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Isabella Bank Corporation
ISBA
#8508
Rank
C$0.41 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
C$54.87
Share price
0.23%
Change (1 day)
N/A
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Isabella Bank Corporation
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q3

Isabella Bank Corporation - 10-Q quarterly report FY2022 Q3


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
or
☐Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 0-18415
Isabella Bank Corporation
(Exact name of registrant as specified in its charter)
Michigan38-2830092
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
401 N. Main StMt. Pleasant MI48858
(Address of principal executive offices)(Zip code)
(989) 772-9471
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes   ☒  No
The number of common shares outstanding of the registrant’s Common Stock (no par value) was 7,567,023 as of October 26, 2022.

ISABELLA BANK CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
4
Item 1.
4
Item 2.
36
Item 3.
56
Item 4.
56
56
Item 1.
57
Item 1A.
57
Item 2.
57
Item 3.
57
Item 4.
57
Item 5.
57
Item 6.
57
59
2
Forward Looking Statements
This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended and Rule 3b-6 promulgated thereunder. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. Forward looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: interest rates, general economic conditions, federal or state tax laws, monetary and fiscal policy, a health crisis, the quality or composition of the loan or investment portfolio, demand for loan products, fluctuation in the value of collateral securing our loan portfolio, deposit flows, competition, cybersecurity risk, demand for financial services in our market area, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements. Further information concerning our business, including additional factors that could materially affect our consolidated financial results, is included in our filings with the SEC.
Glossary of Acronyms and Abbreviations
The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q or in our other SEC filings. You may find it helpful to refer back to this page while reading this report.
ACL: Allowance for credit lossesGAAP: U.S. generally accepted accounting principles
AFS: Available-for-saleIFRS: International Financial Reporting Standards
ALCO: Asset-Liability CommitteeIRR: Interest rate risk
ALLL: Allowance for loan and lease lossesISDA: International Swaps and Derivatives Association
AOCI: Accumulated other comprehensive incomeLIBOR: London Interbank Offered Rate
ASC: FASB Accounting Standards CodificationN/A: Not applicable
ASU: FASB Accounting Standards UpdateN/M: Not meaningful
ATM: Automated teller machineNAV: Net asset value
BHC Act: Bank Holding Company Act of 1956NSF: Non-sufficient funds
CARES Act: Coronavirus Aid, Relief, and Economic Security ActOCI: Other comprehensive income (loss)
CECL: Current expected credit lossesOMSR: Originated mortgage servicing rights
CFPB: Consumer Financial Protection BureauOREO: Other real estate owned
CIK: Central Index KeyOTTI: Other-than-temporary impairment
COVID-19: Coronavirus disease 2019PBO: Projected benefit obligation
CRA: Community Reinvestment ActPCAOB: Public Company Accounting Oversight Board
DIF: Deposit Insurance FundPPP: Paycheck Protection Program
DIFS: Department of Insurance and Financial ServicesRabbi Trust: A trust established to fund our Directors Plan
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for DirectorsRSP: Isabella Bank Corporation Restricted Stock Plan
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase PlanSBA: Small Business Administration
Exchange Act: Securities Exchange Act of 1934SOFR: Secured Overnight Financing Rate
FASB: Financial Accounting Standards BoardSEC: U.S. Securities and Exchange Commission
FDIC: Federal Deposit Insurance CorporationSOX: Sarbanes-Oxley Act of 2002
FFIEC: Federal Financial Institutions Examinations CouncilTax Act: Tax Cuts and Jobs Act, enacted December 22, 2017
FRB: Federal Reserve BankTDR: Troubled debt restructuring
FHLB: Federal Home Loan BankXBRL: eXtensible Business Reporting Language
Freddie Mac: Federal Home Loan Mortgage CorporationYield Curve: U.S. Treasury Yield Curve
FTE: Fully taxable equivalent
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
September 30
2022		December 31
2021
ASSETS
Cash and cash equivalents
Cash and demand deposits due from banks$26,763 $25,563 
Fed Funds sold and interest bearing balances due from banks72,149 79,767 
Total cash and cash equivalents98,912 105,330 
AFS securities, at fair value581,233 490,601 
Mortgage loans AFS934 1,735 
Loans
Commercial730,504 807,439 
Agricultural96,850 93,955 
Residential real estate334,412 326,361 
Consumer74,385 73,282 
Gross loans1,236,151 1,301,037 
Less allowance for loan and lease losses9,677 9,103 
Net loans1,226,474 1,291,934 
Premises and equipment25,107 24,419 
Corporate owned life insurance policies32,764 32,472 
Equity securities without readily determinable fair values15,496 17,383 
Goodwill and other intangible assets48,290 48,302 
Accrued interest receivable and other assets34,767 19,982 
TOTAL ASSETS$2,063,977 $2,032,158 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing$510,127 $448,352 
Interest bearing demand deposits368,537 364,563 
Certificates of deposit under $250 and other savings842,081 818,841 
Certificates of deposit over $25070,288 78,583 
Total deposits1,791,033 1,710,339 
Borrowed funds
Federal funds purchased and repurchase agreements52,479 50,162 
FHLB advances— 20,000 
Subordinated debt, net of unamortized issuance costs29,225 29,158 
Total borrowed funds81,704 99,320 
Accrued interest payable and other liabilities14,628 11,451 
Total liabilities1,887,365 1,821,110 
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,564,348 shares (including 139,084 shares held in the Rabbi Trust) in 2022 and 7,532,641 shares (including 105,654 shares held in the Rabbi Trust) in 2021
129,094 129,052 
Shares to be issued for deferred compensation obligations4,888 4,545 
Retained earnings85,497 75,592 
Accumulated other comprehensive income (loss)(42,867)1,859 
Total shareholders’ equity176,612 211,048 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,063,977 $2,032,158 
See notes to interim condensed consolidated financial statements (unaudited).
4
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
 2022202120222021
Interest income
Loans, including fees$13,563 $13,033 $39,120 $38,634 
AFS securities
Taxable2,209 1,224 5,851 3,529 
Nontaxable726 725 2,090 2,393 
Federal funds sold and other521 160 822 516 
Total interest income17,019 15,142 47,883 45,072 
Interest expense
Deposits908 1,251 2,698 4,363 
Borrowings
Federal funds purchased and repurchase agreements9 13 26 40 
FHLB advances33 299 152 1,093 
Subordinated debt, net of unamortized issuance costs266 266 798 349 
Total interest expense1,216 1,829 3,674 5,845 
Net interest income15,803 13,313 44,209 39,227 
Provision for loan losses18 (107)540 (599)
Net interest income after provision for loan losses15,785 13,420 43,669 39,826 
Noninterest income
Service charges and fees2,122 1,964 6,615 5,489 
Wealth management fees679 772 2,217 2,274 
Earnings on corporate owned life insurance policies223 201 655 577 
Net gain on sale of mortgage loans174 339 568 1,459 
Other54 91 339 415 
Total noninterest income3,252 3,367 10,394 10,214 
Noninterest expenses
Compensation and benefits6,369 6,116 18,480 17,693 
Furniture and equipment1,490 1,349 4,382 4,049 
Occupancy918 866 2,813 2,726 
Other3,140 2,854 9,223 8,029 
Total noninterest expenses11,917 11,185 34,898 32,497 
Income before federal income tax expense7,120 5,602 19,165 17,543 
Federal income tax expense1,233 916 3,249 2,838 
NET INCOME$5,887 $4,686 $15,916 $14,705 
Earnings per common share
Basic$0.78 $0.59 $2.11 $1.85 
Diluted$0.77 $0.58 $2.08 $1.82 
Cash dividends per common share$0.27 $0.27 $0.81 $0.81 





See notes to interim condensed consolidated financial statements (unaudited).
5
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
 2022202120222021
Net income$5,887 $4,686 $15,916 $14,705 
Unrealized gains (losses) on AFS securities arising during the period(22,815)(1,690)(56,413)(4,247)
Tax effect (1)
4,788 353 11,687 894 
Unrealized gains (losses) on AFS securities, net of tax(18,027)(1,337)(44,726)(3,353)
Unrealized gains (losses) on derivative instruments arising during the period— — — 53 
Tax effect (1)
— — — (11)
Unrealized gains (losses) on derivative instruments, net of tax— — — 42 
Other comprehensive income (loss), net of tax(18,027)(1,337)(44,726)(3,311)
Comprehensive income (loss)$(12,140)$3,349 $(28,810)$11,394 
(1)See “Note 10 – Accumulated Other Comprehensive Income” for tax effect reconciliation.






















See notes to interim condensed consolidated financial statements (unaudited).
6
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands except per share amounts)
Common Stock
Common Shares
Outstanding		AmountCommon Shares to be
Issued for
Deferred
Compensation
Obligations		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Totals
January 1, 20217,997,247 $142,247 $4,183 $64,460 $7,698 $218,588 
Comprehensive income (loss)— — — 14,705 (3,311)11,394 
Issuance of common stock52,523 1,196 — — — 1,196 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 71 (71)— — — 
Share-based payment awards under the Directors Plan— — 343 — — 343 
Share-based compensation expense recognized in earnings under the RSP— 58 — — — 58 
Common stock purchased for deferred compensation obligations— (869)— — — (869)
Common stock repurchased(123,160)(2,699)— — — (2,699)
Cash dividends paid ($0.81 per common share)
— — — (6,369)— (6,369)
September 30, 20217,926,610 $140,004 $4,455 $72,796 $4,387 $221,642 
January 1, 20227,532,641 $129,052 $4,545 $75,592 $1,859 $211,048 
Comprehensive income (loss)— — — 15,916 (44,726)(28,810)
Issuance of common stock55,549 1,344 — — — 1,344 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 3 (3)— — — 
Share-based payment awards under the Directors Plan— — 346 — — 346 
Share-based compensation expense recognized in earnings under the RSP— 108 — — — 108 
Common stock purchased for deferred compensation obligations— (828)— — — (828)
Common stock repurchased(23,842)(585)— — — (585)
Cash dividends paid ($0.81 per common share)
— — — (6,011)— (6,011)
September 30, 20227,564,348 $129,094 $4,888 $85,497 $(42,867)$176,612 



















See notes to interim condensed consolidated financial statements (unaudited).
7
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended 
 September 30
 20222021
OPERATING ACTIVITIES
Net income$15,916 $14,705 
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses540 (599)
Depreciation1,591 1,761 
Amortization of OMSR55 465 
Amortization of acquisition intangibles12 22 
Amortization of subordinated debt issuance costs67 30 
Net amortization of AFS securities1,568 1,656 
Net gain on sale of mortgage loans(568)(1,459)
Change in OMSR valuation allowance(532)— 
Net (gains) losses on foreclosed assets(5)1 
Increase in cash value of corporate owned life insurance policies, net of expenses(605)(538)
Gains from redemption of corporate owned life insurance policies(57)(150)
Share-based payment awards under the Directors Plan346 343 
Share-based payment awards under the RSP108 58 
Origination of loans held-for-sale(19,566)(40,329)
Proceeds from loan sales20,935 43,711 
Net changes in operating assets and liabilities which provided (used) cash:
Accrued interest receivable and other assets(2,592)1,811 
Accrued interest payable and other liabilities3,216 (325)
Net cash provided by (used in) operating activities20,429 21,163 
INVESTING ACTIVITIES
Activity in AFS securities
Maturities, calls, and principal payments56,044 79,020 
Purchases(204,657)(240,079)
Net loan principal (originations) collections64,791 (10,583)
Proceeds from sales of foreclosed assets105 462 
Purchases of premises and equipment(2,279)(1,190)
Purchases of corporate owned life insurance policies— (4,272)
Proceeds from redemption of corporate owned life insurance policies370 562 
Proceeds from sale of FHLB Stock2,288 — 
Purchases of FRB Stock(401)— 
Funding of low income housing tax credit investments(39)(377)
Net cash provided by (used in) investing activities(83,778)(176,457)
8
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
Nine Months Ended 
 September 30
 20222021
FINANCING ACTIVITIES
Net increase (decrease) in deposits$80,694 $125,999 
Net increase (decrease) in fed funds purchased and repurchase agreements2,317 (1,228)
Net increase (decrease) in FHLB advances(20,000)(30,000)
Issuance of subordinated debt, net of unamortized issuance costs— 29,106 
Cash dividends paid on common stock(6,011)(6,369)
Proceeds from issuance of common stock1,344 1,196 
Common stock repurchased(585)(2,699)
Common stock purchased for deferred compensation obligations(828)(869)
Net cash provided by (used in) financing activities56,931 115,136 
Increase (decrease) in cash and cash equivalents(6,418)(40,158)
Cash and cash equivalents at beginning of period105,330 246,640 
Cash and cash equivalents at end of period$98,912 $206,482 
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid$3,524 $5,702 
Income taxes paid2,500 2,250 
SUPPLEMENTAL NONCASH INFORMATION:
Transfers of loans to foreclosed assets$129 $284 




















See notes to interim condensed consolidated financial statements (unaudited).
9
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands except per share amounts)
Note 1 – Basis of Presentation
As used in these notes, as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, references to the “Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or the “Bank” refer to Isabella Bank Corporation’s subsidiary, Isabella Bank.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2021.
Our accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Reclassifications: Certain amounts reported in the interim 2021 consolidated financial statements have been reclassified to conform with the 2022 presentation.
Note 2 – Accounting Standards Updates
Pending
ASU No. 2016-13: “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, as amended
In June 2016, ASU No. 2016-13 was issued and updated the measurement for credit losses for AFS debt securities and assets measured at amortized cost which include loans, trade receivables, and any other financial assets with the contractual right to receive cash. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Under the incurred loss approach, entities are limited to a probable initial recognition threshold when credit losses are measured; an entity generally only considers past events and current conditions in measuring the incurred loss.
Under the new guidance, the incurred loss impairment methodology is replaced with a methodology that reflects current expected credit losses (CECL). This methodology requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances which applies to assets measured either collectively or individually.
The update allows an entity to revert to historical loss information that is reflective of the contractual term (considering the effect of prepayments) for periods that are beyond the time frame for which the entity is able to develop reasonable and supportable forecasts. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination (or vintage). The vintage information will be useful for financial statement users to better assess changes in underwriting standards and credit quality trends in asset portfolios over time and the effect of those changes on credit losses.
Overall, the update will allow entities the ability to measure expected credit losses without the restriction of incurred or probable losses that exist under current GAAP. For users of the financial statements, the update requires disclosure of decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The new authoritative guidance was originally effective for interim and annual periods beginning after December 15, 2019. Effective October 16, 2019, the FASB approved and issued changes to the implementation date of this guidance for some filers. As a smaller reporting company, as defined by the SEC, our implementation date was delayed from January 1, 2020 to January 1, 2023. Early adoption continues to be permissible under the revised implementation date.

10
Since 2016, we have invested a considerable amount of effort toward this guidance. An internal committee was formed and is accountable for timely and accurate adoption of the guidance. A service provider that has focused on the ALLL for more than 10 years and serves hundreds of financial institutions was engaged to provide us with education, advisory, and a software solution exclusively related to the ACL. We run parallel processes to ensure we are ready to calculate, review, and report the ACL by the required implementation date.
Our CECL implementation efforts continue to focus on model validation, developing new disclosures, establishing formal policies and procedures and control documentation. Based on our loan balances and forecasted economic conditions as of September 30, 2022, management believes the adoption of CECL could result in an increase in the current reserves of approximately 20% to 40%, as compared to our current reserve levels as of September 30, 2022. The estimated increase in reserves is driven by the guidance changes, which requires us to reserve based on expected credit losses over the expected life of the loan and also considers reasonable and supportable forecasts of expected future economic conditions.
This preliminary estimate is contingent upon continued testing and refinement of the model. The actual impact of the adoption will be dependent upon the loan portfolio size and composition, credit quality, and economic conditions and forecasts at the time of adoption. We will continue to evaluate and refine the results of our loss estimates through the end of 2022. Additionally, we will continue to run parallel calculations during the remainder of 2022.
Upon adoption on January 1, 2023, we will record a cumulative-effect adjustment to retained earnings for the change in ACL. While not expected to be material, the impact of the adoption of CECL will also affect our regulatory capital and other asset quality ratios.
Note 3 – AFS Securities
The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at:
 September 30, 2022
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
U.S. Treasury$231,723 $— $24,932 $206,791 
States and political subdivisions121,414 111 7,525 114,000 
Auction rate money market preferred3,200 — 721 2,479 
Mortgage-backed securities45,087 — 4,045 41,042 
Collateralized mortgage obligations223,181 — 13,461 209,720 
Corporate8,150 — 949 7,201 
Total$632,755 $111 $51,633 $581,233 
 December 31, 2021
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
U.S. Treasury$212,379 $— $2,676 $209,703 
States and political subdivisions116,836 4,457 88 121,205 
Auction rate money market preferred3,200 42 — 3,242 
Mortgage-backed securities54,710 1,438 — 56,148 
Collateralized mortgage obligations90,435 1,876 10 92,301 
Corporate8,150 19 167 8,002 
Total$485,710 $7,832 $2,941 $490,601 
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The amortized cost and fair value of AFS securities by contractual maturity at September 30, 2022 are as follows:
MaturingSecurities with Variable Monthly Payments or Noncontractual Maturities
Due in
One Year
or Less		After One
Year But
Within
Five Years		After Five
Years But
Within
Ten Years		After
Ten Years		Total
U.S. Treasury$— $231,723 $— $— $— $231,723 
States and political subdivisions15,459 45,580 21,500 38,875 — 121,414 
Auction rate money market preferred— — — — 3,200 3,200 
Mortgage-backed securities— — — — 45,087 45,087 
Collateralized mortgage obligations— — — — 223,181 223,181 
Corporate— — 8,150 — — 8,150 
Total amortized cost$15,459 $277,303 $29,650 $38,875 $271,468 $632,755 
Fair value$15,394 $251,517 $27,523 $33,558 $253,241 $581,233 
Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.
As the auction rate money market preferred investments have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group. $170,400 of the collateralized mortgage portfolio consist of agency commercial mortgage-backed securities with defined maturity dates of less than ten years.
The following information pertains to AFS securities with gross unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position.
 September 30, 2022
 Less Than Twelve MonthsTwelve Months or More 
Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Total
Unrealized
Losses
U.S. Treasury$6,996 $62,985 $17,936 $143,806 $24,932 
States and political subdivisions4,192 57,140 3,333 42,925 7,525 
Auction rate money market preferred— — 721 2,479 721 
Mortgage-backed securities4,045 41,042 — — 4,045 
Collateralized mortgage obligations13,461 209,720 — — 13,461 
Corporate232 1,768 717 5,433 949 
Total$28,926 $372,655 $22,707 $194,643 $51,633 
Number of securities in an unrealized loss position:249 305 554 
 December 31, 2021
 Less Than Twelve MonthsTwelve Months or More
Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Total
Unrealized
Losses
U.S. Treasury$2,676 $209,703 $— $— $2,676 
States and political subdivisions88 9,674 — — 88 
Collateralized mortgage obligations10 11,165 — — 10 
Corporate167 6,283 — — 167 
Total$2,941 $236,825 $— $— $2,941 
Number of securities in an unrealized loss position:40 — 40 
12
The unrealized loss on our AFS securities portfolio resulted from the recent increases in short-term and intermediate-term benchmark interest rates.

As of September 30, 2022 and December 31, 2021, we conducted an analysis to determine whether any AFS securities currently in an unrealized loss position should be identified as other-than-temporarily impaired. Such analyses considered, among other factors, the following criteria:
•Has the value of the investment declined more than what is deemed to be reasonable based on a risk and maturity adjusted discount rate?
•Is the investment credit rating below investment grade?
•Is it probable the issuer will be unable to pay the amount when due?
•Is it more likely than not that we will have to sell the security before recovery of its cost basis?
•Has the duration of the investment been extended?
Based on our analysis, which included the criteria outlined above and the fact that we have asserted that we do not have to sell any AFS securities in an unrealized loss position, we do not believe that the values of any AFS securities are other-than-temporarily impaired as of September 30, 2022 or December 31, 2021, with the exception of one municipal bond previously identified in 2016 which had no activity during the period.
Note 4 – Loans and ALLL
We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. A portion of loans are unsecured.
Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, and deferred fees or costs. Unless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate amortization method.
The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a loan is placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.
When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.
Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $18,000. Borrowers with direct credit needs of more than $18,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80% or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, property, or equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports.
We entered into a mortgage purchase program in 2016 with a financial institution where we participate in advances to mortgage brokers (“advances”). The mortgage brokers originate residential mortgage loans with the intent to sell them on the secondary market. We participate in the advance to the mortgage broker, which is secured by the underlying mortgage loan, until it is ultimately sold on the secondary market. As such, the average life of each participated advance is approximately 20-30 days. Funds from the sale of the loan are used to pay off our participation in the advance to the mortgage broker. We classify these
13
advances as commercial loans and include the outstanding balance in commercial loans on our consolidated balance sheets. Under the participation agreement, we committed to a maximum outstanding aggregate amount of $40,000. The difference between our outstanding balance and the maximum outstanding aggregate amount is classified as an unfunded commitment.
We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac.
Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100% of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80% unless the loan qualifies for government guarantees.
Underwriting criteria for originated residential real estate loans generally include:
•Evaluation of the borrower’s ability to make monthly payments.
•Evaluation of the value of the property securing the loan.
•Ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income.
•Ensuring all debt servicing does not exceed 40% of income.
•Verification of acceptable credit reports.
•Verification of employment, income, and financial information.
Appraisals are performed by independent appraisers and are reviewed for appropriateness. Generally, mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market underwriting system; loans in excess of $1,000 require the approval of our Internal Loan Committee, the Executive Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.
Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 15 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.
The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Full or partial loan balances are charged against the ALLL when we believe uncollectability is probable. Subsequent recoveries, if any, are credited to the ALLL.
The ALLL 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 ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the loan’s outstanding balance and the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Historical loss allocations are calculated at the loan class and segment levels based on a migration analysis of the loan portfolio, with the exception of advances to mortgage brokers, over the preceding five years. With no historical losses on advances to mortgage brokers, there is no allocation related to this portfolio. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
While we have experienced fluctuations in credit quality indicators in recent periods, credit quality remained strong at September 30, 2022. The COVID-19 pandemic led to the temporary and some permanent closures of businesses throughout the communities in which we serve, which also led to increased unemployment. We increased the ALLL during 2020 as a result of increased economic and environmental related risk factors, primarily driven by COVID-19. While these risk factors remain, improvement in credit quality indicators resulted in a reduction to the ALLL during 2021. There have been no material changes to the ALLL and credit quality has remained strong during 2022.

14
Summaries of the ALLL and the recorded investment in loans by segments follows:
 Allowance for Loan Losses
Three Months Ended September 30, 2022
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
July 1, 2022$1,758 $451 $639 $1,323 $5,529 $9,700 
Charge-offs— — — (173)— (173)
Recoveries14 1 53 64 — 132 
Provision for loan losses(436)35 (70)(168)657 18 
September 30, 2022$1,336 $487 $622 $1,046 $6,186 $9,677 
 Allowance for Loan Losses
Nine Months Ended September 30, 2022
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
January 1, 2022$1,740 $289 $747 $908 $5,419 $9,103 
Charge-offs(3)— — (367)— (370)
Recoveries54 4 123 223 — 404 
Provision for loan losses(455)194 (248)282 767 540 
September 30, 2022$1,336 $487 $622 $1,046 $6,186 $9,677 
 Allowance for Loan Losses and Recorded Investment in Loans
September 30, 2022
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
ALLL
Individually evaluated for impairment$14 $— $460 $— $— $474 
Collectively evaluated for impairment1,322 487 162 1,046 6,186 9,203 
Total$1,336 $487 $622 $1,046 $6,186 $9,677 
Loans
Individually evaluated for impairment$5,703 $11,188 $2,860 $— $19,751 
Collectively evaluated for impairment724,801 85,662 331,552 74,385 1,216,400 
Total$730,504 $96,850 $334,412 $74,385 $1,236,151 
15
 Allowance for Loan Losses
Three Months Ended September 30, 2021
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
July 1, 2021$2,311 $248 $954 $938 $4,909 $9,360 
Charge-offs(1)(77)— (168)— (246)
Recoveries22 1 29 34 — 86 
Provision for loan losses(801)294 (226)45 581 (107)
September 30, 2021$1,531 $466 $757 $849 $5,490 $9,093 
 Allowance for Loan Losses
Nine Months Ended September 30, 2021
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
January 1, 2021$2,162 $311 $1,363 $798 $5,110 $9,744 
Charge-offs(32)(77)— (349)— (458)
Recoveries121 6 132 147 — 406 
Provision for loan losses(720)226 (738)253 380 (599)
September 30, 2021$1,531 $466 $757 $849 $5,490 $9,093 
 Allowance for Loan Losses and Recorded Investment in Loans
December 31, 2021
CommercialAgriculturalResidential Real EstateConsumerUnallocatedTotal
ALLL
Individually evaluated for impairment$13 $— $565 $— $— $578 
Collectively evaluated for impairment1,727 289 182 908 5,419 8,525 
Total$1,740 $289 $747 $908 $5,419 $9,103 
Loans
Individually evaluated for impairment$9,267 $14,189 $3,454 $— $26,910 
Collectively evaluated for impairment798,172 79,766 322,907 73,282 1,274,127 
Total$807,439 $93,955 $326,361 $73,282 $1,301,037 
16
The following tables display the internally assigned credit risk ratings for commercial and agricultural credit exposures as of:
 September 30, 2022
 CommercialAgricultural
Real EstateOtherAdvances to Mortgage BrokersTotalReal EstateOtherTotalTotal
Rating
1 - Excellent$— $300 $— $300 $— $— $— $300 
2 - High quality9,331 5,044 — 14,375 383 60 443 14,818 
3 - High satisfactory70,779 37,313 1,484 109,576 9,833 3,944 13,777 123,353 
4 - Low satisfactory457,821 113,632 — 571,453 38,935 20,793 59,728 631,181 
5 - Special mention18,255 7,168 — 25,423 10,540 4,410 14,950 40,373 
6 - Substandard5,695 3,504 — 9,199 6,373 1,313 7,686 16,885 
7 - Vulnerable78 100 — 178 98 168 266 444 
8 - Doubtful— — — — — — — — 
9 - Loss— — — — — — — — 
Total$561,959 $167,061 $1,484 $730,504 $66,162 $30,688 $96,850 $827,354 
 December 31, 2021
 CommercialAgricultural
Real EstateOtherAdvances to Mortgage BrokersTotalReal EstateOtherTotalTotal
Rating
1 - Excellent$— $300 $— $300 $— $— $— $300 
2 - High quality9,010 6,881 — 15,891 453 — 453 16,344 
3 - High satisfactory86,135 46,087 72,001 204,223 9,361 4,295 13,656 217,879 
4 - Low satisfactory448,489 104,375 — 552,864 36,483 15,986 52,469 605,333 
5 - Special mention13,212 1,351 — 14,563 13,096 3,452 16,548 31,111 
6 - Substandard13,519 5,738 — 19,257 6,252 3,803 10,055 29,312 
7 - Vulnerable222 119 — 341 499 275 774 1,115 
8 - Doubtful— — — — — — — — 
9 - Loss— — — — — — — — 
Total$570,587 $164,851 $72,001 $807,439 $66,144 $27,811 $93,955 $901,394 
Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows:
1. EXCELLENT – Substantially Risk Free
Credit has strong financial condition and solid earnings history, characterized by:
•High liquidity, strong cash flow, low leverage.
•Unquestioned ability to meet all obligations when due.
•Experienced management, with management succession in place.
•Secured by cash.
2. HIGH QUALITY – Limited Risk
Credit with sound financial condition and a positive trend in earnings supplemented by:
•Favorable liquidity and leverage ratios.
•Ability to meet all obligations when due.
•Management with successful track record.
•Steady and satisfactory earnings history.
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•If loan is secured, collateral is of high quality and readily marketable.
•Access to alternative financing.
•Well defined primary and secondary source of repayment.
•If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.
3. HIGH SATISFACTORY – Reasonable Risk
Credit with satisfactory financial condition and further characterized by:
•Working capital adequate to support operations.
•Cash flow sufficient to pay debts as scheduled.
•Management experience and depth appear favorable.
•Loan performing according to terms.
•If loan is secured, collateral is acceptable and loan is fully protected.
4. LOW SATISFACTORY – Acceptable Risk
Credit with bankable risks, although some signs of weaknesses are shown:
•Would include most start-up businesses.
•Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.
•Management’s abilities are apparent yet unproven.
•Weakness in primary source of repayment with adequate secondary source of repayment.
•Loan structure generally in accordance with policy.
•If secured, loan collateral coverage is marginal.
To be classified as less than satisfactory, only one of the following criteria must be met.
5. SPECIAL MENTION – Criticized
Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan:
•Downward trend in sales, profit levels, and margins.
•Impaired working capital position.
•Cash flow is strained in order to meet debt repayment.
•Loan delinquency (30-60 days) and overdrafts may occur.
•Shrinking equity cushion.
•Diminishing primary source of repayment and questionable secondary source.
•Management abilities are questionable.
•Weak industry conditions.
•Litigation pending against the borrower.
•Loan may need to be restructured to improve collateral position or reduce payments.
•Collateral or guaranty offers limited protection.
•Negative debt service coverage, however the credit is well collateralized and payments are current.
6. SUBSTANDARD – Classified
Credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. There is a distinct possibility we will implement collection procedures if the loan deficiencies are not corrected. Any commercial loan placed in nonaccrual status will be rated “7” or worse. In addition, the following characteristics may apply:
•Sustained losses have severely eroded the equity and cash flow.
•Deteriorating liquidity.
•Serious management problems or internal fraud.
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•Original repayment terms liberalized.
•Likelihood of bankruptcy.
•Inability to access other funding sources.
•Reliance on secondary source of repayment.
•Litigation filed against borrower.
•Interest non-accrual may be warranted.
•Collateral provides little or no value.
•Requires excessive attention of the loan officer.
•Borrower is uncooperative with loan officer.
7. VULNERABLE – Classified
Credit is considered “Substandard” and warrants placing in nonaccrual status. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:
•Insufficient cash flow to service debt.
•Minimal or no payments being received.
•Limited options available to avoid the collection process.
•Transition status, expect action will take place to collect loan without immediate progress being made.
8. DOUBTFUL – Workout
Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:
•Normal operations are severely diminished or have ceased.
•Seriously impaired cash flow.
•Original repayment terms materially altered.
•Secondary source of repayment is inadequate.
•Survivability as a “going concern” is impossible.
•Collection process has begun.
•Bankruptcy petition has been filed.
•Judgments have been filed.
•Portion of the loan balance has been charged-off.
9. LOSS – Charge-off
Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by:
•Liquidation or reorganization under Bankruptcy, with poor prospects of collection.
•Fraudulently overstated assets and/or earnings.
•Collateral has marginal or no value.
•Debtor cannot be located.
•Over 120 days delinquent.
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Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due aging. The following tables summarize the past due and current loans for the entire loan portfolio as of:
 September 30, 2022
 Accruing Interest
and Past Due:		 Total Past Due and Nonaccrual  
30-59
Days		60-89
Days		90 Days
or More		NonaccrualCurrentTotal
Commercial
Commercial real estate$2,321 $— $— $78 $2,399 $559,560 $561,959 
Commercial other248 — — 100 348 166,713 167,061 
Advances to mortgage brokers— — — — — 1,484 1,484 
Total commercial2,569 — — 178 2,747 727,757 730,504 
Agricultural
Agricultural real estate— 258 — 98 356 65,806 66,162 
Agricultural other— 50 — 168 218 30,470 30,688 
Total agricultural— 308 — 266 574 96,276 96,850 
Residential real estate
Senior liens213 137 21 136 507 299,097 299,604 
Junior liens— — — — — 2,807 2,807 
Home equity lines of credit— — — — — 32,001 32,001 
Total residential real estate213 137 21 136 507 333,905 334,412 
Consumer
Secured176 — — — 176 71,258 71,434 
Unsecured2 2 — — 4 2,947 2,951 
Total consumer178 2 — — 180 74,205 74,385 
Total$2,960 $447 $21 $580 $4,008 $1,232,143 $1,236,151 
20
 December 31, 2021
 Accruing Interest
and Past Due:		 Total Past Due and Nonaccrual  
30-59
Days		60-89
Days		90 Days
or More		NonaccrualCurrentTotal
Commercial
Commercial real estate$135 $— $— $222 $357 $570,230 $570,587 
Commercial other85 — — 119 204 164,647 164,851 
Advances to mortgage brokers— — — — — 72,001 72,001 
Total commercial220 — — 341 561 806,878 807,439 
Agricultural
Agricultural real estate213 — — 499 712 65,432 66,144 
Agricultural other— — — 275 275 27,536 27,811 
Total agricultural213 — — 774 987 92,968 93,955 
Residential real estate
Senior liens2,016 37 97 93 2,243 290,900 293,143 
Junior liens— — — — — 2,439 2,439 
Home equity lines of credit7 — — 37 44 30,735 30,779 
Total residential real estate2,023 37 97 130 2,287 324,074 326,361 
Consumer
Secured186 — — — 186 70,259 70,445 
Unsecured10 — — — 10 2,827 2,837 
Total consumer196 — — — 196 73,086 73,282 
Total$2,652 $37 $97 $1,245 $4,031 $1,297,006 $1,301,037 
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, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Large groups of smaller-balance, homogeneous residential real estate and consumer loans are collectively evaluated for impairment by comparing the loan’s unpaid principal balance to the present value of expected future cash flows discounted at the loan’s effective interest rate.
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.
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The following is a summary of impaired loans as of:
 September 30, 2022December 31, 2021
Recorded BalanceUnpaid Principal BalanceValuation AllowanceRecorded BalanceUnpaid Principal BalanceValuation Allowance
Impaired loans with a valuation allowance
Commercial real estate$185 $185 $14 $192 $193 $9 
Commercial other— — — 2,802 2,802 4 
Residential real estate senior liens2,860 3,104 460 3,417 3,688 565 
Total impaired loans with a valuation allowance3,045 3,289 474 6,411 6,683 578 
Impaired loans without a valuation allowance
Commercial real estate5,319 5,635 5,829 6,145 
Commercial other199 199 444 444 
Agricultural real estate8,611 8,611 9,538 9,538 
Agricultural other2,577 2,577 4,651 4,651 
Home equity lines of credit— — 37 37 
Total impaired loans without a valuation allowance16,706 17,022 20,499 20,815 
Impaired loans
Commercial5,703 6,019 14 9,267 9,584 13 
Agricultural11,188 11,188 — 14,189 14,189 — 
Residential real estate2,860 3,104 460 3,454 3,725 565 
Total impaired loans$19,751 $20,311 $474 $26,910 $27,498 $578 

22
The following is a summary of impaired loans for the:
 Three Months Ended September 30
20222021
Average Recorded BalanceInterest Income RecognizedAverage Recorded BalanceInterest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate$188 $3 $1,377 $3 
Commercial other1,413 — 3,090 35 
Agricultural real estate— — 94 — 
Residential real estate senior liens2,927 31 3,585 37 
Total impaired loans with a valuation allowance4,528 34 8,146 75 
Impaired loans without a valuation allowance
Commercial real estate5,359 82 7,013 121 
Commercial other208 3 305 9 
Agricultural real estate8,638 116 9,845 113 
Agricultural other2,635 43 4,794 58 
Total impaired loans without a valuation allowance16,840 244 21,957 301 
Impaired loans
Commercial7,168 88 11,785 168 
Agricultural11,273 159 14,733 171 
Residential real estate2,927 31 3,585 37 
Total impaired loans$21,368 $278 $30,103 $376 
 Nine Months Ended September 30
20222021
Average Recorded BalanceInterest Income RecognizedAverage Recorded BalanceInterest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate$190 $9 $2,161 $66 
Commercial other2,299 62 1,569 71 
Agricultural real estate— — 737 11 
Agricultural other— — 226 — 
Residential real estate senior liens3,141 97 3,908 115 
Total impaired loans with a valuation allowance5,630 168 8,601 263 
Impaired loans without a valuation allowance
Commercial real estate5,571 256 6,109 315 
Commercial other336 18 2,494 59 
Agricultural real estate8,569 341 9,760 378 
Agricultural other3,147 114 4,115 174 
Home equity lines of credit6 — — — 
Total impaired loans without a valuation allowance17,629 729 22,478 926 
Impaired loans
Commercial8,396 345 12,333 511 
Agricultural11,716 455 14,838 563 
Residential real estate3,147 97 3,908 115 
Total impaired loans$23,259 $897 $31,079 $1,189 
23
We had committed to advance $678 and $266 in additional funds to be disbursed in connection with impaired loans, which includes TDRs, of September 30, 2022 and December 31, 2021, respectively.
Troubled Debt Restructurings
A loan modification is considered to be a TDR when the modification includes terms outside 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 and delaying principal payments.
•Forgiving principal.
•Forgiving accrued interest.

To determine if a borrower is experiencing financial difficulties, 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 TDRs granted for the:
Three Months Ended September 30
20222021
Number of LoansPre-Modification Recorded InvestmentPost-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentPost-Modification Recorded Investment
Commercial other1 $55 $55 — $— $— 
Nine Months Ended September 30
20222021
Number of LoansPre-Modification Recorded InvestmentPost-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentPost-Modification Recorded Investment
Commercial other1 $55 $55 5 $4,761 $4,761 
Agricultural other— — — 6 3,712 3,712 
Residential real estate1 98 98 — — — 
Total2 $153 $153 11 $8,473 $8,473 
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The following is a summary of concessions we granted to borrowers experiencing financial difficulty for the:
Three Months Ended September 30
20222021
Below Market Interest RateBelow Market Interest Rate and Extension of Amortization PeriodBelow Market Interest RateBelow Market Interest Rate and Extension of Amortization Period
 Number of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded Investment
Commercial other1 $55 — $— — $— — $— 
Nine Months Ended September 30
20222021
Below Market Interest RateBelow Market Interest Rate and Extension of Amortization PeriodBelow Market Interest RateBelow Market Interest Rate and Extension of Amortization Period
 Number of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded Investment
Commercial other1 $55 — $— 1 $3,189 4 $1,572 
Agricultural other— — — — 6 3,712 — — 
Residential real estate— — 1 98 — — — — 
Total1 $55 1 $98 7 $6,901 4 $1,572 
We did not restructure any loans by forgiving principal or accrued interest in the three and nine-month periods ended September 30, 2022 or 2021.
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.
We had no loans that defaulted in the three and nine-month periods ended September 30, 2022 and 2021 which were modified within 12 months prior to the default date.
The following is a summary of TDR loan balances as of:
September 30
2022		December 31
2021
TDRs$19,083 $25,725 

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Note 5 – Borrowed Funds
Federal funds purchased and repurchase agreements
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. We had no FRB Discount Window advances during the three and nine-month periods ended September 30, 2022 and 2021.
A summary of securities sold under repurchase agreements without stated maturity dates was as follows for the:
Three Months Ended September 30
20222021
Maximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the PeriodMaximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates$54,051 $49,267 0.07 %$67,519 $62,790 0.10 %
Federal funds purchased$— $— — %$— $— 0.52 %
Nine Months Ended September 30
20222021
Maximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the PeriodMaximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates$54,051 $48,118 0.07 %$67,519 $56,422 0.11 %
Federal funds purchased$— $1 0.79 %$80 $2 0.40 %
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 $55,591 and $50,173 at September 30, 2022 and December 31, 2021, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.
Securities sold under repurchase agreements without stated maturity dates were as follows as of:
September 30, 2022December 31, 2021
AmountRateAmountRate
Securities sold under agreements to repurchase without stated maturity dates$52,479 0.07 %$50,162 0.07 %
We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at:
September 30
2022		December 31
2021
Pledged to secure borrowed funds$341,457 $334,415 
Pledged to secure repurchase agreements55,591 50,173 
Pledged for public deposits and for other purposes necessary or required by law30,374 28,154 
Total$427,422 $412,742 
AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at:
September 30
2022		December 31
2021
U.S. Treasury$19,542 $9,711 
States and political subdivisions18,315 13,491 
Mortgage-backed securities7,370 13,174 
Collateralized mortgage obligations10,364 13,797 
Total$55,591 $50,173 
26
AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate level of AFS securities to pledge to satisfy collateral requirements.
As of September 30, 2022, we had the ability to borrow up to an additional $343,437, without pledging additional collateral.
FHLB advances

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, specific AFS securities, and FHLB stock.
The following table lists the maturities and weighted average interest rates of FHLB advances as of:
September 30, 2022December 31, 2021
AmountRateAmountRate
Fixed rate due 2022$— — %$20,000 1.97 %
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:
September 30, 2022December 31, 2021
AmountRateAmountRate
Fixed rate at 3.25% to floating, due 2031$30,000 3.25 %$30,000 3.25 %
Unamortized issuance costs(775)(842)
Total subordinated debt, net$29,225 $29,158 
Note 6 – Computation of Earnings Per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP.
Earnings per common share have been computed based on the following for the:
 Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2022202120222021
Average number of common shares outstanding for basic calculation7,555,333 7,932,227 7,544,909 7,948,578 
Average potential effect of common shares in the Directors Plan (1)
66,506 94,828 74,931 103,816 
Average potential effect of common shares in the RSP29,111 17,517 27,277 12,858 
Average number of common shares outstanding used to calculate diluted earnings per common share7,650,950 8,044,572 7,647,117 8,065,252 
Net income$5,887 $4,686 $15,916 $14,705 
Earnings per common share
Basic$0.78 $0.59 $2.11 $1.85 
Diluted$0.77 $0.58 $2.08 $1.82 
(1)Exclusive of shares held in the Rabbi Trust

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Note 7 – Restricted Stock Plan
We 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 adjusted appropriately, at the discretion of the Board of Directors. All Grant Agreements contain vesting conditions and clawback provisions.
A summary of changes in nonvested restricted stock awards is as follows for the:
Three Months Ended 
 September 30, 2022		Three Months Ended 
 September 30, 2021
Number
of Shares		Fair
Value		Number
of Shares		Fair
Value
Balance, July 130,208 $679 16,257 $334 
Granted(3,362)(87)3,866 84 
Vested— — — — 
Forfeited— — — — 
Balance, September 3026,846 $592 20,123 $418 
Nine Months Ended 
 September 30, 2022		Nine Months Ended 
 September 30, 2021
Number
of Shares		Fair
Value		Number
of Shares		Fair
Value
Balance, January 120,123 $418 4,658 $82 
Granted6,723 174 15,465 336 
Vested— — — — 
Forfeited— — — — 
Balance, September 3026,846 $592 20,123 $418 
Fluctuations in granted shares are due to the reassessment of the award achievement. Expense related to RSP awards were $108 and $58 for the nine-month periods ended September 30, 2022 and 2021. As of September 30, 2022, there was $369 of total remaining unrecognized compensation expense related to nonvested restricted stock awards granted under the RSP. The remaining expense is expected to be recognized over a weighted-average service period of 2.62 years.
Note 8 – Other Noninterest Expenses
A summary of expenses included in other noninterest expenses is as follows for the:
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2022202120222021
Audit, consulting, and legal fees$595 $665 $1,749 $1,553 
ATM and debit card fees543 473 1,485 1,352 
Marketing costs209 236 812 683 
Donations and community relations239 198 665 452 
Memberships and subscriptions230 234 654 662 
Loan underwriting fees243 238 640 628 
Director fees210 166 598 505 
All other871 644 2,620 2,194 
Total other noninterest expenses$3,140 $2,854 $9,223 $8,029 

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Note 9 – Federal Income Taxes
The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 21% of income before federal income tax expense is as follows for the:
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2022202120222021
Income taxes at statutory rate$1,496 $1,176 $4,025 $3,684 
Effect of nontaxable income
Interest income on tax exempt municipal securities(147)(143)(425)(474)
Earnings on corporate owned life insurance policies(47)(43)(150)(153)
Other(4)(9)(12)(22)
Total effect of nontaxable income(198)(195)(587)(649)
Effect of nondeductible expenses9 11 26 23 
Effect of tax credits(74)(76)(215)(220)
Federal income tax expense$1,233 $916 $3,249 $2,838 
Note 10 – Accumulated Other Comprehensive Income
The following table summarizes the changes in AOCI by component for the:
Three Months Ended September 30
20222021
Unrealized
Gains
(Losses) on
AFS
Securities		Unrealized
Gains
(Losses) on Derivative Instruments		Defined
Benefit
Pension Plan		TotalUnrealized
Gains
(Losses) on
AFS
Securities		Unrealized
Gains
(Losses) on Derivative Instruments		Defined
Benefit
Pension Plan		Total
Balance, July 1$(22,826)$— $(2,014)$(24,840)$8,469 $— $(2,745)$5,724 
OCI before reclassifications(22,815)— — (22,815)(1,690)— — (1,690)
Tax effect4,788 — — 4,788 353 — — 353 
OCI, net of tax(18,027)— — (18,027)(1,337)— — (1,337)
Balance, September 30$(40,853)$— $(2,014)$(42,867)$7,132 $— $(2,745)$4,387 
Nine Months Ended September 30
20222021
Unrealized
Gains
(Losses) on
AFS
Securities		Unrealized
Gains
(Losses) on Derivative Instruments		Defined
Benefit
Pension Plan		TotalUnrealized
Gains
(Losses) on
AFS
Securities		Unrealized
Gains
(Losses) on Derivative Instruments		Defined
Benefit
Pension Plan		Total
Balance, January 1$3,873 $— $(2,014)$1,859 $10,485 $(42)$(2,745)$7,698 
OCI before reclassifications(56,413)— — (56,413)(4,247)53 — (4,194)
Tax effect11,687 — — 11,687 894 (11)— 883 
OCI, net of tax(44,726)— — (44,726)(3,353)42 — (3,311)
Balance, September 30$(40,853)$— $(2,014)$(42,867)$7,132 $— $(2,745)$4,387 
Included in OCI for the three and nine-month periods ended September 30, 2022 and 2021 are changes in unrealized gains and losses related to auction rate money market preferred stocks. These investments, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.
29
A summary of the components of unrealized gains on AFS securities included in OCI follows for the:
Three Months Ended September 30
 20222021
Auction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotalAuction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotal
Unrealized gains (losses) arising during the period$(18)$(22,797)$(22,815)$(14)$(1,676)$(1,690)
Tax effect— 4,788 4,788 — 353 353 
Unrealized gains (losses), net of tax$(18)$(18,009)$(18,027)$(14)$(1,323)$(1,337)
 Nine Months Ended September 30
 20222021
Auction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotalAuction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotal
Unrealized gains (losses) arising during the period$(763)$(55,650)$(56,413)$9 $(4,256)$(4,247)
Tax effect— 11,687 11,687 — 894 894 
Unrealized gains (losses), net of tax$(763)$(43,963)$(44,726)$9 $(3,362)$(3,353)

Note 11 – Fair Value
Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:
Level 1:Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3:Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.
Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.
Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.
AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.
Loans: We do not record loans at fair value on a recurring basis. However, some loans are classified as impaired and a specific allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will be significantly different than 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 is estimated using one of several
30
methods, including the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Those impaired 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.
The following tables list the quantitative fair value information about impaired loans as of:
September 30, 2022
Valuation TechniqueFair ValueUnobservable InputActual RangeWeighted Average
Discount applied to collateral:
Real Estate
20% - 30%
23%
Equipment
20% - 35%
30%
Discounted value$14,724Cash crop inventory40%40%
Livestock30%30%
Accounts receivable50%50%
Furniture, fixtures & equipment45%45%
December 31, 2021
Valuation TechniqueFair ValueUnobservable InputActual RangeWeighted Average
Discount applied to collateral:
Real Estate
20% - 30%
23%
Equipment
20% - 35%
28%
Discounted value$18,812Cash crop inventory40%40%
Livestock30%30%
Accounts receivable
50%
50%
Liquor license75%75%
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.
OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2.
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.
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The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of:
 September 30, 2022
Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
ASSETS
Cash and cash equivalents$98,912 $98,912 $98,912 $— $— 
Mortgage loans AFS934 942 — 942 — 
Gross loans1,236,151 1,194,804 — — 1,194,804 
Less allowance for loan and lease losses9,677 9,677 — — 9,677 
Net loans1,226,474 1,185,127 — — 1,185,127 
Accrued interest receivable6,406 6,406 6,406 — — 
Equity securities without readily determinable fair values (1)
15,496 N/A— — — 
OMSR2,601 3,179 — 3,179 — 
LIABILITIES
Deposits without stated maturities1,529,793 1,529,793 1,529,793 — — 
Deposits with stated maturities261,240 248,892 — 248,892 — 
Federal funds purchased and repurchase agreements52,479 52,349 — 52,349 — 
Subordinated debt, net of unamortized issuance costs
29,225 26,548 — 26,548 — 
Accrued interest payable158 158 158 — — 
 December 31, 2021
 Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
ASSETS
Cash and cash equivalents$105,330 $105,330 $105,330 $— $— 
Mortgage loans AFS1,735 1,797 — 1,797 — 
Gross loans1,301,037 1,296,841 — — 1,296,841 
Less allowance for loan and lease losses9,103 9,103 — — 9,103 
Net loans1,291,934 1,287,738 — — 1,287,738 
Accrued interest receivable5,804 5,804 5,804 — — 
Equity securities without readily determinable fair values (1)
17,383 N/A— — — 
OMSR2,124 2,753 — 2,753 — 
LIABILITIES
Deposits without stated maturities1,409,577 1,409,577 1,409,577 — — 
Deposits with stated maturities300,762 301,216 — 301,216 — 
Federal funds purchased and repurchase agreements50,162 50,153 — 50,153 — 
FHLB advances20,000 20,120 — 20,120 — 
Subordinated debt, net of unamortized issuance costs
29,158 27,435 — 27,435 — 
Accrued interest payable251 251 251 — — 
(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.
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Financial Instruments Recorded at Fair Value
The table below presents the recorded amount of assets and liabilities measured at fair value on:
 September 30, 2022December 31, 2021
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Recurring items
AFS securities
U.S. Treasury$206,791 $— $206,791 $— $209,703 $— $209,703 $— 
States and political subdivisions114,000 — 114,000 — 121,205 — 121,205 — 
Auction rate money market preferred2,479 — 2,479 — 3,242 — 3,242 — 
Mortgage-backed securities41,042 — 41,042 — 56,148 — 56,148 — 
Collateralized mortgage obligations209,720 — 209,720 — 92,301 — 92,301 — 
Corporate7,201 — 7,201 — 8,002 — 8,002 — 
Total AFS securities581,233 — 581,233 — 490,601 — 490,601 — 
Nonrecurring items
Impaired loans (net of the ALLL)14,724 — — 14,724 18,812 — — 18,812 
Foreclosed assets240 — — 240 211 — — 211 
Total$596,197 $— $581,233 $14,964 $509,624 $— $490,601 $19,023 
Percent of assets and liabilities measured at fair value— %97.49 %2.51 %— %96.27 %3.73 %
We recorded an impairment related to foreclosed assets of $6 and $0 through earnings for the nine-month period ended September 30, 2022 and 2021, respectively. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of September 30, 2022. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period.
Note 12 – Operating Segments
Our reportable segments are based on legal entities that account for at least 10% of net operating results. The Bank as of September 30, 2022 and December 31, 2021 and for the three and nine-month periods ended September 30, 2022 and 2021, represents approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.

33
Note 13 – Parent Company Only Financial Information
Interim Condensed Balance Sheets
September 30
2022		December 31
2021
ASSETS
Cash on deposit at the Bank$8,812 $11,535 
Investments in subsidiaries148,497 178,395 
Premises and equipment1,444 1,482 
Other assets47,462 48,923 
TOTAL ASSETS$206,215 $240,335 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt, net of unamortized issuance costs
$29,225 $29,158 
Other liabilities378 129 
Shareholders' equity176,612 211,048 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$206,215 $240,335 
Interim Condensed Statements of Income
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2022202120222021
Income
Dividends from subsidiaries$1,200 $800 $3,000 $2,800 
Interest income3 7 8 8 
Other income3 4 10 14 
Total income1,206 811 3,018 2,822 
Expenses
Interest expense266 266 798 349 
Occupancy and equipment17 16 50 49 
Audit, consulting, and legal fees135 187 411 440 
Director fees108 87 313 258 
Other275 277 865 852 
Total expenses801 833 2,437 1,948 
Income before income tax benefit and equity in undistributed earnings of subsidiaries405 (22)581 874 
Federal income tax benefit167 172 507 403 
Income before equity in undistributed earnings of subsidiaries572 150 1,088 1,277 
Undistributed earnings of subsidiaries5,315 4,536 14,828 13,428 
Net income$5,887 $4,686 $15,916 $14,705 
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Interim Condensed Statements of Cash Flows
Nine Months Ended 
 September 30
20222021
Operating activities
Net income$15,916 $14,705 
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries(14,828)(13,428)
Share-based payment awards under the Directors Plan346 343 
Share-based payment awards under the RSP108 58 
Amortization of subordinated debt issuance costs67 30 
Depreciation38 38 
Changes in operating assets and liabilities which provided (used) cash
Other assets1,461 673 
Other liabilities249 390 
Net cash provided by (used in) operating activities3,357 2,809 
Investing activities
Financing activities
Issuance of subordinated debt, net of unamortized issuance costs
— 29,106 
Cash dividends paid on common stock(6,011)(6,369)
Proceeds from the issuance of common stock1,344 1,196 
Common stock repurchased(585)(2,699)
Common stock purchased for deferred compensation obligations(828)(869)
Net cash provided by (used in) financing activities(6,080)20,365 
Increase (decrease) in cash and cash equivalents(2,723)23,174 
Cash and cash equivalents at beginning of period11,535 2,670 
Cash and cash equivalents at end of period$8,812 $25,844 
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
ISABELLA BANK CORPORATION FINANCIAL REVIEW
(Dollars in thousands except per share amounts)
The following is management's discussion and analysis of our financial condition and results of operations for the unaudited three and nine-month periods ended September 30, 2022 and 2021. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 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, 2022, we reported net income of $5,887 and $15,916 and earnings per common share of $0.78 and $2.11, respectively. Net income and earnings per common share for the same periods of 2021 were $4,686 and $14,705 and $0.59 and $1.85, respectively. Net interest income increased $4,982, or 12.70%, for the nine-month period ended September 30, 2022 in comparison to the same period in 2021. While PPP loan fees declined, rising interest rates and growth in AFS securities led to a $2,811 increase in gross interest income during the nine-month period ended September 30, 2022 compared to the same period in 2021. We continued to benefit from a reduction in higher-cost borrowings as interest expense on deposits and borrowings decreased $2,171, or 37.14%, for the nine-month period ended September 30, 2022 when compared to the same period in 2021.
The provision for loan losses during the nine months ended September 30, 2022 was $540, compared to a net provision reversal of $599 for the same period in 2021. During 2020, increased economic and environmental risk factors, predominantly driven by COVID-19, drove a significant increase in the ALLL and provision expense. Strong credit quality, coupled with improvement in economic factors, such as unemployment rates, resulted in a reduction in the ALLL and a provision reversal during the first quarter of 2021. Credit quality remained strong at September 30, 2022, as evidenced by total past due and nonaccrual loans which were $4,008, or 0.32% of gross loans. Despite strong credit quality, the ALLL and provision for loan losses increased during 2022 as a result of increased economic and environmental related risk factors.
Noninterest income increased $180 during the first nine months of 2022 compared to the same period in 2021. Service charges and fees increased $1,126, with $605 of the increase attributed to OMSR income. Offsetting this income was an $891 reduction in gain on sale of mortgage loans, as residential mortgage originations sold in the secondary market declined. Noninterest expenses for the first nine months of 2022 increased $2,401 in comparison to the same period in 2021 and was primarily a result of increased compensation, other losses, consulting, marketing, and donations and community relations related expenses.
As of September 30, 2022, total assets and assets under management were $2,063,977 and $2,796,992, respectively. Assets under management include loans sold and serviced of $268,879 and investment and trust assets managed by Isabella Wealth of $464,136, in addition to assets on our consolidated balance sheet. Loans outstanding as of September 30, 2022 totaled $1,236,151. Since December 31, 2021, gross loans declined $64,886 as a result of a $70,517 reduction in advances to mortgage brokers, which is included within the commercial loan portfolio, however is not considered a component of our core lending business. Total deposits were $1,791,033 as of September 30, 2022, which was an increase of $80,694 since December 31, 2021. All regulatory capital ratios for the Bank exceeded the minimum thresholds to be considered a “well capitalized” institution.
Our securities portfolio increased $90,632 from December 31, 2021, predominantly due to $204,657 in purchases, although offset by maturities and an increase in net unrealized losses. The unrealized loss on our AFS securities portfolio resulted from the recent 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.
Our net yield on interest earning assets (FTE) was 3.28% and 3.10% for the three and nine months ended September 30, 2022, as compared to 2.85% and 2.87% for the three and nine months ended September 30, 2021. The marked improvement is a result of strategies management began implementing in 2019 and 2020, focused on improving our net yield as rates declined, including enhanced pricing related to loans and a reduced reliance on higher-cost borrowed funds and brokered deposits. With rate increases during the first three quarters of 2022, and anticipated future rate increases during the remainder of the year, we expect continued improvement in net yield on interest earning assets.
36
Recent Events and Legislation
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 2022. 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 be dictated by continued developments related to the COVID-19 pandemic. We continue to closely monitor external events and are in continual discussion with our customers to assess, prepare and respond to conditions as they evolve.
Reclassifications
Certain amounts reported in the interim 2021 consolidated financial statements have been reclassified to conform to the 2022 presentation.
Subsequent Events
We evaluated subsequent events after September 30, 2022 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 September 30, 2022 and the date our interim condensed consolidated financial statements were issued.

37
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 periods ended:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
INCOME STATEMENT DATA
Interest income$17,019 $16,102 $14,762 $15,041 $15,142 
Interest expense1,216 1,175 1,283 1,567 1,829 
Net interest income15,803 14,927 13,479 13,474 13,313 
Provision for loan losses18 485 37 81 (107)
Noninterest income3,252 3,595 3,547 3,608 3,367 
Noninterest expenses11,917 11,661 11,320 11,197 11,185 
Federal income tax expense (benefit)1,233 1,081 935 1,010 916 
Net income (loss)$5,887 $5,295 $4,734 $4,794 $4,686 
PER SHARE
Basic earnings$0.78 $0.70 $0.63 $0.63 $0.59 
Diluted earnings$0.77 $0.69 $0.62 $0.63 $0.58 
Dividends$0.27 $0.27 $0.27 $0.27 $0.27 
Tangible book value$16.96 $18.85 $19.56 $21.61 $21.87 
Quoted market value
High$24.95 $26.25 $26.00 $29.00 $26.74 
Low$21.39 $23.00 $24.50 $24.75 $22.55 
Close (1)
$21.40 $24.80 $25.85 $25.50 $26.03 
Common shares outstanding (1)
7,564,348 7,553,113 7,542,758 7,532,641 7,926,610 
PERFORMANCE RATIOS
Return on average total assets1.13 %1.04 %0.92 %0.96 %0.91 %
Return on average shareholders' equity12.13 %10.83 %9.02 %8.83 %8.35 %
Return on average tangible shareholders' equity16.15 %14.38 %11.72 %11.31 %10.65 %
Net interest margin yield (FTE)3.28 %3.16 %2.86 %2.86 %2.85 %
BALANCE SHEET DATA (1)
Gross loans$1,236,151 $1,271,910 $1,218,371 $1,301,037 $1,248,558 
AFS securities$581,233 $557,590 $544,919 $490,601 $494,384 
Total assets$2,063,977 $2,048,373 $2,060,933 $2,032,158 $2,082,701 
Deposits$1,791,033 $1,759,866 $1,764,161 $1,710,339 $1,692,316 
Borrowed funds$81,704 $86,450 $90,534 $99,320 $156,655 
Shareholders' equity$176,612 $190,680 $195,842 $211,048 $221,642 
Gross loans to deposits69.02 %72.27 %69.06 %76.07 %73.78 %
ASSETS UNDER MANAGEMENT (1)
Loans sold with servicing retained$268,879 $273,294 $275,556 $278,844 $285,392 
Assets managed by Isabella Wealth$464,136 $454,535 $501,829 $516,243 $491,784 
Total assets under management$2,796,992 $2,776,202 $2,838,318 $2,827,245 $2,859,877 
ASSET QUALITY (1)
Nonperforming loans to gross loans0.05 %0.05 %0.06 %0.10 %0.25 %
Nonperforming assets to total assets0.04 %0.05 %0.05 %0.08 %0.18 %
ALLL to gross loans0.78 %0.76 %0.76 %0.70 %0.73 %
CAPITAL RATIOS (1)
Shareholders' equity to assets8.56 %9.31 %9.50 %10.39 %10.64 %
Tier 1 leverage8.44 %8.38 %8.12 %7.97 %8.37 %
Common equity tier 1 capital12.92 %12.44 %12.83 %12.07 %13.07 %
Tier 1 risk-based capital12.92 %12.44 %12.83 %12.07 %13.07 %
Total risk-based capital15.85 %15.33 %15.84 %14.94 %16.03 %
(1) At end of period
38
The following table outlines our year-to-date results of operations and provides certain performance measures as of, and for the nine-month periods ended:
September 30
2022		September 30
2021		September 30
2020
INCOME STATEMENT DATA
Interest income$47,883 $45,072 $47,770 
Interest expense3,674 5,845 10,967 
Net interest income44,209 39,227 36,803 
Provision for loan losses540 (599)1,409 
Noninterest income10,394 10,214 10,304 
Noninterest expenses34,898 32,497 32,595 
Federal income tax expense3,249 2,838 1,495 
Net income$15,916 $14,705 $11,608 
PER SHARE
Basic earnings$2.11 $1.85 $1.46 
Diluted earnings$2.08 $1.82 $1.43 
Dividends$0.81 $0.81 $0.81 
Tangible book value$16.96 $21.87 $21.75 
Quoted market value
High$26.25 $26.74 $24.50 
Low$21.39 $19.45 $15.60 
Close (1)
$21.40 $26.03 $16.74 
Common shares outstanding (1)
7,564,348 7,926,610 8,007,901 
PERFORMANCE RATIOS
Return on average total assets1.03 %0.97 %0.82 %
Return on average shareholders' equity10.62 %8.82 %7.04 %
Return on average tangible shareholders' equity14.01 %11.28 %9.05 %
Net interest margin yield (FTE)3.10 %2.87 %2.93 %
BALANCE SHEET DATA (1)
Gross loans$1,236,151 $1,248,558 $1,303,308 
AFS securities$581,233 $494,384 $363,054 
Total assets$2,063,977 $2,082,701 $1,971,697 
Deposits$1,791,033 $1,692,316 $1,495,095 
Borrowed funds$81,704 $156,655 $238,349 
Shareholders' equity$176,612 $221,642 $222,545 
Gross loans to deposits69.02 %73.78 %87.17 %
ASSETS UNDER MANAGEMENT (1)
Loans sold with servicing retained$268,879 $285,392 $289,524 
Assets managed by Isabella Wealth$464,136 $491,784 $403,730 
Total assets under management$2,796,992 $2,859,877 $2,664,951 
ASSET QUALITY (1)
Nonperforming loans to gross loans0.05 %0.25 %0.38 %
Nonperforming assets to total assets0.04 %0.18 %0.30 %
ALLL to gross loans0.78 %0.73 %0.73 %
CAPITAL RATIOS (1)
Shareholders' equity to assets8.56 %10.64 %11.29 %
Tier 1 leverage8.44 %8.37 %8.76 %
Common equity tier 1 capital12.92 %13.07 %12.90 %
Tier 1 risk-based capital12.92 %13.07 %12.90 %
Total risk-based capital15.85 %16.03 %13.64 %
(1) At end of period
39
Average Balances, Interest Rates, and Net Interest Income
The following schedules present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB and FHLB restricted equity holdings are included in other interest earning assets.
Three Months Ended
September 30, 2022June 30, 2022September 30, 2021
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$1,256,723 $13,563 4.32 %$1,259,573 $13,179 4.19 %$1,203,468 $13,033 4.33 %
Taxable investment securities490,751 2,190 1.79 %475,010 2,027 1.71 %332,056 1,224 1.47 %
Nontaxable investment securities110,058 1,002 3.64 %109,367 975 3.57 %113,857 1,035 3.64 %
Fed funds sold16 — 1.98 %6 — 1.47 %4 — 0.02 %
Other101,687 521 2.05 %77,176 192 1.00 %262,023 160 0.24 %
Total earning assets1,959,235 17,276 3.53 %1,921,132 16,373 3.41 %1,911,408 15,452 3.23 %
NONEARNING ASSETS
Allowance for loan losses(9,691)(9,288)(9,361)
Cash and demand deposits due from banks24,875 22,838 30,120 
Premises and equipment24,475 24,269 24,540 
Accrued income and other assets78,151 84,590 109,750 
Total assets$2,077,045 $2,043,541 $2,066,457 
INTEREST BEARING LIABILITIES
Interest bearing demand deposits$381,282 $64 0.07 %$375,123 $56 0.06 %$366,345 $46 0.05 %
Savings deposits642,916 270 0.17 %627,916 171 0.11 %565,814 161 0.11 %
Time deposits262,628 574 0.87 %274,284 627 0.91 %323,322 1,044 1.29 %
Federal funds purchased and repurchase agreements49,267 9 0.07 %46,029 8 0.07 %62,790 13 0.08 %
FHLB advances6,739 33 1.96 %10,000 47 1.88 %62,718 299 1.91 %
Subordinated debt, net of unamortized issuance costs
29,211 266 3.64 %29,188 266 3.65 %29,124 266 3.65 %
Total interest bearing liabilities1,372,043 1,216 0.35 %1,362,540 1,175 0.34 %1,410,113 1,829 0.52 %
NONINTEREST BEARING LIABILITIES
Demand deposits497,215 470,139 419,017 
Other13,627 15,237 12,826 
Shareholders’ equity194,160 195,625 224,501 
Total liabilities and shareholders’ equity$2,077,045 $2,043,541 $2,066,457 
Net interest income (FTE)$16,060 $15,198 $13,623 
Net yield on interest earning assets (FTE)3.28 %3.16 %2.85 %
40
Nine Months Ended
September 30, 2022September 30, 2021
Average
Balance		Tax
Equivalent
Interest		Average
Yield /
Rate		Average
Balance		Tax
Equivalent
Interest		Average
Yield /
Rate
INTEREST EARNING ASSETS
Loans$1,251,206 $39,120 4.17 %$1,202,060 $38,634 4.29 %
Taxable investment securities462,675 5,795 1.67 %268,435 3,529 1.75 %
Nontaxable investment securities107,041 2,934 3.65 %122,675 3,346 3.64 %
Fed funds sold8 — 1.69 %3 — 0.01 %
Other113,847 822 0.96 %273,997 516 0.25 %
Total earning assets1,934,777 48,671 3.35 %1,867,170 46,025 3.29 %
NONEARNING ASSETS
Allowance for loan losses(9,372)(9,502)
Cash and demand deposits due from banks24,843 29,236 
Premises and equipment24,401 24,836 
Accrued income and other assets87,989 109,835 
Total assets$2,062,638 $2,021,575 
INTEREST BEARING LIABILITIES
Interest bearing demand deposits$379,952 $170 0.06 %$337,561 $168 0.07 %
Savings deposits628,823 600 0.13 %549,213 459 0.11 %
Time deposits275,586 1,928 0.93 %345,960 3,736 1.44 %
Federal funds purchased and repurchase agreements48,119 26 0.07 %56,424 40 0.09 %
FHLB advances10,513 152 1.93 %79,048 1,093 1.84 %
Subordinated debt, net of unamortized issuance costs
29,189 798 3.65 %12,907 349 3.61 %
Total interest bearing liabilities1,372,182 3,674 0.36 %1,381,113 5,845 0.56 %
NONINTEREST BEARING LIABILITIES
Demand deposits475,373 405,046 
Other15,242 13,144 
Shareholders’ equity199,841 222,272 
Total liabilities and shareholders’ equity$2,062,638 $2,021,575 
Net interest income (FTE)$44,997 $40,180 
Net yield on interest earning assets (FTE)3.10 %2.87 %
Net interest income is the amount by which interest income on earning assets exceeds the interest expense on interest bearing liabilities. Net interest income is influenced by changes in the balance and mix of assets and liabilities, as well as market interest rates. While we exert some control over these factors, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to an FTE basis by including the income tax savings from interest on tax exempt loans and nontaxable investment securities, thus making year to year comparisons more meaningful.
41
Volume and Rate Variance Analysis
The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. Changes in interest due to volume and rate were determined as follows:
Volume—change in volume multiplied by the previous period's rate.
Rate—change in the FTE rate multiplied by the previous period's volume.
The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
 Three Months Ended 
 September 30, 2022 Compared to 
 June 30, 2022 
 Increase (Decrease) Due to		Three Months Ended 
 September 30, 2022 Compared to  
 September 30, 2021 
  Increase (Decrease) Due to		Nine Months Ended 
 September 30, 2022 Compared to 
 September 30, 2021 
 Increase (Decrease) Due to
VolumeRateNetVolumeRateNetVolumeRateNet
Changes in interest income
Loans$(30)$414 $384 $575 $(45)$530 $1,554 $(1,068)$486 
Taxable investment securities68 95 163 670 296 966 2,440 (174)2,266 
Nontaxable investment securities6 21 27 (35)2 (33)(428)16 (412)
Other76 253 329 (153)514 361 (448)754 306 
Total changes in interest income120 783 903 1,057 767 1,824 3,118 (472)2,646 
Changes in interest expense
Interest bearing demand deposits1 7 8 2 16 18 20 (18)2 
Savings deposits4 95 99 24 85 109 71 70 141 
Time deposits(26)(27)(53)(173)(297)(470)(662)(1,146)(1,808)
Federal funds purchased and repurchase agreements1 — 1 (3)(1)(4)(5)(9)(14)
FHLB advances(16)2 (14)(274)8 (266)(989)48 (941)
Subordinated debt, net of unamortized issuance costs
— — — 1 (1)— 445 4 449 
Total changes in interest expense(36)77 41 (423)(190)(613)(1,120)(1,051)(2,171)
Net change in interest margin (FTE)$156 $706 $862 $1,480 $957 $2,437 $4,238 $579 $4,817 
The interest rate increases during 2022 have alleviated much of the pressure placed on our net interest margin. Additionally, SBA PPP fee income has supported our yield on total earning assets over the past two years. The recent rate increases, and future rate increases expected during the remainder of the year and into 2023, should lead to continued improvement in our net yield on interest earning assets.
 Average Yield / Rate for the Three-Month Periods Ended:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Total earning assets3.53 %3.41 %3.13 %3.19 %3.23 %
Total interest bearing liabilities0.35 %0.34 %0.37 %0.45 %0.52 %
Net yield on interest earning assets (FTE)3.28 %3.16 %2.86 %2.86 %2.85 %
 Quarter to Date Net Interest Income (FTE)
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Total interest income (FTE)$17,276 $16,373 $15,022 $15,246 $15,452 
Total interest expense1,216 1,175 1,283 1,567 1,829 
Net interest income (FTE)$16,060 $15,198 $13,739 $13,679 $13,623 

42
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 within 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 reflect 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, provision for loan losses, and ALLL balances as of, and for the:
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2022202120222021
ALLL at beginning of period$9,700 $9,360 $9,103 $9,744 
Charge-offs
Commercial— 1 3 32 
Agricultural— 77 — 77 
Residential real estate— — — — 
Consumer173 168 367 349 
Total charge-offs173 246 370 458 
Recoveries
Commercial14 22 54 121 
Agricultural1 1 4 6 
Residential real estate53 29 123 132 
Consumer64 34 223 147 
Total recoveries132 86 404 406 
Net loan charge-offs (recoveries)41 160 (34)52 
Provision for loan losses18 (107)540 (599)
ALLL at end of period$9,677 $9,093 $9,677 $9,093 
Net loan charge-offs (recoveries) to average loans outstanding0.00 %0.01 %0.00 %0.00 %
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
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Total charge-offs$173 $106 $91 $149 $246 
Total recoveries132 117 155 78 86 
Net loan charge-offs (recoveries)41 (11)(64)71 160 
Net loan charge-offs (recoveries) to average loans outstanding0.00 %0.00 %(0.01)%0.01 %0.01 %
Provision for loan losses$18 $485 $37 $81 $(107)
Provision for loan losses to average loans outstanding0.00 %0.04 %0.00 %0.01 %(0.01)%
ALLL$9,677 $9,700 $9,204 $9,103 $9,093 
ALLL as a % of loans at end of period0.78 %0.76 %0.76 %0.70 %0.73 %
ALLL as a % of nonaccrual loans1,668.45 %1,796.30 %1,232.13 %731.16 %295.52 %
During 2020, we increased the ALLL as a result of increased economic and environmental related risk factors, primarily driven by COVID-19. While these risk factors remain, improvement in credit quality indicators resulted in a reduction to the ALLL during the first quarter of 2021. While we have experienced fluctuations in credit quality indicators in recent periods, credit quality remained strong at September 30, 2022. Despite strong credit quality, the ALLL increased during the second quarter of 2022 as a result of loan growth during the quarter and increased economic and environmental related risk factors. Although
43
loans declined during the third quarter, increased economic and environmental related risk factors remained. As such, no reduction in the ALLL was recorded.
The following table illustrates the two main components of the ALLL as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
ALLL
Individually evaluated for impairment$474 $515 $573 $578 $583 
Collectively evaluated for impairment9,203 9,185 8,631 8,525 8,510 
Total$9,677 $9,700 $9,204 $9,103 $9,093 
ALLL to gross loans
Individually evaluated for impairment0.04 %0.04 %0.05 %0.04 %0.05 %
Collectively evaluated for impairment0.74 %0.72 %0.71 %0.66 %0.68 %
Total0.78 %0.76 %0.76 %0.70 %0.73 %
While we utilize our best judgment and information available, the ultimate adequacy of the ALLL is dependent upon a variety of factors beyond our control, including the performance of our borrowers, the economy, and changes in interest rates. We closely monitor overall credit quality indicators and our policies and procedures related to the analysis of the ALLL to ensure that the ALLL remains at an appropriate level.
For further discussion of the allocation of the ALLL, see “Note 4 – Loans and ALLL” of our interim condensed consolidated financial statements.
Loans Past Due and Loans in Nonaccrual Status
Fluctuations in past due and nonaccrual status loans can have a significant impact on the ALLL. 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 for indications of additional deterioration.
 Total Past Due and Nonaccrual Loans
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Commercial$2,747 $432 $412 $561 $345 
Agricultural574 271 283 987 2,860 
Residential real estate507 345 1,560 2,287 268 
Consumer180 457 109 196 25 
Total$4,008 $1,505 $2,364 $4,031 $3,498 
Total past due and nonaccrual loans to gross loans0.32 %0.12 %0.19 %0.31 %0.28 %
The increase in past due and nonaccrual commercial loans as of September 30, 2022 was the result of one past due relationship. A summary of loans past due and in nonaccrual status, including the composition of the ending balance of nonaccrual status loans by type, is included in “Note 4 – Loans and ALLL” of our interim condensed consolidated financial statements.

44
Troubled Debt Restructurings
We have taken a proactive approach modifying loans to assist borrowers who are willing to work with us, thus making them less likely to default, and to avoid foreclosure. This approach has permitted certain borrowers to develop a payment structure that will allow them to continue making payments in lieu of foreclosure. Modifications have been successful for us and our customers as very few of the modified loans have resulted in foreclosures. The majority of modifications result in terms that satisfy our criteria for continued interest accrual. TDRs that have been placed in 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 temporary interest-only payment structures, forgive principal, forgive interest, or grant a combination of these modifications. Typically, the modifications are for a period of three years or less.
Losses associated with TDRs, if any, are included in the estimation of the ALLL during the quarter in which a loan is identified as a TDR, and we review the analysis of the ALLL estimation each reporting period thereafter to ensure its continued appropriateness.
The following tables provide roll-forwards of TDRs for the:
Three Months Ended September 30, 2022
 Accruing InterestNonaccrualTotal
Number
of
Loans		BalanceNumber
of
Loans		BalanceNumber
of
Loans		Balance
July 1, 202289 $22,003 6 $391 95 $22,394 
New modifications1 55 — — 1 55 
Principal advances (payments)— (296)— (10)— (306)
Loans paid off(9)(3,060)— — (9)(3,060)
September 30, 202281 $18,702 6 $381 87 $19,083 
Nine Months Ended September 30, 2022
 Accruing InterestNonaccrualTotal
Number
of
Loans		BalanceNumber
of
Loans		BalanceNumber
of
Loans		Balance
January 1, 202298 $25,276 6 $449 104 $25,725 
New modifications2 153 — — 2 153 
Principal advances (payments)— (1,971)— (68)— (2,039)
Loans paid off(19)(4,756)— — (19)(4,756)
September 30, 202281 $18,702 6 $381 87 $19,083 
45
Three Months Ended September 30, 2021
 Accruing InterestNonaccrualTotal
Number
of
Loans		BalanceNumber
of
Loans		BalanceNumber
of
Loans		Balance
July 1, 2021101 $26,785 8 $2,562 109 $29,347 
New modifications— — — — — — 
Principal advances (payments)— (235)— (28)— (263)
Loans paid off(3)(402)— — (3)(402)
Transfers to accrual status1 41 (1)(41)— — 
September 30, 202199 26,189 7 $2,493 106 $28,682 
Nine Months Ended September 30, 2021
 Accruing InterestNonaccrualTotal
Number
of
Loans		BalanceNumber
of
Loans		BalanceNumber
of
Loans		Balance
January 1, 2021108 $22,200 7 $2,730 115 $24,930 
New modifications11 8,473 — — 11 8,473 
Principal advances (payments)— (1,073)— (235)— (1,308)
Loans paid off(20)(3,413)— — (20)(3,413)
Transfers to nonaccrual status(1)(39)1 39 — — 
Transfers to accrual status1 41 (1)(41)— — 
September 30, 202199 $26,189 7 $2,493 106 $28,682 
The following table summarizes our TDRs as of:
 September 30, 2022December 31, 2021 
Accruing
Interest		NonaccrualTotalAccruing
Interest		NonaccrualTotalTotal
Change
Current$18,605 $251 $18,856 $25,236 $294 $25,530 $(6,674)
Past due 30-59 days— — — 40 85 125 (125)
Past due 60-89 days97 — 97 — — — 97 
Past due 90 days or more— 130 130 — 70 70 60 
Total$18,702 $381 $19,083 $25,276 $449 $25,725 $(6,642)
Additional disclosures about TDRs are included in “Note 4 – Loans and ALLL” of our interim condensed consolidated financial statements.

46
Impaired Loans
The following is a summary of information pertaining to impaired loans as of:
 September 30, 2022December 31, 2021
Recorded
Balance		Unpaid
Principal
Balance		Valuation
Allowance		Recorded
Balance		Unpaid
Principal
Balance		Valuation
Allowance
TDRs
Commercial real estate$5,339 $5,593 $14 $5,707 $5,961 $9 
Commercial other199 199 — 3,246 3,246 4 
Agricultural real estate8,611 8,611 — 9,182 9,181 — 
Agricultural other2,577 2,577 — 4,543 4,543 — 
Residential real estate senior liens2,357 2,427 378 3,047 3,203 504 
Total TDRs19,083 19,407 392 25,725 26,134 517 
Other impaired loans
Commercial real estate165 227 — 314 377 — 
Agricultural real estate— — — 356 357 — 
Agricultural other— — — 108 108 — 
Residential real estate senior liens503 677 82 370 485 61 
Home equity lines of credit— — — 37 37 — 
Total other impaired loans668 904 82 1,185 1,364 61 
Total impaired loans$19,751 $20,311 $474 $26,910 $27,498 $578 
We continue to devote considerable attention to identifying impaired 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 recognition of a charge-off.
Additional disclosures related to impaired loans are included in “Note 4 – Loans and ALLL” of our interim condensed consolidated financial statements.

47
Nonperforming Assets
The following table summarizes our nonperforming assets as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Nonaccrual status loans$580 $540 $747 $1,245 $3,077 
Accruing loans past due 90 days or more21 119 — 97 — 
Total nonperforming loans601 659 747 1,342 3,077 
Foreclosed assets240 241 187 211 348 
Debt securities77 131 131 131 230 
Total nonperforming assets$918 $1,031 $1,065 $1,684 $3,655 
Nonperforming loans as a % of total loans0.05 %0.05 %0.06 %0.10 %0.25 %
Nonperforming assets as a % of total assets0.04 %0.05 %0.05 %0.08 %0.18 %
The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Loans may be placed back on accrual status after six months of continued performance and achievement of current payment status. The level of nonperforming loans continued to decline and remains low in comparison to peer banks.
The following table summarizes nonaccrual loans as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Commercial$178 $184 $319 $341 $161 
Agricultural266 271 283 774 2,811 
Residential real estate136 85 145 130 105 
Total$580 $540 $747 $1,245 $3,077 
Nonaccrual loans as a % of loans at end of period0.05 %0.04 %0.06 %0.10 %0.25 %
Included in the nonaccrual loan balances above were loans currently classified as TDR as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Commercial$115 $120 $127 $139 $146 
Agricultural266 271 283 310 2,347 
Residential real estate— — — — — 
Total$381 $391 $410 $449 $2,493 
Additional disclosures about nonaccrual status loans are included in “Note 4 – Loans and ALLL” of our interim condensed consolidated financial statements.

48
Noninterest Income and Noninterest Expenses
Significant noninterest income balances are highlighted in the following tables for the:
Three Months Ended September 30
   Change
20222021$%
Service charges and fees
ATM and debit card fees$1,212 $1,156 $56 4.84 %
Service charges and fees on deposit accounts673 601 72 11.98 %
Freddie Mac servicing fee168 177 (9)(5.08)%
Net OMSR income (loss)— (28)28 N/M
Other fees for customer services69 58 11 18.97 %
Total service charges and fees2,122 1,964 158 8.04 %
Wealth management fees679 772 (93)(12.05)%
Earnings on corporate owned life insurance policies223 201 22 10.95 %
Net gain on sale of mortgage loans174 339 (165)(48.67)%
All other54 91 (37)(40.66)%
Total noninterest income$3,252 $3,367 $(115)(3.42)%
Nine Months Ended September 30
   Change
20222021$%
Service charges and fees
ATM and debit card fees$3,507 $3,282 $225 6.86 %
Service charges and fees on deposit accounts1,913 1,518 395 26.02 %
Freddie Mac servicing fee506 572 (66)(11.54)%
Net OMSR income (loss)477 (128)605 N/M
Other fees for customer services212 245 (33)(13.47)%
Total service charges and fees6,615 5,489 1,126 20.51 %
Wealth management fees2,217 2,274 (57)(2.51)%
Earnings on corporate owned life insurance policies655 577 78 13.52 %
Net gain on sale of mortgage loans568 1,459 (891)(61.07)%
All other339 415 (76)(18.31)%
Total noninterest income$10,394 $10,214 $180 1.76 %
Service charges and fees on deposit accounts increased during the first nine months of 2022, mainly due to an increase in the number of deposit accounts. Service charges and fees during the remainder of 2022 are expected to exceed 2021 levels.
OMSR income results are driven, in part, by changes in offering rates on residential mortgage loans, anticipated prepayments in the servicing-retained portfolio, and the volume of loans within the servicing-retained portfolio. Decreased prepayment speeds, as a result of an increase in interest rates, was the primary driver of the income recognized during the first nine months of 2022. Income during the remainder of 2022 will be driven by the volume of loans originated within the servicing-retained portfolio, along with any further future increases in interest rates.
The amount of loans sold is driven by customer demand and balance sheet management strategies. We experienced a significant increase in loan demand in early 2021 which led to an increase in the number and dollar amount of loans sold; as such, net gain on sale of mortgage loans increased significantly. In mid-2021, we decided to retain more loan originations on the balance sheet, due to our liquidity position, thereby decreasing the number of mortgage loans sold, which had an impact on the net gain on loans sold. As a result of this change in strategy, coupled with a decline in loan demand, net gain on sale of mortgage loans has declined in comparison to the prior year. As demand is expected to slow during the remainder of 2022 due to the rise in interest rates, net gain on sale of mortgage loans is not expected to exceed 2021 levels.
The fluctuations in all other noninterest income are spread throughout various categories, none of which are individually significant.
49
Significant noninterest expense balances are highlighted in the following tables for the:
Three Months Ended September 30
  Change
20222021$%
Compensation and benefits$6,369 $6,116 $253 4.14 %
Furniture and equipment1,490 1,349 141 10.45 %
Occupancy918 866 52 6.00 %
Other
Audit, consulting, and legal fees595 665 (70)(10.53)%
ATM and debit card fees543 473 70 14.80 %
Marketing costs209 236 (27)(11.44)%
Donations and community relations239 198 41 20.71 %
Memberships and subscriptions230 234 (4)(1.71)%
Loan underwriting fees243 238 5 2.10 %
Director fees210 166 44 26.51 %
All other871 644 227 35.25 %
Total other noninterest expenses3,140 2,854 286 10.02 %
Total noninterest expenses$11,917 $11,185 $732 6.54 %
Nine Months Ended September 30
  Change
20222021$%
Compensation and benefits$18,480 $17,693 $787 4.45 %
Furniture and equipment4,382 4,049 333 8.22 %
Occupancy2,813 2,726 87 3.19 %
Other
Audit, consulting, and legal fees1,749 1,553 196 12.62 %
ATM and debit card fees1,485 1,352 133 9.84 %
Marketing costs812 683 129 18.89 %
Donations and community relations665 452 213 47.12 %
Memberships and subscriptions654 662 (8)(1.21)%
Loan underwriting fees640 628 12 1.91 %
Director fees598 505 93 18.42 %
All other2,620 2,194 426 19.42 %
Total other noninterest expenses9,223 8,029 1,194 14.87 %
Total noninterest expenses$34,898 $32,497 $2,401 7.39 %
Donations and community relations increased during 2022 as a result of initiatives designed to deepen and strengthen our relationship with the communities in which we operate and serve, which includes an expanded footprint. While government restrictions and temporary business closures related to COVID-19 impacted our ability to maintain the level of support in early 2021, we have since increased the level of community support.
The fluctuations in all other noninterest expenses are spread throughout various categories, none of which are individually significant.

50
Analysis of Changes in Financial Condition
September 30
2022		December 31
2021		$ Change% Change
(unannualized)
ASSETS
Cash and cash equivalents$98,912 $105,330 $(6,418)(6.09)%
AFS securities
Amortized cost of AFS securities632,755 485,710 147,045 30.27 %
Unrealized gains (losses) on AFS securities(51,522)4,891 (56,413)N/M
AFS securities581,233 490,601 90,632 18.47 %
Mortgage loans AFS934 1,735 (801)(46.17)%
Loans
Gross loans1,236,151 1,301,037 (64,886)(4.99)%
Less allowance for loan and lease losses9,677 9,103 574 6.31 %
Net loans1,226,474 1,291,934 (65,460)(5.07)%
Premises and equipment25,107 24,419 688 2.82 %
Corporate owned life insurance policies32,764 32,472 292 0.90 %
Equity securities without readily determinable fair values15,496 17,383 (1,887)(10.86)%
Goodwill and other intangible assets48,290 48,302 (12)(0.02)%
Accrued interest receivable and other assets34,767 19,982 14,785 73.99 %
TOTAL ASSETS$2,063,977 $2,032,158 $31,819 1.57 %
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits$1,791,033 $1,710,339 $80,694 4.72 %
Borrowed funds81,704 99,320 (17,616)(17.74)%
Accrued interest payable and other liabilities14,628 11,451 3,177 27.74 %
Total liabilities1,887,365 1,821,110 66,255 3.64 %
Shareholders’ equity176,612 211,048 (34,436)(16.32)%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,063,977 $2,032,158 $31,819 1.57 %
As shown above, total assets increased $31,819 from December 31, 2021, driven primarily by an increase in AFS securities. Purchases of AFS securities were partially funded by a $80,694 increase in deposits. We experienced a $64,886 decrease in loans during the first nine months of 2022 which was largely driven by a $70,517 decrease in advances to mortgage brokers, which are included within the commercial loan portfolio, however, is not considered a component of our core lending business .
51
The following table outlines the changes in loan balances:
September 30
2022		December 31
2021		$ Change% Change
(unannualized)
Commercial$730,504 $807,439 $(76,935)(9.53)%
Agricultural96,850 93,955 2,895 3.08 %
Residential real estate334,412 326,361 8,051 2.47 %
Consumer74,385 73,282 1,103 1.51 %
Total$1,236,151 $1,301,037 $(64,886)(4.99)%
The following table displays loan balances as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Commercial$730,504 $772,567 $727,614 $807,439 $757,993 
Agricultural96,850 94,726 88,169 93,955 93,782 
Residential real estate334,412 329,795 328,559 326,361 321,620 
Consumer74,385 74,822 74,029 73,282 75,163 
Total$1,236,151 $1,271,910 $1,218,371 $1,301,037 $1,248,558 
Loan demand has been negatively impacted by the strong competition for new commercial loan opportunities. Advances to mortgage brokers, within the commercial loan portfolio, however, is not considered a component of our core lending business, was the primary driver behind the fluctuations experienced since December 31, 2021, as participation in this mortgage purchase program paused during most of 2021 and again in 2022. We've recently experienced an increase in commercial loan demand, despite changes in advances to mortgage brokers and continued forgiveness of the remaining SBA PPP loans. As demand is expected to continue, we anticipate growth in the commercial loan portfolio during the remainder of 2022. While Agricultural loans have increased, we may continue to experience fluctuations due to the competitive lending environment. Residential mortgage lending activities have slowed during the year as a result of rising interest rates. As interest rates are expected to continue to increase during the remainder in 2022, growth in residential and consumer loans is anticipated to continue but at a slower pace.
The following table outlines the changes in deposit balances:
September 30
2022		December 31
2021		$ Change% Change
(unannualized)
Noninterest bearing demand deposits$510,127 $448,352 $61,775 13.78 %
Interest bearing demand deposits368,537 364,563 3,974 1.09 %
Savings deposits651,129 596,662 54,467 9.13 %
Certificates of deposit260,741 297,696 (36,955)(12.41)%
Internet certificates of deposit499 3,066 (2,567)(83.72)%
Total$1,791,033 $1,710,339 $80,694 4.72 %
The following table displays deposit balances as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Noninterest bearing demand deposits$510,127 $488,110 $461,473 $448,352 $430,950 
Interest bearing demand deposits368,537 370,284 387,187 364,563 374,137 
Savings deposits651,129 635,397 635,195 596,662 572,136 
Certificates of deposit260,741 265,477 279,708 297,696 312,027 
Internet certificates of deposit499 598 598 3,066 3,066 
Total$1,791,033 $1,759,866 $1,764,161 $1,710,339 $1,692,316 
Total deposits have increased over the past 12 months with significant growth in non-contractual deposits, such as demand and savings deposits. We experienced a decline in certificates of deposit over the past year as a result of the low interest rate environment with customers moving their funds into demand and savings accounts. Over the last few years, we used excess funds to reduce higher-cost deposits, such as brokered certificates of deposit.
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The primary objective of 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 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 balance sheet strategies, excess funds above what is required to retire future maturities of higher-cost funding sources was prudently deployed to purchase AFS securities in future periods.
The following table displays fair values of AFS securities as of:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
U.S. Treasury$206,791 $214,474 $218,268 $209,703 $192,069 
States and political subdivisions114,000 119,649 114,015 121,205 128,689 
Auction rate money market preferred2,479 2,497 2,867 3,242 3,246 
Mortgage-backed securities41,042 45,796 49,578 56,148 62,030 
Collateralized mortgage obligations209,720 167,572 152,441 92,301 100,767 
Corporate7,201 7,602 7,750 8,002 7,583 
Total$581,233 $557,590 $544,919 $490,601 $494,384 
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 based on our funding needs 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:
September 30
2022		June 30
2022		March 31
2022		December 31
2021		September 30
2021
Securities sold under agreements to repurchase without stated maturity dates$52,479 $47,247 $51,353 $50,162 $67,519 
FHLB advances— 10,000 10,000 20,000 60,000 
Fixed rate at 3.25% to floating, due 203129,225 29,203 29,181 29,158 29,136 
Total$81,704 $86,450 $90,534 $99,320 $156,655 
Over the last few years, we used excess funds to reduce FHLB advances. 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.
Contractual Obligations and Loan Commitments
We have various financial obligations, including contractual obligations and commitments related to deposits and borrowings, which may require future cash payments. We also have loan related commitments that may impact liquidity. The commitments include unused lines of credit, commercial and standby letters of credit, and commitments to grant loans. These commitments to grant loans include residential mortgage loans with the majority committed to be sold to the secondary market. Many of these commitments historically have expired without being drawn upon and do not necessarily represent our future cash requirements.
We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.
Our exposure to credit-related loss in the event of nonperformance by the counterparties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies when analyzing the creditworthiness of counterparties as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.

53
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 55,549 shares or $1,344 of common stock during the first nine months of 2022, as compared to 52,523 shares or $1,196 of common stock during the same period in 2021. 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 $343 during the nine-month periods ended September 30, 2022 and 2021, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $108 during the first nine months of 2022, as compared to $58 during the same period in 2021.
We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 23,842 shares or $585 of common stock during the first nine months of 2022 and 123,160 shares or $2,699 during the first nine months of 2021. As of September 30, 2022, we were authorized to repurchase up to an additional 443,649 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:
September 30, 2022December 31, 2021
ActualMinimum Required - BASEL IIIRequired to be Considered Well CapitalizedActualMinimum Required - BASEL IIIRequired to be Considered Well Capitalized
Common equity tier 1 capital12.92 %7.00 %6.50 %12.07 %7.00 %6.50 %
Tier 1 capital12.92 %8.50 %8.00 %12.07 %8.50 %8.00 %
Total capital15.85 %10.50 %10.00 %14.94 %10.50 %10.00 %
Tier 1 leverage8.44 %4.00 %5.00 %7.97 %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 September 30, 2022, 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 $577,137 or 27.96% of assets as of September 30, 2022, compared to $495,169 or 24.37% as of December 31, 2021. 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 September 30, 2022, we had available lines of credit of $343,437.
54
Our stress testing of liquidity increased since early 2020 and continues to evolve due to economic uncertainly as a result of COVID-19. Our liquidity position remained strong at September 30, 2022, which is illustrated in the following table:
September 30
2022
Total cash and cash equivalents$98,912 
Available lines of credit
Fed funds lines with correspondent banks93,000 
FHLB borrowings236,510 
FRB Discount Window8,927 
Other lines of credit5,000 
Total available lines of credit343,437 
Unencumbered lendable value of FRB collateral, estimated1
440,000 
Total cash and liquidity$882,349 
(1)Includes estimated unencumbered lendable value of FHLB collateral of $380,000
The following table summarizes our sources and uses of cash for the nine-month period ended September 30:
20222021$ Variance
Net cash provided by (used in) operating activities$20,429 $21,163 $(734)
Net cash provided by (used in) investing activities(83,778)(176,457)92,679 
Net cash provided by (used in) financing activities56,931 115,136 (58,205)
Increase (decrease) in cash and cash equivalents(6,418)(40,158)33,740 
Cash and cash equivalents January 1105,330 246,640 (141,310)
Cash and cash equivalents September 30$98,912 $206,482 $(107,570)
Fair Value
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities, cash flow hedge derivative instruments and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, impaired loans, goodwill, foreclosed assets, OMSR, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write downs of individual assets.
For further information regarding fair value measurements see “Note 11 – Fair Value” of our interim condensed consolidated financial statements.
Market Risk
Our primary market risks are interest rate risk and liquidity risk. IRR is the exposure of our net interest income to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution's interest earning assets and its interest bearing liabilities. Managing IRR is the fundamental method by which financial institutions earn income and create shareholder value. Excessive exposure to IRR could pose a significant risk to our earnings and capital.
The FRB has adopted a policy requiring banks to effectively manage the various risks that can have a material impact on safety and soundness. The risks include credit, interest rate, liquidity, operational, and reputational. We have policies, procedures, and internal controls for measuring and managing these risks. Specifically, our ALCO policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long-term assets, limiting the mismatch in repricing opportunities of assets and liabilities, and the frequency of measuring and reporting to our Board of Directors.
The primary technique to measure IRR is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of yield curves, interest rate relationships, loan prepayments, and funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans,
55
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. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits.
Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of our interest bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the embedded repricing options contained in assets and liabilities. Residential real estate and consumer loans allow the borrower to repay the balance prior to maturity without penalty, while commercial and agricultural loans may have prepayment penalties. The amount of prepayments is dependent upon many factors, including the interest rate of a given loan in comparison to the current offering rates, the level of home sales, and the overall availability of credit in the market place. Generally, a decrease in interest rates will result in an increase in cash flows from these assets. A significant portion of our securities are callable or have prepayment options. The call and 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 timing of cash flows from these deposits is estimated based on historical experience. Certificates of deposit have penalties that discourage early withdrawals.
We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes to our market risk methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
Our primary market risk exposures related to the COVID-19 pandemic remain uncertain. A review of our market risk methods are ongoing and modeling is incorporating additional assumptions to account for this uncertainty related to this crisis. Repricing, cash flows, and prepayment projections for loans and mortgage-backed securities are not expected to behave as they would be expected to in a more stable interest rate environment. Customer deposit levels may experience unusual fluctuations due to COVID-related government support programs ending, customer and business needs, and a potential decline in money supply as the Federal Reserve shrinks its balance sheet. We continue to closely monitor customer and economic indicators to develop more precise market risk assumptions as the economic impact of the crisis continues to reveal itself.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information presented in the section captioned “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, 2022, 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, 2022, 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.

56
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, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(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 April 28, 2021, to allow for the repurchase of an additional 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 with the status of authorized, but unissued, shares.
The following table provides information for the three-month period ended September 30, 2022, with respect to this plan:
 Common Shares RepurchasedTotal Number of Common Shares Purchased as Part of Publicly Announced Plan or ProgramMaximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs
NumberAverage Price
Per Common Share
June 30, 2022451,725 
July 1 - 312,073 $24.12 2,073 449,652 
August 1 - 312,903 23.42 2,903 446,749 
September 1 - 303,100 22.58 3,100 443,649 
September 30, 20228,076 $23.28 8,076 443,649 
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.

57
Table of Contents
Item 6. Exhibits.
(a) Exhibits
Exhibit NumberExhibits
4.1
4.2
10.1
10.2
31.1
31.2
32
101.1*101.INS (Inline XBRL Instance Document)
101.SCH (Inline XBRL Taxonomy Extension Schema Document)
101.CAL (Inline XBRL Calculation Linkbase Document)
101.LAB (Inline XBRL Taxonomy Label Linkbase Document)
101.DEF (Inline XBRL Taxonomy Linkbase Document)
101.PRE (Inline XBRL Taxonomy Presentation Linkbase Document)
104Cover 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.
58
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:October 28, 2022/s/ Jae A. Evans
Jae A. Evans
President and Chief Executive Officer
(Principal Executive Officer)
Date:October 28, 2022/s/ Neil M. McDonnell
Neil M. McDonnell
Chief Financial Officer
(Principal Financial Officer)
59

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