, the FRB published revised BASEL III Capital standards for banks.~~then-current 3-month SOFR plus 256 basis points. The ~~final rules redefine what is included~~Notes are redeemable by us at our option, in whole or ~~deducted from equity capital, changes risk weighting for certain~~in part, on ~~and off-balance sheet assets, increases the minimum required equity capital to be considered well capitalized, and introduces a capital conservation buffer.~~or after June 15, 2026. The ~~rules, which are being gradually phased in between 2015 and 2019,~~Notes are not ~~expected~~subject to ~~have a material impact on~~redemption at the ~~Corporation but will require us to hold more capital than has historically been required.~~option of the holders.

There are no significant regulatory constraints placed on our capital. The FRB’s current recommended minimum primary capital to assets requirement is 6.00%. Our primary capital to adjusted average assets, or tier 1 leverage ratio, was ~~8.50%~~ ~~as of~~ ~~September 30, 2017~~.

Effective January 1, 2015, the minimum standard for primary, or Tier 1 capital, increased from 4.00% to 6.00%. The minimum standard for total capital is 8.00%. Also effective January 1, 2015 was the new common equity tier 1 capital ratio which had a minimum requirement of 4.50%. Beginning on January 1, 2016 the capital conservation buffer went into effect which will further increase the required levels each year through 2019. The following table sets forth the percentages required under the Risk Based Capital guidelines and our ratios as of:

September 30
2017 December 31
2016

Actual Minimum Required Actual Minimum Required
Common equity tier 1 capital 12.200 % 5.750 % 12.390 % 5.125 %

Tier 1 capital 12.200 % 7.250 % 12.390 % 6.625 %
Tier 2 capital 0.640 % 2.000 % 0.650 % 2.000 %
Total Capital 12.840 % 9.250 % 13.040 % 8.625 %

~~Tier 2 capital, or secondary capital, includes only the~~ ~~ALLL. The percentage for the secondary capital under the required column is the maximum amount allowed from all sources.~~

~~The~~ ~~FRB~~ ~~and~~ ~~FDIC~~ ~~also prescribe minimum capital requirements for Isabella Bank. At~~ ~~September 30, 2017, the Bank exceeded these minimum capital requirements.~~

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 ~~contract~~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:~~

September 30
2017 December 31
2016
Unfunded commitments under lines of credit $ 165,768
$ 168,840
Commitments to grant loans 43,353
29,339
Commercial and standby letters of credit 1,622
1,223
Total $ 210,743
$ 199,402

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 the 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 with the majority being loans committed to be sold to the secondary market.

Commercial and standby letters of credit are conditional commitments 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 a 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~~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.

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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 19,873 shares or $462 of common stock during the first three months of 2023, as compared to 17,379 shares or $439 of common stock during the same period in 2022. We also 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 $346 and $149 during the three-month periods ended March 31, 2023 and 2022, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $42 during the first three months of 2023, as compared to $31 during the same period in 2022.

We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 39,279 shares or $937 of common stock during the first three months of 2023 and 7,262 shares or $185 during the first three months of 2022. As of March 31, 2023, we were authorized to repurchase up to an additional 380,547 shares of common stock.

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%. The minimum requirements presented below include the minimum required capital levels based on the Basel III Capital Rules. Capital requirements to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. The following table sets forth these requirements and our ratios as of:


	March 31, 2023						December 31, 2022
	Actual		Minimum Required - BASEL III		Required to be Considered Well Capitalized		Actual		Minimum Required - BASEL III		Required to be Considered Well Capitalized
Common equity tier 1 capital	12.71	%	7.00	%	6.50	%	12.91	%	7.00	%	6.50	%
Tier 1 capital	12.71	%	8.50	%	8.00	%	12.91	%	8.50	%	8.00	%
Total capital	15.77	%	10.50	%	10.00	%	15.79	%	10.50	%	10.00	%
Tier 1 leverage	8.58	%	4.00	%	5.00	%	8.61	%	4.00	%	5.00	%

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for loan and lease losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At March 31, 2023, the Bank also exceeded minimum capital requirements.

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 cash and cash equivalents and unencumbered AFS securities. These categories totaled $514,304 or 24.67% of assets as of March 31, 2023, compared to $488,981 or 24.08% as of December 31, 2022. The increase in the amount and percentage of primary liquidity is a direct result of an increase in market deposits, an increase in unencumbered AFS securities from purchases during 2022, and a deliberate reduction in non-market funding which required collateralization. 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.

Deposit accounts are our primary source of funds. 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 a line of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. In recent periods, we have elected to use excess funds to reduce borrowings and other higher-cost funding sources. 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 March 31, 2023, we had available lines of credit of $348,829. In early April, one of our Fed Funds lines was paused by the correspondent bank in response to recent events in the banking industry and the subsequent market conditions. As such, our available lines of credit was reduced to $328,829.

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The frequency and complexity of our liquidity stress testing has increased since early 2020 and continues to evolve due to economic uncertainly as a result of COVID-19 and changes within the interest rate and economic environment. Our liquidity position remained strong at March 31, 2023, which is illustrated in the following table:


	March 31 2023
Total cash and cash equivalents	$	98,723
Available lines of credit
Fed funds lines with correspondent banks	93,000
FHLB borrowings	241,545
FRB Discount Window	9,284
Other lines of credit	5,000
Total available lines of credit	348,829
Unencumbered lendable value of FRB collateral, estimated1	350,000
Total cash and liquidity	$	797,552

(1)Includes estimated unencumbered lendable value of FHLB collateral of $300,000

The following table summarizes our sources and uses of cash for the three-month period ended March 31:


	2023		2022		$ Variance
Net cash provided by (used in) operating activities	$	7,569	$	5,629	$	1,940
Net cash provided by (used in) investing activities	11,802		7,142		4,660
Net cash provided by (used in) financing activities	40,428		43,085		(2,657)
Increase (decrease) in cash and cash equivalents	59,799		55,856		3,943
Cash and cash equivalents January 1	38,924		105,330		(66,406)
Cash and cash equivalents March 31	$	98,723	$	161,186	$	(62,463)

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~~,time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, ~~impaired~~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~~write downs of individual assets.

For further information regarding fair value measurements see “~~Note 11~~“Note 10 – Fair ~~Value~~”Value” of our ~~notes to the~~ interim condensed consolidated financial statements.

~~Liquidity~~

~~Liquidity is monitored regularly by our~~ Market Risk ~~Committee, 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 cash and cash equivalents and unencumbered~~ ~~AFS~~ ~~securities. These categories totaled $269,687 or 15.05% of assets as of~~ ~~September 30, 2017, compared to $307,112 or 17.73% as of~~ ~~December 31, 2016. The decrease in primary liquidity is a direct result of our unencumbered~~ ~~AFS~~ securities activity during 2017. 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. Liquidity varies significantly daily, based on customer activity.

~~Our primary source of funds is through deposit accounts. We also have the ability to borrow from the~~ ~~FHLB, the~~ ~~FRB~~, and through various correspondent banks in the form of federal funds purchased and a line 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, 2017, we had available lines of credit of~~ ~~$114,839~~.

~~The following table summarizes our sources and uses of cash for the~~ ~~nine~~ ~~month period ended~~ ~~September 30~~:

2017 2016 $ Variance
Net cash provided by (used in) operating activities $ 13,728
$ 15,565
$ (1,837 )
Net cash provided by (used in) investing activities (60,627 ) (37,704 ) (22,923 )
Net cash provided by (used in) financing activities 45,072
21,905
23,167
Increase (decrease) in cash and cash equivalents (1,827 ) (234 ) (1,593 )
Cash and cash equivalents January 1 22,894
21,569
1,325
Cash and cash equivalents September 30 $ 21,067
$ 21,335
$ (268 )

~~Market Risk~~

Our primary market risks are interest rate risk and liquidity risk. ~~We have no significant foreign exchange risk in the management of~~ IRR~~. Any changes in foreign exchange rates or commodity prices would have an insignificant impact on our interest income and cash flows.~~

~~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 usbanks to effectively manage the various risks that can have a material impact on ~~our~~ 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 ~~Funds Management~~ALCO policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in ~~long~~

~~term~~long-term assets, limiting the mismatch in repricing ~~opportunity~~opportunities of assets and liabilities, and the frequency of measuring and reporting to our ~~Board.~~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 ~~changes in~~ 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

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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 sheet components, interest rate changes, changes in market conditions, and management strategies.

Our interest rate sensitivity is estimated by first forecasting the next 12 and 24 months of net interest income under an assumed environment of a constant balance sheet and constant market interest rates (base case). We then compare the results of various simulation analyses to the base case. At ~~September 30, 2017~~, we projected the change in net interest income during the next 12 and 24 months assuming market interest rates were to immediately decrease by 100 basis points and increase by 100, 200, 300, and 400 basis points in a parallel fashion over the entire yield curve during the same time period. We did not project scenarios showing decreases in interest rates beyond 100 basis points as this is considered extremely unlikely given current interest rate levels. These projections were based on our assets and liabilities remaining static over the next 12 and 24 months, while factoring in probable calls and prepayments of certain investment securities and residential real estate and consumer loans. While it is extremely unlikely that interest rates would immediately increase to these levels, we feel that these extreme scenarios help us identify potential gaps and mismatches in the repricing characteristics of assets and liabilities. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits. As

Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of ~~September 30, 2017,~~ our interest ~~rate sensitivity results were within Board approved limits.~~

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 ~~following tables summarize our~~amount of prepayments is dependent upon many factors, including the interest rate ~~sensitivity for~~of a given loan in comparison to the ~~next 12~~current offering rates, the level of home sales, and ~~24 months as of:~~

September 30, 2017

12 Months
24 Months
Immediate basis point change assumption (short-term) -100 +100 +200 +300 +400 -100 +100 +200 +300 +400
Percent change in net interest income vs. constant rates (1.48 )% 1.90 % 3.67 % 5.28 % 7.15 % (1.57 )% 2.37 % 4.35 % 5.85 % 7.12 %

December 31, 2016
12 Months 24 Months
Immediate basis point change assumption (short-term) -100 +100 +200 +300 +400 -100 +100 +200 +300 +400
Percent change in net interest income vs. constant rates (4.49 )% 2.19 % 4.31 % 5.68 % 6.67 % (5.32 )% 2.64 % 5.01 % 6.33 % 6.75 %

~~The following tables provide information about assets and liabilities that are sensitive to changes~~the overall availability of credit in the market place. Generally, a decrease in interest rates aswill result in an increase in cash flows from these assets. A significant portion of ~~September 30, 2017~~our securities are callable or have prepayment options. The call and ~~December 31, 2016~~.prepayment options are more likely to be exercised in a period of decreasing interest rates. Savings and demand accounts may generally be withdrawn on request without prior notice. The ~~principal amounts~~timing of ~~investments, loans, other interest earning assets, borrowings, and time~~cash flows from these deposits ~~maturing were calculated~~is estimated based on ~~the contractual maturity dates. Estimated cash flows for savings and NOW accounts are based on our estimated~~historical experience. Certificates of deposit ~~decay rates.~~

September 30, 2017
2018 2019 2020 2021 2022 Thereafter Total Fair Value
Rate sensitive assets
Other interest bearing assets $ 317
$ —
$ 100
$ —
$ —
$ —
$ 417
$ 413
Average interest rates 0.13 % — % 0.35 % — % — % — % 0.19 %
AFS securities $ 97,221
$ 76,245
$ 75,047
$ 64,571
$ 57,336
$ 182,505
$ 552,925
$ 552,925
Average interest rates 2.31 % 2.43 % 2.56 % 2.57 % 2.37 % 2.51 % 2.46 %
Fixed interest rate loans (1) $ 165,818
$ 115,736
$ 111,844
$ 128,218
$ 118,105
$ 210,925
$ 850,646
$ 830,014
Average interest rates 4.04 % 4.33 % 4.25 % 4.19 % 4.25 % 4.03 % 4.16 %
Variable interest rate loans (1) $ 74,253
$ 34,336
$ 23,884
$ 21,932
$ 25,710
$ 46,783
$ 226,898
$ 226,898
Average interest rates 5.07 % 4.60 % 4.81 % 4.20 % 4.28 % 3.88 % 4.55 %
Rate sensitive liabilities
Fixed rate borrowed funds $ 137,027
$ 95,000
$ 20,000
$ 35,000
$ 50,000
$ 20,000
$ 357,027
$ 357,873
Average interest rates 1.08 % 1.82 % 1.85 % 1.78 % 1.97 % 2.54 % 1.60 %
Variable rate borrowed funds $ —
$ —
$ —
$ 10,000
$ —
$ —
$ 10,000
$ 10,000
Average interest rates — % — % — % 1.61 % — % — % 1.61 %
Savings and NOW accounts $ 147,447
$ 42,087
$ 37,635
$ 33,677
$ 30,159
$ 287,954
$ 578,959
$ 578,959
Average interest rates 0.49 % 0.21 % 0.21 % 0.20 % 0.20 % 0.18 % 0.26 %
Fixed interest rate certificates of deposit $ 201,000
$ 73,091
$ 35,115
$ 49,089
$ 39,561
$ 21,022
$ 418,878
$ 417,919
Average interest rates 0.96 % 1.25 % 1.58 % 1.70 % 1.81 % 2.02 % 1.28 %
Variable interest rate certificates of deposit $ 2,346
$ 3,269
$ 2
$ —
$ —
$ —
$ 5,617
$ 5,617
Average interest rates 1.07 % 1.26 % — % — % — % — % 1.18 %

December 31, 2016
2017 2018 2019 2020 2021 Thereafter Total Fair Value
Rate sensitive assets
Other interest bearing assets $ 2,727
$ —
$ —
$ —
$ —
$ —
$ 2,727
$ 2,727
Average interest rates 0.34 % — % — % — % — % — % 0.34 %
AFS securities $ 114,247
$ 71,220
$ 64,931
$ 63,150
$ 66,976
$ 177,572
$ 558,096
$ 558,096
Average interest rates 2.35 % 2.38 % 2.45 % 2.64 % 2.57 % 2.50 % 2.47 %
Fixed interest rate loans (1) $ 159,964
$ 115,741
$ 103,514
$ 107,185
$ 112,811
$ 199,160
$ 798,375
$ 778,769
Average interest rates 4.15 % 4.25 % 4.34 % 4.16 % 4.15 % 4.10 % 4.18 %
Variable interest rate loans (1) $ 69,024
$ 29,179
$ 38,248
$ 16,179
$ 23,632
$ 35,978
$ 212,240
$ 212,240
Average interest rates 4.83 % 4.32 % 4.16 % 3.62 % 3.74 % 3.86 % 4.26 %
Rate sensitive liabilities
Fixed rate borrowed funds $ 137,694
$ 50,000
$ 60,000
$ 10,000
$ 50,000
$ 20,000
$ 327,694
$ 326,975
Average interest rates 0.83 % 2.16 % 1.99 % 1.98 % 1.91 % 2.54 % 1.55 %
Variable rate borrowed funds $ —
$ —
$ —
$ —
$ 10,000
$ —
$ 10,000
$ 10,000
Average interest rates — % — % — % — % 1.21 % — % 1.21 %
Savings and NOW accounts $ 84,972
$ 42,596
$ 38,220
$ 34,326
$ 30,858
$ 325,583
$ 556,555
$ 556,555
Average interest rates 0.57 % 0.12 % 0.11 % 0.11 % 0.11 % 0.11 % 0.18 %
Fixed interest rate certificates of deposit $ 195,389
$ 80,139
$ 45,110
$ 33,929
$ 50,978
$ 24,881
$ 430,426
$ 427,100
Average interest rates 0.86 % 1.18 % 1.35 % 1.58 % 1.68 % 1.84 % 1.18 %
Variable interest rate certificates of deposit $ 1,078
$ 1,910
$ —
$ —
$ —
$ —
$ 2,988
$ 2,988
Average interest rates 0.62 % 0.99 % — % — % — % — % 0.85 %

⁽¹⁾ ~~The fair value reported is exclusive of the allocation of the~~ ~~ALLL~~.have penalties that discourage early withdrawals.

We do not believe ~~that~~ 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. ~~As of the date of this report, we~~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 ~~in those methods used~~ to ~~measure and assess~~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.

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. One specific focus of interest rate sensitivity is the loan portfolio, primarily with commercial and agricultural loans..

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information presented in the section captioned “~~Market Risk~~”“Market Risk” in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of ~~September 30, 2017~~,March 31, 2023, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of ~~September 30, 2017~~,March 31, 2023, were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the most recent fiscal quarter, no change occurred in our internal control over financial reporting that materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are not involved in any material legal proceedings. We are involved in ordinary, routine litigation incidental to our business; however, no such routine proceedings are expected to result in any material adverse effect on operations, earnings, financial condition, or cash flows.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


~~(A)~~	~~None~~


~~(B)~~	~~None~~


~~(C)~~	~~Repurchases of Common Stock~~

(A)None

(B)None

(C)Repurchases of Common Stock

We have adopted and publicly announced a common stock repurchase plan. The plan was last amended on ~~December 21, 2016~~,April 28, 2021, to allow for the repurchase of an additional ~~200,000~~500,000 shares of common stock after that date. These authorizations do not have expiration dates. As common shares are repurchased under this plan, they are retired ~~and revert back to~~with the status of authorized, but unissued, ~~common~~ shares.

The following table provides information for the ~~three month~~three-month period ended ~~September 30, 2017~~,March 31, 2023, with respect to this plan:


	Common Shares Repurchased			Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs
	Number	Average Price Per Common Share
December 31, 2022					419,826
January 1 - 31	8,425	$	22.67	8,425	411,401
February 1 - 28	8,484	24.16		8,484	402,917
March 1 - 31	22,370	24.18		22,370	380,547
March 31, 2023	39,279	$	23.85	39,279	380,547

Common Shares Repurchased Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs

Number Average Price
Per Common Share
Balance, June 30 105,875
July 1 -31 10,431
$ 27.99
10,431
95,444
August 1 - 31 31,647
28.19
31,647
63,797
September 1 - 30 6,958
28.60
6,958
56,839
Balance, September 30 49,036
$ 28.20
49,036
56,839

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

(a) Exhibits


Exhibit Number	Exhibits

4.1	Indenture, dated as of June 2, 2021, by and between Isabella Bank Corporation and UMB Bank, National Association, as trustee (incorporated by reference to Exhibit ~~Number~~	~~Exhibits~~4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021)

~~31(a)~~4.2	Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (included in the Indenture included as Exhibit 4.1 to this Quarterly Report on Form 10-Q)

10.1	Form of Subordinated Note Purchase Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021)

10.2	Form of Registration Rights Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021)

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Executive Officer

~~31(b)~~31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer

32	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer

101.1*	101.INS ~~(XBRL~~(Inline XBRL Instance Document)

	101.SCH ~~(XBRL~~(Inline XBRL Taxonomy Extension Schema Document)

	101.CAL ~~(XBRL~~(Inline XBRL Calculation Linkbase Document)

	101.LAB ~~(XBRL~~(Inline XBRL Taxonomy Label Linkbase Document)

	101.DEF ~~(XBRL~~(Inline XBRL Taxonomy Linkbase Document)

	101.PRE ~~(XBRL~~(Inline XBRL Taxonomy Presentation Linkbase Document)


*104			In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.			Cover Page Interactive Data File

* In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Isabella Bank Corporation

Date:

April 28, 2023

/s/ Jae A. Evans

Jae A. Evans

President and Chief Executive Officer

(Principal Executive Officer)

Date:

April 28, 2023

~~Isabella Bank Corporation~~

/s/ Neil M. McDonnell

Neil M. McDonnell

~~Date:~~

~~November 3, 2017~~

~~/s/ Jae A. Evans~~

~~Jae A. Evans~~

~~President, Chief Executive Officer~~

~~(Principal Executive Officer)~~

~~Date:~~

~~November 3, 2017~~

~~/s/ Rhonda S. Tudor~~

~~Rhonda S. Tudor~~

~~Interim~~ Chief Financial Officer

(Principal ~~Accounting~~Financial Officer)

6758



~~AFS: Available-for-sale~~ACL: Allowance for credit losses			GAAP: U.S. generally accepted accounting principles
AFS: Available-for-sale			IFRS: International Financial Reporting Standards
ALCO: Asset-Liability Committee			IRR: Interest rate risk
ALLL: Allowance for loan and lease losses			~~GLB Act: Gramm-Leach-Bliley Act of 1999~~
~~AOCI: Accumulated other comprehensive income~~	~~IFRS: International Financial Reporting Standards~~
~~ASC: FASB Accounting Standards Codification~~	~~IRR: Interest rate risk~~
~~ASU: FASB Accounting Standards Update~~	ISDA: International Swaps and Derivatives Association
AOCI: Accumulated other comprehensive income			LIBOR: London Interbank Offered Rate
ASC: FASB Accounting Standards Codification			N/A: Not applicable
ASU: FASB Accounting Standards Update			N/M: Not meaningful
ATM: Automated ~~Teller Machine~~teller machine			~~JOBS Act: Jumpstart our Business Startups Act~~NAV: Net asset value
BHC Act: Bank Holding Company Act of 1956			~~LIBOR: London Interbank Offered Rate~~NSF: Non-sufficient funds
CARES Act: Coronavirus Aid, Relief, and Economic Security Act			OCI: Other comprehensive income (loss)
CECL: Current expected credit losses			OMSR: Originated mortgage servicing rights
CFPB: Consumer Financial Protection Bureau			~~N/A: Not applicable~~OREO: Other real estate owned
CIK: Central Index Key			~~N/M: Not meaningful~~OTTI: Other-than-temporary impairment
COVID-19: Coronavirus disease 2019			PBO: Projected benefit obligation
CRA: Community Reinvestment Act			~~NASDAQ: NASDAQ Stock Market Index~~PCAOB: Public Company Accounting Oversight Board
DIF: Deposit Insurance Fund			~~NASDAQ Banks: NASDAQ Bank Stock Index~~PPP: Paycheck Protection Program
DIFS: Department of Insurance and Financial Services			~~NAV: Net asset value~~Rabbi Trust: A trust established to fund our Directors Plan
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors			~~NOW: Negotiable order of withdrawal~~RSP: Isabella Bank Corporation Restricted Stock Plan
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan			~~NSF: Non-sufficient funds~~SBA: Small Business Administration
~~Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010~~		~~OCI: Other comprehensive income (loss)~~
~~ESOP: Employee Stock Ownership Plan~~	~~OMSR: Originated mortgage servicing rights~~
Exchange Act: Securities Exchange Act of 1934		~~OREO: Other real estate owned~~SOFR: Secured Overnight Financing Rate
FASB: Financial Accounting Standards Board			~~OTTI: Other-than-temporary impairment~~SEC: U.S. Securities and Exchange Commission
~~FDI Act: Federal Deposit Insurance Act~~		~~PBO: Projected benefit obligation~~
FDIC: Federal Deposit Insurance Corporation		~~PCAOB: Public Company Accounting Oversight Board~~SOX: Sarbanes-Oxley Act of 2002
FFIEC: Federal Financial Institutions Examinations Council			~~Rabbi Trust: A trust established to fund the Directors Plan~~Tax Act: Tax Cuts and Jobs Act, enacted December 22, 2017
FRB: Federal Reserve Bank			~~SEC: U.S. Securities and Exchange Commission~~TDR: Troubled debt restructuring
FHLB: Federal Home Loan Bank			~~SOX: Sarbanes-Oxley Act of 2002~~XBRL: eXtensible Business Reporting Language
Freddie Mac: Federal Home Loan Mortgage Corporation			~~TDR: Troubled debt restructuring~~Yield Curve: U.S. Treasury Yield Curve
FTE: Fully taxable equivalent			~~XBRL: eXtensible Business Reporting Language~~



	Nine Months Ended September 30
	2017			2016
OPERATING ACTIVITIES
Net income	$	10,516		$	10,017
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses	85			185
Impairment of foreclosed assets	2			—
Depreciation	2,163			2,116
Amortization of OMSR	257			299
Amortization of acquisition intangibles	91			128
Net amortization of AFS securities	1,614			2,115
Net (gains) losses on sale of AFS securities	(142		)	(245		)
Net gain on sale of mortgage loans	(507		)	(472		)
Increase in cash value of corporate owned life insurance policies	(537		)	(566		)
Share-based payment awards under equity compensation plan	502			443
Origination of loans held-for-sale	(28,436		)	(22,994		)
Proceeds from loan sales	29,522			23,968
Net changes in operating assets and liabilities which provided (used) cash:
Accrued interest receivable	(808		)	(599		)
Other assets	(1,491		)	1,005
Accrued interest payable and other liabilities	897			165
Net cash provided by (used in) operating activities	13,728			15,565
INVESTING ACTIVITIES
Activity in AFS securities
Sales	12,827			35,664
Maturities, calls, and principal payments	78,352			111,543
Purchases	(83,471		)	(44,622		)
Net loan principal (originations) collections	(66,928		)	(138,870		)
Proceeds from sales of foreclosed assets	203			348
Purchases of premises and equipment	(1,610		)	(2,771		)
Proceeds from redemption of corporate owned life insurance policies	—			1,004
Net cash provided by (used in) investing activities	(60,627		)	(37,704		)


	December 31, 2022
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
U.S. Treasury	$	1,388	$	18,331	$	21,533	$	190,369	$	22,921
States and political subdivisions	2,389		48,083		2,514		40,667		4,903
Auction rate money market preferred	—		—		858		2,342		858
Mortgage-backed securities	3,239		39,069		—		—		3,239
Collateralized mortgage obligations	12,408		201,316		165		4,411		12,573
Corporate	—		—		1,022		7,128		1,022
Total	$	19,424	$	306,799	$	26,092	$	244,917	$	45,516
Number of securities in an unrealized loss position:			178				266		444


	March 31 2023		Percent of Total		December 31 2022		Percent of Total
Commercial and industrial:
Secured	$	169,395	13.33	%	$	161,895	12.80	%
Unsecured	19,790		1.56	%	16,533		1.31	%
Total commercial and industrial	189,185		14.89	%	178,428		14.11	%
Commercial real estate:
Commercial mortgage owner occupied	180,888		14.24	%	192,117		15.20	%
Commercial mortgage non-owner occupied	219,365		17.26	%	204,091		16.14	%
Commercial mortgage 1-4 family investor	85,217		6.71	%	85,278		6.75	%
Commercial mortgage multifamily	80,940		6.37	%	84,526		6.69	%
Total commercial real estate	566,410		44.58	%	566,012		44.78	%
Agricultural:
Agricultural mortgage	71,336		5.61	%	73,002		5.77	%
Agricultural other	23,424		1.84	%	31,983		2.53	%
Total agricultural	94,760		7.45	%	104,985		8.30	%
Residential real estate:
Senior lien	299,784		23.59	%	300,225		23.75	%
Junior lien	3,386		0.27	%	3,282		0.26	%
Home equity lines of credit	33,016		2.60	%	33,187		2.63	%
Total residential real estate	336,186		26.46	%	336,694		26.64	%
Consumer:
Secured - Direct	37,141		2.92	%	37,127		2.94	%
Secured - Indirect	43,802		3.45	%	37,814		2.98	%
Unsecured	3,167		0.25	%	3,113		0.25	%
Total consumer	84,110		6.62	%	78,054		6.17	%
Total	$	1,270,651	100.00	%	$	1,264,173	100.00	%



ý☒			Quarterly Report Pursuant to Section 13 or 15(d) of ~~the~~The Securities Exchange Act of 1934



¨☐			Transition Report Pursuant to Section 13 or 15(d) of ~~the~~The Securities Exchange Act of 1934


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A


	Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended March 31
	2017		2016		2017		2016				2023		2022
Interest income									Interest income
Loans, including fees	$	11,297	$	9,965	$	32,102	$	28,320	Loans, including fees		$	14,889	$	12,378
AFS securities									AFS securities
Taxable	2,075		2,037		6,452		6,740		Taxable		2,502		1,615
Nontaxable	1,406		1,411		4,234		4,337		Nontaxable		718		660
Federal funds sold and other	198		194		547		509		Federal funds sold and other		486		109
Total interest income	14,976		13,607		43,335		39,906		Total interest income		18,595		14,762
Interest expense									Interest expense
Deposits	1,715		1,496		4,870		4,313		Deposits		2,829		936
Borrowings	1,485		1,251		4,189		3,726		Borrowings
Federal funds purchased and repurchase agreements									Federal funds purchased and repurchase agreements		149		9
FHLB advances									FHLB advances		—		72
Subordinated debt, net of unamortized issuance costs									Subordinated debt, net of unamortized issuance costs		266		266
Total interest expense	3,200		2,747		9,059		8,039		Total interest expense		3,244		1,283
Net interest income	11,776		10,860		34,276		31,867		Net interest income		15,351		13,479
Provision for loan losses	49		17		85		185
Net interest income after provision for loan losses	11,727		10,843		34,191		31,682
Provision for credit losses									Provision for credit losses		41		37
Net interest income after provision for credit losses									Net interest income after provision for credit losses		15,310		13,442
Noninterest income									Noninterest income
Service charges and fees	1,435		1,276		4,370		3,652		Service charges and fees		1,978		2,209
Wealth management fees									Wealth management fees		786		754
Earnings on corporate owned life insurance policies									Earnings on corporate owned life insurance policies		226		210
Net gain on sale of mortgage loans	153		263		507		472		Net gain on sale of mortgage loans		67		224
Earnings on corporate owned life insurance policies	174		183		537		566
Net gains on sale of AFS securities	—		—		142		245
Other	936		1,224		2,546		2,986		Other		236		150
Total noninterest income	2,698		2,946		8,102		7,921		Total noninterest income		3,293		3,547
Noninterest expenses									Noninterest expenses
Compensation and benefits	5,360		4,940		15,869		14,412		Compensation and benefits		6,589		6,074
Furniture and equipment	1,377		1,353		4,073		3,988		Furniture and equipment		1,597		1,450
Occupancy	809		845		2,461		2,443		Occupancy		1,005		966
Other	2,593		2,295		7,194		6,888		Other		3,007		2,830
Total noninterest expenses	10,139		9,433		29,597		27,731		Total noninterest expenses		12,198		11,320
Income before federal income tax expense	4,286		4,356		12,696		11,872		Income before federal income tax expense		6,405		5,669
Federal income tax expense	750		763		2,180		1,855		Federal income tax expense		1,084		935
NET INCOME	$	3,536	$	3,593	$	10,516	$	10,017	NET INCOME		$	5,321	$	4,734
Earnings per common share									Earnings per common share
Basic	$	0.45	$	0.46	$	1.34	$	1.28	Basic		$	0.70	$	0.63
Diluted	$	0.44	$	0.45	$	1.31	$	1.25	Diluted		$	0.70	$	0.62
Cash dividends per common share	$	0.26	$	0.25	$	0.76	$	0.73	Cash dividends per common share		$	0.28	$	0.27


⁽¹⁾	~~See “Note 12 – Accumulated Other Comprehensive Income” for tax effect reconciliation.~~



	Common Stock
	Common Shares Outstanding		Amount			Common Shares to be Issued for Deferred Compensation Obligations			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Totals
Balance, January 1, 2016	7,799,867		$	139,198		$	4,592		$	39,960		$	221		$	183,971
Comprehensive income (loss)	—		—			—			10,017			5,795			15,812
Issuance of common stock	131,697		3,683			—			—			—			3,683
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—		127			(127		)	—			—			—
Share-based payment awards under equity compensation plan	—		—			443			—			—			443
Common stock purchased for deferred compensation obligations	—		(279		)	—			—			—			(279		)
Common stock repurchased pursuant to publicly announced repurchase plan	(98,083	)	(2,749		)	—			—			—			(2,749		)
Cash dividends paid ($0.73 per common share)	—		—			—			(5,697		)	—			(5,697		)
Balance, September 30, 2016	7,833,481		$	139,980		$	4,908		$	44,280		$	6,016		$	195,184
Balance, January 1, 2017	7,821,069		$	139,525		$	5,038		$	46,114		$	(2,778	)	$	187,899
Comprehensive income (loss)	—		—			—			10,516			2,829			13,345
Issuance of common stock	178,712		4,999			—			—			—			4,999
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—		176			(176		)	—			—			—
Share-based payment awards under equity compensation plan	—		—			502			—			—			502
Common stock purchased for deferred compensation obligations	—		(327		)	—			—			—			(327		)
Common stock repurchased pursuant to publicly announced repurchase plan	(143,117	)	(4,005		)	—			—			—			(4,005		)
Cash dividends paid ($0.76 per common share)	—		—			—			(5,950		)	—			(5,950		)
Balance, September 30, 2017	7,856,664		$	140,368		$	5,364		$	50,680		$	51		$	196,463


	January 1, 2023
	Pre-Adoption Allowance		Impact of Adoption		Post-Adoption Allowance		Cumulative Effect on Retained Earnings
Loans:
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)



	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	231	$	1	$	—	$	232
States and political subdivisions	207,874		5,596		13		213,457
Auction rate money market preferred	3,200		—		28		3,172
Preferred stocks	3,800		—		149		3,651
Mortgage-backed securities	216,684		860		1,630		215,914
Collateralized mortgage obligations	116,679		600		780		116,499
Total	$	548,468	$	7,057	$	2,600	$	552,925



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government sponsored enterprises	$	10,258	$	3	$	2	$	10,259
States and political subdivisions	208,977		4,262		320		212,919
Auction rate money market preferred	3,200		—		406		2,794
Preferred stocks	3,800		—		375		3,425
Mortgage-backed securities	229,593		581		2,918		227,256
Collateralized mortgage obligations	101,820		600		977		101,443
Total	$	557,648	$	5,446	$	4,998	$	558,096



	Maturing								Securities with Variable Monthly Payments or Noncontractual Maturities
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years				Total
Government sponsored enterprises	$	—	$	231	$	—	$	—	$	—	$	231
States and political subdivisions	25,689		73,810		75,598		32,777		—		207,874
Auction rate money market preferred	—		—		—		—		3,200		3,200
Preferred stocks	—		—		—		—		3,800		3,800
Mortgage-backed securities	—		—		—		—		216,684		216,684
Collateralized mortgage obligations	—		—		—		—		116,679		116,679
Total amortized cost	$	25,689	$	74,041	$	75,598	$	32,777	$	340,363	$	548,468
Fair value	$	25,746	$	76,105	$	78,383	$	33,455	$	339,236	$	552,925



~~Michigan~~



	Three Months Ended September 30				Nine Months Ended September 30
	2017		2016		2017		2016
Proceeds from sales of AFS securities	$	—	$	—	$	12,827	$	35,664
Gross realized gains (losses)	$	—	$	—	$	142	$	245
Applicable income tax expense (benefit)	$	—	$	—	$	48	$	83


	March 31, 2023				December 31, 2022
	Total Nonaccrual Loans		Nonaccrual Loans with No ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
Commercial and industrial:
Secured	$	20	$	20	$	22	$	22
Commercial real estate:
Commercial mortgage 1-4 family investor	57		57		74		74
Agricultural:
Agricultural mortgage	65		65		67		67
Agricultural other	167		167		167		167
Residential real estate:
Senior lien	179		179		127		107
Total	$	488	$	488	$	457	$	437


	March 31, 2023
	Past Due:										Accruing Loans 90 or More Days Past Due
	30-59 Days		60-89 Days		90 or More Days		Current		Total
Commercial and industrial:
Secured	$	506	$	29	$	—	$	168,860	$	169,395	$	—
Unsecured	—		—		—		19,790		19,790		—
Total commercial and industrial	506		29		—		188,650		189,185		—
Commercial real estate:
Commercial mortgage owner occupied	—		—		—		180,888		180,888		—
Commercial mortgage non-owner occupied	—		2,537		—		216,828		219,365		—
Commercial mortgage 1-4 family investor	—		—		—		85,217		85,217		—
Commercial mortgage multifamily	—		—		—		80,940		80,940		—
Total commercial real estate	—		2,537		—		563,873		566,410		—
Agricultural:
Agricultural mortgage	340		—		33		70,963		71,336		—
Agricultural other	16		—		—		23,408		23,424		—
Total agricultural	356		—		33		94,371		94,760		—
Residential real estate:
Senior lien	2,143		133		—		297,508		299,784		—
Junior lien	—		—		—		3,386		3,386		—
Home equity lines of credit	21		—		—		32,995		33,016		—
Total residential real estate	2,164		133		—		333,889		336,186		—
Consumer:
Secured - Direct	—		—		—		37,141		37,141		—
Secured - Indirect	43		—		—		43,759		43,802		—
Unsecured	—		—		—		3,167		3,167		—
Total consumer	43		—		—		84,067		84,110		—
Total	$	3,069	$	2,699	$	33	$	1,264,850	$	1,270,651	$	—



	Allowance for Loan Losses
	Three Months Ended September 30, 2017
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
July 1, 2017	$	1,978		$	475		$	2,598		$	583		$	1,966	$	7,600
Charge-offs	(8		)	—			(77		)	(72		)	—		(157		)
Recoveries	134			—			41			33			—		208
Provision for loan losses	65			(40		)	(71		)	89			6		49
September 30, 2017	$	2,169		$	435		$	2,491		$	633		$	1,972	$	7,700



	Allowance for Loan Losses
	Nine Months Ended September 30, 2017
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2017	$	1,814		$	884		$	2,664		$	624		$	1,414	$	7,400
Charge-offs	(60		)	—			(120		)	(190		)	—		(370		)
Recoveries	322			—			140			123			—		585
Provision for loan losses	93			(449		)	(193		)	76			558		85
September 30, 2017	$	2,169		$	435		$	2,491		$	633		$	1,972	$	7,700



	Allowance for Loan Losses
	Three Months Ended September 30, 2016
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated		Total
July 1, 2016	$	2,119		$	534	$	3,130		$	541		$	1,276	$	7,600
Charge-offs	—			—		(57		)	(74		)	—		(131		)
Recoveries	118			—		153			43			—		314
Provision for loan losses	(367		)	612		(452		)	94			130		17
September 30, 2016	$	1,870		$	1,146	$	2,774		$	604		$	1,406	$	7,800



	Allowance for Loan Losses
	Nine Months Ended September 30, 2016
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated		Total
January 1, 2016	$	2,171		$	329	$	3,330		$	522		$	1,048	$	7,400
Charge-offs	(48		)	—		(426		)	(206		)	—		(680		)
Recoveries	396			92		248			159			—		895
Provision for loan losses	(649		)	725		(378		)	129			358		185
September 30, 2016	$	1,870		$	1,146	$	2,774		$	604		$	1,406	$	7,800



	September 30, 2017
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	466	$	—	$	—	$	211	$	677	$	462,243	$	462,920
Commercial other	823		29		—		3		855		133,526		134,381
Advances to mortgage brokers	—		—		—		—		—		22,834		22,834
Total commercial	1,289		29		—		214		1,532		618,603		620,135
Agricultural
Agricultural real estate	—		—		590		488		1,078		88,210		89,288
Agricultural other	490		3		—		497		990		42,720		43,710
Total agricultural	490		3		590		985		2,068		130,930		132,998
Residential real estate
Senior liens	1,514		—		56		383		1,953		225,215		227,168
Junior liens	8		—		—		23		31		7,348		7,379
Home equity lines of credit	217		—		—		—		217		36,716		36,933
Total residential real estate	1,739		—		56		406		2,201		269,279		271,480
Consumer
Secured	39		11		—		—		50		49,027		49,077
Unsecured	2		—		—		—		2		3,852		3,854
Total consumer	41		11		—		—		52		52,879		52,931
Total	$	3,559	$	43	$	646	$	1,605	$	5,853	$	1,071,691	$	1,077,544



	September 30, 2017						December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Valuation Allowance		Recorded Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	4,209	$	4,328	$	766	$	5,811	$	5,992	$	716
Commercial other	2,239		2,239		167		1,358		1,358		25
Agricultural real estate	—		—		—		—		—		—
Agricultural other	—		—		—		134		134		1
Residential real estate senior liens	8,273		8,903		1,605		8,464		9,049		1,615
Residential real estate junior liens	70		70		13		72		82		14
Home equity lines of credit	—		—		—		—		—		—
Consumer secured	—		—		—		—		—		—
Total impaired loans with a valuation allowance	14,791		15,540		2,551		15,839		16,615		2,371
Impaired loans without a valuation allowance
Commercial real estate	1,988		2,062				604		617
Commercial other	89		89				86		97
Agricultural real estate	7,834		7,834				4,037		4,037
Agricultural other	3,142		3,142				1,374		1,374
Home equity lines of credit	83		383				102		402
Consumer secured	18		18				26		26
Total impaired loans without a valuation allowance	13,154		13,528				6,229		6,553
Impaired loans
Commercial	8,525		8,718		933		7,859		8,064		741
Agricultural	10,976		10,976		—		5,545		5,545		1
Residential real estate	8,426		9,356		1,618		8,638		9,533		1,629
Consumer	18		18		—		26		26		—
Total impaired loans	$	27,945	$	29,068	$	2,551	$	22,068	$	23,168	$	2,371



	September 30 2017		December 31 2016
FHLB Stock	$	13,700	$	11,900
Corporate Settlement Solutions, LLC	7,428		7,461
FRB Stock	1,999		1,999
Other	334		334
Total	$	23,461	$	21,694



	September 30 2017		December 31 2016
Consumer mortgage loans collateralized by residential real estate foreclosed as a result of obtaining physical possession	$	20	$	18
All other foreclosed assets	220		213
Total	$	240	$	231



	September 30 2017			June 30 2017			March 31 2017			December 31 2016			September 30 2016
INCOME STATEMENT DATA
Interest income	$	14,976		$	14,498		$	13,861		$	13,760		$	13,607
Interest expense	3,200			3,028			2,831			2,826			2,747
Net interest income	11,776			11,470			11,030			10,934			10,860
Provision for loan losses	49			9			27			(320		)	17
Noninterest income	2,698			2,788			2,616			3,187			2,946
Noninterest expenses	10,139			9,507			9,951			10,166			9,433
Federal income tax expense	750			898			532			493			763
Net Income	$	3,536		$	3,844		$	3,136		$	3,782		$	3,593
PER SHARE
Basic earnings	$	0.45		$	0.49		$	0.40		$	0.48		$	0.46
Diluted earnings	$	0.44		$	0.48		$	0.39		$	0.47		$	0.45
Dividends	$	0.26		$	0.25		$	0.25		$	0.25		$	0.25
Tangible book value*	$	18.82		$	18.62		$	18.34		$	18.16		$	17.93
Quoted market value
High	$	29.10		$	28.45		$	29.00		$	28.35		$	28.08
Low	$	27.65		$	27.60		$	27.60		$	27.60		$	27.60
Close*	$	29.00		$	28.00		$	27.60		$	27.85		$	27.70
Common shares outstanding*	7,856,664			7,862,553			7,843,120			7,821,069			7,833,481
PERFORMANCE RATIOS
Return on average total assets	0.79		%	0.87		%	0.72		%	0.88		%	0.85		%
Return on average shareholders' equity	7.11		%	7.85		%	6.56		%	7.77		%	7.27		%
Return on average tangible shareholders' equity	9.61		%	10.59		%	8.77		%	10.70		%	10.28		%
Net interest margin yield (FTE)	3.08		%	3.03		%	2.99		%	3.01		%	3.05		%
BALANCE SHEET DATA*
Gross loans	$	1,077,544		$	1,048,497		$	1,012,920		$	1,010,615		$	989,366
AFS securities	$	552,925		$	567,862		$	590,114		$	558,096		$	564,229
Total assets	$	1,791,967		$	1,777,298		$	1,760,860		$	1,732,151		$	1,706,498
Deposits	$	1,216,062		$	1,210,152		$	1,231,061		$	1,195,040		$	1,175,833
Borrowed funds	$	367,027		$	360,940		$	327,375		$	337,694		$	325,409
Shareholders' equity	$	196,463		$	195,070		$	190,976		$	187,899		$	195,184
Gross loans to deposits	88.61		%	86.64		%	82.28		%	84.57		%	84.14		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	268,817		$	269,595		$	270,217		$	272,882		$	275,037
Assets managed by our Investment and Trust Services Department	$	467,601		$	454,294		$	444,749		$	427,693		$	424,573
Total assets under management	$	2,528,385		$	2,501,187		$	2,475,826		$	2,432,726		$	2,406,108
ASSET QUALITY*
Nonperforming loans to gross loans	0.21		%	0.26		%	0.24		%	0.17		%	0.16		%
Nonperforming assets to total assets	0.14		%	0.17		%	0.15		%	0.11		%	0.11		%
ALLL to gross loans	0.71		%	0.72		%	0.74		%	0.73		%	0.79		%
CAPITAL RATIOS*
Shareholders' equity to assets	10.96		%	10.98		%	10.85		%	10.85		%	11.44		%
Tier 1 leverage	8.50		%	8.50		%	8.54		%	8.56		%	8.59		%
Common equity tier 1 capital	12.20		%	12.43		%	12.49		%	12.39		%	12.41		%
Tier 1 risk-based capital	12.20		%	12.43		%	12.49		%	12.39		%	12.41		%
Total risk-based capital	12.84		%	13.07		%	13.14		%	13.04		%	13.10		%



	September 30 2017			September 30 2016			September 30 2015			September 30 2014			September 30 2013
INCOME STATEMENT DATA
Interest income	$	43,335		$	39,906		$	38,479		$	38,118		$	37,695
Interest expense	9,059			8,039			7,586			7,466			8,338
Net interest income	34,276			31,867			30,893			30,652			29,357
Provision for loan losses	85			185			(1,999		)	(604		)	866
Noninterest income	8,102			7,921			7,858			6,899			8,045
Noninterest expenses	29,597			27,731			26,166			26,180			25,057
Federal income tax expense	2,180			1,855			2,750			1,696			1,893
Net Income	$	10,516		$	10,017		$	11,834		$	10,279		$	9,586
PER SHARE
Basic earnings	$	1.34		$	1.28		$	1.52		$	1.33		$	1.25
Diluted earnings	$	1.31		$	1.25		$	1.49		$	1.30		$	1.22
Dividends	$	0.76		$	0.73		$	0.70		$	0.66		$	0.63
Tangible book value*	$	18.82		$	17.93		$	17.06		$	16.33		$	15.43
Quoted market value
High	$	29.10		$	29.90		$	23.85		$	24.00		$	26.00
Low	$	27.60		$	27.25		$	22.00		$	21.73		$	21.55
Close*	$	29.00		$	27.70		$	23.69		$	23.60		$	24.85
Common shares outstanding*	7,856,664			7,833,481			7,765,333			7,740,730			7,709,781
PERFORMANCE RATIOS
Return on average total assets	0.79		%	0.80		%	1.00		%	0.90		%	0.89		%
Return on average shareholders' equity	7.18		%	6.90		%	8.80		%	8.13		%	7.84		%
Return on average tangible shareholders' equity	9.67		%	9.68		%	12.06		%	10.95		%	11.02		%
Net interest margin yield (FTE)	3.03		%	3.00		%	3.12		%	3.20		%	3.22		%
BALANCE SHEET DATA*
Gross loans	$	1,077,544		$	989,366		$	836,671		$	825,238		$	810,335
AFS securities	$	552,925		$	564,229		$	628,612		$	575,080		$	501,057
Total assets	$	1,791,967		$	1,706,498		$	1,619,250		$	1,553,974		$	1,459,341
Deposits	$	1,216,062		$	1,175,833		$	1,128,003		$	1,081,890		$	1,023,931
Borrowed funds	$	367,027		$	325,409		$	297,610		$	290,438		$	266,001
Shareholders' equity	$	196,463		$	195,184		$	182,998		$	172,076		$	161,305
Gross loans to deposits	88.61		%	84.14		%	74.17		%	76.28		%	79.14		%
ASSETS UNDER MANAGEMENT*
Loans sold with servicing retained	$	268,817		$	275,037		$	289,268		$	290,697		$	294,999
Assets managed by our Investment and Trust Services Department	$	467,601		$	424,573		$	392,124		$	374,878		$	351,505
Total assets under management	$	2,528,385		$	2,406,108		$	2,300,642		$	2,219,549		$	2,105,845
ASSET QUALITY*
Nonperforming loans to gross loans	0.21		%	0.16		%	0.10		%	0.56		%	0.53		%
Nonperforming assets to total assets	0.14		%	0.11		%	0.09		%	0.37		%	0.37		%
ALLL to gross loans	0.71		%	0.79		%	0.98		%	1.26		%	1.44		%
CAPITAL RATIOS*
Shareholders' equity to assets	10.96		%	11.44		%	11.30		%	11.07		%	11.05		%
Tier 1 leverage	8.50		%	8.59		%	8.54		%	8.47		%	8.45		%
Common equity tier 1 capital	12.20		%	12.41		%	13.57		%	N/A			N/A
Tier 1 risk-based capital	12.20		%	12.41		%	13.57		%	13.86		%	13.75		%
Total risk-based capital	12.84		%	13.10		%	14.20		%	15.11		%	15.00		%



	Three Months Ended
	September 30, 2017							June 30, 2017							September 30, 2016
	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	$	1,062,439		$	11,297	4.25	%	$	1,028,875		$	10,685	4.15	%	$	948,465		$	9,965	4.20	%
Taxable investment securities	353,266			2,075		2.35	%	374,156			2,226		2.38	%	365,612			2,037		2.23	%
Nontaxable investment securities	202,180			2,302		4.55	%	206,668			2,314		4.48	%	203,236			2,312		4.55	%
Fed Funds Sold	4			—		—	%	95			—		—	%	—			—		—	%
Other	27,086			198		2.92	%	23,299			174		2.99	%	25,134			194		3.09	%
Total earning assets	1,644,975			15,872		3.86	%	1,633,093			15,399		3.77	%	1,542,447			14,508		3.76	%
NONEARNING ASSETS
Allowance for loan losses	(7,632		)					(7,554		)					(7,731		)
Cash and demand deposits due from banks	19,919							18,425							18,672
Premises and equipment	28,859							28,895							28,865
Accrued income and other assets	101,417							99,468							104,125
Total assets	$	1,787,538						$	1,772,327						$	1,686,378
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	218,570		$	64	0.12	%	$	209,638		$	55	0.10	%	$	203,994		$	41	0.08	%
Savings deposits	360,689			303		0.34	%	360,870			259		0.29	%	330,872			178		0.22	%
Time deposits	428,758			1,348		1.26	%	436,716			1,301		1.19	%	433,591			1,277		1.18	%
Borrowed funds	361,706			1,485		1.64	%	356,096			1,413		1.59	%	314,218			1,251		1.59	%
Total interest bearing liabilities	1,369,723			3,200		0.93	%	1,363,320			3,028		0.89	%	1,282,675			2,747		0.86	%
NONINTEREST BEARING LIABILITIES
Demand deposits	208,078							202,597							196,682
Other	10,763							10,579							9,332
Shareholders’ equity	198,974							195,831							197,689
Total liabilities and shareholders’ equity	$	1,787,538						$	1,772,327						$	1,686,378
Net interest income (FTE)				$	12,672						$	12,371						$	11,761
Net yield on interest earning assets (FTE)						3.08	%						3.03	%						3.05	%



	Nine Months Ended
	September 30, 2017							September 30, 2016
	Average Balance			Tax Equivalent Interest		Average Yield / Rate		Average Balance			Tax Equivalent Interest		Average Yield / Rate
INTEREST EARNING ASSETS
Loans	$	1,029,824		$	32,102	4.16	%	$	900,021		$	28,320	4.20	%
Taxable investment securities	363,851			6,452		2.36	%	405,722			6,740		2.21	%
Nontaxable investment securities	204,728			6,929		4.51	%	207,769			7,091		4.55	%
Fed Funds Sold	823			4		0.65	%	—			—		—	%
Other	25,796			543		2.81	%	25,208			509		2.69	%
Total earning assets	1,625,022			46,030		3.78	%	1,538,720			42,660		3.70	%
NONEARNING ASSETS
Allowance for loan losses	(7,556		)					(7,576		)
Cash and demand deposits due from banks	19,003							18,130
Premises and equipment	28,996							28,495
Accrued income and other assets	99,537							102,072
Total assets	$	1,765,002						$	1,679,841
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	213,960		$	172	0.11	%	$	205,444		$	123	0.08	%
Savings deposits	358,544			784		0.29	%	337,863			466		0.18	%
Time deposits	433,799			3,914		1.20	%	427,441			3,724		1.16	%
Borrowed funds	348,846			4,189		1.60	%	315,061			3,726		1.58	%
Total interest bearing liabilities	1,355,149			9,059		0.89	%	1,285,809			8,039		0.83	%
NONINTEREST BEARING LIABILITIES
Demand deposits	203,784							191,082
Other	10,729							9,435
Shareholders’ equity	195,340							193,515
Total liabilities and shareholders’ equity	$	1,765,002						$	1,679,841
Net interest income (FTE)				$	36,971						$	34,621
Net yield on interest earning assets (FTE)						3.03	%						3.00	%



	Three Months Ended September 30, 2017 Compared to June 30, 2017 Increase (Decrease) Due to									Three Months Ended September 30, 2017 Compared to September 30, 2016 Increase (Decrease) Due to									Nine Months Ended September 30, 2017 Compared to September 30, 2016 Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
Changes in interest income
Loans	$	353		$	259		$	612		$	1,211		$	121		$	1,332		$	4,049		$	(267	)	$	3,782
Taxable investment securities	(123		)	(28		)	(151		)	(70		)	108			38			(724		)	436			(288		)
Nontaxable investment securities	(51		)	39			(12		)	(12		)	2			(10		)	(103		)	(59		)	(162		)
Fed Funds Sold	—			—			—			—			—			—			4			—			4
Other	28			(4		)	24			15			(11		)	4			12			22			34
Total changes in interest income	207			266			473			1,144			220			1,364			3,238			132			3,370
Changes in interest expense
Interest bearing demand deposits	2			7			9			3			20			23			5			44			49
Savings deposits	—			44			44			17			108			125			30			288			318
Time deposits	(24		)	71			47			(14		)	85			71			56			134			190
Borrowed funds	23			49			72			194			40			234			405			58			463
Total changes in interest expense	1			171			172			200			253			453			496			524			1,020
Net change in interest margin (FTE)	$	206		$	95		$	301		$	944		$	(33	)	$	911		$	2,742		$	(392	)	$	2,350



	Three Months Ended September 30, 2017
	Accruing Interest					Nonaccrual					Total
	Number of Loans		Balance			Number of Loans		Balance			Number of Loans		Balance
July 1, 2017	155		$	25,182		5		$	1,159		160		$	26,341
New modifications	3		1,354			2		210			5		1,564
Principal advances (payments)	—		(165		)	—		(12		)	—		(177		)
Loans paid-off	(6	)	(460		)	—		—			(6	)	(460		)
Partial charge-offs	—		—			—		—			—		—
Balances charged-off	(1	)	(9		)	—		—			(1	)	(9		)
Transfers to OREO	—		—			—		—			—		—
Transfers to accrual status	1		51			(1	)	(51		)	—		—
Transfers to nonaccrual status	—		—			—		—			—		—
September 30, 2017	152		$	25,953		6		$	1,306		158		$	27,259



	September 30, 2017						December 31, 2016
	Accruing Interest		Nonaccrual		Total		Accruing Interest		Nonaccrual		Total		Total Change
Current	$	24,641	$	233	$	24,874	$	17,557	$	559	$	18,116	$	6,758
Past due 30-59 days	1,086		216		1,302		2,898		230		3,128		(1,826		)
Past due 60-89 days	3		—		3		138		—		138		(135		)
Past due 90 days or more	223		857		1,080		—		—		—		1,080
Total	$	25,953	$	1,306	$	27,259	$	20,593	$	789	$	21,382	$	5,877



	September 30, 2017						December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Valuation Allowance		Recorded Balance		Unpaid Principal Balance		Valuation Allowance
TDRs
Commercial real estate	$	6,062	$	6,181	$	766	$	6,264	$	6,383	$	713
Commercial other	2,324		2,324		167		1,444		1,455		25
Agricultural real estate	7,834		7,834		—		4,037		4,037		—
Agricultural other	3,014		3,014		—		1,380		1,380		1
Residential real estate senior liens	7,854		8,234		1,524		8,058		8,437		1,539
Residential real estate junior liens	70		70		13		71		71		13
Home equity lines of credit	83		383		—		102		402		—
Consumer secured	18		18		—		26		26		—
Total TDRs	27,259		28,058		2,470		21,382		22,191		2,291
Other impaired loans
Commercial real estate	136		210		—		151		226		3
Commercial other	3		3		—		—		—		—
Agricultural real estate	—		—		—		—		—		—
Agricultural other	128		128		—		128		128		—
Residential real estate senior liens	419		669		81		406		612		76
Residential real estate junior liens	—		—		—		1		11		1
Home equity lines of credit	—		—		—		—		—		—
Consumer secured	—		—		—		—		—		—
Total other impaired loans	686		1,010		81		686		977		80
Total impaired loans	$	27,945	$	29,068	$	2,551	$	22,068	$	23,168	$	2,371



	September 30 2017		December 31 2016
Commercial and agricultural	$	1,068	$	405
Residential real estate	238		384
Total	$	1,306	$	789